Deneb Investments warns of rough year ahead on grim economic outlook

Deneb Investments, which has as its majority shareholder Hosken Consolidated Investments (HCI), has said it will continue to search for ways to deliver growth while warning of a rough year ahead amid a gloomy domestic economic outlook. 

“We are steeling ourselves for a very difficult year ahead as many role-players in the economy come under increasing pressure. The strong cash generation in the year under review [to end-March 2020] means that we come into these unprecedented times a little more fortified than would have been the case a year earlier,” the company said on Friday.

Deneb manufactures products for mining, agricultural. construction, automotive and retail industries.

The group, which has a market capitalisation of R674m, said that it had cut variable expenditure and made some structural decisions to reduce its fixed costs.

As part of its plan to preserve cash, the group did not declare a dividend for the year to end-March 2020. Deneb also wrote down its properties by R41m and, during the year, moved to exit loss-making businesses, including Wineland Textiles.

Deneb said it should be able to operate within its available facilities in accordance with its cash-flow projections, considering a range of Covid-19 effects.

“[The] group has considered several mitigating actions that could be taken in the event of a worsening of the pandemic impact on the group. These considerations take into account the current measures put in place by the company to preserve cash during the lockdown period,” it said. 

The company owns and operates industrial and commercial properties in the Western Cape and KwaZulu-Natal under its subsidiary Vega Group Properties. 

“We will endeavour to ensure that the group is geared for the economy that we have rather than the economy that we would like to have,” Deneb said. 

The group, reported that SA’s shutdown towards the end of March reduced revenue by an estimated R60m and reduced operating profit by some R20m.

The group’s headline loss for the year was 8.92c, from 4.47c previously, with it also opting not to pay a dividend, having paid 3c per share previously.

Meanwhile, HCI said on Friday that it expects to report a loss per share for the period from earnings per share of 826.2c for the prior year. It attributed the drop to, among other things, the impairments of some of its investments and assets. 

On Friday, Deneb’s little-traded share was unchanged at R1.55, having risen 8.39% so far in 2020.

Update: June 5 2020 
This article has been updated with comment and financial information throughout.

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