Invicta results confirm tax shock for Christo Wiese and other investors
Invicta believes the transactions were tax compliant, but the provision is a ‘pragmatic solution’ to end uncertainty
Industrial supplies group Invicta, which is partly owned by billionaire investor Christo Wiese, reported a steep drop in full-year earnings after making provision for a potential tax liability relating to "certain transactions" that it concluded several years ago.
The company’s warning of the tax liability on Friday shocked the market, and Invicta's share price fell 13% to R35 when the JSE started trading shortly after 11am following technical glitches.
The company, which provides capital equipment and engineering solutions, reported headline earnings per share (HEPS) from continuing operations of 90c in the year to March, down 81% from a year ago.
Stripping out the tax provision of R400m, HEPS dropped 23% to R4.64, the company said on Monday.
Invicta said while it believed the transactions were tax compliant, the tax provision represented a "pragmatic solution" to uncertainty that had hampered its ability to use equity to fund expansion.
In the meantime, it is in talks with the South African Revenue Service (SARS) about the tax consequences of the transactions, which according to the group should not exceed R400m.
Revenue was flat at R9.6bn, reflecting what the company said were challenging conditions in the two underlying businesses.
Invicta segments itself into the engineering solutions, which distributes engineering products such as electric motors, and capital equipment, which distributes agricultural machinery such as tractors.
Revenue from engineering solutions dropped 2% to R4.5bn, while operating profit before foreign exchange movements declined 0.2% to R478.7m.
Capital equipment revenue was up 2.5% to just more than R5bn, while operating profit before foreign exchange movements declined to R451.74m, from R469.81m.