Acquisitions boost Invicta amid load-shedding and lack of big projects
The industrial holding company won't pay dividend until debt is lowered and cash flows improve
Christo Wiese’s industrial holding company, Invicta, received a boost from new acquisitions during the six months to end-September, though load-shedding and a lack of big projects weighed on its performance.
Revenue at the company’s Engineering Solutions Group (ESG) grew 7% to R2.74bn, of which R216m came from new acquisitions. The company had acquired machine tools company Forge Industrial in September 2018 and parts company Driveshaft Parts in December 2018.
Revenue at Capital Equipment Group, which distributes earthmoving and agricultural machinery, fell 8% to R2.32bn. This was due to a lack of new infrastructure development, the demise of big SA construction companies and a drought in SA.
Group revenue was flat at R5.3bn, but profit more than tripled to R208m, with the company recovering from a tax provision in the prior comparative period.
“Generally, we were happy with the performance, although it was a tough market,” said outgoing CEO Arnold Goldstone.
In September 2018 Invicta said it had reached a settlement with the SA Revenue Service (Sars) to pay R750m over four years in a tax dispute.
This resulted in Invicta raising an additional specific taxation expense of R200m in its six months to end-September 2018, causing the settlement amount to be fully provided for. The tax dispute related to a previous empowerment structure put in place by the company.
The company said on Monday it has opted not to pay an interim dividend, citing the higher debt levels that resulted from the 2018 settlement.
Goldstone said the company, which has a net interest-bearing debt of about R2.2bn, “will reduce debt by looking at all avenues including reducing inventory, selling off noncore assets and improving cash generation from operations”.
Goldstone, who is leaving the company at the end of 2019 after taking early retirement, said the company would resume with normal dividend policy on condition that cash flows and debt levels recovered. “We expect those levels to recover by year-end,” he said.
Analyst Anthony Clark of Smalltalkdaily Research, who attended Invicta’s results presentation in Cape Town, said he was shocked that Goldstone had not ruled out a rights issue in order to reduce the debt “because Invicta was trading at a low share price and at a 50% discount to net asset value”.
While Clark dismissed the possibility of the rights issue, saying the sale of noncore asset sales was a better option, he said “the narrative is now out there and may lead to simmering uncertainty”.