Christo Wiese-chaired industrial holding company Invicta is confident its efforts to simplify its portfolio by selling noncore assets have set it up for growth and it is once again considering acquisitions.
CEO Steven Joffe, who joined Invicta in January 2020 to spearhead a strategy of selling off assets and reducing debt, told Business Day on Monday this process is largely complete, and the group is like a “coiled spring” after halving debt and doubling cash generation in its year to end-March.
“It is like we are finally able to look up, rather than having to look down,” Joffe, who previously headed enX Group and Gold Reef Casino Resorts, said.
The group, valued at R2.9bn on the JSE, sells a range of equipment, spare parts, engineering consumables and tools, as well as plastic pipeware and hardware.
Invicta, which settled a dispute with the SA Revenue Service in September 2018 in which it agreed to pay R750m, is in the throes of a turnaround strategy. The settlement involved a complex empowerment structure, and Invicta paid R200m to fully settle it in its 2021 year.
The company returned R376m profit in the year to end-March from a loss of R673.3m previously. However, revenue fell 9.1% to R6.25bn, suggesting that the bottom line was boosted by a punishing cost-cutting programme that included slashing 14%, or 116 members, of its staff during the period and the absence of writedown charges a year earlier when it took a R1.1bn hit in expectation of the pandemic-induced downturn. Cash generation more than doubled to R1.85bn, and Joffe said much of this was due to inventory management.
Invicta has faced criticism in some quarters over its efficiency, including that much of its cash was tied up in inventory, but says its current stock levels are now more closely matched to demand, and it had whittled away stock of slower-moving items.
Joffe has been pursuing sales to reduce the group’s debt pile, with net debt more than halving to R1.07bn to end-March. This is expected to fall further.
In January 2021 the group finalised the sale of four businesses in its capital equipment segment, or R74m by year end. Another R104m was paid after year end, while Invicta is also due to receive $5m (R71m) in a goodwill payment for the businesses.
It has recently announced a number of transactions that will bring down its stake in Singapore-based heavy machinery distributor Kian Ann to 48.81%, which is expected to result in net proceeds of about R350m.
Joffe said travel restrictions could delay acquisitions, but it has been on the receiving end of a number of opportunities.
“It is going to be more or less in the same sectors in which we operate, not too much of a change. Though we do sell the equipment, we make our money from the parts, servicing and maintenance,” he said.
Invicta said it is trading at about 80%-90% of prepandemic levels amid robust activity in SA’s mining and agriculture industries, though the third wave now poses a threat.
Any further pick-up in sales volumes would feed almost directly to profits, said Joffe, and mining activity had picked up significantly so far in 2021, as miners cash in on record commodity prices.
“Last year for them it was just about the prices, this year it is about price and volumes. We are just hoping that the year can carry on, with not too much impact from Covid-19 or lockdowns,” he said.
Good rainfall has also benefited SA’s agricultural sector, with strong demand evident in combine harvester sales rising by more than a quarter.
Small Talk Daily’s Anthony Clark said the debt reduction was pleasing, as was the group’s better management of inventory. “Everything seems to be going in the right direction, but given the share is up 340% on a one-year basis, much of this was actually in the price,” he said.
“With all metrics the market was expecting improvement, it could take six to 12 months for the continuation of recovery in Invicta,” Clark said.
Invicta shares on Monday rose 6.68% to R27.95, the biggest one-day gain in three months.
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