ENGINEERING: Will Wiese's Invicta Shop Right?
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CONSTANTIA-based industrial and agricultural equipment supplier Invicta Holdings – in which retail tycoon Christo Wiese holds a 28% stake – is looking anything but rattled by the current economic downturn.
In fact, it seems Invicta could be readying itself to snap up new opportunities – having held back on hiking the year to end March 2009 dividend despite a strong profit performance.
Invicta MD Arnold Goldstone says current market conditions are expected to give rise to acquisition opportunities. “The group has ensured that it has access to sufficient funding to enable it to take advantage of these opportunities as and when they arise…”
Currently Invicta’s main activities span bearings, belts, seals, power transmission products, geared motors, fasteners and hydraulics (under Bearing Man) and agricultural machinery and equipment (mainly Northmec and New Holland SA). The group also holds sizeable niches in construction and earthmoving equipment (CSE and Doosan SA) and automotive parts (Autobax) as well as a recent move into tiles and sanitary ware (via the acquisition of Cape Town-based Tiletoria).
In the year to March 2008 Invicta turned over a hefty R4.5 billion and showed a R363 million profit. Although trading margins will undoubtedly come under pressure in the financial year ahead, Invicta has reported that its revenue in the first weeks of trading has only been marginally below that of last year.
No doubt if Invicta can come through the next few months in fair shape the group may well be a welcome corporate shelter for smaller operators that might not have the operational diversity necessary to pull through tougher trading conditions.
Last month Invicta showed a bit of its deal-making hand when it announced the acquisition of Criterion Equipment, a fork-lift handling specialist.
Criterion imports and distributes the TCM forklift range as well as Jeung Heinrich warehousing equipment. The acquisition should complement Invicta’s existing capital equipment operations.
Invicta has already signalled an intention to maintain Criterion distribution network and brand in the market, levering off its existing capital equipment distribution and workshop facilities. Like so much of Invicta’s current product range, TCM forklifts are imported (from Japan). The warehousing equipment is imported from Europe.
No purchase price was disclosed for Criterion, but CBN suspects there was not a major price tag.
The deal, though, may be significant in terms of Invicta’s efforts to lessen its reliance on Bearing Man and the agricultural business.
Bearing Man grew revenue in the last financial year by a third to just over R2 billion - or around 45% of total turnover. Operating profits came in at R319 million, which represents almost 65% of Invicta’s operating profits.
This is an astounding performance considering Bearing Man has a fair bit of exposure to the stalled automotive sector.
While turnover of R2.3 billion from Invicta’s capital equipment businesses dwarfs Bearing Man’s annual sales, the capital equipment divisions don’t earn the same trading fat margins as Bearing Man.
In the year to March 2009 the growth in the capital equipment operating profit was diluted to 29% as R633 million in sales from the earthmoving companies (CSE and Doosan SA) were whittled down to a “nominal contribution” to operating profit.
Goldstone says (the relatively small) CSE division continued to struggle with competitive pricing in the earthmoving industry, and that its turf equipment division was also under severe pressure with a “steep decline” in demand for turf machinery and golf carts from golf courses.
Doosan SA, which was acquired in April last year, incurred large once-off costs in order to reduce overheads and improve profitability. Goldstone reckons these steps have been successful and should ensure Doosan SA makes a meaningful contribution to future profits “when demand for construction and earthmoving machinery in SA normalises”.
But another recent acquisition, the Paarden Eiland-based Tiletoria, is starting to deliver on its early promise.
Tiletoria, which was Invicta’s first foray into the ‘retailing’ side of the building sector, shrugged off the slowdown in building sector activity to post a 23% hike in turnover.
Goldstone says Tiletoria’s operating margins are under pressure and that the business is not yet making a material contribution to Invicta’s profits. He believes Tiletoria should grow substantially in the next five years with expansion plans currently underway.
The fragmented tile business locally may well be one area where Invicta could pick and choose a few good long term opportunities.
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