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SIMON BROWN: I’m chatting with Steven Joffe, Invicta CEO, on results for six months ending September. Revenue up 12%, net profit up 8%, Heps up just a cent to R2.69/share. Steven, appreciate the time. A challenging period – rand volatility, load shedding locally, high rates, inflation globally. We’ve still got wars in Europe. A good set of numbers, considering what was undoubtedly a tough period for you and your team.
STEVEN JOFFE: Yes, we were very satisfied with the results for the period. I think in your introduction you articulated it well. The major challenge for us in these results was the rise in interest rates and that, you know, with the additional costs of borrowing and our preference shares, made a difference of about R25 million on the net profit. You have to see how well your business has to perform to achieve that result. In light of that, we were satisfied.
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SIMON BROWN: You mentioned preference shares. You did a share buy-back of about R49 million during the period, and 3% of that was preference shares, only 1% ordinary [shares] to reduce that debt burden.
STEVEN JOFFE: I think they both offer tremendous opportunities. As I keep on saying, each time our investment committee sits down and we reflect on acquisitions, we generally reflect on the opportunity to buy back our own shares, and often the buyback options are winning.
SIMON BROWN: That’s a point. We’ve chatted around acquisition opportunities. I imagine you’re still getting a lot coming across your desk, but not quite meeting muster. Certainly, you’ve got a cash pile.
STEVEN JOFFE: You know, Simon, one of the corporate finance guys was talking to me the other day and I think over the past year they have looked at 100 opportunities and you can see we basically did two. So you will see how many things we aren’t doing.
We are very, very cognisant of where we trade and our multiples where we trade, and we’re not really looking to do stuff that’s earnings dilutive.
We are bound by what we do and we are looking to bring on value for shareholders. That’s the tough space, but we’ll carry on looking and we’ll try to find the right deal for us.
SIMON BROWN: Right deal, right price. So you’re also looking for deals beyond the borders because you’ve got the stated target of 50% of earnings from beyond South Africa.
STEVEN JOFFE: Absolutely. We carry on looking a lot outside South Africa, and we’ll continue to do that. We actually got there a lot quicker than we thought, but we got …. of the currency, not necessarily the scale of the businesses. So I think we need to just re-strategise exactly what our goals going forward are, and we’ll probably look to do that in our last board meeting of this year.
SIMON BROWN: You mentioned the currency there because certainly [with] rand volatility/the weak rand, depending on the business, can cut either way, for you it does give some benefit for sure.
STEVEN JOFFE: In South Africa it does give benefit, for sure. A slight devaluation rand is probably the best operating environment. The difficulty is when the rand bounces you can be put on the wrong side of a currency trade like in a day.
Those are the tough calls. So for us just a gentle decline is probably the right environment which protects our inventory. But a rapidly rising rand would be the biggest risk to businesses like ours, where you’d have stock bought at the wrong price.
SIMON BROWN: Do you try and hedge that, or is hedging a bit of a mug’s game? Hedging is great, but at some point the hedge unwinds and then you’ve got to jump.
STEVEN JOFFE: Yes, we certainly do hedge everything we bring into South Africa and it’s part of our DNA. But I’m talking if there was a rapid appreciation of the rand going from R19/dollar to R15/dollar, that could hurt us in a space of time.
SIMON BROWN: Supply chains – we’ve chatted a lot about these. My question is are they back to normal? The answer is the ports are becoming [more and more of a] problem.
STEVEN JOFFE: It’s funny – I was speaking to our chairman – we’ve gone from Covid where we couldn’t get stock, then we couldn’t get ships, then we couldn’t get containers, and now we can’t get whatever we’ve got outside the ports.
So it’s just carrying on. In a way we are little fortunate that those sorts of challenges that we’ve learned through Covid, and keeping inventories at the appropriate levels, have just seen us through this period and seen us through smartly.
Read: It will take months to clear Durban port backlog
SIMON BROWN: And in your business is air freight just not an option?
STEVEN JOFFE: Most times not – like when we bring in big capital equipment, there’s no option to bring it in by freight and we have to just deal with whatever the port throws at us.
SIMON BROWN: Load shedding – how much does that hurt you directly? Perhaps first hurting your customer more, and therefore indirect pain on your business?
STEVEN JOFFE: I’d say somewhere between R1 million and R2 million a month as a group in terms of pure diesel cost. We’ve spent in excess of R20 million on solar installations, and that will be onwards going, and carrying on in our businesses. Again, it’s just part of our DNA to move off the generators.
The thing that really surprised me the most is how resilient our customers have been in keeping their businesses going notwithstanding all these outages.
I think South Africans by and large have learned how to operate with these incredible challenges.
SIMON BROWN: Making the plan. Some of the divisions, replacement parts, services solutions, particularly looking at the industrial revenue was up 8%. Credit provisions and some from lower … took some shine off. Are the credit provisions a worry, or was that just a part of the business at this stage of the economic cycle?
STEVEN JOFFE: We have two internationally renowned mining companies in the DRC who’ve asked us to comply with the 51% localisation requirements, which is like the B-BBEE requirement in the country. We have a 30% partner who complies, and we are reluctant to give him the other 21% because we don’t think he’s the right partner to drive our business forward. So we are busy trying to identify the right partner and, until we do so, the debtors haven’t paid us – and that’s why we made the provision.
SIMON BROWN: Your capital equipment – a really good year, revenue up 9%, operating profit up 34%. Is that just pushing efficiencies through the business?
STEVEN JOFFE: Yes, it’s run by an incredible team [who are] really experienced, know their business well – and with great, great products at a great price. We are seeing the order book there looking really, really good. So I’m hopeful that for the full year we’ll have another good six months.
SIMON BROWN: Kian Ann is a minority shareholder there, but they’re also doing well and expanding into other markets – and beyond Asia as well.
STEVEN JOFFE: Yes, we are working hard on building out the factory from China and building the factory now into Japan. And once that factory gets to an ability to service the US market, we will be able to deal with the 25% import duty that we currently have to pay. So there’s quite a nice incentive for us to do that. In addition to that, we think that that strategy can service the Japanese market in a more material fashion.
SIMON BROWN: We’ll leave it there. Steven Joffe, Invicta CEO, I appreciate the time.
Invicta’s share price
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