SIMON BROWN: I’m chatting with Steven Joffe, CEO of Invicta, on the results for year-end March 2023. Revenue up 8%, sustainable Heps up 33%, dividend up 11.1%. But of course there’s the share buy-back as well. Nav up 23% at R46.34.
Steven, I appreciate the time. A lot of challenges over the last year have been sort of Covid-driven. That is largely behind us. Even China has opened up at this point in time, but you in the results were talking around still having supply-chain challenges.
STEVEN JOFFE: Yes, even as late as this month one of our big Korean suppliers let us down and what was meant to be shipped didn’t leave the factory. So I think that the war efforts in Ukraine are still impacting some of the world’s supply chains, and in some cases there is still erratic supply.
SIMON BROWN: Have you sort of tried to manage this with inventories? Inventories are higher, but not much over the previous period.
STEVEN JOFFE: That’s exactly how we tried to deal with the situation. What we did is we increased inventory in South Africa pretty much in all our businesses, and that was to deal with issues coming out the factory, and also most importantly the Durban port. We dealt with that we think quite well, but the supply chain certainly improved. So the shipping has definitely improved, but we still have one or two factories that are unable to get the big orders out. I’m talking specifically about the big capital equipment, the bigger machines.
SIMON BROWN: In terms of inflation pressures, I imagine there must be inflation in your supply chains as well. Are you managing to pass that on to customers?
STEVEN JOFFE: Yes, we’ve done pretty well with that this year. We’ve managed to maintain our GP [gross profit] percentages and it’s an onward and continuing effort.
SIMON BROWN: Yes, onward and continuing. Kian Ann, which is your Asian subsidiary, had a really, really good year. Was that base effect or was that just coming out of lockdown?
STEVEN JOFFE: It was a bit of both. The factory in China did really, really well. We increased our stake in that effectively from 27% to around 50%. America did well and indeed the old Kian Ann, which is a distribution business in Southeast Asia assisted well. So just a strong performance all around and we hope that’ll continue in the coming year.
SIMON BROWN: Looking at some of the divisions in the world, a fair bit [is] obviously into agriculture. What is your exposure to agriculture? I ask because there are concerns around potential droughts, particularly down in the Western Cape from sort of the latter part of this year as we move into El Nino.
STEVEN JOFFE: We do have some exposure in South Africa. I would say the balance of exposure is actually in Europe. So on balance I don’t think it’s going to have a big effect on the Invicta results as things stand now. You will recall a few years ago we had those big capital equipment businesses that were all agriculture-facing, and that would’ve had a much more fundamental impact.
SIMON BROWN: Okay. So much smaller now and actually very diversified. I’m reading across – you’re in Europe, you’re in the Americas, obviously in Asia, obviously in South Africa, and obviously the rest of the continent. How much of your business these days is South Africa-focused as opposed to the rest of the planet?
STEVEN JOFFE: Well, that was one of the surprising things about these results if we look at net profit for the year – how non-South African businesses contributed 60%.
SIMON BROWN: Oh, wow. Okay. So that’s actually quite chunky. I didn’t realise that it had got quite that big, and you are still expanding. For example you’ve got – and I think it’s relatively new – BMG China, which is small but I imagine an important step into that region.
STEVEN JOFFE: The way the Chinese market works in the main is people buy from the OEM [original equipment manufacturer] that supplies that product. So if you want a bearing you go to the bearing manufacturer and you buy a bearing. In South Africa we offer a diverse range of products, and you really have to come onto the BMG website and buy everything you need to keep your factory going. So we are trying to do that in a very small and responsible way in China, and it’s really a matter of educating those suppliers to trust us with their product and build this business like across the verticals.
SIMON BROWN: And, looking at the size of the business, almost as organic growth that makes sense when you say you’re going to start building those relationships with suppliers.
STEVEN JOFFE: It’s really small and incremental. We don’t want to go and try something too big too quickly. So it’s going to take time, and it’s really a matter of adding on supplier by supplier and explaining to them what we’re trying to build.
SIMON BROWN: In terms of acquisitions, you’ve got a strong-looking balance sheet, you’ve got cash on hand, and you’ve certainly looked for a few before. I imagine you’re probably still getting a lot coming through your desk, but nothing that’s quite matching up.
STEVEN JOFFE: No. In the current year we didn’t close any deals. We looked at lots of prospective acquisitions and we’ve got a couple on the table right now; hopefully some of them will close.
SIMON BROWN: We talked up front around supply chains. We touched on inflation. Load shedding probably doesn’t hit you as much as it does your customers.
STEVEN JOFFE: Well, the impact on our numbers for these 12 months was about R18 million of diesel costs. It’s difficult to estimate the cost of lost sales. But, like most South African industrial players, we’ve done a lot in terms of solar installations and inverters and batteries, and we’re doing what we can to continue running our business and do so in an environmentally friendly way.
SIMON BROWN: I take your point on that. Diesel works, but it’s not easy, it’s polluted, it’s not great.
Looking at the year ahead, you’re at the end of March. So you are only six weeks, seven weeks into the current financial year. Looking at the numbers the business seems well set and chugging along nicely.
STEVEN JOFFE: Yes, I think so. We hope for no major disruptions specifically coming out of Ukraine, but we’ve got a resilient business that’s mainly replacement parts, and those typically you need. So hopefully the year will be quite strong and a couple of the sectors that we are supporting, specifically like mining, are still doing really, really well and hopefully we can follow them with that success.
SIMON BROWN: Mining is obviously strong, and replacement parts, I imagine, particularly if times are tough. Interest rates are higher and maybe people keep equipment longer and therefore need more of those replacements.
STEVEN JOFFE: That’s exactly what we anticipate.
SIMON BROWN: We’ll leave that there. Steven Joffe, CEO of Invicta, I always appreciate the time.
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