Invicta Holdings Limited (IVCHF) Earnings Call Transcript & Summary

Good morning, and welcome to the Invicta Holdings Limited Interim Results Webinar for the 6 months ended 30 September 2025. Thank you for joining us today. The management team will take you through the presentation. [Operator Instructions]. It is now my pleasure to hand you over to Stephen Joffe.

Welcome to all of you, and thank you for joining us. I am Steven Joffe, the Chief Executive Officer of Invicta, and I'm joined by our Chief Financial Officer, Nazlee Rajmohamed. Craig Barnard is also available as part of our panel to answer any questions you may have. During this presentation, in respect of any commentary or views we may portray and to the extent we analyze information or make forward-looking statements, please have regards to our disclaimer. Today's presentation will cover our group results for the interim period ended 30 September 2025. We will also attempt to cover key developments from the period as well as looking forward to the prospects and strategies of the group. Invicta distributes world-leading capital and earthmoving equipment, industrial, automotive and agricultural parts, often exclusively, which we try to ensure are always available and that are overlaid with the technical and service solution. We thus differentiate ourselves by adding value through our distribution chain, product availability and by providing technical support. Technical support helps prevent disintermediation and is a key part of our strategy to add value to our customers. Invicta is pleased to present a solid set of results for the first half of the year, notwithstanding the tough trading conditions that we've experienced across the businesses. In the first half of this year, we worked hard on streamlining our operations, bedding down investments and keeping abreast of tariffs and foreign exchange fluctuations. In the prior year, we made great strides by disposing of the main distribution warehouse in the Kian Ann operations in Singapore and using some of those proceeds to redeem all of the outstanding preference shares. These initiatives are starting to yield results in the current year. The strength of our operational model and the strategic initiatives have allowed us to maintain stability and growth in the businesses in the face of challenging operational environment. We remain confident in the strength of our businesses and the long-term value we aim to deliver to shareholders. We continue to focus on executing our strategy, driving operational efficiency and position ourselves for sustainable growth. We believe that our strategy of investing offshore in our markets will, over the long term, deliver the return we endeavor to obtain for our shareholders. Through the first 6 months, many central banks have continued cutting the interest rates to stimulate activity. In South Africa, we saw 2 interest rate cuts during the period, and we hope that the cuts will continue as interest rates remain high amidst the low-growth industrial environment. Throughout the period, we experienced extreme volatility in currencies. We opened the period with a rand-dollar rate of ZAR 18.31. The rate peaked at ZAR 19.77 and closed at ZAR 17.26 on 30 September. Mining and manufacturing activities continued to struggle during the period, specifically with the PGMs and iron ore facing declining demand. Over the period, we've seen growth in these sectors. However, they're coming off a low base, and we still have a long way to go to return to continuous production. In certain sectors, we have seen the local market exhibiting increased activity levels, which have remained at these levels. The industrial sector in South Africa remains a challenging environment in which to operate with the regulatory environment doing little to stimulate growth in this sector. Also, our businesses continue to experience supply chain challenges, including delays at the port. Container prices out of China have remained volatile with prices oscillating between $2,500 to $4,200 for 40-foot containers. Notable achievements for the first half of the year, notwithstanding the challenging environment include growing sustainable headline earnings per share by 19% to ZAR 2.85. Through the strategic initiatives undertaken in the prior year, we achieved a 14% reduction in net finance costs for the period, which in the current period amounts to ZAR 54 million. And we successfully concluded the acquisition of Spaldings operations in the U.K. on the 1st of September, which I will speak to more later in the presentation. Group financial overview. Sustainable operating profit was down 6% on the prior comparative period, amounting to ZAR 332 million. This is reflective of the tough conditions in the market in which we operate as well as the cost base details, which we'll unpack later in the presentation. In determining sustainable operating profits, we have made the following adjustments. In both the current and the prior year, we reversed profits made on the disposal of noncore properties as well as impairments on those properties when they were reclassified as held-for-sale. We also reversed profits made on the disposal of subsidiaries. We added back amortization of the PPA assets of NWB and Spaldings. In the current year, we added back once-off costs related to the acquisition of the Spaldings Group in September, and we unwound a modification loss, which is a time value of money accounting adjustment on the amounts owed to the group by the KMP operations. Equity accounting earnings from the Kian Ann investment decreased year-on-year by 10% to ZAR 77 million. The result from Kian Ann have been impacted by the U.S. tariffs, which has created uncertainty in the market. Customers had reservations in purchasing amid the uncertain tariff positions. Additionally, the translated foreign currency results have been dampened with the strengthening of the rand over the period. In determining our share of sustainable net contribution from the Kian Ann Group, we added back the amortization of the purchase price allocation assets amounting to ZAR 8 million. Sustainable headline earnings increased by 9%. In determining our sustainable headline earnings, we added back the amortization of the PPA assets. We unwound a time value of money adjustment on an amount owing from KMP to the group and added back once-off costs relating to the acquisition of the Spaldings operations. Please have a look at our key indicators. Where appropriate, they've been adjusted for once-off items to try to present a position showing sustainable earnings. Operating profit was 6% lower than the prior period. Headline earnings per share grew by 19% to ZAR 2.85. Our net asset value per share of ZAR 60.90 was 3% higher than 31 March 2025. No adjustment has been made to net asset value calculation. I will now hand over to Nazlee.

Revenue for the 6 months increased 6% from the prior comparative period. As a key management initiative, the gross profit percentage has been maintained at 32%. In the current environment, maintaining this margin is a great achievement by the management teams. Operating expenses as reported grew by 11% compared with the comparative period. There are several factors that contributed to this increase. Firstly, the comparative expense line was reduced by ZAR 17 million of gains on disposals of properties and subsidiaries compared with only ZAR 4 million in the current reporting period. The current period includes once-off costs relating to the acquisition of the Spaldings operations, whose 1 month of operating expenses were also included in the current period for the first time. Therefore, in normalizing all of these items, we experienced a 6% increase in our overhead base. Operating profit before foreign exchange movements for the first half of the year was 12% lower than the comparative period. This highlights the tough trading conditions, which the group faces as well as the once-off items, which Steven has already mentioned, and we thank our management teams for maintaining relative stability in our operations. Comparing the opening and closing rates over the first 6 months, the rand did strengthen. Against the U.S. dollar, the rand appreciated 5.7% from ZAR 18.31 on the 1st of April to ZAR 17.26 on the 30th September. However, throughout the half, we saw much volatility in the currency with the rand depreciating as low as ZAR 19.77 to the dollar. The impact on our group for the first half of the year was a net ForEx loss of ZAR 16 million, which is a 9% improvement on the ZAR 18 million in the prior period. As a matter of policy, in South Africa, we hedge all confirmed foreign purchase orders. Net finance costs decreased by ZAR 9 million due to the strategic initiatives undertaken in the prior year. During the period, the South African Reserve Bank decreased the prime interest rate by 50 basis points through a stepped approach to 10.5%. We welcome these adjustments from the SAB, and we hope to see continued cuts in the future. Ordinary shareholders are better off by not having to pay dividends to preference shareholders versus the comparative of ZAR 24 million in dividends. Property, plant and equipment increased by ZAR 93 million. This is primarily driven by the acquisition of the Spaldings operations in the U.K. Investment in joint ventures is our 48.8% investment in Kian Ann. The decrease over the reporting period is made up of ZAR 69 million of equity accounted earnings, less ZAR 18 million of our share in the other comprehensive losses of the Kian Ann operations as well as ZAR 39 million of foreign currency translation and dividends declared of ZAR 44 million. Goodwill increased by ZAR 70 million. This is the goodwill recognized on the Spaldings acquisition, net of the foreign exchange adjustment from the strengthening of the rand. Finance lease receivables, including the current portion, increased from ZAR 384 million to ZAR 412 million. This is finance extended to customers across our capital equipment businesses. This finance is both short and long term in nature. We remain focused on working capital management. Inventories net of provisions remained flat for the period. Considering the addition of the inventory of the Spaldings business, management have worked hard on reducing the inventory held and ensured that they are covering foreign exchange risks in their purchases. Gross inventories decreased by ZAR 82 million in our Industrial Solutions businesses. The management team have done a great job in purchasing correctly and selling older inventory over the period. The net increase in the capital equipment and parts operations was as a result of the Spaldings acquisition in September. Our management teams continue to focus on the number of months of inventory held. We continue to manage as best as we can the volatility in currencies, logistic costs and inflationary pressures in our basket of products. Our continued focus on ordering the correct inventory and selling aged inventory has helped to keep this number in check. Trade and other receivables increased by ZAR 14 million. We continue to see across our businesses that the debtor insurance levels and criteria continue to tighten. We continue to focus on giving appropriate credit and ensuring the collectability of our receivables. Please note our cash on hand of ZAR 931 million. Our borrowings and finance lease liabilities amounted to ZAR 1.91 billion, of which ZAR 1.53 billion is noncurrent and ZAR 375 million is current. Of the total borrowings, finance lease liabilities make up ZAR 365 million. With our cash on hand of ZAR 931 million and our overdraft of ZAR 30 million, we have net cash on hand of ZAR 901 million. Our net interest-bearing debt is thus ZAR 1 billion. The equivalent number in March 2025 was ZAR 706 million. This increase is mostly as a result of the Spaldings acquisition in September. Please note that the ZAR 1 billion exclude the IFRS 16 liabilities of ZAR 252 million. Including IFRS 16, net interest-bearing debt for the year increased by ZAR 297 million. Our net interest-bearing debt to equity sits at a healthy 23%. Please see a summary of our banking covenants, all of which have been met at half year. We were pleased to generate ZAR 419 million in cash from operations, a 26% improvement over the comparative 6 months. We also continued the expansion of the group through the acquisition of the Spaldings Group of companies. We received ZAR 44 million of dividends from Kian Ann. Please note the ZAR 97 million distributed to shareholders as we repurchased 3.1 million ordinary shares in April. We have, therefore, in aggregate of buybacks and dividends, returned in excess of ZAR 200 million to shareholders in the first 6 months of the year. We are pleased with the net closing cash balance of ZAR 901 million, which is after all of the activities detailed above. I now hand back to Steven.

Thank you, Nazlee. Operational review. Previously, we presented the Invicta results across 5 segments in our biannual presentations. Following engagement with investors and as part of the process to assist users of our presentation, we have moved to simplify our presentation and reduce the number of operations presented. Reducing the number of operations presented will ensure the underlying performance is easier for stakeholders to understand, particularly as the 5 segments have overlapping or less clearly defined differences. This consolidation aligns the presentation more closely with how management views the risk pertaining to the businesses without overwhelming users with excessive detail. Going forward, the businesses will be presented in 2 operations. The operations are Industrial Solutions and Parts, Capital Equipment and Parts. The Industrial Solutions and Parts operation would in aggregate comprise what used to be presented as the RPI and RPA segments. The Capital Equipment and Parts operation would in aggregate present what used to be in the CE and RPE segments as well as that of Kian Ann in Singapore. Industrial Solutions and Parts. This business includes our BMG businesses, our UPG Automotive businesses, amongst others. Revenue has remained relatively flat year-on-year with the management doing well to sustain these levels under the current market conditions. Sustainable operating profit in these operations decreased by 11%. This is primarily as a result of certain costs incurred in the first 6 months of the year, which were budgeted to be incurred over the full financial year. We anticipate clawing back on these costs in the second half of the year to conclude the year on a normal increase in the cost base. Net operating assets increased to ZAR 2.5 billion. The return on net operating assets weakened slightly from 19% to 18%. Please see how we determine sustainable profits for the purpose of determining our returns. Automotive and transport, mining and retail trade remain the top sectors for us across our industrial businesses. The teams have worked hard to maintain sales amidst a deindustrialization in South Africa. Roughly 2/3 of our sales come from consumable parts and our industrial businesses primarily operate in South Africa with offshore markets becoming more important over time as we focus on the internationalization of these operations. The industrial sector in South Africa continues to face pressures from all sides, and we anticipate a dampening of demand for products as a knock-on effect from other struggling businesses. This in turn impacts margins as the market competes for business. However, our engineering services businesses continues to do well. We have seen positive movements in the automotive business in South Africa, and we're optimistic about the growth in our agricultural house brands locally. With the sustained tensions in Eastern Europe, we continue seeking to expand our auto agri businesses Westward into other European geographies. Capital equipment and parts. These operations consist of our capital equipment businesses, the Kian Ann operation in Singapore as well as the newly acquired Spaldings in the United Kingdom, amongst others. Revenue for these operations was 25% higher than the prior period. This growth is primarily attributable to improved performance across the capital equipment businesses in the first 6 months as we saw increased volumes in the construction and mining sectors. 2023 is, however, not comparable as this includes the KMP operations that were disposed of to the Kian Ann Group. Sustainable operating profit improved by 7% to ZAR 214 million. This improvement was due to management's ability to contain costs across our businesses. Net operating assets increased by ZAR 330 million, primarily driven by the inclusion of the Spalding assets. Following this inclusion, the return on net operating assets slipped from 15.7% to 14.5% with only 1 month of trading from Spaldings consolidated with the full balance sheet. Please see how we determine sustainable operating profits for the purpose of determining our returns. Construction, material handling and agriculture are the largest industries we service in our capital equipment and parts businesses. We have done well in ensuring roughly half of our business comes from equipment and the balance from parts in these businesses. Revenue comes primarily from South Africa. This graph does not account for sales in the Kian Ann business, which is equity accounted, bringing in only the profit from our share of the joint venture. In South Africa, we are starting to see growth in the construction and mining markets with volumes starting to increase. This improvement in the mining sector is positive. However, this comes off a low base and the sector still has a long way to go to return to full production. We are positive that we've come to a more stable position in terms of global tariffs, and we hope this will provide the impetus for a global sales improvement. Key developments and transactions. On the 1st of May 2025, Kian Ann acquired 100% of Safe Harbor. Safe Harbor is a premium aftermarket parts supplier primarily of cab glass for a wide variety of capital equipment. Safe Harbor operates from a single premises in Texas, United States. We are also pleased to advise that on the 1st of September 2025, Invicta purchased the Spaldings operation. Spaldings is a prominent distributor of agricultural and ground care components in the U.K., known for the extensive range of high-quality replacement parts and machinery. Established in 1954 and headquartered in Lincolnshire, Spaldings has built a strong reputation over more than 70 years for innovation, quality and strong customer service. We paid GBP 10.5 million for the Spaldings shares and anticipate the sustainable aggregate net profit for the first full year should be in the region of GBP 1.4 million to GBP 1.6 million. Most of this profit will be earned in the U.K. summer and won't have any meaningful impact on the next 6 months for Invicta. In April, we were further able to repurchase a significant tranche of Invicta shares, roughly 3.1 million shares, thereby returning a further ZAR 97 million to shareholders. Prospects and strategy. Five years ago, we set out to grow the group into a geographical and sectoral diversified group. With our acquisitions and corporate initiatives undertaken over this period, we believe we have already achieved this goal. Going forward, we have a relatively debt-free balance sheet and the freedom to scale our platform and add meaningful acquisitions. Our management teams continue to manage our businesses well to ensure it achieves the desired returns. Our objectives for the second half of the year include managing working capital and optimizing operations, generating cash, managing the supply chain and logistical challenges, looking for appropriate acquisitions and new product lines for our existing businesses. With the fluctuations of tariffs globally, future economic outlook remains difficult to gauge. We are working hard to remain well informed on the developments and hope to move as quickly as possible to assess and deal with them promptly, ensuring the businesses remain stable. With so much uncertainty in the world, we will continue to focus on cash generation. Having a relatively debt-free business gives us the necessary time to respond to difficult situations at the same time, provides the capacity for us to implement our acquisition strategy. We are evaluating several opportunities on the acquisition front. And should we be able to identify suitable targets that align with our strategy, we'll certainly continue to acquire businesses. As a result of our relative financial strength, we endeavor to return to shareholders approximately 30% of our earnings annually, be it either through buybacks in the market or dividends. Many of the sectors we serve are trading in line with these results, and we continue to service our clients without stockouts or delays. We're extremely grateful to have delivered this performance for our shareholders and our other stakeholders in the midst of tough trading conditions. Thank you to our loyal suppliers, customers and advisers for your continued partnership with the group. Our experienced, diligent and dedicated teams from the factory floors to the boardrooms, we thank you for your efforts in the first half of this year. Lastly, we wish to thank the Chairman and the nonexecutives -- advice.

Thank you for that Steven, Nazlee, and Craig. We have a few questions in the Q&A box. So the first is from [ Giles Muni, ] who says, the once-off costs on the Spaldings acquisition equates to roughly 2.5% of the purchase consideration. What does management target as an appropriate benchmark level for these costs? And does the scale with larger acquisitions? What functions in an acquisition are outsourced versus what is performed internally by management?

Craig, just before you guys, I just want to say welcome to everyone, and thank you for joining us today. Guys, thank you for that question. If you don't mind, Craig is in charge of our M&A, and I'll ask him to answer your question. Thank you for that.

Thanks, Steven. So typically, on a due diligence, the operational due diligence, we always do internally. And depending on the jurisdiction and more prominently with foreign jurisdictions, the tax and legal due diligence would be outsourced. But even if that's a local acquisition, we often would get a red flags report on a number of items from specialists. Things like IT as well, we do internally. But it also depends, as you've referenced in your question, the size of the acquisition. Even if we did a category -- if we did a Category 1 transaction, for example, in South Africa, we would even on the operational due diligence bring in a professional firm to support us on that. So we don't have a specific benchmark in terms of value. The Spaldings acquisition included insurance that is typically taken out, so warranty insurance in deals of that nature, which you negotiate with the sellers. And there was obviously tax and legal due diligence involved in that as well as transfer duty, stamp duty in those costs. Thanks, Steven.

Thank you, Craig. There's another question by Giles Muni saying, how is the credit risk managed on the finance lease book? And is there any insurance cover on the book?

So again, we do most of the work internally, and we do our own assessments by our management teams. We have an external provider that helps us with the administration. But Giles, the thing I just wanted to mention to you is really to understand the nature of the credit we give. Typically, we take a deposit upfront. And with a bit of help from the government, we get the [ SAS ] payment back, the bad payment back in month 4. So pretty much after 4 months, the bulk of the money, like about 40-odd percent of the money out of every deal we do. And if you understand the residual value of the equipment, you are pretty much secured and to lend from there on. So we've been pretty good in giving the credit and avoiding any losses.

The next question is from Rowan Goeller. How will the strong rand impact inventory pricing and margins?

Rowan. So clearly, with the rand having strengthened the 5% that we've seen, this will start affecting the local pricing, but there are still inflationary price increases coming through from suppliers. So I would anticipate a small drop in local pricing, which ultimately may have an impact of increasing our local GP percentages.

Thanks, Steven. The next is from [ Patrice Moyal ] saying congratulations to the group on the results and your capital decisions. Can you unpack what you mean by a relatively debt-free balance sheet?