Joint report of Chairman and Chief Executive Officer

The Group has once again produced excellent results. Trading conditions were generally favourable during the year and demand for Group products, on the whole, was better than the prior year.

In CEG, agricultural machinery sales remained strong due largely to good grain prices and high farming yields, construction machinery sales have continued to recover and the materials handling operation has settled down and is beginning to contribute to profits. In BMG, the Group’s industrial consumables business, global demand for resources was steady, which underpinned demand for BMG’s products, although trading in certain sectors was challenging. Historic bolt-on acquisitions in this division also contributed to earnings for the full year.

Group revenue grew by 24% to R5,599 billion. An improvement in the mix of products sold and control of costs resulted in operating profit increasing by 26% to R635 million.

Profit before taxation increased by 29% to R584 million, while a higher taxation charge resulted in the after taxation profit for the year increasing by 21% to R515 million. The consolidation of the 25% (2011: 5%) BEE stake in Humulani Investments (Pty) Ltd in terms of IFRS SIC12 (Consolidation – Special Purpose Entities) assisted in lifting headline earnings by 39% to R484 million. A circular to shareholders dated 1 August 2011 sets out the background to this.

Headline earnings per share grew by 39% to 687 cents per share, whilst earnings per share grew by 38% to 698 cents per share. Working capital management was very good, however the Group consciously increased its investment in inventory by 51% (R703 million) but still managed to generate cash from operations of R534 million.

The Group continued to take advantage of growth opportunities and made a number of strategic acquisitions which totalled R139 million. The most significant of these was the acquisition by CEG of Equipment Spare Parts (Africa) (Pty) Limited (“ESP”).


BMG continues to be the core profit base of the Invicta Group, contributing 59% of operating income for the year. Market demand for BMG’s products and services improved in the year. A combination of a modest improvement in volumes sold, supplier price increases passed on to customers and gains in market share in certain sectors led to a satisfactory growth in revenue.

Revenue increased by 15% from R2,387 billion to R2,742 billion, mainly attributable to organic growth. This represents a doubling of revenue over the past five years.

Good margin and cost management helped to increase operating profit by 16% to R371 million. During the year, a strategic decision was taken to increase inventory which has resulted in inventory in BMG increasing by 21%. During the year BMG was accredited as a level 3 contributor in terms of the government’s Black Economic Empowerment (BEE) codes which strengthened BMG’s position with its customers.


CEG performed beyond expectation. The year started off with good prospects in all parts of the division and with a continuous focus on after-sales support, customer communication and cost control, the margins improved, resulting in the best ever operating profits being achieved. The acquisition of ESP in the last quarter of the financial year will strengthen the Group’s future income from spare parts.

Total revenue of CEG increased by 36% to R2,549 billion, of which R69 million was from acquisitions. Revenue has doubled over the past five years, whilst operating profit trebled over the same period. A greater contribution from spares and service revenue resulted in operating profit increasing by 57% to R247 million. The segment’s annualised operating profit return on capital employed was 95%, up from 43% last year, an exceptional result. Overall, an excellent performance by CEG.

The Group has now bedded down its outlet distribution network for Tiletoria, and although it did not make a material contribution to the Group during the period, it is profitable and is projected to continue growing steadily.


Trading conditions in the sectors in which the Group operates appear to be levelling off. The Group is concerned about the lack of investment in mining infrastructure in South Africa and the apparent gradual de-industrialisation of the country, which factors, inter alia, are prompting Invicta to look beyond the borders of South Africa for growth in its core businesses.

BMG acquired Operational Marketing (Pty) Ltd and OMSA Valves and Instrumentation (Pty) Ltd (OMSA Group) with effect from 1 April 2012. OMSA adds a leading position in lubrication equipment, systems and field service to BMG. In addition it brings significant potential for BMG to expand in filtration, valves and instrumentation. BMG expects trading conditions for the coming year to be more challenging than the past year.

In CEG, grain prices (a big driver of demand for agricultural machinery in South Africa) have softened since the end of the financial year. This may lead to a decline in demand for agricultural machinery. Currently demand in the construction equipment market is showing some improvement on last year. If government’s commitment to infrastructure expenditure becomes a reality, then demand should improve further.

In keeping with its stated dividend cover policy of 2,75 times cover for the full year, the Board has declared a final dividend of 177 cents per share, an increase of 40% over last year’s 126 cents per share. The Board remains confident of the continued success of the Group. Thank you to all our staff for their hard work, sacrifice and dedication. Without you, none of this would have been possible.

  Dr CH Wiese


A Goldstone

Chief Executive Officer

31 May 2011








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