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GROUP OVERVIEW
The Group has
once again delivered good results.
Global markets have started to recover
from the
recent financial crisis, leading to increased demand for
products supplied by the Group. The strong Rand continues,
however, to put pressure on margins.
Group revenue
grew by 14,2% to R4,534 billion, of
which R227 million (5,0%) was from
acquisitions. As a result of continued margin and inflationary
pressures, operating income increased by only 11,5% to R505
million, still an acceptable performance.
Profit for the year increased by
16,6% to R426 million,resulting in headline earnings per share
increasing by12,5% to 496 cents per share. Good working
capital management resulted in cash generated from operations
reaching a record R627 million, an increase of 6,2% over the
prior year.
The Group
continued to take advantage of growth
opportunities and made a number of
strategic
acquisitions totalling R135 million. The most
significant of these were the
acquisitions by BMG of
some of its strategic agency outlets,
70% of Wegezi
Power Holdings (Pty) Limited and a number of smaller
hydraulics businesses. Wegezi manufactures and prepares
transformers, electric switch gears, panels and pumps.
BMG
(Bearing Man Group)
BMG continues to
be the core profit contributor to the Invicta Group,
contributing 63,2% of the operating income for the year. The
industrial consumables trading environment continued to prove
challenging, with areas of improvement in some sectors offset
by weakness in others. Under the circumstances, BMG has
produced a most satisfactory set of results.
Volumes have generally increased, but
the strong
Rand resulted in a decline in gross margins. Revenue increased
by 18,3% from R2,018 billion to R2,387 billion; 7,6% (R154
million) from organic growth and 10,7% (R215 million) from
acquisitions. Reduced gross margins and higher operating costs
resulted in operating income increasing by only 9,2%. During
the year, a strategic decision was taken to increase selected
inventory categories which has resulted in BMG being well
stocked at year-end and, as a result,
the earthquake in Japan has had a
relatively minor
impact on BMG’s operations.
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CEG (Capital Equipment Group)
The CEG continued
to face challenging conditions.
There has been a gradual recovery of
volumes in the
construction equipment sector, albeit
from a very low
base. However, the steps taken by CEG in
its construction equipment division following the global
financial crisis have resulted in a material improvement in
its contribution to CEG’s operating profit. Volumes in the
agricultural machinery sector have improved marginally over
last year, ensuring consistent performance in this division.
The materials handling division (Criterion Equipment) also
made a good contribution to profits.
Total revenue of
the Capital Equipment Group increased by 7,3% to R1,877
billion.
A minor
acquisition was made during the year, but did
not have any impact on the results.
A greater
contribution from spares and service revenue combined with
good cost control resulted in operating profit increasing by
27,6% to R158 million. The segment’s annualised operating
profit return on capital employed continued to be at excellent
levels, an overall pleasing result.
OTHER
OPERATIONS
Tiletoria
expanded its distribution network by moving
to new premises in Durban and opening a
branch in
Johannesburg. The Group has continued to invest in
the infrastructure of Tiletoria and,
whilst not contributing in any significant way to earnings at
present, Tiletoria should grow substantially in the next few
years.
PROSPECTS
Trading
conditions in the sectors in which the Group
operates appear to be improving
gradually. The current strength of the Rand continues to be a
source of concern as it is likely to maintain pressure on
margins and reduce the income of key customers who operate in
export orientated sectors. The Group will continue to focus on
improving operational efficiencies and to make acquisitions to
grow steadily.
BMG has grown its base by making
strategic acquisitions and will continue to do so as and when
opportunities arise.
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