Invicta shuffling management pack to accelerate acquisitions – Christo Wiese on team also helps
If you were to coat-tail anyone, it would be hard to find many better than South African billionaire entrepreneur Christo Wiese. Part of the duo which built Shoprite into Africa's biggest retailer, Wiese is also heavily invested in Invicta, an industrial conglomerate he started investing in during the 1990s. Compounded earnings growth of over 30% in the past dozen years shows he's backed another good horse here. Invicta's interims released today highlighted the wisdom of making its Asian advance through Singapore rather than the more difficult Chinese or Japanese markets. Operating profit at its Kian Ann subsidiary surged 69% and there;'s more to come. A fascinating story and sensible business model as we heard from CEO Arnold Goldstone. Judging by his switch in roles, there's a lot more excitement to come. – AH
GUGULETHU MFUPHI: Another company out with numbers today is Invicta, which reported a 15 percent rise in its interim results despite operating in a market characterised by labour unrest. Arnold Goldstone, Chief Executive of Invicta, joins us now to unpack the numbers. Arnold, as we heard, it seems as though you're doing something fairly right: revenue up by 46 percent, operating profit also up 57 percent. Despite the labour unrest: what are you doing right?
ARNOLD GOLDSTONE: Well, I think we have a magnificent team. A good business relies on a team. There's no point in having ten wings on the field. You need a wing. You need a centre. You need a fullback, and I think that's been the success of our business. We also have a mixed bag of businesses. We have Capital Equipment. We have Bearing Man Group. We have our growing Building Materials business, so when one rises the other might decline – but a nice mix of businesses. But essentially its people. That's what businesses revolve around.
ALEC HOGG: It's been a long time since I've heard people complaining in the commentary to the results about tough conditions and then reporting operating profit, or you in Industrial Consumables, up 20 percent.
ARNOLD GOLDSTONE: Yes.
ALEC HOGG: How tough does it have to get, to get you people to go backwards?
ARNOLD GOLDSTONE: Normally, our results are slightly better and I think that reflects in a 15 percent rise in earnings per share. In fact, our rise in our earnings per share over the past 12 years – compounded – has been in the order of 30 percent. For us, this has been a tough year. Nevertheless, we produced what we thought were really good results given the circumstances.
ALEC HOGG: You put a lot of money in here. Christo Wiese has been an investor for quite some time. It's interesting to see that in December last year the management team got together and bought R70 million worth of shares. Bought – weren't given. And Christo put another R80 million in. Is that the approach – that you take money out of your own pocket?
ARNOLD GOLDSTONE: Absolutely – we like people to have skin in the game. You'll see with all our acquisitions for example, especially when we go into higher risk areas. Take Kian Ann Engineering in Singapore. We would never go there on our own, so we have 25 percent of the shares owned by management. Skin in the game, real money, not money loaned by us. They had to go to the banks and borrow – and in the Invicta executives' instance it's exactly the same. Much more focus from men that have their houses on the line.
ALEC HOGG: You opened up Singapore. We were talking about this earlier and I don't know too many South African businesses – Didata had Datacraft some years ago – who got into Southeast Asia and are seeing these kinds of returns on their investments.
ARNOLD GOLDSTONE: Well, we set our goals about three years ago to start looking abroad for something that suits us. Too many South African companies had burned their fingers abroad, so we had to be very careful. We targeted one or two. One didn't work and Kian Ann was the one that did work for us. If you walk into the Kian Ann business, it feels as though you're walking into our South African businesses – the same look and feel. We are essentially a blue-collar business in a very technical world, and it felt comfortable for us to walk into their business. The people had the same approach as we do, so we immediately felt comfortable with that. Secondly, Singapore is quite a soft landing in Asia. Going into Japan or China to do business is tough. Singapore has a history of an English heritage. The law is largely based on English company law. Most people speak English there. In fact, English is the first language, so it is a comfortable space for us to operate. What we liked about the business is that the people who were still running the business had founded it in 1965. Only one of those has exited. The remaining team stayed on, so it's great for us. Nice business, long track record, and they know their product, fits with our DNA, if you want – very nice…
GUGULETHU MFUPHI: Are you looking for another company to purchase?
ARNOLD GOLDSTONE: I'm always looking, hence the change in our management team. What we have done is we've said, 'look, we've grown tremendously over the past two to three years' but if you go back in our history – as I've said – the growth record has been there, but we are very aware of the fact that we may be too thin on the ground as far as senior management is concerned. What we've done is, we've said let's not change the team, let's change the roles. So I'm going to become Executive Deputy Chairman. Charles Walters, who heads up our BMG division – he's the CEO – he's going to be Deputy to me as CEO until such time as we find a replacement for him. He will then step into the CEO role full time and I'll assume Deputy Chairmanship in an executive role.
ALEC HOGG: Doing what?
ARNOLD GOLDSTONE: I'm going to look more at strategy. The advantage of me being around is that I know our businesses so well. I'll be able to help Charles, help the new guy that comes in to replace him, and also, our capital equipment business – run by Tony Sinclair – a very capable team.
ALEC HOGG: Usually when people are put into an office to go and do strategy, it has a different connotation. Have you engineered this?
ARNOLD GOLDSTONE: I have, of course. I'm an engineer. So yes, we wanted to make sure the same players are on board because we don't want our major shareholders to feel uncomfortable. I am, myself, a big shareholder, as is the management team. We want to make sure that there's a gentle transition, no shocks to the system. As the picture unfolds so we'll adapt accordingly.
ALEC HOGG: You did have a shock when Greg Till passed on.
ARNOLD GOLDSTONE: That's right – yes. He was ill for a few years and in that instance, we were able to manage the situation, but we had to go into a holding pattern in the BMG business because there was no certainty as to what the outcome of his health would be. As it happened, it took a year of him not being at the helm for us (and him) to realise that we needed to make some changes. One doesn't want to introduce shock changes unless it's necessary. If you lose an executive or a member of your team unexpectedly, then you're obviously forced into that situation, but where you can manage it – so much the better, I think.
GUGULETHU MFUPHI: Some key lessons learned there…
ARNOLD GOLDSTONE: We hope so, yes. Our intention really is to say to ourselves and to our shareholders we want to have safe acquisitions, safe operations, and safe hands. That's really what it is about – isn't it – to grow the business.
ALEC HOGG: It takes a long time…finding those acquisitions – finding the right ones. Are you now, given the success you've had in Southeast Asia: is that where you're going to play more?
ARNOLD GOLDSTONE: We'll look in that area and in emerging markets – so we're not restricting ourselves to Southeast Asia – any of the emerging markets, and for that, we need time. As I said earlier, we didn't want to have our executive team too thinly spread, so this is really the intention: to free up people to be able to spend a week on the ground in whichever country to go and sniff out the businesses, and to get to feel them. Making the wrong acquisition sets you back enormously, so we'd rather make sure that we have too much capacity than too little.