Following in the footsteps of SA's greats

Engineering equipment group Invicta may be the next South African company to make its mark abroad. CEO designate and deputy CEO Charles Walters talks about his plans

Why do you want an offshore listing?

We have (international) ambitions and expansion would require some fairly chunky acquisitions. The multiples you pay for businesses offshore are higher . simply because of the cost of money being lower. It's not prudent to expand by acquisition using South African-based debt.

Would you list in the Far East rather than London or New York, given that your one major acquisition has been in Singapore?

New York is expensive and the regulatory environment is pretty challenging, so it's more than likely to be Europe or Asia. Having delisted Kian Ann, the option always exists to relist in Singapore, but what we found there is that liquidity is not great, and it's not as sophisticated a market as one would think. If we do go to London, we would probably look at cost-effectiveness. None of this is cheap and we would likely go for a lower cost option like AIM. We haven't made a final choice. It's all theoretical until you've got approval from the Reserve Bank.

You said it might take six to 12 months - how are your talks with the Reserve Bank going?

Slow. There's an element of suspicion in the bank's mind when people approach them to internationalise a business.

We're not running away from South Africa - we want to build, we want to follow in the footsteps of the great SAB story, Anglo, Mondi . to become another global South African business. Once the Reserve Bank understands our ambitions, I'm hopeful that it will get behind us.

The whole concept of exchange control is a legacy of our past and a shackle we need to break. Most modern economies welcome foreign investment, welcome local businesses investing abroad and repatriating dividends, but it seems the Reserve Bank is constantly concerned with capital flight.

The reality is, if we create the right investment environment here, we would have no concern about capital flight.

Have you spotted any companies you'd like to buy?

We're in discussions with a number, but these kinds of deals don't happen overnight. You first have to get around a table and make sure you've got the same philosophies, the same outlook on the market, the same vision.

Why do you actually need to make more acquisitions?

Our organic growth opportunities are limited as our mining, industrial and agricultural customers are not necessarily growing. There are no major acquisitions we could make (in South Africa) because we would probably be blocked by the competition authorities.

In Africa there's nothing really to buy.

As for our international expansion . we're looking at buying additional distribution in other territories. That's what Kian Ann brought to us.

Are there any areas that are especially exciting for you, where there is decent growth?

The one bright spot is North America. We're going to see a reindustrialisation of the US. The discovery of shale gas there and the reduction in energy costs and the self-sufficiency it gives the US. They've got fantastic engineering capabilities, brilliant logistics capabilities, incredible intellectual capital as far as running businesses is concerned. They have just had this one challenge of energy costs and that's now correcting itself.

Eastern Europe could be a fantastic base. In my new role I'll be spending a huge amount of extra time overseas: talking, looking, targeting . convincing people to do deals with us.

Do you feel intimidated, especially in North America? It seems to have been really tough for South African businesses to crack it there.

The US is competitive but it's also a flexible market and it values initiative and good service. We're not intimidated but we'll be very cautious - that's the message to shareholders: we're not going to be cavalier. If it takes us longer to get to 50% of our revenue from international sources, so be it.

What portion of your revenues are derived internationally?

It's about 23% . half of that's Africa and half Asia. It would take us only two more Kian Anns and we'd be over the 50% mark.

Do you ever get the impression when talking to prospective partners overseas that they underestimate South African businesses?

South African businesses have built a strong reputation internationally. Unfortunately, one of the challenges I find is when you sit down to dinner, the first thing everyone wants to know is: are things okay in South Africa? So it's important to be an ambassador not just for your company but for your country.

The other reason for the international listing would be that if we are doing deals with private vendors, many of them would not want to take stock in a JSE- listed company. It's more perception than anything else. There's nothing wrong with our regulatory environment, but they just would not want to buy into a rand-based stock exchange.

The writer owns Invicta shares