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IMPERIAL HOLDINGS LIMITED - CEOs AGM Statement and General Market Update

Release Date: 04/11/2014 09:00
Code(s): IPL     PDF:  
Wrap Text
CEO’s AGM Statement and General Market Update

Imperial Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number: 1946/021048/06
Share code: IPL
ISIN: ZAE000067211
("Imperial")



CEO’S AGM STATEMENT AND GENERAL MARKET UPDATE

The following statement was delivered to shareholders by the Chief
Executive Officer of Imperial at the Annual General Meeting today.

Introduction

The 2014 Imperial Integrated Annual Report, the 2014 Imperial
Sustainable Development Report and the 2014 Annual Financial
Statements were made available to shareholders on the 20th September
2014.

Together these documents provide extensive information on past
performance, current operations and the strategic intent of Imperial
Holdings and its five major divisions.    For the first time to my
knowledge, based on certain assumptions, we provided specific
guidance on the expected short term performance of the five
divisions.

With due regard to the diverse and currently uncertain conditions in
which many of our businesses operate, we have elected to provide
shareholders with a brief overview of our operating and financial
performance at this meeting.



Environment

In South Africa, the source of 66% of Imperial’s revenue, external
conditions as they affected our businesses in the past four months
were largely unchanged from that of the second quarter of the
calendar year.

The South African economy continues to falter with 2014 GDP growth
now estimated by the IMF to be 1.4%.  Much of this lacklustre
performance is directly attributable to local structural factors
well known to shareholders and unlikely to change in the medium
term. As many of these factors place lower income households under
severe stress, it is reasonable to assume that the Private
Consumption Expenditure of middle to upper income consumers to whom
the Imperial group markets directly, will be well above the 2%
forecast for the country and not as parlous as some suggest.
The prospect of a sovereign rating downgrade, which could have
severe consequences for South Africa,    has been mitigated by Finance
Minister Nene’s excellent first medium   term budget. The willingness
of his cabinet colleagues to support     the necessary austerity must
now be tested.

Although economic growth in most of the sub-Saharan markets in which
Imperial operates is higher than South Africa, their potential is
being suppressed variously by socio-political tensions, religious
extremism and public health issues.     To date none of these have
affected our businesses.

Over the past six months the German economy has progressively
underperformed expectations.     Eurozone economic growth was a mere
0.1% in Q2, with the September Eurozone Purchasing Managers Index
(PMI) at its lowest level this year.      Germany's quarterly growth
fell to just 0.2%, down from 0.8% in Q1.         It is difficult to
accurately apportion the decline in the German economy to general
Eurozone weakness, slowing growth in China, or Russian sanctions.
It is clear however that these operating conditions are below the
assumptions on which our budgeting was based and rather than the
mild economic recovery that was anticipated, we are seeing static or
declining activity in most of our European operations.


Other than in sub-Saharan Africa, slow growth in all of the
industries and regions in which Imperial operates has led to
challenging trading conditions as competitors fight to retain market
share. Logistics contracts are hard won and retained, and with few
exceptions, the sales and margins of vehicle and financial services
businesses are under pressure.



Divisional Performance

Against this developing backdrop we provide shareholders with our
current perspectives on the Imperial Group.



Logistics Africa

The previously reported 2014 revenue and operating profit for this
division was R22 billion and R1.3 billion respectively.

In South Africa this division continues to benefit from its
favourable market position as the country’s leading provider of end
to end logistical solutions.   Scale and capabilities enable us to
compete effectively for new contracts in an environment where
volumes are generally under pressure and counterparties are
demanding service delivery excellence at the lowest price.   For the
year to date our business gains exceed losses.



In Africa we continue to develop our relevance as an end to end
provider of FMCG and pharmaceutical logistical services in SADEC,
East Africa and West Africa, establishing our footprint and
entrenching our position with our principals by delivering on our
commitment to “Get you there, Sell your product, Build your Brand”.
Although all acquisitions are performing to expectation, we are
acutely aware of the triple risks of fast growth, in Africa, through
acquisition, and a major short term focus is the creation of a
robust   control  environment   encompassing  structures,   systems,
processes and people.

On 23rd October the acquisition of 70% of Imres was concluded
effective 1st September, for a purchase consideration of €46m. The
expected annualised revenue of R850m from this wholesaler of
pharmaceutical and medical supplies to NGO’s hospitals and retailers
brings to approximately R9 billion the annualised revenue from our
non-South African logistics business, most of which has been
established since 2012.

Our guidance on our Logistics Africa division is unchanged: we
expect real growth of revenues with operating profit growing at a
higher rate.



Logistics International

The previously reported 2014 revenue and operating profit for this
division was R19 billion and R1.0 billion respectively.

The deterioration of the German economy has been unexpected.
Although our businesses have high barriers to entry arising from
specialised technical expertise in inland waterway shipping,
contract logistics and container port operations, we are not immune
to a general downturn in economic activity in an already slow growth
environment.   Volumes and rates are under pressure but we remain
committed to our capital expenditure, mainly on asset renewal, but
also on the increased capacity of our South American contract, which
is performing in line with expectations.

Our guidance on our Logistics International division has changed: we
continue to expect real growth of revenues in Euros but with
operating profit growing at a lower rate.
Vehicle Import, Distribution and Dealerships

The previously reported 2014 revenue and operating profit for this
division was R27 billion and R1.5 billion respectively.



The impact of sharp currency movements on the sales, margin,
inventory and profitability of this division has frequently been
explained. As previously cautioned, and notwithstanding substantial
mitigating action, a further weakening of the Rand since the 2014
year end has delayed slightly the recovery of retail pricing and
volumes to the desired levels.

In addition to the existing policy of covering forward on all orders
placed, additional FEC’s and hedging instruments are being used to
mitigate the effect of currency movement further out. While these
actions do not solve the fundamental problem of the currency impact
on performance, they do provide extended “line of sight” on
profitability at any time.

Our guidance on our Vehicle Import, Distribution and Dealership
division has changed: absent a marked deterioration of vehicle sales
and including the full year effect of acquisitions, we anticipate
good revenue growth but a decline in operating income for the full
year, resulting from reduced margins and operating profits in the
first half and a recovery off a low base in the second half.



Vehicle Retail, Rental and Aftermarket Parts Division

The previously reported 2014 revenue and operating profit for this
division was R34 billion and R1.6 billion respectively.

This division continues to make pleasing progress towards its
strategic and operating objectives.         The passenger vehicle
dealerships are performing in line with expectation, buoyed slightly
by new vehicle launches, while pre-owned vehicle sales are
increasing with the rising ratio of pre-owned to new vehicle sales
typical at this point of the cycle.

Aftermarket parts are performing to expectation while car rental and
South African commercial vehicle dealerships are feeling the effects
of the subdued economy. Our commercial vehicle dealerships in the
United Kingdom are performing to expectation, augmented since 1
September by the acquisition of 100% of S&B Commercials for a
purchase consideration of £9.0m. S&B Commercials is a Mercedes and
Fuso commercial vehicle dealership chain located in North London,
Hertfordshire and Essex.
Our guidance on our Vehicle Retail, Rental and Aftermarket Parts
division has changed: we expect real growth of revenue and operating
profit for the year.



Financial Services

The previously reported 2014 revenue and operating profit for this
division was R4.1 billion and R1.1 billion respectively.

Regent Insurance is performing below expectation as a result of
lower investment income and an unexpected R19m loss incurred on the
write down of an investment in ABIL.

Notwithstanding the effect of lower vehicle sales, Liquid Capital is
performing to expectations as a result of annuity income from
previously sold products.

Absent a deterioration of underwriting conditions and investment
markets, the guidance on our Financial Services division is
unchanged: we expect single digit growth of revenue and operating
profit for the year.



Imperial Group

The previously reported 2014 revenue and operating profit for the
Imperial Group was R103 billion and R6.2 billion respectively.

Finally as a group, over the past four months we have registered
steady progress towards the strategic and operational objectives
described in the Annual Reports.

Our full year guidance is unchanged: we expect earnings in the
current half to decline on the prior year as the currency impact on
the Vehicle Import, Distribution and Dealership division flows
through. In the absence of a marked deterioration of vehicle sales,
this should right itself in the second half to produce earnings for
the full year in line with 2014.

We thank shareholders for their support and look forward            to
presenting our 2015 first half results on the 22nd February 2015.

MARK J. LAMBERTI

CEO

Sponsor:
Merrill Lynch SA (Pty) Limited

Date: 04 November 2014

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