Wrap Text
Unaudited interim results for the six months ended 31 December 2014
Imperial Holdings Limited
Registration number: 1946/021048/06
Ordinary share code: IPL ISIN: ZAE000067211
Preference share code: IPLP ISIN: ZAE000088076
Leaders in mobility
Unaudited interim results for the six months ended 31 December 2014
Imperial Holdings is a JSE listed South African-based international Group of companies active predominantly in three major areas of mobility: consumer and
industrial logistics; vehicle import, distribution, dealerships, retail, rental and aftermarket parts; and vehicle-related financial services.
Imperial employs almost 52 000 people who generate annual revenues in excess of R100 billion in Africa, Europe, South America, Australia and the United States
through five major divisions which operate under separate management structures to enable decentralised entrepreneurial creativity within the Group's
clearly-defined strategic, capital, budgetary and governance principles.
Imperial strives for focused value creation and leadership in its chosen markets by allocating capital and resources to those organic and acquisitive growth
opportunities that will enhance and be enhanced by the Group's existing assets and capabilities.
Some of Imperial's strategic choices will be deliberate - the result of prior research and analysis, while others will be emergent - the result of unplanned or
unexpected external developments. In both cases strictly defined capital allocation principles will be applied.
Highlights
Revenue up 9% to R56 234 million
Operating profit down 9% to R2 872 million
HEPS down 9% to 759 cents per share
EPS down 18% to 738 cents per share
Core EPS down 14% to 803 cents per share
Cash flow from operating activities up 73% to R1 013 million
Interim dividend of 350 cents per share
Overview
Imperial's portfolio of businesses performed to expectation in deteriorating trading conditions. Revenue growth of 9% to R56,2 billion was attributable
mainly to acquisitions.
Operating profit decreased 9% to R2,9 billion due mainly to depressed margins caused by the delayed impact of a weakening Rand on the competitiveness
and profitability of the Vehicle Import, Distribution and Dealership division. The profitability of the Logistics International division was depressed by low and
declining activity levels in most Eurozone logistics sectors, and the Financial Services division's results were depressed by weaker equity markets in our insurance
business. These declines were almost countered by an excellent performance from Logistics Africa, and a pleasing performance by the Vehicle Retail, Rental
and Aftermarket Parts division.
Core EPS declined 14% to 803 cents and HEPS decreased 9% to 759 cents. A full reconciliation from earnings to headline earnings and core earnings is
provided.
The return on equity of the Group was 17% on a rolling 12 month basis and cash flow from operating activities improved 73% to R1 billion largely as a
result of a lower investment in working capital.
These results reflect progress with Imperial's previously espoused intent to decouple the Group's performance from the impact of currency weakness on the
Vehicle Import, Distribution and Dealership division, as it pertains specifically to the competitiveness and profitability of new vehicles that are imported
directly. Progress towards this objective has been achieved by investing in or developing less correlated activities within the vehicle value chain as well as in
businesses where our capabilities, experience and expertise enable us to grow at acceptable, sustainable rates of return in new markets and geographies.
During the reporting period this approach resulted in non-vehicle revenue increasing 13% to R25 billion (45% of Group revenue) with foreign revenue
increasing 23% to R21 billion (36% of Group revenue). Non-vehicle operating profit increased 6% to R1,7 billion (57% of Group operating profit) and
operating profit from foreign operations increased 20% to R856 million (30% of Group operating profit), while operating profit from African operations
outside of South Africa increased 60% to R383 million.
The refinement of the Imperial portfolio remains an imperative in pursuit of sharper executive focus and higher returns on capital and effort in the medium
term. This will be accomplished firstly by investing in assets and acquisitions that will improve growth, returns and sustainability for stakeholders and
secondly by disposing of those that are non-core, strategically misaligned, underperforming or of low return on effort.
Environment
Consumer and business confidence in South Africa remained fragile exacerbated by electricity shortages. Continually deteriorating business conditions
were generally more challenging than in the comparable period.
African markets served by Imperial to the north of South Africa experienced higher growth, with terrorism and the more recent reduction of the oil price yet
to have an impact on the performance of our businesses.
With the exception of the United Kingdom, the recovery of the Eurozone remained tentative, particularly in Germany where Imperial has extensive
operations.
Divisional performance
Logistics Africa
% change
HY1 HY1 HY2 on HY2
R million 2014 2015 % change 2014 2014
Revenue 10 895 13 265 22 11 195 19
Operating profit 650 802 23 620 29
Operating margin (%) 6,0 6,0 5,5
Return on Invested Capital (%)* 12,6 11,9
Weighted average cost of capital (%)* 8,6 8,9
* Calculated on a rolling 12 month basis.
The division had an excellent six months, delivering strong revenue and operating profit growth in a difficult environment. The SA economy struggled to
gain momentum with the manufacturing sector under pressure and many segments of the retail sector experiencing little or no growth. As a result,
volumes remained subdued and declined in certain sectors of the South African economy. Recent acquisitions and new contract gains across industry sectors
contributed to the strong performance.
The industrial logistics businesses, which service the manufacturing, mining, commodities, chemicals and construction industries, experienced declining
volumes, industrial action in our customer base, and a competitive market. These factors depressed both revenue growth and operating margins.
The consumer logistics businesses showed good revenue and operating profit growth, mainly due to the acquisition of Pharmed and a turnaround at
Imperial Cold Logistics. The market however remains depressed by lacklustre volume growth, mainly in our manufacturing client base.
The division's businesses in Africa beyond South Africa delivered strong growth, mainly due to the acquisitions of Imres and Ecohealth. Turnover and
operating profit grew by 84% and 91% respectively. The FMCG distributorship business performed satisfactorily due to growing consumer demand and the
addition of new principals. The component of the Imperial Health Sciences to the north saw excellent volume growth and performed in line with
expectations. Ecohealth, a distributor of pharmaceutical products in Nigeria and Ghana acquired in March 2014, is performing in line with expectations
despite tougher trading conditions arising from political uncertainty and a lower oil price, which has resulted inter alia in a weaker Naira.
Imres, acquired effective 1 September 2014, had an excellent four months and is performing to expectation. Imres is a wholesaler of pharmaceutical and
medical supplies to its client base, which includes NGOs, hospitals and retailers. Imres adds sourcing and procurement capabilities to Imperial's service
offering, while presenting the potential to leverage Imperial's existing network and capabilities on the African continent.
MDS, a logistics company in Nigeria in which we have a 49% equity interest, contributed to earnings growth and continues to perform well.
The division incurred net capital expenditure of R441 million (2014: R454 million), to fund replacement and expansion of fleet and facilities.
Our full year guidance for the Logistics Africa division is unchanged: we expect real growth of revenues with operating profit growing at a higher rate.
Logistics International
% change
HY1 HY1 HY2 on HY2
Euro million 2014 2015 % change 2014 2014
Revenue 675 678 - 693 (2)
Operating profit 31 27 (13) 38 (29)
Operating margin (%) 4,6 4,0 5,5
R million
Revenue 9 110 9 595 5 10 139 (5)
Operating profit 412 386 (6) 559 (31)
Operating margin (%) 4,5 4,0 5,5
Return on Invested Capital (%)* 8,5 7,6
Weighted average cost of capital (%)* 6,6 6,7
* Calculated on a rolling 12 month basis.
Profitability declined as this division experienced muted activity levels in most sectors of European logistics. The translation effects of an average weaker
Rand exchange rate to the Euro enhanced the performance in Rands.
Transport volumes across the German inland shipping industry were down and freight rates were under pressure. Against this backdrop, Imperial's shipping
business performed satisfactorily. The contract in South America, which commenced in February 2014, is performing in line with expectations and
contributed positively for the period.
Lehnkering, which houses the non-shipping chemical logistics activities, including warehousing, road transport and contract chemical manufacturing services,
experienced challenging conditions. Adverse weather in the USA and lower volumes in the European contract chemical manufacturing business impacted
negatively on its performance.
Panopa, which provides parts distribution and in-plant logistics services to automotive, machinery and steel manufacturers, had a difficult six months.
Despite good revenue growth resulting from new contract gains, margins were depressed by high start-up costs and operational inefficiencies on a new
project.
Neska, the terminal operator, had a poor six months. Activity levels declined, particularly at paper and steel terminals. Performance was also undermined by
the container terminal in Krefeld, which is operating well below capacity.
Divisional net capital expenditure of R614 million (2014: R643 million) was incurred during the period. The majority of this was spent on the expansion in
South America where a further two convoys were commissioned in support of a 10 year contract. We now have a total of four convoys (four push boats and
48 barges) operating on the Rio Parana, transporting iron ore from Brazil to a steel mill in Argentina.
In view of the developments described above, our full year guidance for the Logistics International division has changed: we now expect real growth of
revenues with operating profit in line with 2014.
Vehicle Import, Distribution and Dealerships
% change
HY1 HY1 HY2 on HY2
R million 2014 2015 % change 2014 2014
Revenue 13 378 14 278 7 13 722 4
Operating profit 934 461 (51) 584 (21)
Operating margin (%) 7,0 3,2 4,3
Return on Invested Capital (%)* 20,3 5,7
Weighted average cost of capital (%)* 9,6 9,1
* Calculated on a rolling 12 month basis.
The Vehicle Import, Distribution and Dealerships division is primarily an exclusive importer of 16 automotive and industrial vehicle brands (including Hyundai,
Kia, Renault, Mitsubishi and Crown forklifts) and a distributor through 126 owned and 113 franchised dealerships, including six in Australia.
As predicted, the division faced extremely difficult trading conditions during the half year. Firstly, the cost of new inventory escalated with the weakening of
the Rand plus the additional expense of increasing forward cover to mitigate the uncertainty of further Rand volatility. Secondly, pricing power (and
therefore margin) was eroded by the relative competitive position of local Original Equipment Manufacturers (OEMs) who, as local manufacturers, enjoy the
duty, rebate and cash benefits of the government's Automotive Production and Development Programme (APDP) and as exporters enjoy foreign currency
inflows. The result was a decline in unit volumes on the comparable period much greater than anticipated, particularly in the last three months of the
reporting period.
Although the division's South African new vehicle registrations as reported to NAAMSA were 11% higher, growth was boosted by the inclusion of Renault for
a full six months compared to one month in the comparable period. Excluding Renault, unit sales were down 9%.
Moderate growth was experienced in pre-owned vehicle sales. Annuity revenue streams generated from after-sales parts and service grew strongly with
revenue from the rendering of services up 16% for the period. The growing vehicle parc of our imported brands is delivering good levels of after-market
activity for its dealerships.
Although the Australian business improved its performance from the comparable period, the business continues to produce inadequate returns on capital.
New vehicle sales increased 12% and pre-owned vehicles decreased 4%.
The industrial products and services business performed satisfactorily despite a declining forklift market and lower demand from the mining sector.
It is important to draw shareholders' attention to the fact that the historic high margins of this division were achieved through the convergence of specific
positive economic, consumer, currency and industry circumstances which are unlikely to occur in the future. Expected operating margins in future are likely
to be closer to those of the current financial year than to the average of the past five financial years. Moreover profits will decline in periods when the Rand
depreciation rate relative to the currencies in which we import vehicles is higher than the rate of South African new vehicle inflation.
Divisional net capital expenditure reduced by 42% to R273 million (2014: R471 million) as a result of a lower investment in properties compared to the
comparable period.
In view of the current unit volume trend, our full year guidance for the Vehicle Import, Distribution and Dealerships division has changed: we expect real
growth of revenues with operating profit well below 2014.
Vehicle Retail, Rental and Aftermarket Parts
% change
HY1 HY1 HY2 on HY2
R million 2014 2015 % change 2014 2014
Revenue 17 519 18 726 7,0 16 478 14
Operating profit 740 791 7,0 819 (3)
Operating margin (%) 4,2 4,2 5,0
Return on Invested Capital (%)* 14,6 16,2
Weighted average cost of capital (%)* 8,9 9,7
* Calculated on a rolling 12 month basis.
The Vehicle Retail, Rental and Aftermarket Parts division includes: 86 passenger vehicle dealerships franchising the products of 16 locally based OEM's; 20
commercial vehicle dealerships representing 12 brands in South Africa; 55 commercial vehicle dealerships and workshops in the United Kingdom; Car Rental
(comprising Europcar and Tempest); Auto Pedigree, the pre-owned vehicle retailer; and Aftermarket Parts (comprising Midas, Alert Engine Parts and Turbo
Exchange).
The division delivered good growth of revenue and operating profit in the period. In South Africa, the division retailed 15 611 (2014: 16 760) new and 16
249 (2014: 15 790) pre-owned vehicles during the period. Despite subdued unit sales, passenger vehicle revenue grew due to an improved sales mix and
new vehicle price inflation. The latter influenced customers towards pre-owned vehicles, which experienced moderate growth. Good expense management
and a well streamlined network of dealerships resulted in operating profit growth higher than revenue in the passenger vehicle business.
The South African medium and heavy commercial vehicle market, where we are mostly represented, experienced challenging trading conditions. As a result,
both revenue and operating profit in the local commercial vehicle business declined on the comparable period.
The commercial vehicle division in the United Kingdom continues to perform well and good growth in unit sales was achieved. The results were enhanced
by the recent acquisition of S&B Commercials, a Mercedes Benz commercial vehicle dealer, acquired effective 1 September 2014. The translation effects of a
weaker Rand exchange rate assisted the growth in Rands.
After sales parts and service revenue grew 14% (9% ex UK). Parts revenue growth resulted from both price and volume increases. The significant increase
in new vehicle sales over the last few years bodes well for the future after sales parts and services revenue of the division.
The car rental business experienced a difficult six months with lower volumes in most segments. Revenue days declined mainly as a result of the decision
to improve the overall sales mix. Utilisation was down on the comparable period and the average fleet size was 12% lower. Operating margins declined as
a result of reduced revenue and utilisation.
Unit sales at Auto Pedigree declined from the comparable period as banks tightened credit approval rates to consumers in lower income segments.
Increased reconditioning costs depressed operating margins. New business gains in the panel business fell short of expectation, resulting in an unsatisfactory
performance for the year.
The Aftermarket Parts business performed in line with the comparable period in a competitive and mature market. Price increases as a result of the
weakening in the currency assisted revenue growth.
Divisional net capital expenditure of R766 million was incurred (2014: R746 million) largely on the car rental fleet and on property development in the
vehicle retail businesses.
Our full year guidance for the Vehicle Retail, Rental and Aftermarket Parts division is unchanged: we expect real growth of revenue and operating profit.
Financial Services
% change
HY1 HY1 HY2 on HY2
R million 2014 2015 % change 2014 2014
Motor related financial services
Revenue 563 658 17 603 9
Operating profit 237 258 9 240 8
Operating margin (%) 42,1 39,2 39,8
Insurance
Revenue 1 492 1 509 1 1 482 2
Operating profit 306 253 (17) 298 (18)
Adjusted investment income 168 87 (48) 108 (19)
Adjusted underwriting result 138 166 20 190 (13)
Operating margin (%) 20,5 16,8 20,1
Underwriting margin (%) 9,2 11,0 12,8
Total
Revenue 2 055 2 167 6 2 085 4
Operating profit 543 511 (6) 538 (5)
Operating margin (%) 26,4 23,6 25,8
Return on Invested Capital (%)* 31,4 28,9
Weighted average cost of capital (%)* 11,3 12,4
*Calculated on a rolling 12 month basis
The Financial Services division provides: maintenance and warranty products associated with the automotive market through LiquidCapital; insurance
products and services with a bias towards the vehicle market through Regent; and vehicle leasing through Imperial Fleet Management and Ariva.
Motor Related Financial Services (largely LiquidCapital) grew operating profit by 9%, despite more conservative impairment provisions in the vehicle
financing alliances and the impact on the maintenance funds of higher parts costs resulting from the weaker currency. The advances generated through the
alliances with financial institutions grew encouragingly, as did the funds held under service, maintenance, roadside assistance and warranty plans. Innovative
new products, improved retention and penetration rates in our sales channels also contributed positively to the growth in these businesses, providing
valuable annuity earnings to underpin future profits.
Volumes in Imperial Fleet Management continue improving with new contract gains. Ariva, a private leasing joint venture, had a difficult six months as new
business volumes declined in a tighter credit environment.
Insurance underwriting conditions in the short-term motor industry were more favourable than the comparable period, when weather related claims were
higher. This, together with Regent's decision to focus on its core markets and distribution channels, increased underwriting profit by 20% with underwriting
margins improving from 9,2% to 11,0%. Revenue growth was muted as a result of flat vehicle sales and more conservative motor underwriting. Regent Life
performed as expected, with underwriting profit up 6% for the period. The individual life business in South Africa continues to grow steadily with revenue
growth of 12%. Regional business beyond South Africa remains a meaningful contributor to the division. Equity markets were less favourable when
compared to the comparable period, which led to lower investment returns on prudent equity positions.
Net capital expenditure in this division relates mainly to vehicles for hire. In the current period, a net R636 million was invested in the fleet, compared to
R72 million in the comparable period when certain of these vehicles were leased through one of our banking alliances.
Our full year guidance for the Financial Services division is unchanged: we expect single digit growth of revenue and operating profit.
Acquisitions
Pharmed
Effective 9 July 2014 the Logistics Africa division acquired 62,5% of the issued share capital of Pharmed for a cash consideration of R148 million. Pharmed is
a pharmaceutical wholesaler which generates turnover of approximately R600 million and employs approximately 560 staff based in Durban and
Johannesburg. It purchases product from pharmaceutical companies, and warehouses, distributes and sells to hospitals, private pharmacies and dispensing
doctors. The Pharmed acquisition augments Imperial Health Sciences in support of Imperial's strategy to integrate pharmaceutical wholesaling and
distribution into its service offering.
Imres
Effective 1 September 2014, the Logistics Africa division acquired a 70% interest in Imres, for a cash consideration of R647 million (Euro46 million).
Imres is a wholesaler of pharmaceutical and medical supplies to its client base which includes NGO's, hospitals and retailers. It operates in the international
medical relief industry, targeting mainly African and emerging countries with developing healthcare markets and needs.
Imres plays a key role in the supply chain to end users and its service offering includes: sourcing, inbound logistics, supplier audits, quality control,
warehousing, distribution and transport coordination. Its product portfolio includes pharmaceuticals, medical kits, hospital equipment and related medical
products.
Imres adds sourcing and procurement capabilities to Imperial's service offering with the potential to leverage off Imperial's existing network and capabilities
on the African continent.
Imres has a capable, experienced management team and the organisational processes and structures appropriate to pharmaceutical distribution. Founded in
1980, the company is headquartered in Lelystad in the Netherlands with a facility in India which provides support services and vendor qualification. Imres
has annual revenues of approximately R700 million (Euro50 million).
S&B Commercials
Effective 1 September 2014 the Vehicle Retail, Rental and Aftermarket parts division acquired 100% of the issued share capital of S&B Commercials plc for a
cash consideration of R167 million (£9 million). S&B Commercials is a Mercedes Benz (Commercial and Van) and Fuso dealer in the UK with annual turnover
of approximately R2,1 billion (£115 million). The acquisition enhances our current dealer network by adding new territories to our Mercedes Benz footprint
while further diversifying our brand representation in the United Kingdom.
Financial Performance
% change
HY1 HY1 HY2 on HY2
R million 2014 2015 % change 2014 2014
Revenue 51 357 56 234 9 52 210 8
Operating profit 3 166 2 872 (9) 3 019 (5)
Operating margin (%) 6,2 5,1 5,8
Profit and loss
Revenue increased 9% to R56,2 billion. Excluding acquisitions, revenue increased 1%.
The Group operating margin reduced from 6.2% to 5.1% mainly as a result of the R473 million decline in the Vehicle Import, Distribution and Dealership
division's operating profit.
In aggregate, the Group's operating profit declined by 9%.
Net finance costs increased 42% to R598 million on higher debt levels and higher funding costs due to the lengthening in maturity of our debt profile.
Despite the higher net finance costs, interest covered by operating profit remains good at 4,8 times (2014: 7,5 times).
Income from associates and joint ventures contributed R12 million (2014: R18 million) and declined mainly due to the negative performance of Ukhamba, a
result of the impairment of its investment in DAWN (R19 million). AAD, the joint venture through which we import and distribute Chery and Foton products
(Chinese automotive brands), was under pressure and significantly down on the comparable period. Mix Telematics, in which Imperial holds a 25,3%
shareholding, contributed R15 million, up 17% from the comparable period.
The effective tax rate of 26,2% compared to 26,5% in the comparable period.
Net profit attributable to non-controlling interests (minorities) reduced from R197 million to R168 million. The increase in minorities as a result of the recent
acquisitions was more than offset by significantly lower profits from the Vehicle Import, Distribution and Dealership division which has the most significant
minorities.
Core earnings per share (Core EPS) was down 14%.
The table below summarises the reconciliation from Earnings to Headline and Core Earnings:
HY1 HY1
R million 2014 2015 % change
Net profit attributable to Imperial shareholders (earnings) 1 734 1 426 (18)
Profit on disposal of assets (73) (15)
Impairments of goodwill and other assets - 33
Loss on sale of bisinesses (87) 10
Remeasurement included in associates and JVs 9 18
Tax effects of remeasurements 21 (1)
Other 1 (5)
Headline earnings 1 605 1 466 (9)
Amortisation of intangibles 147 205
Foreign exchange gain on intergroup monetary items - (104)
Business acquisition costs 8 12
Future obligations under an onerous contract 29 -
Charge for amending conversion profile of deferred ordinary shares 70 -
Remeasurement of contingent considerations and put option liabilities - 17
Other adjustments 2 (16)
Tax effects (51) (28)
Core earnings 1 810 1 552 (14)
Earnings in the comparable period were impacted positively by a profit from the disposal of property, plant and equipment (R73 million) and a profit on
disposal of the tourism businesses (R87 million). This largely explains the difference between the 18% decline in earnings and the 9% decline in headline
earnings.
The major difference between the 9% decline of headline earnings and the 14% decline of core earnings is the foreign exchange gain of R104 million on
intergroup monetary items. With the creation of the Domestic Treasury Management Company ("DTMC"), and to better match the currency exposure of our
investments to our funding, we transferred some of our recent acquisitions in Africa together with their related debt in Europe (euro denominated) into the
DTMC structure (dollar denominated). The devaluation of the euro against the dollar resulted in a once off foreign exchange profit. This was hedged on
transfer and no further gain or loss will be incurred on these transactions.
Financial position
Total assets increased by 9% to R64 billion (June 2014: R59 billion) mainly due to acquisitions and higher levels of working capital.
Property plant and equipment increased by R277 million to R10,7 billion, due to a further R308 million investment in our property portfolio, which occurred
largely in the Logistics Africa and Logistics International divisions and in the South African vehicle businesses.
Goodwill and intangible assets rose to R7,4 billion from R6,8 billion as a result of the Imres, S&B Commercials and Pharmed acquisitions.
The transport fleet increased due to the R419 million expansion of the shipping fleet in the Logistics International division of which R310 million related to
our expansion in South America.
Motor vehicles for hire is up R490 million compared to June 2014 due to seasonal requirements and increased by R123 million compared to December 2013
mainly due to the increased fleet of forklifts and industrial equipment in the Vehicle Import, Distribution and Dealerships division.
Investments and loans relate largely to the Regent investment portfolios where exposures to foreign equities and longer term investments were increased
compared to June 2014 but lower than 31 December 2013.
Net working capital increased by 27% on June 2014 and 34% on December 2013 due to acquisitions, increases in inventory in the vehicle businesses and
increases in accounts receivable in Logistics Africa, offset by increases in accounts payable. As a result, our average net working capital turn reduced to 11,3
times from 14,3 times in the comparable period.
Net debt (excluding preference shares) to equity at 83%, compared to 62% at the end of December 2013 and 63% at the end of June 2014. In addition to
higher debt levels, this ratio was negatively impacted by equity declining R1.4 billion due to a put option liability relating to the minority shareholdings in
Eco Health and Imres.
Net debt (excluding preference shares) was 32% higher than June 2014 due to the increase in working capital, acquisitions and expansion of the existing
businesses during the period. While the net debt level is higher than the target gearing range of 60% to 80%; the net debt to EBITDA ratio at 2 times
(2014: 1,4 times) still leaves room for further expansion of the Group.
The Group's liquidity position is strong with R6,3 billion in unutilised facilities (excluding asset based finance facilities). Fixed rate debt represents 45% of the
total debt and 72% is of a long term nature. The Group's credit rating as determined by Moody's was unchanged at Baa3 with a stable outlook.
During the current period, shareholders' equity was impacted negatively by a put option liability of R391 million relating to the minority shareholdings in
Imres; the strengthening of the Rand against the Euro, which resulted in a loss on the foreign currency translation reserve of R227 million; and a R140
million reduction in comprehensive income due to the re-measurement of defined benefit plans at the Logistics International division.
New business written on service, maintenance and warranty contracts generated by the Financial Services segment resulted in insurance, investment,
maintenance and warranty contracts growing to R4,5 billion, up 4% from June 2014 and 9% from December 2013.
Cash flow
Cash generated by operations before capital expenditure on rental assets was 37% higher than the comparable period, at R2,9 billion. This was due mainly
to a lower absorption of cash by working capital compared to the comparable period. The main drivers of this were reduced accounts payable outflows.
After interest, tax payments and capital expenditure on rental assets, net cash flow from operating activities increased to R1,0 billion, up R426 million on
the comparable period.
Capex on rental assets increased 46% mainly due to the car rental business. Earlier de-fleeting in the second half of 2014 financial year led to lower
proceeds on sale of vehicles in the current six months period.
The main contributors to the net R905 million invested in new business acquisitions during the period were Imres, Pharmed and S&B Commercials.
Net replacement and expansion capital expenditure excluding rental assets, was 15% lower than the comparable period, which included substantial
investment by the Logistics International division in South America and higher investments by the South African businesses in properties.
Outflows from equities, investments and loans resulted mainly from our Insurance business investing in foreign equities and longer term investments.
Dividends amounting to R917 million were paid during the period.
Interim dividend
An interim dividend of 350 cents per ordinary share (2014: 400 cents per share) has been declared.
Board changes
During the period under review the resignations of Messrs Brody, Riemann and Hiemstra were announced.
On 23rd February 2015 Mr Schalk Engelbrecht resigned from the Board after serving as an independent non-executive director and a member of the Risk
Committee since June 2008. The Board thanks him for his valued contribution to Imperial and wishes him well for the future.
The Board is pleased to announce the appointment, effective 24th February 2015, of Messrs Peter Cooper and Graham Dempster, both of whom have
enjoyed highly distinguished executive careers, most recently with RMB Holdings and Nedbank respectively. Shareholders' attention is drawn to the SENS
announcements of the 24th February 2015 providing additional information on these gentlemen.
After 13 years as an independent non-executive director and chairperson of the Audit Committee in which capacities his contribution to the progress of
Imperial has been invaluable, Mr Mike Leeming has expressed his intention to retire from the Board on 30th August 2015. He will be succeeded, effective
1st September 2015 by Mr Moses Kgosana, a highly regarded member of the accounting profession, who established and later merged his own firm with KPMG
where in recent years he served as Chief Executive and Senior Partner.
Prospects
The factors contributing to heightened uncertainty and volatility in economies, markets and industries globally are well publicised, as are the additional
consequences of unemployment, low growth and confidence, increasing socio-political tensions, and electricity supply failures facing South African business.
None of these are expected to change markedly in the short to medium term.
The factors most relevant to the fortunes of Imperial are: the weakening of the Rand against the currencies in which we import new vehicles; the poor state
of the South African economy; a much slower than expected recovery of the German economy; and the impact of political uncertainty and a sustained low
oil price on the economy and currency of Nigeria.
As described in the divisional reviews, the outlook for three divisions is unchanged (i.e. Logistics Africa; Vehicle Retail, Rental and Aftermarket Parts; and
Financial Services). A slower recovery in Germany has caused us to reduce our full year expectations of the Logistics International division. Most significantly,
the unit volume decline in the Vehicle Import, Distribution and Dealership division has necessitated a further reduction of expected profits.
We therefore expect Imperial's second half operating performance to be positive, but with earnings for the year to June 2015 to be below 2014.
Conclusion
In addition to the initiatives described in the Overview, the Group has embarked on various strategies to enhance the value added by Imperial Holdings and
the competitiveness and sustainability of its subsidiaries. We are confident that these initiatives will improve risk adjusted returns and unlock shareholder
value in the medium term.
MARK J. LAMBERTI - Chief Executive Officer
OSMAN S. ARBEE - Chief Financial Officer
The forecast financial information herein has not been reviewed or reported on by Imperial's auditors.
Declaration of preference and ordinary dividends
for the six months ended 31 Decenber 2014
Preference shareholders
Notice is hereby given that a gross final preference dividend of 381,36473 cents per preference share has been declared payable, by the Board of Imperial,
to holders of non-redeemable, non-participating preference shares. The dividend will be paid out of reserves.
The preference dividend will be subject to a local dividend tax rate of 15%. No STC credits will be utilised for the preference dividend. The net preference
dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 324,16002 cents per share.
Ordinary shareholders
Notice is hereby given that a gross final ordinary dividend in the amount of 350 cents per ordinary share has been declared payable, by the Board of
Imperial, to holders of ordinary shares. The dividend will be paid out of reserves.
The ordinary dividend will be subject to a local dividend tax rate of 15%. The total STC credits utilised for the ordinary dividend amounted to R9 251 862.
The number of ordinary shares in issue at the date of the declaration was 207 815 753 and consequently the STC credits utilised amounted to 4,45195 cents
per share. The net ordinary dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 298,16779 cents per share.
The company has determined the following salient dates for the payment of the preference dividend and ordinary dividend:
2015
Last day for preference shares and ordinary shares respectively to trade cum-preference
dividend and cum ordinary dividend Friday, 20 March
Preference and ordinary shares commence trading ex-preference dividend and ex-ordinary
dividend respectively Monday, 23 March
Record date Friday, 27 March
Payment date Monday, 30 March
The company's income tax number is 9825178719.
Share certificates may not be dematerialised/rematerialised between Monday, 23 March 2015 and Friday, 27 March 2015, both days inclusive.
On Monday, 30 March 2015, amounts due in respect of the preference dividend and the ordinary dividend will be electronically transferred to the bank
accounts of certificated shareholders that utilise this facility. In respect of those who do not, cheques dated 30 March 2015 will be posted on or about that
date. Shareholders who have dematerialised their shares will have their accounts held at their CSDP or Broker, credited on Monday, 30 March 2015.
On behalf of the board
RA Venter
Group Company Secretary
23 February 2015
Condensed consolidated statement of profit or loss
Audited
Unaudited Unaudited Financial year
Six months ended Six months ended ended
31 December 31 December 30 June
% 2014 2013 2014
Notes change Rm Rm Rm
Revenue 9 56 234 51 357 103 567
Net operating expenses (52 226) (47 136) (95 197)
Profit from operations before depreciation and recoupments 4 008 4 221 8 370
Depreciation, amortisation, impairments and recoupments (1 136) (1 055) (2 185)
Operating profit (9) 2 872 3 166 6 185
Recoupments from sale of properties, net of impairments 12 39 113
Amortisation of intangible assets arising on business combinations (205) (147) (336)
Other non-operating items 6 63 (36) (155)
Profit before net finance costs (9) 2 742 3 022 5 807
Net finance costs 7 42 (598) (420) (926)
Profit before share of result of associates and joint ventures 2 144 2 602 4 881
Share of result of associates and joint ventures 12 18 76
Profit before tax (18) 2 156 2 620 4 957
Income tax expense (562) (689) (1 330)
Net profit for the period (17) 1 594 1 931 3 627
Net profit attributable to:
Owners of Imperial 1 426 1 734 3 272
Non-controlling interests 168 197 355
1 594 1 931 3 627
Earnings per share (cents)
- Basic (18) 738 898 1 687
- Diluted (16) 736 878 1 666
Condensed consolidated statement of comprehensive income
Audited
Unaudited Unaudited Financial year
Six months ended Six months ended ended
31 December 31 December 30 June
% 2014 2013 2014
change Rm Rm Rm
Net profit for the period (17) 1 594 1 931 3 627
Other comprehensive income (322) 303 177
Items that may be reclassified subsequently to profit or loss (182) 277 133
Exchange (losses) gains arising on translation of foreign operations (227) 419 521
Share of associates and joint ventures movement in foreign currency
translation reserve 5 7 12
Movement in valuation reserve (8) 12 45
Reclassification of gain on disposal of available-for-sale investment (1) (1)
Movement in hedge accounting reserve 50 (160) (420)
Share of associates and joint ventures movement in hedge accounting
reserve 2 (14)
Income tax relating to items that may be reclassified to profit or loss (1) (3) (10)
Items that will not be reclassified to profit or loss (140) 26 44
Remeasurement of retirement benefit obligations (202) 38 64
Income tax on remeasurement of retirement benefit obligations 62 (12) (20)
Total comprehensive income for the period (43) 1 272 2 234 3 804
Total comprehensive income attributable to:
Owners of Imperial (46) 1 091 2 037 3 486
Non-controlling interests 181 197 318
1 272 2 234 3 804
Earnings per share information
Audited
Unaudited Unaudited Financial year
Six months ended Six months ended ended
31 December 31 December 30 June
% 2014 2013 2014
change Rm Rm Rm
Headline earnings reconciliation
Earnings - basic (18) 1 426 1 734 3 272
Saving of finance costs by associate on potential sale of Imperial shares 29 29 60
Earnings - diluted 1 455 1 763 3 332
Profit on disposal of property, plant and equipment (IAS 16) (15) (73) (193)
Profit on disposal of intangible assets (IAS 38) 1
Impairment of property, plant and equipment (IAS 36) 17 39
Impairment of intangible assets (IAS 36) 7
Impairment of goodwill (IAS 36) 16 38
(Profit) loss on disposal of investments in associates and joint ventures
(IAS 28) (1) 7
Loss (profit) on disposal of subsidiaries and businesses (IFRS 10) 11 (86) (81)
Realised gain on disposal of available-for-sale investment (IAS 39) (1) (1)
Remeasurements included in share of result of associates and joint
ventures 18 9 18
Tax effects of remeasurements (1) 21 42
Non-controlling interests share of remeasurements (5) 1 2
Headline earnings - diluted 1 495 1 634 3 211
Savings of finance costs by associate on potential sale of Imperial
shares (29) (29) (60)
Headline earnings - basic (9) 1 466 1 605 3 151
Earnings per share (cents)
- Basic (18) 738 898 1 687
- Diluted (16) 736 878 1 666
Headline earnings per share (cents)
- Basic (9) 759 831 1 625
- Diluted (7) 756 813 1 606
Core earnings reconciliation
Headline earnings - basic (9) 1 466 1 605 3 151
Saving of finance costs by associate on potential sale of Imperial shares 29 29 60
Headline earnings - diluted (9) 1 495 1 634 3 211
Amortisation of intangible assets arising on business combinations 205 147 336
Foreign exchange gain on inter-group monetary items (104)
Net cost of meeting obligations under onerous contract 29 64
Business acquisition costs 12 8 22
Remeasurement of contingent consideration and put option liabilities 17 (2)
Change in economic assumptions on insurance funds (1) 7
Adjustments included in share of result of associates and joint ventures 2
Charge for amending the conversion profile of deferred ordinary shares 70 70
Tax effects of core earnings adjustments (28) (51) (119)
Non-controlling interests share of core earnings adjustments (15) (10)
Core earnings - diluted (14) 1 581 1 839 3 579
Saving of finance costs by associate on potential sale of Imperial shares (29) (29) (60)
Core earnings - basic (14) 1 552 1 810 3 519
Core earnings per share (cents)
- Basic (14) 803 937 1 815
- Diluted (13) 800 915 1 790
Additional information
Net asset value per share (cents) 3 9 204 8 926 9 037
Dividend per ordinary share (cents) (13) 350 400 820
Number of ordinary shares in issue (million)
- total shares 207,8 210,0 207,8
- net of shares repurchased 193,8 196,2 194,1
- weighted average for basic 193,2 193,2 193,9
- weighted average for diluted 197,7 200,9 200,0
Number of other shares (million)
- Deferred ordinary shares to convert into ordinary shares 9,1 10,0 9,1
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
31 December 31 December 30 June
2014 2013 2014
Note Rm Rm Rm
ASSETS
Goodwill and intangible assets 8 7 397 5 727 6 766
Investment in associates and joint ventures 1 392 1 235 1 418
Property, plant and equipment 10 746 10 023 10 469
Transport fleet 5 513 5 273 5 322
Vehicles for hire 2 793 2 670 2 303
Deferred tax assets 1 290 1 341 1 101
Investments and loans 3 102 3 679 2 468
Other financial assets 294 230 267
Inventories 15 197 12 506 13 774
Tax in advance 264 340 148
Trade and other receivables 13 470 11 692 11 882
Cash resources 2 620 1 693 3 103
Total assets 64 078 56 409 59 021
EQUITY AND LIABILITIES
Capital and reserves
Share capital and share premium 382 382 382
Shares repurchased (276) (220) (220)
Other reserves 1 053 1 395 1 149
Retained earnings 16 678 15 956 16 229
Attributable to owners of Imperial 17 837 17 513 17 540
Put arrangements over non-controlling interests (1 391) (1 000)
Non-controlling interests 1 816 1 326 1 569
Total equity 18 262 18 839 18 109
Liabilities
Non-redeemable, non-participating preference shares 441 441 441
Retirement benefit obligations 1 261 1 098 1 083
Interest-bearing borrowings 17 729 13 298 14 544
Insurance, investment, maintenance and warranty contracts 4 497 4 130 4 310
Deferred tax liabilities 1 513 1 577 1 355
Other financial liabilities 1 914 468 1 711
Trade and other payables and provisions 17 683 15 975 16 981
Current tax liabilities 778 583 487
Total liabilities 45 816 37 570 40 912
Total equity and liabilities 64 078 56 409 59 021
Condensed consolidated statement of cash flows
Audited
Unaudited Unaudited Financial year
Six months ended Six months ended ended
31 December 31 December 30 June
% 2014 2013 2014
Note change Rm Rm Rm
Cash flows from operating activities
Cash generated by operations before movements in net working capital 4 257 4 328 8 568
Movements in net working capital (1 405) (2 244) (2 879)
Cash generated by operations before capital expenditure on rental
assets 37 2 852 2 084 5 689
Expansion capital expenditure - rental assets (406) (251) (137)
Net replacement capital expenditure - rental assets (402) (301) (390)
- Expenditure (885) (1 100) (1 959)
- Proceeds 483 799 1 569
Cash generated by operations 2 044 1 532 5 162
Net finance cost paid (580) (420) (926)
Tax paid (451) (525) (1 267)
73 1 013 587 2 969
Cash flows from investing activities
Net acquisitions of subsidiaries and businesses (905) 148 (297)
Expansion capital expenditure - excluding rental assets (806) (1 015) (1 626)
Net replacement capital expenditure - excluding rental assets (611) (647) (1 162)
Net movement in associates and joint ventures 25 (75) (144)
Net movement in investments, loans and other financial instruments (997) (129) 1 113
(3 294) (1 718) (2 116)
Cash flows from financing activities
Hedge cost premium paid (118) (112) (108)
Ordinary shares repurchased (56) (502)
Dividends paid (917) (1 050) (1 940)
Change in non-controlling interests (32) (89) (364)
Capital raised from non-controlling interests 91 89
Repayment of corporate bond (1 500)
Proceeds on the issue of corporate bonds 1 500 3 000
Net increase in other interest-bearing borrowings 1 352 450 1 805
229 790 480
Net (decrease) increase in cash and cash equivalents (2 052) (341) 1 333
Effects of exchange rate changes on cash resources in a foreign
currency (6) 54 45
Cash and cash equivalents at beginning of period 898 (480) (480)
Cash and cash equivalents at end of period 9 51 (1 160) (767) 898
Condensed consolidated statement of changes in equity
Put
Share arrangement
capital Shares Attributable over non- Non-
and share re- Other Retained to owners controlling controlling Total
premium purchased reserves earnings of Imperial interests interests equity
Rm Rm Rm Rm Rm Rm Rm Rm
Balance at 30 June 2013 - Audited 382 (220) 1 023 15 056 16 241 1 295 17 536
Total comprehensive income for the period 277 1 760 2 037 197 2 234
Net attributable profit for the period 1 734 1 734 197 1 931
Other comprehensive income 277 26 303 303
Movement in statutory reserves 4 (4)
Share-based equity cost charged to profit or loss 61 61 2 63
Share-based equity reserve hedge cost reversal 13 13 (5) 8
Charge for amending the conversion profile of the deferred ordinary
shares 70 70 70
Ordinary dividends paid (854) (854) (854)
Realisation on disposal of subsidiaries 2 (2)
Non-controlling interests disposed, net of acquisitions and shares issued 25 25
Net increase in non-controlling interests (55) (55) 8 (47)
Non-controlling interests share of dividends (196) (196)
Balance at 31 December 2013 - Unaudited 382 (220) 1 395 15 956 17 513 1 326 18 839
Total comprehensive income for the period (107) 1 556 1 449 121 1 570
Net attributable profit for the period 1 538 1 538 158 1 696
Other comprehensive income (107) 18 (89) (37) (126)
Movement in statutory reserve 6 (6)
Share-based equity cost charged to profit or loss 40 40 1 41
Share-based equity reserve transferred to retained earnings on vesting (16) 16
Share-based equity reserve hedge cost utilisation (108) (108) (108)
Ordinary dividends paid (764) (764) (764)
Repurchase and cancellation of 2 971 808 ordinary shares from open
market at an average price of R168,85 per share (502) (502) (502)
Initial recognition of put options written over non-controlling interests (1 289) (1 289)
Share of changes in net assets in associates and joint ventures 91 91 91
Realisation on disposal of subsidiaries 27 (27)
Non-controlling interests acquired, net of disposals and shares issued (9) (9) 351 342
Net decrease in non-controlling interests (170) (170) 289 (104) 15
Non-controlling interests share of dividends (126) (126)
Balance at 30 June 2014 - Audited 382 (220) 1 149 16 229 17 540 (1 000) 1 569 18 109
Total comprehensive income for the period (195) 1 286 1 091 181 1 272
Net attributable profit for the period 1 426 1 426 168 1 594
Other comprehensive income (195) (140) (335) 13 (322)
Movement in statutory reserve 19 (19)
Share-based equity cost charged to profit or loss 65 65 2 67
Share-based equity reserve transferred to retained earnings on vesting 14 (14)
Share-based equity reserve hedge cost reversal 11 11 (3) 8
Ordinary dividends paid (804) (804) (804)
Repurchase of 320 000 ordinary shares from open market at an average
price of R172,68 per share (56) (56) (56)
Initial recognition of put option written over non-controlling interests* (391) (391)
Share of changes in net assets in associates and joint ventures (2) (2) (2)
Non-controlling interests acquired 206 206
Net decrease in non-controlling interests (8) (8) (26) (34)
Non-controlling interests share of dividends (113) (113)
Balance at 31 December 2014 - Unaudited 382 (276) 1 053 16 678 17 837 (1 391) 1 816 18 262
* Initial fair value of the put option liability relating to the additional 30% that Imperial may acquire from the non-controlling shareholders of Imres.
Notes to the condensed consolidated financial statements
1. Basis of preparation
The condensed consolidated financial statements have been prepared in accordance with the recognition and measurement criteria of International Financial
Reporting Standards (IFRS) and its Interpretations adopted by the International Accounting Standards Board (IASB) in issue and effective for the Group at 31
December 2014 and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and financial reporting pronouncements as
issued by the Financial Reporting Standards Council. The results are presented in accordance with IAS 34 - Interim Financial Reporting and comply with the
Listings Requirements of the Johannesburg Stock Exchange Limited and the Companies Act of South Africa, 2008. These condensed consolidated financial
statements do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial
statements as at and for the year ended 30 June 2014.
These condensed consolidated financial statements have been prepared under the supervision of R Mumford, CA (SA) and were approved by the board of
directors on 23 February 2015.
2. Accounting policies
The accounting policies adopted and methods of computation used in the preparation of the condensed consolidated financial statements are in accordance
with IFRS and are consistent with those of the annual financial statements for the year ended 30 June 2014.
New and amended accounting standards that became effective during the period
The Group applied the following amended statements during the reporting period. None of the amendments has had a material impact on the consolidated
financial statements of the Group.
IAS 16 - Property plant and equipment (amended)
IAS 39 - Financial Instruments - Recognition and Measurements (amended)
IAS 19 - Employee Benefits (amended)
IFRS 2 - Share Based Payments (amended)
3. New and revised International Financial Reporting Standards in issue but not yet effective
The following standards will become applicable to the Group in future reporting periods:
IFRS 9 Financial Instruments (amended) will introduce new requirements for the classification and measurement of financial assets and financial liabilities
and for derecognition, with effect from 1 January 2018.
IFRS 15 Revenue From Contracts With Customers establishes the principles that an entity shall apply to report useful information to users of its financial
statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. This standard was issued
in May 2014 and replaces IAS 11 - Construction contracts, IAS 18 - Revenue, IFRIC 13 - Customer Loyalty Programmes, IFRIC 15 - Agreements for the
Construction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC-31 - Revenue - Barter Transactions Involving Advertising Services.
The Group is in the process of assessing the impact of these standards on its consolidated financial statements.
4. Presentation of statement of profit or loss
To improve the content and format of the statement of profit or loss, certain items that are not operational in nature have been shown in total with the
details given in the notes.
31 December 31 December 30 June
2014 2013 2014
5. Foreign exchange rates
The following major rates of exchange was used in the translation of the Group's
foreign operations:
SA Rand : Euro
- closing 14,06 14,45 14,51
- average 14,15 13,50 14,07
SA Rand : US Dollar
- closing 11,57 10,49 10,62
- average 10,98 10,06 10,38
Audited
Unaudited Unaudited Financial year
Six months ended Six months ended ended
31 December 31 December 30 June
2014 2013 2014
Rm Rm Rm
6. Other non-operating items
Remeasurement of financial instruments not held-for-trading 101 (16) (28)
Foreign exchange gains (losses) on foreign currency monetary items 117 (16) (31)
Loss on remeasurement of put option liabilities (21) (16)
Gains on remeasurement of contingent consideration liabilities 4 18
Realised gain on disposal of available-for-sale investment 1 1
Capital items (39) 79 14
Impairment of goodwill (16) (38)
profit (loss) on disposal of investments in associates and joint ventures 1 (7)
(Loss) profit on disposal of subsidiaries and businesses (11) 86 81
Business acquisition costs (12) (8) (22)
Other items 1 (99) (141)
Net cost of meeting obligation under onerous contract (29) (64)
Change in economic assumptions on insurance funds 1 (7)
Charge for amending the conversion profile of the deferred ordinary shares (70) (70)
63 (36) (155)
7. Net finance costs
Net interest paid (580) (420) (926)
Fair value loss on interest-rate swap instruments (18)
(598) (420) (926)
8. Goodwill and intangible assets
Goodwill
Cost 5 987 5 185 5 596
Accumulated impairments (875) (821) (859)
5 112 4 364 4 737
Carrying value at beginning of period 4 737 3 926 3 926
Net acquisition of subsidiaries and businesses 429 171 579
Impairment charge (16) (38)
Currency adjustment (38) 267 270
Carrying value at end of period 5 112 4 364 4 737
Intangible assets 2 285 1 363 2 029
Goodwill and intangible assets 7 397 5 727 6 766
9. Cash and cash equivalents
Cash resources 2 620 1 693 3 103
Short-term loans and overdrafts (Included in interest-bearing borrowings) (3 780) (2 460) (2 205)
(1 160) (767) 898
10. Fair value of financial instruments
Fair values of financial assets and liabilities carried at amortised cost
The following table sets out instances where the carrying amount of financial liabilities, as recognised on the statement of financial position, differ from
their fair values.
Carrying value Fair value*
31 December 2014 Rm Rm
Listed non-redeemable, non-participating preference shares 441 341
* Level 1 of the fair value hierarchy.
The fair values of the remainder of the Group's financial assets and financial liabilities at 31 December 2014 approximate their carrying values.
Fair value hierarchy
The Group's financial instruments carried at fair value are classified into three categories defined as follows:
Level 1 financial instruments are those that are valued using unadjusted quoted prices in active markets for identical financial instruments.
Level 2 financial instruments are those valued using techniques based primarily on observable market data. Instruments in this category are valued using
quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or valuation techniques where all the inputs
that have a significant effect on the valuation are directly or indirectly based on observable market data.
Level 3 financial instruments are those valued using techniques that incorporate information other than observable market data. Instruments in this category
have been valued using a valuation technique where at least one input, which could have a significant effect on the instrument's valuation, is not based on
observable market data.
The following table presents the valuation categories used in determining the fair values of financial instruments carried at fair value:
Total Level 1 Level 2 Level 3
31 December 2014 Rm Rm Rm Rm
Financial assets carried at fair value
Fair valued through profit or loss
Investments held for trading (Included in Investments and loans)* 2 552 2 114 438
Fair valued through other comprehensive income
Available-for-sale investment (Included in Investments and loans) 198 198
Foreign exchange contracts (Included in Trade and other receivables) 35 35
Financial liabilities carried at fair value
Fair valued through profit or loss
Put option liabilities (Included in Other financial liabilities) 1 491 1 491
Contingent consideration liabilities (Included in Other financial liabilities) 53 10 43
Swap instruments (Included in Other financial liabilities) 173 173
Fair valued through other comprehensive income
Foreign exchange contracts (Included in Trade and other payables) 15 15
Swap instruments (Included in Other financial liabilities) 58 58
* The net fair value gains on investments held for trading amounted to R25 million, of which gains amounting to R29 million were realised and losses
amounting to R4 million were unrealised. The net fair value gains on investments are included in 'Net operating expenses' in profit or loss.
Investments classified as level 1 were valued by quoted market prices in active markets and consists of listed equity securities. Instruments classified as
level 2 use valuation techniques by observable inputs which mainly comprise of short-term deposits and over the counter (OTC) derivatives instruments.
Transfers between hierarchy levels
The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred. There
were no transfers between the fair value hierarchies during the period.
Movements in level 3 financial instruments measured at fair value
The following table shows a reconciliation of the opening and closing carrying values of level 3 financial liabilities carried at fair value at 31 December 2014.
Contingent
Put option consideration
liabilities liabilities Total
Financial liabilities Rm Rm Rm
Carrying value at beginning of period 990 82 1 072
Initial recognition direct in equity 391 391
Arising on acquisition of business 17 17
Fair valued through profit or loss 21 (4) 17
Settlements (52) (52)
Currency adjustment 89 89
Carrying value at the end of the period 1 491 43 1 534
Level 3 sensitivity information
The fair values of the level 3 financial liabilities of R1 534 million were estimated by applying an income approach valuation method including a present
value discount technique. The fair value measurement is based on significant inputs that are not observable in the market. Key assumptions used in the
valuations includes the assumed probability of achieving profit targets and the discount rates applied. The assumed profitabilities were based on historical
performances but adjusted for expected growth.
The following table shows how the fair value of the level 3 financial liabilities as at 31 December 2014 would change if the significant assumptions were
to be replaced by a reasonable possible alternative.
Carrying Increase in Decrease in
value liabilities liabilities
Financial instruments Valuation technique Key assumption Rm Rm Rm
Put option liabilities Income approach Earnings growth 1 491 15 (144)
Contingent consideration liabilities Income approach Assumed profits 43 (2)
31 December 31 December 30 June
2014 2013 2014
Rm Rm Rm
11. Contingencies and commitments
Capital commitments 1 656 1 239 2 285
Contingent liabilities 306 309 317
12. Disposals and acquisitions during the period
There were no material disposals during the period. For acquisitions during the period refer to business combinations.
13. Events after the reporting period
Dividend declaration
Shareholders are advised that a preference and an ordinary dividend have been declared by the Board of Imperial on 23 February 2015. For more details
please refer to the dividend declaration.
Business combinations during the period
Interest Purchase
Subsidiaries and businesses acquired consideration
acquired Nature of business Operating segment Date acquired (%) Rm
Pharmed Pharmaceutical Wholesale supply and distribution of Logistics Africa July 2014 62,5 148
(Pty) Limited healthcare related products
Imres BV Wholesaler of pharmaceutical and Logistics Africa September 2014 75* 691
medical supplies to mainly African
and emerging markets
S&B Commercials plc Mercedes Benz commercial franchise Vehicle Retail, Rental and September 2014 100 167
business After Market Parts
Individually immaterial 28
acquisitions
1 034
* The Group subsequently decreased its interest in Imres BV to 70%.
Individually
S&B immaterial
Fair value of assets acquired and liabilities assumed at date Pharmed Imres Commercials acquisitions Total
of acquisition: Rm Rm Rm Rm Rm
Assets
Intangible assets 1 308 36 345
Property, plant and equipment 53 8 53 4 118
Transport fleet 5 5
Deferred tax asset 1 1
Inventories 194 125 437 6 762
Trade and other receivables 322 208 129 18 677
Cash resources 12 63 4 79
576 661 718 32 1 987
Liabilities
Deferred tax liabilities 67 10 77
Interest-bearing borrowings 18 82 329 4 433
Other financial liabilities 1 1
Trade and other payables and provisions 317 85 270 19 691
Current tax liabilities 9 9 18
344 243 609 24 1 220
Acquirees' carrying amount at acquisition 232 418 109 8 767
Non-controlling interests (98) (105) (3) (206)
Net assets acquired 134 313 109 5 561
Purchase consideration 148 691 167 28 1 034
Cash paid 148 691 167 11 1 017
Contingent consideration 17 17
Excess of purchase price over net assets acquired 14 378 58 23 473
The initial accounting for business combinations were incomplete and based on provisional figures.
Reasons for the acquisitions
The Group acquired a 62,5% shareholding in Pharmed Pharmaceuticals (Pty) Limited. This acquisition is in line with Group's strategy to integrate
pharmaceutical wholesaling and distribution into its service offering. Pharmed specialises in the wholesale supply and distribution of healthcare related
products, including ethical, generic, patent and homeopathic medicines; surgical, dental and veterinary products; and medical equipment.
The acquisition of 75% shareholding in Imres (5% of which was subsequently sold), is in line with the Group's strategy to expand its participation in the
distribution of fast moving consumer goods and pharmaceutical products in Africa. It also complements Imperial's acquisitions of Imperial Health Sciences,
Eco Health, Pharmed and the 49% equity interest in MDS Logistics. Imres adds sourcing and procurement capabilities to Imperial's service offering and it can
leverage off Imperial's existing network and capabilities on the African continent.
The Group acquired a 100% shareholding in S&B Commercicals, which is a Mercedes Benz commercial vehicle dealership with four main sites that covers
North London, Essex and Hertfordshire and operates 5 dedicated customer workshops. The acquisition provided further diversification of our UK commercial
vehicle franchise portfolio into the Mercedes brand which continues to grow its share in the UK market in both heavy and light commercial vehicles.
The other businesses were acquired to complement and expand our distribution of motor vehicles parts, pharmaceuticals and business solutions in South
Africa and Africa.
Details of contingent consideration
The contingent consideration requires the Group to pay the vendors an additional total amount of R17 million over three years if the entities' net profit after
tax exceeds certain profit targets.
Acquisition costs
Acquisition costs for business acquisitions concluded during the period amounted to R11 million and have been recognised as an expense in profit or loss in
the "Other non-operating items" line.
Impact of the acquisition on the results of the Group
From the dates of acquisition the businesses acquired during the period contributed revenue of R1 407 million, operating profit of R86 million and after tax
profit of R38 million. The after tax profit of R38 million includes the after tax impact of the funding cost of R11 million calculated on the cash consideration
paid on acquisitions, the fair value loss on the remeasurement of the put option liability of R4 million and the amortisation of intangible assets arising out of
the business combinations of R14 million.
Had all the acquisitions been consolidated from 1 July 2014, they would have contributed revenue of R1 766 million, operating profit of R119 million and
after tax profit of R57 million. The Group's total revenue for the period would have increased to R56 593 million, operating profit would have increased to
R2 905 million and after tax profit would have increased to R1 613 million. The after tax profit of R57 million includes the after tax impact of the funding
cost of R14 million calculated on the cash consideration paid on acquisitions, the fair value loss on the remeasurement of the put option liability of R7
million and the amortisation of intangible assets arising out of the business combinations of R21 million.
Separate identifiable intangible assets
As at the acquisition date the fair value of the separate identifiable intangible assets was R344 million. This fair value, which is classified as level 3 in the
fair value hierarchy, was determined using the Multi-period Excess Earnings Method (MEEM) valuation technique.
The significant unobservable valuation inputs were as follows:
Imres BV S&B Commercials
% %
- Discount rates 11,0 8,0
- Terminal growth rates 1,0 2,0
The assumptions used in arriving at projected cash flows were based on past experience and adjusted for any expected changes.
Other details
Trade and other receivables had gross contractual amounts of R727 million of which R50 million was doubtful. Non-controlling interests have been
calculated based on their proportionate share in the acquiree's net assets. None of the resulting goodwill is deductible for tax purposes.
Segmental information
Logistics Vehicles Financial services
Vehicle Import, Vehicle Retail, Motor-related Head-Office
Logistics Logistics Distribution and Rental and Financial Services and
Group Africa International Dealerships After Market Parts Insurance and Products Eliminations
R million 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Segment profit or loss
Revenue 56 234 51 357 13 265 10 895 9 595 9 110 14 278 13 378 18 726 17 519 1 509 1 492 658 563 (1 797) (1 600)
- South Africa 35 718 34 638 8 073 8 067 12 454 11 736 15 182 14 682 1 158 1 190 658 563 (1 807) (1 600)
- Rest of Africa 5 794 3 374 5 184 2 820 192 187 67 64 351 302 1
- International 14 722 13 345 8 8 9 595 9 110 1 632 1 455 3 477 2 773 10 (1)
Operating profit 2 872 3 166 802 650 386 412 461 934 791 740 253 306 258 237 (79) (113)
- South Africa 2 016 2 454 511 500 422 922 720 670 185 238 258 237 (80) (113)
- Rest of Africa 383 240 294 154 2 1 19 17 68 68
- International 473 472 (3) (4) 386 412 37 11 52 53 1
Depreciation, amortisation, impairments and
recoupments 1 329 1 163 455 339 393 352 128 117 335 317 13 9 51 31 (46) (2)
- South Africa 741 700 317 270 120 110 292 288 11 8 51 31 (50) (7)
- Rest of Africa 149 79 138 69 1 1 7 7 2 1 1 1
- International 439 384 393 352 7 6 36 22 3 4
Net finance costs 598 420 202 160 92 86 260 152 145 134 6 8 (1) (106) (120)
- South Africa 423 286 142 131 249 142 132 125 6 8 (1) (105) (120)
- Rest of Africa 64 34 60 29 1 2 3 3
- International 111 100 92 86 10 8 10 6 (1)
Pre-tax profits* 2 183 2 533 633 490 215 204 192 780 650 604 246 302 269 253 (22) (100)
- South Africa 1 555 2 094 369 386 162 775 603 550 178 234 269 253 (26) (104)
- Rest of Africa 354 191 267 108 3 2 15 14 68 68 1 (1)
- International 274 248 (3) (4) 215 204 27 3 32 40 3 5
Segment financial position
Operating assets* 60 596 53 189 15 550 11 416 11 300 10 974 14 338 13 169 13 416 11 986 4 476 4 334 2 414 1 641 (898) (331)
- South Africa 37 555 35 150 9 441 8 798 12 839 11 788 10 943 10 358 3 263 3 292 2 414 1 641 (1 345) (727)
- Rest of Africa 7 578 3 908 6 108 2 617 169 174 88 75 1 213 1 042
- International 15 463 14 131 1 1 11 300 10 974 1 330 1 207 2 385 1 553 447 396
Operating liabilities* 23 864 21 671 5 678 4 257 4 216 4 146 4 130 4 231 4 908 4 018 2 603 2 483 3 442 3 138 (1 113) (602)
- South Africa 15 270 14 607 3 970 3 504 3 918 4 024 3 496 3 016 1 769 1 779 3 442 3 138 (1 325) (854)
- Rest of Africa 2 600 1 550 1 705 753 45 75 16 18 834 704
- International 5 994 5 514 3 4 216 4 146 167 132 1 396 984 212 252
Net working capital* 10 984 8 223 1 460 842 539 203 5 829 4 811 2 851 2 467 (945) (899) 287 322 963 477
- South Africa 8 469 6 821 563 368 5 311 4 388 2 187 2 165 (735) (767) 287 322 856 345
- Rest of Africa 750 371 899 476 53 27 7 (210) (132) 1
- International 1 765 1 031 (2) (2) 539 203 465 396 657 302 106 132
Net debt* 15 550 12 046 5 340 3 421 4 383 4 154 5 484 4 049 3 378 3 325 (1 099) (424) (1 839) (2 112) (97) (367)
- South Africa 8 688 7 341 2 752 2 688 4 930 3 540 2 899 3 117 (579) (154) (1 839) (2 112) 525 262
- Rest of Africa 2 287 669 2 585 734 181 164 41 41 (520) (270)
- International 4 575 4 036 3 (1) 4 383 4 154 373 345 438 167 (622) (629)
Net capital expenditure 2 225 2 214 441 454 614 643 273 471 766 746 56 27 636 72 (561) (199)
- South Africa 1 357 1 240 277 354 270 282 707 707 55 27 636 72 (588) (202)
- Rest of Africa 189 128 164 100 1 22 28 1 1
- International 679 846 614 643 2 189 37 11 26 3
* Defined in the Glossary of terms.
Logistics Vehicles Financial services
Vehicle Import, Vehicle Retail, Motor-related Head-Office
Logistics Logistics Distribution and Rental and Financial Services and
Group Africa International Dealerships After Market Parts Insurance and Products Eliminations
R million 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Additional segment information
Analysis of revenue by type
- Sale of goods 32 531 28 714 4 309 2 182 12 086 11 603 16 137 14 938 (1) (9)
- Rendering of services 22 192 21 200 8 845 8 625 9 499 9 082 1 259 1 089 2 280 2 143 53 51 255 204 1 6
- Gross premiums 1 415 1 405 1 415 1 405
- Other 96 38 91 28 1 2 7 2 2 1
56 234 51 357 13 154 10 807 9 590 9 110 13 345 12 693 18 419 17 088 1 470 1 458 255 204 1 (3)
Inter-group revenue 111 88 5 933 685 307 431 39 34 403 359 (1 798) (1 597)
56 234 51 357 13 265 10 895 9 595 9 110 14 278 13 378 18 726 17 519 1 509 1 492 658 563 (1 797) (1 600)
Analysis of depreciation, amortisation,
impairment and recoupments 1 329 1 163 455 339 393 352 128 117 335 317 13 9 51 31 (46) (2)
- Depreciation and amortisation 1 122 1 089 362 342 294 279 128 118 322 310 13 16 51 31 (48) (7)
- Recoupments and impairments 2 (73) (9) (48) 6 (20) (1) 3 (2) (7) 2 5
- Amortisation of intangible assets
arising on business combinations 205 147 102 45 93 93 10 9
Share of result of associates and joint
ventures included in pre-tax profits 12 18 21 15 8 5 (3) 2 14 10 (2) (3) 11 16 (37) (27)
Fixed assets included in operating
assets 19 052 17 966 5 178 4 921 4 543 4 180 4 030 3 742 4 944 4 813 150 141 1 044 354 (837) (185)
- Property, plant and equipment 10 746 10 023 1 876 1 516 2 291 2 273 3 229 3 079 2 927 2 816 150 141 25 7 248 191
- Transport fleet 5 513 5 273 3 302 3 405 2 252 1 907 (41) (39)
- Vehicles for hire 2 793 2 670 801 663 2 017 1 997 1 019 347 (1 044) (337)
Corporate Information
Directors
TS Gcabashe# (Chairman), A Tugendhaft##, (Deputy Chairman), MJ Lamberti (Chief Executive), M Akoojee, OS Arbee, MP de Canha, T Dingaan#, P Langeni#,
MJ Leeming#, P Michaux, MV Moosa##, RJA Sparks#, JJ Strydom, M Swanepoel, Y Waja#
# Independent non-executive ## Non-executive
Company Secretary
RA Venter
Business address and registered office
Imperial Place, Jeppe Quondam, 79 Boeing Road East, Bedfordview, 2007
Share transfer secretaries
Computershare Investor Services (Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001
Sponsor
Merrill Lynch SA (Pty) Limited, 138 West Street, Sandown Sandton, 2196
The results announcement is available on the Imperial website: www.imperial.co.za
Date: 24/02/2015 07:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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