To view the PDF file, sign up for a MySharenet subscription.

IMPERIAL HOLDINGS LIMITED - CEO's 2015 Annual General Meeting Statement

Release Date: 03/11/2015 09:31
Code(s): IPL     PDF:  
Wrap Text
CEO's 2015 Annual General Meeting Statement

IMPERIAL HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration number: 1946/021048/06
Share code: IPL
ISIN: ZAE000067211
(“Imperial” or “the company” or “the Group”)

CEO’S 2015 AGM STATEMENT

Introduction
The 2015 Imperial Holdings Annual Financial Statements were made available to shareholders on
the 14th September 2015, and the 2015 Imperial Integrated Annual Report and 2015 Imperial
Sustainable Development Report on the 29th September 2015.

Together these documents provide extensive information on past performance, current
operations and the strategic intent of Imperial Holdings. Based on the most accurate information
available at the time of writing in August, we gave guidance on the expected 2016 performance of
the Imperial group and each of its five divisions.

A challenging business environment and progress with the reshaping of the Imperial portfolio,
prompt us to update shareholders on our current situation and outlook.

Environment
In its October report the IMF once more lowered its global growth forecasts for 2015 and 2016 to
3.1% and 3.6% respectively; for Advanced Europe to 1.7% and 1.8%; for Germany to 1.5% and
1.6%; and for the United Kingdom to 2.5% and 2.2% respectively. The sub-Saharan Africa 2015
and 2016 forecasts have been reduced to 3.8% and 4.3%, with South Africa forecast to grow below
1.5% for both years.

The causes are little changed. China’s rotation from an export to a consumption led economy, low
commodity demand and prices, and anticipation of rate increases in the US, are depressing
emerging market growth and currencies to various degrees. Although emerging markets growth
prospects differ widely between countries and regions, the outlook is weakening with growth
expected to decline for the fifth year in a row, in turn contributing materially to slower global
growth.

These factors and specific well publicised local developments resulted in a 1.3% decline in South
Africa’s second quarter GDP with the Minister of Finance announcing in his recent Medium-Term
Budget Policy Statement, the downward revision of economic growth forecasts to 1.5% and 1.7%
respectively for 2015 and 2016. There is increasing evidence that structural rather than cyclical
factors are depressing South Africa’s growth and despite an improvement in the stability of
electricity supply, consumer and business confidence remains low.

With 63% of its revenues generated in South Africa, 24% in Advanced Europe and 10% in sub
Saharan Africa north of South Africa, Imperial is affected by these global and local economic
conditions. More specific uncontrollable factors directly influencing Imperial’s businesses in the
first quarter of the 2016 financial year were: a sharp decline in commodity volumes; subdued
consumer goods volumes; currency movements in Africa; low water levels on the Rhine; a 15%
decline of the R/$ exchange rate on the comparable quarter; and an 8% decline in national new
vehicle sales.

Against this background we provide shareholders with current information on the group.

Group Portfolio
Around this time last year shareholders were advised of our intent to release capital, and sharpen
executive focus, by disposing of non-core, strategically misaligned, underperforming or low return
on effort assets.

This imperative gained momentum during the year and on 29th September we announced the
disposal of Imperial’s 100% interest in the Regent Group. On the 5th October we made a voluntary
announcement on the disposal of our 65% interest in Neska. Today I am pleased to announce that
an agreement has been entered into to dispose of our 67,5% share of the Goscor group to
management. Goscor, a subsidiary of our Vehicle Import, Distribution and Dealership division, is
an importer and distributor of industrial equipment, which we regard as non-core to Imperial’s
logistics and vehicles businesses. A more detailed voluntary announcement will be placed on SENS
concurrent with this statement.

These disposals, for which regulatory decisions are expected between January and June 2016, will
if concluded, generate proceeds of approximately R4,3 billion, which will be used to reduce debt
until redeployed in accordance with our strategic and investment criteria.

Our strategy regarding the portfolio is unchanged:
   -   We will continue to dispose of non-core, strategically misaligned, underperforming or low
       return on effort assets.
   -   We will invest capital in South Africa to maintain the quality of our assets and our market
       leadership in logistics and motor vehicles.
   -   We will invest capital in the Rest of Africa primarily to achieve our 2020 objective for the
       revenue and profits generated by logistics in that region to equal that of our South African
       logistics business, and secondarily to expand our vehicles and related businesses in the
       region.
   -   We will invest capital generated from operations and from divestments to grow our
       businesses beyond the continent, but with an emphasis on logistics.


Divisional Performance

Logistics Africa
The previously reported 2015 full year revenue and operating profit for this division was R25.3
billion and R1.59 billion respectively.

In South Africa the division’s profitability is under pressure due to soft volumes in most sectors,
particularly in consumer products and commodities. Operations in the Rest of Africa continued
their strong positive contribution to revenue and operating profit performance.

The division’s strategy to be a significant provider of consumer goods and pharmaceutical logistics
in Southern, East and West Africa is on track with acquisitions performing in line with or ahead of
expectations.
Our guidance on our Logistics Africa division has changed: we expect real growth in revenue and
subdued growth in operating profit in 2016.

Logistics International
The previously reported 2015 full year revenue and operating profit for this division was R19.1
billion and R0.96 billion respectively.

The restructuring of the division into two integrated client facing sub divisions (Imperial Transport
Solutions and Imperial Supply Chain Solutions) has occurred as planned, and opportunities for
simplification and cost reduction are being exploited. The latter included the disposal a small
shipping business to the minority founder manager shareholders.

Operating profit pressures arising from soft volumes and low water levels on European waterways
were offset by contract gains and a growing contribution from the South American inland shipping
contract.

The impact of the disposal of Neska on second half revenue and operating profit will depend on
the timing of Regulatory approvals.

Our guidance on our Logistics International division has changed: we expect revenue growth but a
decline in operating profit in Euro’s in 2016, due to the strategic disposals.

Vehicle Import, Distribution and Dealerships
The previously reported 2015 revenue and operating profit for this division was R27.4 billion and
R0.96 billion respectively.

The impact on operating profit of lower new vehicle sales was offset by firmer margins and
improved workshop and parts performance. Forward cover on our US Dollar imports extends to
June 2016 and on our Euro imports to May 2016.

The impact of the disposal of Goscor on second half revenue and operating profit will depend on
the timing of Regulatory approvals.

Our guidance on our Vehicle Import, Distribution and Dealership division has changed: in the
absence of a marked deterioration of vehicle sales, we expect 2016 real growth in revenue and
operating profit to decline due to the strategic disposal of the Goscor business.

Vehicle Retail, Rental and Aftermarket Parts Division
The previously reported 2015 revenue and operating profit for this division was R37.55 billion and
R1.68 billion respectively.

The passenger and commercial vehicle dealerships in South Africa came under pressure as
national vehicle sales declined. Car rental volumes felt the effects of lower rental usage by
government and corporations. Aftermarket parts are performing to expectation. In the United
Kingdom, our commercial vehicle dealerships and the recent acquisitions are performing to
expectation.
Our guidance on our Vehicle Retail, Rental and Aftermarket Parts division has changed: we expect
single digit growth of revenue and single digit decline of operating profit in 2016.

Financial Services
The previously reported 2015 revenue and operating profit for this division was R4.46 billion and
R1.18 billion respectively.

Notwithstanding management’s distraction by the sale process, Regent is performing in line with
expectations, but with investment income forecast to decline as a result of the decision to reduce
the proportion of equities in the investment portfolio.

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

Although we expect real growth of revenue and operating profit from motor related financial
services and products, the impact of the disposal of Regent on the division’s second half revenue
and operating profit will depend on the timing of Regulatory approval.

Volkswagen
We have received numerous queries from stakeholders on the impact of Volkswagen’s emission
scandal on Imperial.

Imperial interfaces with the Volkswagen organisation in four jurisdictions:
   -   The first is as a provider of contract logistics to the Volkswagen plants in Osnabrück and
       Wolfsburg in Germany, Poznan in Poland and to the Audi plant in Györ in Hungary. Our
       services include parts handling, sequencing, pre-assembling, just–in-time and just-in-
       sequence production, line-feeding, transport and the handling of empties. We also run
       four automated small parts warehouses in Ehmen and Flechtorf near Wolfsburg.

       To date these operations have not been affected.

   -   The second interface is as an importer and distributor of Bentley and Lamborghini
       passenger vehicles through our Vehicle Import Distribution and Dealership division in
       South Africa.

       This business is unaffected.

   -   The third is as a retail dealer of Volkswagen and Audi vehicles through our Vehicle Retail,
       Rental and Aftermarket Parts division in South Africa.

       This business is unaffected as the emission compliance standard in South Africa is EU 2 and
       all Volkswagen Group diesel vehicles of the type EA 189 retailed in South Africa (i.e.
       Volkswagen passenger, Audi, Volkswagen Commercial vehicles) comply with this standard
       for Nitrogen oxide emissions.

   -   The fourth is as a retail dealer of Volkswagen commercial vehicles through our Vehicle
       Retail, Rental and Aftermarket Parts division in the United Kingdom
       Volkswagen Caddy and Transporter panel vans constitute a small portion of our business
       and we have seen a few cancellations and a softening of enquiries. At this stage there is
       evidence that sales lost will be picked up by Mercedes. To date there has been no material
       impact on operating profit.

Imperial Group
The previously reported 2015 revenue and operating profit for the Imperial Group was R110,5
billion and R6.2 billion respectively (including discontinued operations).

Over the past four months Imperial has registered steady progress towards the strategic and
operational objectives described in the Integrated Annual Reports.

Imperial’s performance for the 3 months to September was well ahead of the previous year.
However, the general deterioration of the business and socio political environment, and various
expected second quarter developments, indicate a reversal of this trend in the second quarter. In
addition the effects of the disposals, the precise timing of which is uncertain, will be felt in the
second half.

At this stage for we therefore anticipate single digit revenue growth and no operating profit
growth in continuing operations for the year to June 2016.

We thank shareholders for their support and look forward to presenting our 2016 first half results
on the 23rd February 2016.

MARK J. LAMBERTI

3 November 2015
Bedfordview

Sponsor:
Merrill Lynch South Africa (Pty) Limited

Date: 03/11/2015 09:31:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story