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Pre Closed Period Briefing to Annual Investor Day meeting and Trading Update
Imperial Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number: 1946/021048/06
Ordinary share code: IPL ISIN: ZAE000067211
(”Imperial”)
Pre Closed Period Briefing to Annual Investor Day meeting and Trading Update
Introduction
As publicised on the 21st February 2017, Imperial’s half year revenue and
operating profit for continuing operations, excluding Regent, both grew 3%
to R59.7 billion and R2.9 billion respectively in the 6 months to December
2016.
Imperial’s management team will today host members of the investment
community at its Annual Investor Day in Johannesburg. The following update
will be provided during the event and the presentation in support of the
event will be available on the company’s website (www.imperial.co.za). The
event will also be screened live via a webcast.
Environment / operating context
South Africa
The trading environment remains challenging in South Africa where R35.2
billion or 59% of Group revenue and R1.9 billion or 64% of Group operating
profit was generated in the 6 months to December 2016.
Following the President’s politically motivated ill-advised and illogic
decision to replace highly respected ministers in treasury, S&P downgraded
South Africa’s long term foreign currency sovereign credit to sub-investment
grade on the 3 April 2017. Fitch followed on 7 April 2017 downgrading both
foreign and local currency debt to sub-investment grade.
These developments have cast doubt on the expected recovery of GDP in 2017,
with a high probability that a similar move to sub-investment grade by Moody’s
could result in recessionary conditions heading towards 2018. If so, already
fragile business and consumer confidence will deteriorate in response to a
weaker Rand and rising interest rates, inflation, unemployment and social
unrest.
Specific factors affecting Imperial in South Africa during the first half of
2017 were: negative real growth of retail sales; improved demand for
commodities; a decline in national new vehicle sales; and the volatility of
the Rand which created foreign exchange hedging losses and increased the
cost of inventory, thereby depressing the competitiveness of imported
vehicles.
Eurozone, United Kingdom (UK) and Australia
Slow economic recovery continues and trading conditions remain satisfactory
in the Eurozone, UK and Australia, where R19,3 billion or 32% of Group revenue
and R588 million or 20% of Group operating profit was generated in the six
months to December 2016.
Specific factors affecting Imperial during the first half of 2017 were: low
water levels on the Rhine; lower demand and pricing pressures in the steel,
energy, commodities and construction sectors; steady UK economic growth as
yet unaffected by Brexit; and the Rand volatility which affects the
translation value of our foreign operations.
African Regions
Falling commodity demand, low oil prices and the consequent impact on
currencies and private consumption continues to depress the growth rate in
sub-Saharan Africa, where R5,7 billion or 9% of Group revenue and R461 million
or 16% of Group operating profit was generated in the six months to December
2016.
Specific factors affecting Imperial in certain African countries during the
first half of 2017 were: slowing GDP growth rates; rising inflation and
interest costs; lower consumer demand; and currency volatility, specifically
the significant devaluation of the Mozambique Metical and Nigerian Naira.
Group strategy and Capital Allocation
Imperial remains dedicated to create long-term value for stakeholders through
strategic and structural clarity, operational excellence, financial
discipline and strictly defined capital allocation principles.
To this end, in late 2014, the Group embarked upon a major restructuring of
the portfolio, organisation, management and reporting of Imperial. We are
pleased to report that this restructuring is ahead of plan, nearing
completion during the first half of 2017.
Imperial’s activities are now fully contained within two clearly defined
increasingly self-sufficient divisions, Imperial Logistics and Motus,
focussed respectively and exclusively on the logistics and vehicle supply
chains under separate boards and management.
The primary objective of this restructuring is to increase participation and
performance in the supply chains of both sectors through better co-ordinated
and competitive value propositions to clients. This will be achieved by
strategic and managerial focus, the elimination of complexity and the
reduction of operating expenses through intra-divisional efficiencies and
collaboration.
Since the release of the H12017 results, progress towards each of Imperial’s
five capital allocation objectives is as follows:
1. To release capital and sharpen executive focus, by disposing of non-core,
strategically misaligned, underperforming or low return on effort assets.
• On 24 April 2017, the South African Competition Tribunal approved the
sale of Regent to Hollard for approximately R1.8 billion including the
R697 million Regent Africa proceeds. The final transaction, still
subject to FSB approval, differs from that originally advised to
shareholders in that the value added products businesses were excluded.
The latter was necessary to remedy Competitions Commission objections
but it will strengthen Imperial’s participation in the vehicle value
chain.
• Since 1 July 2016 34 non-strategic properties have been sold. A further
17 properties are under negotiation. We expect R1.5 billion to be
received in calendar 2017. We anticipate a further R600 million in
calendar 2018.
• Although the bulk of identified disposals have been concluded,
continual analysis of the strategic and financial performance of
businesses will result in refinements to the portfolio of Motus and
Imperial Logistics over the medium term.
Since H2 F2014: 42 businesses with total revenue of R11.8 billion and
operating profit of R886 million, and 82 properties have been or are in the
process of being sold in a number of unrelated transactions in various
jurisdictions. The total capital employed in these businesses and
properties totals R4.4 billion
2. We will invest capital in South Africa to maintain the quality of assets
and market leadership in our logistics and motor vehicle businesses.
• There have been no acquisitions in South Africa in H2 F2017.
Since H2 F2014 8 acquisitions of businesses valued at R458 million have
been concluded.
3. We will invest capital in the African Regions primarily to achieve our
2020 objective for the revenue and profits generated in that region to
equal that of our South African logistics business, and secondarily to
expand our vehicle businesses in the region.
• The acquisition of 70% of Surgipharm Limited for USD35 million (ZAR470
million) announced on 15 February 2017, has since been approved by the
Kenyan competition authorities and is now subject only to COMESA
competitions authority approval.
Since H2F2014 7 acquisitions of businesses valued at R808 million have
been concluded.
4. We will invest the cash generated from operations and divestments to grow
our businesses beyond the continent, but with an emphasis on logistics.
• There have been no acquisitions beyond the continent in H2 2017.
Since H2F2014 8 acquisitions of businesses valued at R3.4 billion have
been concluded.
5. The development and sustainability of Imperial will be underpinned by
investment in human capital and information systems.
• Group wide investments in human capital development and information
systems in H1 F2017 amounted to R538 million.
Guidance by sub-division for the year to 30 June 2017
The executive management of Imperial will provide qualitative detail on the
operations of each division in response to questions from members of the
investment community and in support of the following guidance, which is
marginally changed since the release of the H1 F2017 results on the 21
February 2017.
Imperial Logistics:
• South Africa: Growth of revenues and operating profit (No change).
• African Regions: Decline in revenues and operating profit attributable
primarily to the impact of currency movements on volumes, margins and
the translation of profits into Rands (No change).
• International: Growth of revenues and operating profit, attributable
to the acquisition of Palletways, and a recovery in the German and
South American businesses in H2 2017, which remain dependent on weather
conditions and customer volumes (No change).
Motus:
• Import and Distribution: Increase in revenues due to a change in sales
mix (Changed) but a decline in operating profit, impacted by market
contraction, pressure on consumers and vehicle price inflation.
The previously reported high cost of foreign exchange cover resulted
in a decision to unwind some of the excessive and uneconomical
committed forward exchange contracts, resulting from the stronger Rand.
In addition, certain currency losses debited directly to equity will
be realised in the income statement as foreign exchange losses.
Forward cover on the US Dollar and Euro imports currently extends to
November 2017 at an average of R13.80 to the US Dollar and R14.65 to
the Euro, and is lower than the previously disclosed rates of R15.02
to the US Dollar and R16.47 to the Euro.
• Retail and Rental: Decline in revenues and operating profit,
attributable to challenging trading conditions in South Africa (No
change).
• Aftermarket Parts: Increase in revenues and operating profit (No
change).
• Motor Related Financial Services: Growth of revenues and operating
profit (No change).
Guidance for Imperial Group for the year to 30 June 2017
Absent any deterioration in trading conditions or currencies, we expect the
Imperial Group to achieve a single digit increase in revenues and unchanged
operating profit for the year to June 30 2017. A significant increase in
foreign exchange losses and higher financing costs will however depress
headline earnings.
The forecast financial information herein has not been reviewed or reported
on by Imperial’s auditors. The forward looking information contained in this
announcement contains the views and forecasts of management at the time of
publication.
Sponsor:
Merrill Lynch SA (Pty) Limited
Date: 16 May 2017
Date: 16/05/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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