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CEO’s 2017 AGM Statement
Imperial Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1946/021048/06
ISIN: ZAE000067211
JSE Share code: IPL
(“Imperial” or “Company”)
CEO’S 2017 AGM STATEMENT
Introduction
The 2017 Imperial Integrated Annual Report, the 2017 Imperial Sustainable
Development Report and the 2017 Annual Financial Statements were made available
to shareholders on the 28th September 2017.
These reports seek to provide stakeholders with insight into Imperial Holdings’
progress as the owner exclusively of two increasingly focussed and independent
divisions – Imperial Logistics and Motus Corporation. A manifestation of our
continuing quest to eliminate complexity and cost was an Integrated Annual
Report 22 pages shorter than last year, notwithstanding increased quantitative
and qualitative disclosure.
As is customary at this time, we provide shareholders with an update on
developments during the first quarter of the current financial year.
Environment
Conditions in Imperial’s markets are mixed.
In South Africa, which will generate approximately 50% of Group revenues in the
current financial year, employment, investment and economic growth is low.
Negative consumer and business confidence is exacerbated by political
uncertainty and lacklustre governmental leadership, neither of which likely to
improve in the short term. We do not see the result of the December ANC
electoral conference as either binary or definitive.
The impact of this environment on Imperial Logistics’ revenues, approximately
31% of which will be generated in South Africa in the current financial year,
has been depressed volumes and competitive pressures. The impact on the
revenues of Motus, approximately 65% of which will be generated in South Africa
in the current financial year, is a highly competitive vehicle market where
national vehicle unit sales as reported by NAAMSA increased 6% in the 3 months
to the end of September 2017.
Imperial’s business in the Rest of Africa (predominantly logistics) constitutes
11% of Group revenues. Trading conditions since we last reported are little
changed other than an improvement in the cost of and access to currency in
Nigeria, and the postponement of the Kenyan elections, which has caused
businesses and consumers to defer investment and purchasing decisions.
Consistent with the expectation that this year all 46 OECD countries will grow
for the first time since 2007, economic conditions in Europe continue to
improve. Uncertainty surrounding Brexit has however depressed growth in the
United Kingdom. Reported new car unit growth in September was 9% down on last
year, negative for the 6th month in succession. Conditions in Imperial’s
remaining operating jurisdictions are stable.
Executive focus
Group and divisional directors and senior executives of the Imperial group
remain preoccupied with two tasks: the day to day management of our businesses
in less than favourable environments; and significant corporate activity in
pursuit of further shareholder value.
The following are the most noteworthy developments of the first quarter:
• Group
o Operating profit and profit before tax from continuing operations are
in line with expectations and ahead of last year.
o In general Imperial Logistics recorded a stronger first quarter
performance than Motus.
• Imperial Logistics
o Imperial Logistics South Africa rendered a solid financial performance
in line with expectations. The disposal of 30% of Imperial Logistics
South Africa to a BBBEE partner is progressing steadily with the
application and screening process complete, and negotiations now
underway with a single party whose proposal complies with the major
disposal criteria regarding pricing, proof of funding, long term
retention and the capabilities to add value.
o Imperial Logistics African Regions produced a satisfactory result
despite variations across the portfolio. EcoHealth performed
particularly well in Nigeria, Surgipharm performed in line with pre-
acquisition expectations despite political uncertainty in Kenya, Imres
underperformed due to increased competition, CIC felt the effects of
Namibia’s 5th successive quarter of recession, and the disposal of some
unprofitable entities enhanced profitability.
o Imperial Logistics International is performing in line with
expectations. Shipping, road transport and automotive contract
logistics produced a solid result, compensationg for soft volumes in
steel and retail. Laabs GmbH, a €16m revenue liquid food transporter
specialising in liquid chocolate products and raw materials was
disposed of. Our view regarding Schirm‘s misalignment with our
strategic and financial objectives is unchanged and its disposal is
under consideration. Excluding Schirm Imperial Logistics International
performed ahead of expectations.
• Motus
o Motus made marginal market share gains as vehicle unit sales for the
quarter increased 10.4% compared to the market growth of 6% as reported
by NAAMSA.
o Although Motus’ profitability is susceptible to volume variations, a
deterioration of the Rand will not affect 2018 performance as forward
cover on vehicle imports, at an average rate of R13.60/$ and R14.96/€,
extends to May 2018, at which time correctly priced inventory will
cover the remaining month of the financial year.
o In the UK our commercial vehicles business has been unaffected by
Brexit trends but our newly acquired passenger vehicle business is
performing below expectation as is our dealership network in Australia.
Separate listing of Imperial Logistics and Motus
In our 2016 Integrated Annual Report we drew attention to the fact that Imperial
Logistics and Motus operate in two distinctly different sectors in which
synergies are negligible and the strategic, financial, organisational and
managerial determinants of success are very different. In our 2017 Integrated
Annual Report we questioned whether the separate listing of the two divisions
would unlock value, and committed to announcing a board decision in this regard
before the end of June 2018.
Work in the first quarter of the 2018 financial year has resulted in the
following:
• The management structures of both Imperial Logistics and Motus continue to be
refined pursuant to their operation as fully independent publically traded
entities.
• In support of this, plans are being formulated for the devolution to the
divisions of various functions currently conducted by Imperial Holdings small
head office.
• Standard Bank has been appointed as corporate finance and debt advisors.
• Preliminary work indicates that Imperial Logistics and Motus can achieve
appropriate gearing and self-sustaining balance sheets by June 2018.
• Various strategic, operational and managerial considerations have led to the
conclusion that notwithstanding the apparent value created to date by the
restructuring and disclosure, the focus and accountability resulting from the
separate public listing of Imperial Logistics and Motus will create further
value over time.
• Various financial considerations have led to the conclusion that a separation
will best be implemented by means of the unbundling of Motus to Imperial
shareholders.
• Such a transaction would be based on the audited accounts of Imperial
Holdings for the financial year to June 2018.
• For this reason, a decision on whether or not a separation will take place
will not be made or announced before early July 2018.
Governance
The board of Imperial is deeply troubled by developments surrounding KPMG and
SAP, both suppliers to Imperial. McKinsey is not a supplier.
KPMG is a provider of secondary accounting and consulting services currently
amounting to R13m per annum across Imperial’s operations globally. We consider
KPMG’s involvement with the Gupta’s to be of secondary importance to the SARS
report which contributed to criminal charges being brought against the previous
Minister of Finance and various respected SARS employees. The issue now of even
greater concern to law abiding South Africans, is that doubt on the veracity of
KPMG’s reports will be cast in order to undermine our already fragile criminal
justice system in the prosecution of corruption and “State Capture” crimes.
Given the severity of the impact of these issues on South Africa, we regard
KPMG’s remedial actions to date as inadequate.
The previous CEO of KPMG, Mr Raboijane (Moses) Kgosana resigned from the
Imperial Holdings Board on 7th September 2017.
We have advised KPMG that Imperial intends to conclude existing projects and
withhold the award of any new business until the conclusion and publication of
the investigations by the Independent Regulatory Board for Auditors and the
independent investigation initiated by the South African Institute of Chartered
Accountants. Should these investigations provide inadequate explanations of
KPMG’s role in “State Capture”, or their actions to redress the situation,
Imperial will sever its relationship with the practice.
We have noted SAP’s aggressive response to the allegations of wrongdoing in
their South African business and their recent update on the matter. We have
advised SAP of our expectation, and received their confirmation, that they will
take decisive and appropriate action against any executives or managers found to
have dealt irregularly with any South African government department or state
owned enterprise, or any intermediary purporting to act on behalf of such
entities. We have furthermore communicated our expectation that their final
report contain details and assurances on how any similar wrongdoing will be
prevented in future.
Prospects
Over the past four months, despite challenging trading conditions, Imperial has
performed in line with expectations and ahead of the prior comparable period,
while accelerating its progress towards the strategic and operational objectives
described in the 2017 Integrated Annual Report.
At this stage our expectations for Imperial’s 2018 performance are unchanged.
We anticipate solid operating and financial results in the year to June 2018,
subject to stable currencies in the economies in which we operate, and South
Africa retaining its investment grade. We expect:
• The self-sufficiency and effectiveness of both divisions to be further
entrenched with increased disclosure and balance sheet efficiency and
independence a priority.
• Logistics and Motus to grow revenues and operating profit.
• Imperial Holdings to increase revenues and operating profit with a double-
digit growth in earnings per share from continuing operations.
We thank shareholders for their support and look forward to presenting our 2018
first half results on the 20th February 2018.
MARK J. LAMBERTI
31 October 2017
The forecast financial information contained in this statement has not been
reviewed or reported on by Imperial’s auditors
JSE Sponsor:
Merrill Lynch South Africa (Pty) Limited
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