IMPERIAL HOLDINGS LIMITED - Pre Closed Period Briefing to Annual Investor Day Meeting and Trading Update

Release Date: 10/05/2018 07:30
Code(s): IPL
 
Wrap Text
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
Share code: IPL
ISIN: ZAE000067211
(“Imperial”)


Pre Closed Period   Briefing   to   Annual   Investor   Day   meeting   and
Trading Update

Introduction

As published on 20 February 2018, Imperial’s half year revenue and
operating profit grew by 11% to R66.5 billion and     by 5% to R3.1
billion respectively in the 6 months to 31 December 2017.

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

Conditions in Imperial’s markets remain mixed.

South Africa

While it is still early days, the new political leadership has given
rise to a general improvement in business and investor confidence in
South Africa, which will generate approximately 54% of Group
revenues in the current financial year. However, despite the World
Bank and S&P revising South Africa’s GDP forecasts for 2018 and 2019
upward, high unemployment and sub-optimal economic growth continues
to weigh down on trading conditions, which remain challenging.

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 resulting in the renewal of contracts at lower margins.

The impact on the revenues of Motus, approximately 69% of which will
be generated in South Africa in the current financial year, remains
highly competitive, where national vehicle unit sales as reported by
NAAMSA increased 2% in the 10 months to the end of April 2018. The
luxury brand segment remains under severe pressure. For the 10
months to April 2018, sales volumes in our importer brands (Hyundai,
Kia and Renault) increased 10% with our vehicle mix aligned to
current market demand, i.e. entry level and smaller SUV models.
Market share of our imported brands increased by 1% to 14.9%.

Imperial’s business in the Rest of Africa (predominantly logistics)
constitutes 8% of Group revenues and 21% of Imperial Logistics
revenues. Firming commodity prices, strengthening currencies,
gradually improving domestic demand and some policy reforms improved
economic prospects in most countries in sub-Saharan Africa. However,
factors negatively impacting performance during the period include
subdued growth in Kenya (extended elections), the economic recession
in Namibia, the listeriosis outbreak (impacting exports of affected
products out of SA into neighbouring countries) and the
strengthening of the Rand against the US Dollar.

Economic conditions in Europe are positive, although certain sectors
in which we operate remain under pressure, e.g. steel. Economic
growth and the vehicle market in the United Kingdom (UK) are being
depressed by the uncertainties arising from Brexit and consumers
switching from diesel vehicles to petrol vehicles. Palletways’
performance was also hindered by toughening economic conditions in
the UK. The Australian vehicle market has recorded growth but
margins on new vehicles remain under pressure.


Unbundling

Progress with the implementation of the Group’s plans to unbundle
Motus is at an advanced stage and no obstacles are currently
anticipated. The self-sufficiency, independence and balance sheet
capacity necessary for both divisions’ growth strategies is a key
priority and progress to date in achieving appropriate and optimal
gearing (net debt to equity of between 55% and 65%) and self-
sustaining balance sheets by June 2018 is well advanced. As
previously announced, the board will announce a final decision on
the unbundling before the end of June 2018.


Executive focus and operational performance

Executive directors and senior executives of the Imperial Group
remain preoccupied with two tasks: the day to day management of the
businesses in less than favourable economic environments and
significant corporate activity in pursuit of further shareholder
value.

The following are the most noteworthy developments for the 10 months
to the end of April 2018:

•   Group

      o     Revenue, operating profit and profit before tax from
            continuing operations (excluding Regent and businesses held
            for sale) are in line with expectations with improved growth
            in H2 compared to H1.
      o     In general, Motus recorded a stronger performance than
            Imperial Logistics.
      o     Further improvement in the Group’s gearing position and
            progress on creating self-sufficient capital structures for
            Motus and Logistics.




•   Imperial Logistics

      o     Logistics South Africa’s performance was negatively impacted
            by lower volumes in the consumer products and manufacturing
            industries. This was partly offset by stronger performances
            from the commodities, fuel and gas businesses.

      o     The disposal of 30% of Imperial Logistics South Africa to a
            BBBEE partner is progressing steadily, with funding to be
            finalised with the selected partner. We expect to announce
            key terms of the transaction by Q1F2019. The BEE transaction
            is not a pre-requisite for the potential unbundling of
            Motus.

      o     Logistics African Regions performed satisfactorily despite
            variations across the portfolio. EcoHealth rendered a strong
            performance in Nigeria, Surgipharm recorded growth (slightly
            behind pre-acquisition expectations due to extended
            elections in Kenya), and CIC contributed positively despite
            the economic recession in Namibia, while Imres
            underperformed due to increased competition resulting in
            lower margins. The strengthening of the Rand against the US
            Dollar negatively impacted performance during the period.

      o     Excluding businesses held for sale, Logistics International
            performed satisfactorily. Disappointing performances in
            European inland shipping, retail and industrial sub-
            divisions were compensated for by a good performance in
            international shipping and automotive contract logistics.
            Palletways performed below expectations partly due to
            toughening economic conditions in the UK and continued
            competitive pressure in sub-scale operations.


•   Motus

      o     Motus performed well and recorded good revenue and operating
            profit growth, resulting from an increase in new and pre-
            owned vehicle sales in South Africa, specifically in our
            importer brands, which grew ahead of the market (gained 1%
            market share).
      o     In the UK our commercial vehicles business continues to
            perform well. The UK passenger segment performed below
            expectations but increased sales volumes during March 2018
            despite the subdued vehicle market in the UK. The Australian
            operations recorded vehicle sales growth, supported by the
         SWT acquisition, but margins on new vehicles remain under
         pressure.
     o   The Financial Services and Aftermarket Parts sub-divisions
         performed in line with expectations showing modest year on
         year growth.
     o   At the end of April 2018, Hyundai and Kia forward cover on
         the US Dollar and Euro imports extends to November 2018 at
         average rates of R13.00 to the US Dollar and R15.65 to the
         Euro.




Gearing and liquidity

As reported for the six months to 31 December 2017, the Group’s net
debt to equity ratio improved from 98% in December 2016 to 80%.
Following the receipt of the Schirm proceeds of approximately R2.0
billion in January 2018, the debt reduced to 71%. We expect a
further improvement in gearing to end the 2018 financial year at a
debt to equity ratio of 55% - 65%, excluding proceeds from the BBBEE
deal in Logistics South Africa but including, proceeds from
properties and other asset disposals. For the 10 months to end
April, property proceeds of R1,5bn have been received (H1: R606m).

The Group’s liquidity position is strong with R11,0 billion of
unutilised banking facilities, excluding asset backed finance
facilities. 75% of the Group debt is long-term in nature and 41% of
the debt is at fixed rates. The Group’s blended cost of debt is 5.1%
(after tax).

In March 2018 Imperial’s Baa3 global scale ratings outlook was
changed to stable by Moody’s after being placed under review for
downgrade on 29 November 2017 in line with the sovereign rating. The
Group’s international and national scale credit rating by Moody’s is
Baa3 and Aa1.za.

Chief Executive Officer changes

As previously announced, former Group Chief Executive Mark Lamberti
resigned with effect from 30 April 2018.

Mr Lamberti has served Imperial with distinction since March 2014,
leading a multifaceted portfolio, organisation and management
restructuring, a key objective of which was to accelerate executive
development and transformation to align Imperial’s employee and
leadership profile with the economically active demographics of
South Africa. The Board thanks Mr Lamberti for his excellent
leadership and commitment to the Group.

Osman Arbee, Group Chief Financial Officer from 2013 to 2017 and
currently Chief Executive Officer of the Motus division, was
appointed Group Chief Executive Officer with effect from 1 May 2018,
in addition to his position as CEO of Motus.


Guidance for Imperial Group for the six months to 30 June 2018

We anticipate solid operating and financial results in the year to
June 2018, subject to stable currencies in the economies in which we
operate.

For the six months to 30 June 2018 for continuing operations
(excluding Regent and Businesses Held for Sale) we expect:

•   Capital efficiency and gearing to improve.
•   Imperial Logistics to increase revenues and operating profit in
    line with the first half growth.
•   Motus to increase revenues in line with the first half growth and
    operating profit at a higher rate than the first half.
•   Imperial Holdings to increase revenues in line with the first
    half and operating profit at a higher rate than the first half.
•   Imperial Holdings to produce a double-digit growth in headline
    earnings per share off the low base of 2017.

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: 10 May 2018

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