While it is still early days, the advent of new political leadership in South Africa has given rise to a general improvement in business and investor confidence, which is expected to benefit JSE-listed Imperial Holdings.

The group warns, however, that despite the World Bank and Standard & Poor’s revising their forecasts for South Africa’s gross domestic product growth for 2018 and 2019 upward, a high unemployment rate and suboptimal economic growth continue to weigh on trading conditions.

The impact of this environment on Imperial Logistics’ revenues, about 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, about 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 the National Association of Automobile Manufacturers of South Africa (Naamsa), increased by 2% in the ten months to the end of April 30.

However, Imperial noted on Thursday that the luxury brand segment remains under severe pressure.

For the ten months to April 30, sales volumes in its importer brands – Hyundai, Kia and Renault – increased by 10% with its vehicle mix aligned to current market demand.

The market share of Imperial’s imported brands increased by 1% to 14.9%.

Imperial’s business in the Rest of Africa contributes 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 during the ten months under review, Imperial noted.

However, subdued growth in Kenya owing to the extended elections, the economic recession in Namibia, the listeriosis outbreak which is impacting exports of affected products out of South Africa into neighbouring countries, and the strengthening of the rand against the dollar, negatively impacted on the group’s performance.

Outside of the African continent, economic conditions in Europe are positive, although certain sectors, such as steel, in which Imperial operates, remain under pressure.

Economic growth and the vehicle market in the 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, the company said.

Meanwhile, progress with the implementation of Imperial’s plans to unbundle Motus is at an advanced stage and no obstacles are currently anticipated. A final decision on the unbundling will be announced before the end of June 2018.

IMPERIAL LOGISTICS

Imperial Logistics’ performance was negatively impacted by lower volumes in the consumer products and manufacturing industries. However, this was partly offset by stronger performances from the commodities, fuel and gas businesses.

The disposal of 30% of Imperial Logistics South Africa to a broad-based black economic empowerment (BBBEE) partner is progressing steadily, the company added, with funding to be finalised with the selected partner.

Key terms of the transaction are expected to be announced by the first quarter of 2019.

The division’s African regions performed satisfactorily, Imperial noted, despite variations across the portfolio.

EcoHealth rendered a strong performance in Nigeria, Surgipharm recorded growth and CIC contributed positively despite the economic recession in Namibia, while Imres underperformed owing to increased competition, resulting in lower margins.

Excluding businesses held for sale, Logistics International performed satisfactorily, Imperial stated.

However, performances in the European inland shipping, retail and industrial subdivisions were disappointing and were compensated for by a good performance in international shipping and automotive contract logistics.

The company’s 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 its importer brands, which grew ahead of the market.

In the UK, Motus’ commercial vehicles business continues to perform well.

The UK passenger segment performed below expectations but sales volumes increased during March, 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.

The financial services and aftermarket parts subdivisions performed in line with expectations showing modest year-on-year growth.

Meanwhile, for the six months to December 31, 2017, Imperial’s net debt to equity ratio improved to 80%, from 98% in December 2016.

Following the receipt of the Schirm proceeds of about R2-billion in January, the debt to equity ratio further improved to 71%.

“We expect a further improvement in gearing to end the 2018 financial year at a debt to equity ratio of between 55% and 65%, excluding proceeds from the BBBEE deal in Logistics South Africa but including proceeds from properties and other asset disposals. For the ten months to end April, property proceeds of R1.5-billion have been received,” the company said.

Imperial’s liquidity position is strong with R11-billion of unused banking facilities, excluding asset backed finance facilities.

Seventy-five per cent of 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.

“We anticipate solid operating and financial results in the financial year to June 30, subject to stable currencies in the economies in which we operate,” the company averred.