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Imperial profit jumps 8%, reaches deeper into Nigeria

Hubert Brody and Mark Lamberti

Hubert Brody and Mark Lamberti

Photo by Duane Daws

26th February 2014

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Despite what CEO Hubert Brody called “challenging trading conditions in South Africa and Europe”, Imperial on Wednesday reported a 8% jump in operating profit, to R3.16-billion, for the six months ended December 31.

Compared with the same six months in the previous financial year, revenue was up 13%, to R51.37-billion.

While general news flow continued to typecast Imperial as a company selling new vehicles, the truth was that the group was also a strong performer in the logistics business, said Brody, in Johannesburg.

In fact, the strategy, no different from the past few years, was for Imperial’s deep reach into the automotive value chain to generate the cash needed to support the group’s “ambitious growth” targets in its logistics operations – which offered good growth prospects – while still pursuing opportunities to enhance the automotive value chain.

The newest endeavour to achieve these growth ambitions was announced on Wednesday, with the group’s proposed 53% acquisition of Nigerian pharmaceutical distributor Ecohealth, for $74-million.

Ecohealth has an annual turnover of roughly $180-million. The company has a distribution network supplying pharmaceutical products to 4 200 hospitals, 8 000 pharmacies and 2 000 clinics in West Africa.
 
Imperial’s logistics business was also expanding into South America.

“We have secured a long-term push-boat shipping contract to transport iron-ore from Brazil via Paraguay to Argentina, as a first step to expanding in a region with excellent growth prospects, and where our expertise as the leading inland shipping company in Europe will stand us in good stead,” noted Brody.

The iron-ore was transported to a steel manufacturer in Argentina, with operations starting this month.

Imperial’s logistics business had grown its revenue from R8.4-billion for the six months ended December 31, 2010, to R20-billion for the period under review.

Operating profit grew from R498-million, to R1.06-billion over the same period.

There were a lot of opportunities remaining in the logistics and distribution markets, said Brody, driven mainly by the global forces of trade and outsourcing.

Imperial earned R712-million operating profit – 22% of group operating profit – from foreign operations in the six months ended December 31.

AFRICA, ACQUISITIONS REMAIN LUCRATIVE
Imperial’s Logistics business saw revenue growth of 26% and operating profit growth of 50% for the period under review.

Despite a sluggish South African economy, the Africa Logistics division performed well on the back of contract gains, recent acquisitions and rationalisation measures.

Turnover and operating profit increased by 26% and 63% respectively.

The International Logistics division was assisted by the weaker rand, with operating profit up 34% in rand terms, and 7% in euro terms.

The Automotive and Industrial pillar saw operating profit decrease by 7%, to R1.7-billion.

Imperial said the business was adversely impacted by a combination of rand weakness, a slowdown in vehicle sales and a more competitive market.
 
Financial Services achieved operating profit growth of 11%.

“Our strategic objective remains to deliver improving returns on capital to generate value for our shareholders,” said Brody. “As a result, we continuously seek growth opportunities in and adjacent to existing industries and geographies, such as our expansion in pharmaceutical distribution in Nigeria and the entry into the South American inland shipping market.

“There will never be too much of a jump.”
 
The group’s balance sheet remained strong, allowing the group to take advantage of yet more organic growth and acquisition opportunities, added Brody.
 
Trading conditions in the logistics industry in South Africa would remained challenging, however, owing to subdued economic activity.

There existed, however, good prospects in the rest of Africa, and expansion into the continent would continue to gain momentum, especially in consumer markets, with CIC, Imperial Health Sciences, MDS Logistics and now Ecohealth providing a platform to take advantage of growth opportunities in African markets.

While many markets faced tough times, the consumer market across many African countries continued to grow along with a strongly emerging middle class, said Brody.

Imperial Logistics International was well positioned in niche markets in Germany, and would continue to follow its customers as they entered new markets, he noted.
 
The group anticipated trading conditions in the new motor vehicle market would become tougher. Reduced disposable income, interest rate increases, a significantly weaker currency and the high base created by strong volume growth over the past four years, all presented headwinds affecting margins and growth.

As a result of new vehicle price increases, however, the used car market should improve further, and after-sales parts and service revenues would continue benefitting from the increase in the installed base of vehicles.

Brody also expected to benefit from Imperial’s strong position in the commercial vehicle market.
 
“Overall, given current market conditions, it will be difficult to achieve growth in the 2014 financial year as we expect our vehicle distribution activities to be under continued pressure in the second half of the financial year.

“The remainder of our automotive value chain, together with Financial Services, is expected to be robust and our Logistics pillar is expected to perform well.”

* Wednesday was Brody’s last results presentation, as Mark Lamberti, Massmart founder, would take over as Imperial CEO on March 1.

Edited by Creamer Media Reporter

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