The Imperial Group expects earnings in the 2015 financial year to mirror that of the 2014 financial year.

CEO Mark Lamberti said on Tuesday that Imperial expected earnings in the current six months to decline on the prior year, as the impact of the weak rand on the vehicle import, distribution and dealership division flowed through. 

However, “in the absence of any softening of the rand below current levels, or a marked deterioration of vehicle sales, this should right itself in the second half to produce earnings for the full year in line with 2014”.

Lamberti said the South African economy, with South Africa the source of 66% of Imperial’s revenue, continued to falter, with 2014 economic growth now estimated to be 1.4%. 

“Much of this lackluster performance is directly attributable to local structural factors . . . unlikely to change in the medium term.”

However, he added that while many of these factors placed lower income households under “severe stress”, it was reasonable to assume that the private consumption expenditure of middle to upper income consumers – the target of Imperial’s marketing efforts – “would be well above the 2% forecast for the country, and not as parlous as some suggest”.

Lamberti said although economic growth in most of the sub-Saharan markets in which Imperial operated had been higher than in South Africa, their potential was being suppressed by socio-political tensions, religious extremism and public health issues. 

“To date none of these have affected our businesses.”

The German economy had also been underperforming.

Eurozone economic growth was at 0.1% in the second quarter. Germany's quarterly growth fell to 0.2%, down from 0.8% in the first quarter.
 
“It is difficult to accurately apportion the decline in the German economy to general Eurozone weakness, slowing growth in China, or Russian sanctions,” explained Lamberti.

“It is clear, however, that these operating conditions are below the assumptions on which our budgeting was based and, rather than the mild economic recovery that was anticipated, we are seeing static or declining activity in most of our European operations.”

Other than in sub-Saharan Africa, slow growth in all of the industries and regions in which Imperial operated had led to challenging trading conditions as competitors fight to retain market share, said Lamberti.

“Logistics contracts are hard won and retained and, with few exceptions, the sales and margins of vehicle and financial services businesses are under pressure.”

Looking at the different divisions, Lamberti said Logistics Africa’s business gains in South Africa exceeded losses.

Imperial also continued to grow its footprint in Africa.

On October 23, the acquisition of 70% of Imres was concluded effective September 1, at a price tag of €46-million. 

The expected annualised revenue of R850-million from this wholesaler of pharmaceutical and medical supplies should ensure around R9-billion annualised revenue from Imperial’s non-South African logistics business, most of which had been established since 2012.

Lamberti expected Logistics Africa to produce “real growth of revenues, with operating profit growing at a higher rate”.

The Logistics International business would not be so fortunate.

“The deterioration of the German economy has been unexpected,” said Lamberti.

“Volumes and rates are under pressure, but we remain committed to our capital expenditure, mainly on asset renewal, but also on the increase of capacity of our South American contract, which is performing in line with expectations.”

Lamberti said Imperial expected revenue growth in Euro for this division, but with operating profit growing at a lower rate.

Recovery in retail pricing and volumes at Imperial’s vehicle import, distribution and dealerships division had been delayed by the further weakening of the rand.

“In addition to the existing policy of covering forward, all orders placed, additional forward exchange contracts and hedging instruments will be used to mitigate the effect of currency movement further out,” noted Lamberti.

“While these actions do not solve the fundamental problem of the currency impact on performance, they do provide extended line of sight on profitability at any time.”

Should the rand remain where it is, and including the full year effect of acquisitions, Lamberti expected “good revenue growth” at the division, but a decline in operating income for the full year.

He added that Imperial’s vehicle retail, rental and aftermarket parts division continued “to make pleasing progress”.

“We expect real growth of revenue and operating profit for the year.”

The financial services division faced a tough financial year with Regent Insurance and Liquid Capital feeling the effects of lower vehicle sales, said Lamberti.

Regent had also incurred a R19-million loss arising from an investment in African Bank.

“We expect single digit growth of revenue and operating profit for the year,” noted Lamberti.