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Imperial looks to reduce motor industry dependence

4th September 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Imperial had the desire to reduce its dependence on the motor industry and South Africa, owing to the impact of the weak rand on vehicle imports, and the high market share the company already had in South Africa, which limited its domestic growth opportunities, said CEO Mark Lamberti when he reported the group’s financial results for the year ended June 30.

Revenue was up 7%, compared with the previous year, to R110.4-billion, with operating profit up 1% to R6.2-billion. Net profit was down 7% to R3.38-billion.

Externally, Lamberti said, it had been a year of difficulty in deteriorating economic circumstances, with specific reference to the weak rand, which pushed up the prices of the vehicle brands that Imperial imported into South Africa, such as Hyundai and Kia. These price jumps had led to a drop in volume sales.

Internally, however, there was “greater strategic clarity and execution”.

Within the group, operating profit from non- vehicle operations increased by 14% to R3.7-billion, or 59% of group operating profit.

Operations outside South Africa generated R2-billion in operating profit (32% of group operating profit), up 23% from the previous year.

Lamberti said South Africa’s economy was struggling with weak growth, low consumer and business confidence, low commodity prices, a weak rand and softer demand for Imperial’s products and services, both in the vehicle and logistics businesses.

In the eurozone, economic recovery had been slow, placing pressure on Imperial’s volumes and rates.

The African market, however, had seen higher growth, but this was muted by lower commodity prices and softer currencies.

Imperial’s logistics business saw a 14% jump in operating profit for the year to R2.5-billion, while financial services saw a similar increase to R1.2-billion. The vehicles business, however, experienced a 15% drop in operating profit to R2.6-billion.

Within this business, the vehicle import division had “a very difficult year”, said Lamberti, with operating profit declining by 37% to R1-billion.

The rand had depreciated by 43% against the dollar since May 2012, he noted, and it was “near impossible” to pass the price increase on to the consumer.

Imperial’s vehicle retail and aftermarket parts division had a much better year than its sibling, with operating profit up 7% to R1.7-billion.

Looking ahead, Lamberti said Imperial would focus on acquiring mainly foreign businesses to offset the limited growth opportunities for the market leader in South Africa.

He expected the group to produce single-digit revenue and operating profit growth in the 2016 financial year in the absence of further market deterioration.

Factors that might influence Imperial’s fortunes were a weakening rand, a further deterioration in the South African economy, and a lower-than-expected recovery in the German economy, where a significant part of Imperial’s logistics business was based.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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