Imperial achieves a good first half performance

Financial highlights

·        Revenue 18% higher at R45 262 million

·        Operating profit improved 12% to R2 939 million

·        HEPS up 14% to 829 cps

·        Core EPS rose 15% to 872 cps

·        Cash generated by operations up 111%

·        Interim dividend increased 27% to 380 cps

Operational highlights

·        Trading conditions challenging in SA and Europe

·        Good portfolio effect across the group

·        Distributorships, Automotive Retail and Financial Services performed well

·        SA Logistics and International Logistics were under pressure

·        Excellent growth in rest of Africa logistics

·        Acquisition of RTT Health Sciences will contribute significantly to the distribution footprint in Africa

·        Strong growth achieved in annuity revenue streams generated from after sales parts, service and financial services

·        The aftermarket parts, components and industrial equipment businesses continue to grow

·        Strong balance sheet

·        Excellent returns; annualised ROE of 22%

Commenting on the results, CEO Hubert Brody said: “We are satisfied with the overall results despite some challenging trading conditions and industrial action experienced in South Africa and by our principals in Korea.Our expansion into Africa is gaining momentum and remains a core focus of the group. We are particularly pleased with the growth of annuity income streams from parts, service and financial services that are generated in our motor businesses.” “Imperial has again delivered excellent returns on capital for its shareholders, with an ROE of 22% achieved in a difficult year. After the share buyback and significant recent acquisitions the balance sheet remains healthy with a gearing ratio of 52%. This will allow us to take advantage of growth opportunities as they arise. The board is delighted to declare a 27% increase in our interim dividend of 380 cps,” Brody added.
Key features

Imperial Logistics' retail cluster of businesses (Distributorships, Automotive Retail and Financial Services) delivered revenue and operating profit increases of 14% and 19%, respectively. The Logistics division increased its revenue by 27%, however operating profit reduced by 1%. The Southern Africa Logistics division was negatively impacted by the transport workers’ strike during the period and the International Logistics division had to contend with a slowing German economy. Revenue in the Car Rental and Tourism division was flat, mainly due to a decline in revenue days, the growth in lower rate insurance replacement business and a particularly weak performance of the tourism unit. Operating profit reduced by 13% as costs rose ahead of revenue improvement in a difficult market. The used car and panel businesses performed better and showed good growth.

The parts, components and industrial equipment businesses (including Jurgens, Beekman Canopies, Midas, Turbo Exchange, Alert Engine Parts, Goscor, E-Z-GO,  Datadot, Sedgeway and Bobcat)  contributed turnover of R3,9 billion and operating profit of R282 million, 11% and 16% respectively better than the prior period. Operating profit generated in Africa outside South Africa rose by 36% to R183 million for the half-year and has nearly doubled over two years. The acquisition of RTT Health Sciences, now Imperial Health Sciences, which will be effective from January 2013 will further contribute to this growth. Operating profit from the International Logistics division, inclusive of Lehnkering, increased to 18% of the group result.

Market conditions

Industrial action impacted the group over the period. Supply from Korea to the Distributorship division was disrupted by strike action and shortened work hours at the Hyundai and Kia plants. In South Africa, the national transport industry strike in the last week of September and first two weeks of October significantly curtailed the division’s ability to service its South African transport clients. In addition to industrial action in Southern Africa Logistics, trading was characterised by difficult market conditions where volumes were under pressure, especially within the manufacturing industry. The slowing German economy also impacted International Logistics negatively. Trading conditions in the motor vehicle market continue to be favourable, although growth is slowing.

Skills development and corporate social investment

The group has maintained its substantial investment in employee development, building a robust internal skills pipeline. Two new artisan and technician training facilities have been added and the new Europcar Learning Centre was opened.   Imperial Holdings, together with empowerment partner, Ukhamba, continue to invest in the upliftment of education for the next generation and touches the lives of approximately 9 800 children.

Strategy

Brody, commenting on the group’s strategy, said: “Imperial remains focused on generating higher returns on capital while investing in growing the business in existing and related industries and geographies.  The development of African economies and the worldwide trend towards outsourcing offer good growth potential in the logistics industry, both in Africa and abroad. Our Rest of Africa logistics business will place its emphasis on consumer logistics and distribution growth opportunities whilst also ensuring that it is a strong transport operator on certain key corridors on the continent. We will continue to optimise the value chain in our motor vehicle businesses to earn ever increasing annuity income streams as our vehicle parc of brands grows.” He added, “The distribution of strong brands in the automotive and industrial markets remains a core focus. We continually seek and investigate new sector and regional expansion opportunities.”

Prospects

Imperial holds leading positions in its main markets and is well positioned to take advantage of growth opportunities as they arise. Trading conditions in South African Logistics will remain challenging as pressure on the mining, construction and manufacturing client base persists. The acquisition of RTT Health Sciences will have a positive impact in the second half and the expansion into Africa will continue to gain momentum. The fundamentals of the logistics industry are good and given Imperial’s infrastructure and network, it is ideally positioned to capitalise on these growth opportunities and gain more business.

The group expects the performance of International Logistics division, which comes off a high base, to be impacted by a slowing German economy. The Lehnkering acquisition and the favourable terms of the financing arrangements will have a positive impact on results as it will make a contribution for the full year in 2013 compared to six months in the previous year. International Logistics’ businesses remain well positioned in attractive niches in the logistics industry in Germany and acquisitions could be a further growth driver.

Conditions in the car rental and tourism industries will continue to be challenging. Some improvement can be expected in the used car market as the price differential widens between used and new cars.  The outlook for new vehicle sales is for a slower rate of growth. Reduced disposable income, a weaker currency and the high base created by strong volume gains in the last three years all present potential headwinds for growth. While the Distributorship’s inventory position has improved following the impact of the strike in Korea, product supply remains tight but stable. The group will however continue benefiting from the growth in parts and service revenue streams as the car parc of its imported brands increase further.

The Autoparts business is not affected directly by new vehicle sales and should continue to perform solidly as initiatives to expand its product range and geographic footprint bear fruit despite the increasingly competitive market. Goscor will perform well as it capitalises on a strong order book, grows its rental business and after sales maintenance opportunities.
Whilst short-term insurance underwriting conditions and equity markets are unpredictable, other earnings in the Financial Services division should be robust as it generates increasing annuity income due to new business being placed on its book. The investment portfolio continues to be conservatively managed despite increased exposure to equities. Brody concluded: “Given current market conditions growth overall for Imperial in 2013 will be subdued.  However, we hold leading positions in our main markets and are well positioned to take advantage of growth opportunities as they arise, bolstered by excellent cash generation and a strong balance sheet.”