Imperial Holdings says it is still on the road to doubling core profit from its rest-of-Africa businesses, but that it is taking longer than expected.
"We are getting there — we are on track," CEO Mark Lamberti said on Tuesday, after presenting the group’s interim results to December 2016.
Group revenue was up 2% to R61bn, while operating profit rose 4% to R3.2bn.
Cash generated by operations was R4.3bn, but headline earnings per share slipped 15% as the interim cash dividend fell 14% to 320c per share.
The logistics and vehicles group said falling commodity demand, low oil prices and the subsequent effect on currencies and private consumption had slowed the growth rate in its African businesses. The region, excluding SA, generated R5.7bn, or 9%, of turnover, and R461m or 16% of operating profit, in the six-month period.
Meanwhile, the trading environment in SA remained challenging where 59% of group revenue and 64% of operating profit was generated.
Imperial said slow economic recovery was continuing and trading conditions remained satisfactory in the UK, eurozone and Australia, where 32% of group revenue and 20% of operating profit was generated in the six months.
But prolonged low water levels on the Rhine river in Europe continued to weigh on the profitability of inland shipping markets. In addition, there was lower demand and pricing pressures in the European steel, energy, commodities and construction industries.
The rand’s strengthening against sterling by an average 15% depressed UK businesses’ rand-denominated results. But the rand weakened against the euro and the Australian dollar by an average of 2% and 7%, respectively, which improved the rand-denominated results of these regions.
Specific factors that affected Imperial during the year were slowing GDP growth, rising inflation and interest costs, lower consumer demand and currency volatility
Lamberti said the group was now beyond its second year of restructuring. It had sold noncore assets, including the Regent insurance division to Hollard, and had moved into "capital-light" operations, while expanding in the UK and Europe. This included buying a 95% interest in Palletways Group in the UK in July 2016 for R3.2bn. Palletways provides express delivery for small consignments of pallet freight.
Specific factors that affected Imperial during the year were slowing GDP growth, rising inflation and interest costs, lower consumer demand and currency volatility.
The group is now split into two operating divisions, each run by its own CEO.
Imperial Logistics operates in consumer and industrial logistics, which make up 42% and 46% of group revenue and operating profit, respectively. Of this, 63% of operating profit is generated internationally. Motus is the group’s vehicle import, distribution, dealerships, rental, aftermarket parts, and vehicle-related financial services arm.
It makes up 58% and 54% of group revenue and operating profit, respectively, with 13% of operating profit that is being generated internationally.
Abdul Davids, head of research at Kagiso Asset Management, said the Motus division had shown a decline in revenue and operating profit due to a 13% fall in new-vehicle sales in SA.
"We think the results were reasonable given the sluggish economic environment and the pressure on vehicle sales. In addition, the rand currency strength negatively impacted Imperial’s translated profits from its international operations," he said.
"However, the resilient performance of the African logistics business and the growth in the financial services division’s profitability were key positives, and reflect the strength of Imperial’s diversified portfolio of businesses," he said.
Davids also said that Imperial highlighted the effect of high forward cover amid volatile currency markets.
Lamberti said it was difficult to mitigate risk in volatile foreign currency environments, including the 13 African countries where the group distributes pharmaceuticals and fast-
moving consumer goods. This would now include the UK after the Brexit vote, where the company had 38 vehicle dealerships.
The group’s vehicle import business into SA makes up 13% of overall revenue and operating profit, respectively.
Imperial chief financial officer Osman Arbee, who has also taken over as CEO of the vehicles division from Lamberti in 2017, said foreign exchange losses had cost R121m in financial 2016 from a forex profit of R126m in 2015.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.