Imperial reports higher revenues, with earnings depressed by a weakening Rand
Imperial Holdings Ltd. (IPL) released interim results today, showcasing a nine percent increase in revenue contrasted by a nine percent decrease in headline earnings per share. Below are the details from the unaudited results with comments from CEO, Mark Lamberti.
Highlights
- Revenue 9% higher at R56 234 million
- Operating profit declined 9% to R2 872 million
- HEPS down 9% to 759 cps
- Cash flow from operating activities up 73% to R1 013 million
- Interim dividend of 350 cps
- Non-vehicle revenue increased 13% to R25 billion (45% of group revenue) and operating profit increased 6% to R1.7 billion (57% of group operating profit).
- Foreign revenue increasing 23% to R21 billion (36% of group revenue) and operating profit increased 20% to R856m (30% of group operating profit)
- Operating profit from African operations outside of South Africa increased 60% to R383 million (13% of group operating profit)
- Three acquisitions concluded adding annualised revenues of R3.5 billion
Imperial Holdings today reported results for the six months to 31 December 2014. The results were broadly in line with market expectations and were achieved in difficult economic and trading conditions in South Africa and the Euro zone.
Revenue grew 9% to R56,2 billion, with 8% due to acquisitions. Group operating profit decreased 9% to R2,9 billion as continuing R/$ exchange rate deterioration undermined the competitiveness and margins of directly imported new vehicles in the Vehicle Import, Distribution and Dealerships division, which reduced its operating profit by 51% or R473m on the comparable period. The Group operating margin reduced from 6.2% at the end of December 2013 (‘the comparable period’) to 5.1%. The 73% improvement in cash flow to R1 billion was largely as a result of a lower investment in working capital.
During the reporting period, contribution from non-vehicle and foreign businesses increased. Non-vehicle revenue increased 13% to R25 billion (45% of group revenue) with foreign revenue increasing 23% to R21 billion (36% of group revenue). Non-vehicle operating profit increased 6% to R1.7 billion and operating profit from foreign operations increased 20% to R856m. Revenue and operating profit from African operations outside of South Africa increased 72% (to R5.8 billion) and 60% (to R383m) respectively.
The Group reported an excellent performance from Logistics Africa, and a pleasing performance from the Vehicle Retail, Rental and Aftermarket Parts division, where an improved sales mix and new vehicle price inflation drove passenger vehicle revenue despite a decline in unit sales. The profitability of the Logistics International division was depressed by low and declining activity levels in most Eurozone logistics sectors and the Financial Services division’s profits declined on weaker equity markets that affected the insurance business.
Commenting on the results, Imperial CEO Mark Lamberti said:
“The results for the six months to December were very much in line with our expectations and guidance. These results reflect challenging macro fundamentals, including R/$ weakness, which has eroded the historic profitability of directly imported vehicles and dampened Imperial’s otherwise solid first half performance.
We are pleased with the progress on our diversification strategy. The revenue and operating profit contributions from non-vehicle and foreign businesses continue to grow and now make up a substantial part of the Imperial group. We are particularly excited by our growth on the continent beyond South Africa. In just four years we have established a business approaching R10 billion in annualised revenues in ten countries to the north.
These developments did not divert us from our South African businesses where we hold market leading positions in logistics and vehicles. Based on our expertise and capabilities, we continued to seek out and penetrate new segments of the logistics and vehicle value chains, favouring asset light businesses that produce growth and returns for shareholders.”
Financial Performance
Core EPS declined 14% to 803 cents and HEPS decreased 9% to 759 cents. Cash flow from operating activities improved 73% to R1 billion, largely as a result of a lower investment in working capital. Imperial net debt to equity is at 83%, compared to 62% at the end of December 2013 and 63% at the end of June 2014. The Group’s liquidity position is strong with R6.3 billion in unutilised facilities (excluding asset based finance facilities). Cash generated by operations before capital expenditure on rental assets was 37% higher than the prior period, at R2,9 billion. Imperial declared an interim dividend of 350 cents per share.
Divisional performance
Logistics Africa had an excellent six months, delivering strong revenue and operating profit growth in a difficult environment. While the SA economy struggled to gain momentum with the manufacturing sector under pressure and many segments of the retail sector experiencing little or no growth, the division’s businesses in Africa beyond South Africa delivered strong growth, mainly due to the acquisitions of Imres and Ecohealth.
Profitability in the Logistics International division was depressed by muted activity levels in most sectors of European logistics. The contract in South America, which commenced in February 2014, is performing in line with expectations and contributed positively for the period. Imperial now has a total of four convoys (four push boats and 48 barges) operating on the Rio Parana, transporting iron ore from Brazil to a steel mill in Argentina.
The profitability of the Vehicle Import, Distribution and Dealerships division fell 51% (R473m) as R/$ weakness eroded the competitiveness, unit sales and margins of directly imported new vehicles.
The Vehicle Retail, Rental and Aftermarket Parts delivered good growth of both revenue and operating profit in the period. In South Africa, the division retailed 15 611 (2014: 16 760) new and 16 249 (2014: 15 790) pre-owned vehicles during the period.
In the Financial Services division Insurance underwriting margins improved from 9.2% to 11.0% but investment returns declined. Motor Related Financial Services (largely LiquidCapital) grew operating profit by 9%.
Acquisitions
During the half year, the Group concluded three acquisitions in line with its stated intention to allocate capital to those sectors and jurisdictions where growth and targeted risk adjusted returns can be achieved.
The Logistics Africa division acquired 62,5% of Pharmed and 70% of Imres, both pharmaceutical wholesalers which generate annual revenues of approximately R600m and R700m respectively. These acquisitions augment and support Imperial’s strategy to integrate pharmaceutical wholesaling and distribution into its service offering, with the potential to leverage off Imperial’s existing network and capabilities.
The Vehicle Retail, Rental and Aftermarket Parts division acquired 100% of S&B Commercials plc, a Mercedes Benz and Fuso dealer in the UK. The acquisition enhances Imperial’s current dealer network by adding new territories to the Mercedes Benz footprint while further diversifying Imperial’s brand representation in the United Kingdom.
Outlook
Lamberti described the Group’s outlook: “We have high confidence that the capabilities, assets and people of Imperial will create value for all stakeholders in the medium term. However, the weakening of the Rand against the currencies in which we import new vehicles; the poor state of the South African economy; a much slower than expected recovery of the German economy; and the impact of political uncertainty and sustained low oil price on the economy and currency of Nigeria, are all factors that could affect our results in the months ahead.”
Based on this Imperial advised that second half operating performance would be positive, but earnings for the year to June 2015 would be below 2014.
Conclusion
Lamberti concluded: “We are actively implementing various strategies to enhance the value added by Imperial Holdings and the competitiveness and sustainability of its subsidiaries. We are confident that these initiatives will improve risk adjusted returns and unlock shareholder value as planned.”
