Imperial Holdings update on market and trading conditions and supplied 8

Regent Insurance, part of the financial services division of listed transport and logistics group Imperial Holdings, incurred an unexpected loss of R19 million on the write-down of an investment in African Bank Investments Limited (Abil).

Abil collapsed in August after reporting estimated record losses of R7.6 billion for its full year to September and that it needed to raise at least R8.5bn to survive. This resulted in Abil’s stock price slumping by 95 percent in three days and the Reserve Bank intervening to split the bank into a “good bank” and a “bad book”.

Mark Lamberti, the chief executive of Imperial Holdings, yesterday said Regent Insurance was performing below expectation because of lower investment income and the unexpected loss from its investment in Abil.

But Lamberti told the group’s general meeting yesterday the guidance about Imperial’s financial services division was unchanged, despite this unexpected loss, and it was still expected to achieve single-digit growth in revenue and operating profit for the year.

In the previous financial year, the division reported revenue of R4.1bn and operating profit of R1.1bn.

Lamberti said that their guidance for the Imperial Group for the full year was also unchanged.

Group earnings were expected to decline in the current half-year compared to the previous corresponding period as the currency impact on the vehicle import, distribution and dealership division flowed through.

But Lamberti said this “should right itself” in the second half to produce earnings for the full year in line with the group’s 2014 financial year, provided there was not a marked deterioration in vehicle sales.

The Imperial Group reported revenue of R103bn and operating profit of R6.2bn in its 2014 financial year.

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

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

In South Africa, which was the source of 66 percent of Imperial’s revenue, external conditions affecting the group’s businesses in the past four months were largely unchanged from the second quarter of the calendar year and the South African economy continued to falter.

Although economic growth in most of the sub-Saharan markets in which Imperial operated was higher than South Africa, their potential was being suppressed by socio-political tensions, religious extremism and public health issues, but to date none of these had affected Imperial’s businesses, he said. Lamberti said the German economy had over the past six months progressively underperformed expectations.

“Rather than the mild economic recovery that was anticipated, we are seeing static or declining activity in most of our European operations,” he said.

Imperial has changed its guidance for its logistics international, vehicle import, distribution and dealership and vehicle retail, rental and aftermarket parts divisions.

The guidance for its logistics Africa division was unchanged and it is still expected to achieve real growth in revenues and a higher rate of operating profit growth.

Lamberti said that Imperial continued to expect real growth of revenues in euros by the logistics international division, but operating profit was expected to grow at a lower rate.

He added that the vehicle import, distribution and dealership division was expected to achieve good revenue growth, but operating income to decline in the full year.

The vehicle retail, rental and aftermarket parts division is now expected to achieve real growth in revenue and operating profit for the year.