COMPANY PROFILE
2013
Imperial Holdings
Imperial displays its dominance
COMPANY REPORT
Imperial displays
its dominance Editorial – Roland Douglas Production – Chris Bolderstone
In August, Imperial Holdings released its financial results for the year end June 30th 2013. Yet again the results showed impressive growth and, even in a challenging economic environment, the group is pushing to increase its reach and grow on what is already a formidable portfolio.
Revenue up 14%, operating profit up 8%, core EPS up 15% and final dividend up 16%, these are just a selection of the highlights from Imperial Holdings financials which were released in August. The group has been excelling in all areas and the latest results are a reflection of what has been a pretty good year for South Africa’s largest logistics provider and mobility group. To get a better idea of what the financial results actually mean in terms of operations, we spoke to Mohammed Akoojee, Executive responsible for Group Strategy and Investor Relations, and he explains that the results have been pleasing across the portfolio allowing for the group to continue seeking growth opportunities. “It was a really pleasing result considering the trading conditions that we operated under and I think it was a testament to the resilience of our business in
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terms of the portfolio effect coming through. What I mean by that is if you look at performance from a divisional point of view, nobody shot the lights out but everybody came to the party in terms of chipping in with a performance. Obviously there were star performers but it was pleasing that everyone could chip in resulting in a good result overall,” he says. “It was maybe slightly ahead of our expectations of six months ago, considering how the economic conditions in South Africa and Europe were looking.” The results will be the envy of many other companies and while there has been much activity in terms of expansion and acquisition, the balance sheet remains healthy and Akoojee states proudly that from here the group can continue looking for new opportunities. “The rise in dividends is again a testament to the good cash flow generation of the group” he says. “In
Imperial Holdings
“We are the largest third party logistics provider in terms of size but also in terms of service offering”
addition to paying out good dividends we were able to buy back shares of around R750million and still our balance sheet will be below our target gearing. “Despite increasing the dividend, doing share buybacks, growing the business through acquisitions and CAPEX, our balance sheet is still very strong and stands us in good stead for future opportunities.”
EXCELLING IN TOUGH TIMES It is well documented, not least by us, that the global economic slowdown has impacted heavily on business in SA but Imperial Holdings has managed to achieve continued growth despite the tough trading conditions. What made things especially difficult, adding to the challenges laid down by a slow economy, was unrest in labour markets as Akoojee explains: “We are not a small company” he says, “if you look at our revenue and profit trend, we’ve gone from a R2.7 billion to a
R6billion operating profit business over a period of four years so we have had good growth and naturally with that growth your base gets higher and your ability to grow at historic rates is not that easy. “This year was tough because of the labour issues and industrial action we faced in two key markets. In South Africa, we had a transport workers strike that affected our logistics business. We import and distribute Hyundai and Kia and in Korea they also faced industrial action so we had supply issues there. “The combination of tough conditions as well as industrial action made it a challenging year but to end up with the results that we did is very pleasing.” Logistics is a key area of growth for Imperial and on the African continent, the group’s portfolio has been bolstered by a number of significant acquisitions over the past three years. Because of this, African Logistics has seen significant growth, the full effects of which are
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COMPANY REPORT yet to be realised. “In terms of star performers, we have to look at our Africa Logistics business which includes SA, and that had an excellent second half. Operating profit there was up 31%,” says Akoojee. “The first half was distorted by the transport workers strike but the second half showed a very good performance and that was driven by management actions in terms of rationalising the business to be more competitive in a tough South African market. Our economy is not growing that fast so we did take actions like combining businesses and making them more scalable and better cost competitors and this helped our margins; we should see the full benefit of this in 2014.” Logistics in SA was strengthened by noteworthy new contracts and as the economy began to settle, volumes in Imperial’s customer base became more predictable which has allowed for better planning and Akoojee says that this helped the SA business to grow organically. “In the rest of Africa, north of SA, the operating profit in that business was up 45% and that was a function of very good growth in underlying economies, a focus on our strategy of targeting the consumer
with our distribution capabilities in SADC as well as the acquisition of RTT Medical which allows us to do pharmaceutical distribution in markets in East and West Africa. “This whole plan of growing our capabilities in Africa is really starting to bear fruit now. This business made a revenue of R500 million in 2010 and this year made a revenue of R5 billion,” says Akoojee. Substantial acquisitions that have helped to boost business in Africa include the aforementioned deal with RTT Medical (now Imperial Health Sciences), Namibian distribution specialist CIC Holdings and, more recently, MDS of Nigeria. “We bought a 49% shareholding in MDS, which gives us a very good platform to distribute FMCG, pharma, and telecoms products in that market,” says Akoojee. The acquisition of CIC was an important one for Imperial as it opened up opportunities to offer more than just transportation services in the SADC region. There was a demand in the market for selling, warehousing, distribution and a host of related activities and CIC was able to offer this combined with
Imperial Toyota sponsors at Dakar Rally
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strong local knowledge. “We previously had a transport business that would only transport goods from SA into SADC and we wanted to build a network in Africa where we could handle consumer distribution in those fast growing economies so we bought CIC in 2010,” says Akoojee. “Overnight this gave us access to about 25 distribution points across SADC and that was a game changing acquisition for us as we didn’t have physical distribution capabilities in those economies, we were just truckers of goods from SA into those markets. “In places like Namibia, Mozambique, Botswana, Zambia and Malawi, we would actually sell products into those markets so we would own stock. Our tag line for our service offering in Africa is ‘Get Me There’, ‘Sell my product’, ‘Grow my Brand’ and that is what we do. There is big demand from SA companies and multinationals who ask us to get their products into these economies on the transport side but they will also ask us to sell their product and grow their brand and that’s where CIC comes in. We have an intricate understanding of the markets in those regions; the route of products to market is very different in Africa to that in South Africa or more formal economies. continues on page 8...
2013/08/26 3:43 PM
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COMPANY REPORT
Auto Pedigree is the largest independent second hand vehicle dealer in the country and proudly part of the Imperial Group. Auto Pedigree is well known in the used car industry for offering customers quality low kilometre, vehicles backed up by a range of financial products and services .With 70 branches countrywide built on 30 years of business experience, the company has securely positioned itself as a preferred supplier for used vehicles, typically targeting the LSM 7-9 market with medium sized popular brands such as VW, Toyota, Kia, Nissan, Ford, Chevrolet and Hyundai. “The Auto Pedigree brand is credible, trustworthy, and will always ensure that customers have a variety of popular models available to them,” explains CEO, Corne Venter. Auto Pedigree’s vehicles are largely ex-fleet vehicles acquired from rental companies within the Imperial Group. Although vehicles are generally in good condition when received, they are still sent to central reconditioning centres to support the company’s promise to customers of, “quality used vehicles.” Venter says that being part of the Imperial Group adds value to the business and its customers providing reassurance that the business is a sustainable one, “Imperial is a critical partner particularly as far as high level guidance, funding, source of stock and certain corporate services are concerned.”
CUSTOMER-CENTRED Responding to ever-changing consumer demand plays a key role in the evolution of the Auto Pedigree brand. In order to keep on top of buying patterns, trends and increase customer satisfaction, the company has a four pronged approach; focussing on branch location, look and feel, employee interaction, vehicle quality and overall customer experience. At Auto Pedigree, the experience of buying a car starts as soon as a customer enters the showroom. The company has revitalised its corporate identity to reflect a fresh new look. All branches are un-cluttered, stocked with a wide variety of quality used vehicles and boast well educated and knowledgeable salespersons “Responding to the aspirational nature of the target market saw a program of refurbishment of the internal and external look and feel of branches countrywide with a service ethos to match,” says Venter. “The ability of the business to get back in touch with the needs of its typical customer enhances the whole purchase experience and offers customers a great overall deal. This rates highly amongst the recent achievements of the business.”
Auto Pedigree INNOVATION Auto Pedigree’s ethos of making customers feel valued and empowered is important to the success of the business. In order to continuously reach its high levels of customer satisfaction, the company constantly finds new ways to improve and streamline its services. “To remain successful, the business will continue to implement strategies ensuring the target market remains aware of the Auto Pedigree brand and the value offered,” explains Venter. “New business Innovations will always be closely aligned with Auto Pedigree’s core objective and will always bear relevance to our core product. Current innovations include streamlining the sales process to a point where customers will select, buy and drive the vehicle of their choice, all in one day, from a single location. “Further opportunities on the digital side include developments that will see customers view, select apply for finance and arrange for delivery of their chosen vehicle from the comfort and convenience of their favourite device.”
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COMPANY REPORT ...continued from page 27 “CIC has the capabilities to operate in the informal markets very effectively.” Akoojee explains that logistics in Africa is definitely a growing market, having more than tripled in terms of contribution over the last three years. Because of this, it is hard to ignore and will receive attention through new capital, locations and acquisitions. The business in SA, which makes up the core part of the Africa Logistics operation, is now using its sheer scale and comprehensive service offering to win new business. “We are the leading third party logistics provider in terms of size but also in terms of service offering. “We have become more cost competitive as our clients feel the pressure of the slower growth economy and because of this and our scale we feel we are in very good shape to benefit from any growth in the SA market. The trend to outsourcing by companies will be a further growth driver,” says Akoojee.
GROWING WITH CUSTOMERS Clearly, Imperial, like many companies based in SA, are seeing the benefits of growth into Africa and their entrance to the various African markets has been off the back of positive relationships that already exist in SA. “The other opportunity for us to grow in Africa is with our customers,” says Akoojee. “This is how the MDS acquisition came about. Our customer, Tiger Brands, bought a stake in a Nigerian food company and they had a logistics operation in place and were looking for a strategic partner. Tiger Brands involved us so
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we were introduced to MDS by our customer. As they grow in Nigeria we will follow them and try and do a lot more for them. “Growth like this is less risky as you have a base already and you can use that base to go and find more opportunities.” Imperial is also looking for growth around other trade corridors in Africa; like Mozambique and Namibia. Activity here has been on the up and Akoojee feels that Imperial’s capability could offer services in this regards. “There is a lot of infrastructure development happening around the East and West coast of Africa in terms of getting goods through those ports instead of through SA so there is a lot of activity happening around the Beira corridor and Walvis Bay port. More and more goods are going to be coming through here instead of through Durban so we are looking to bolster our transport businesses in these areas,” he says. It is through these three methods; focussing on the consumer with CIC and RTT, following customers to new markets and building representation in the developing trade and transport corridors, that Imperial will continue its African push, in line with its goal of continued growth.
BUILDING THE FUTURE At Imperial Holdings, the focus on building economic prosperity is backed up by maintaining a sustainable environment. One of the important ways to grow sustainably, especially when looking for organic growth,
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COMPANY REPORT
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is through building a loyal and skilled workforce. This is something that has been happening throughout the Imperial portfolio for some time. The ITTA (Imperial Technical Training Academy) is now producing over 1400 artisans every year and regarded as a benchmark in the automotive industry. This obviously provides a competitive advantage for Imperial and also contributes to the wider economy. “We fully understand that in South Africa there is a lack of skills and this is really a global issue,” explains Akoojee. “Through this project, ourselves and government are trying to focus on technical training as a means to create a strong pipeline of skills. It is certainly an area that will gain momentum and something that we take seriously. “If you look at our motor business, we need mechanics and technical people to come through. We have to develop these ourselves as they are not coming through the normal channels. It is something which we are investing in and is proving successful.”
STRATEGIC BRANDING When it comes to building the brand as well as growing operations, the group has a successful marketing campaign underway which was rolled out in April this year. Akoojee explains that the marketing materials are aimed at making people aware of the reach of Imperial and uniting employees across the group under one banner. “Imperial never had a face or persona and the general public didn’t know Imperial,” he says. “People never knew about the services we offer and how important we
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were to the SA economy in terms of being a logistics provider and mobility group. “The marketing push was about positioning Imperial as a leader in the transport sector and creating a brand persona for imperial. “Being such a large diversified group, it helps to get people to rally around one thing. Strategically, we use the cash generated in the motor business to invest in our logistics business but if you work in motor you may never see someone who works in logistics and the marketing campaign helps to make people feel part of a group. “We move a lot of goods in SA, we have 5500 trucks and we work for every industry from food to construction to steel to agriculture and so on. The adverts impress how big we are in terms of people’s lives.”
INTERNATIONAL OPERATIONS The Imperial brand started out as a Chrysler dealership in Johannesburg in 1948 and has since experienced exponential growth which sees it operate across Africa, Australia and Europe. When it comes to European operations, Imperial operates mainly out of Germany but is always on the lookout for growth opportunities. The group managed to avoid the effects of the financial crash in Europe and is now looking to follow its German customers, in the same way it followed Tiger Brands in Africa, into their new markets. “Our international logistics business is also a good area for strategic growth and that is because of how we
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COMPANY REPORT operate in Germany,” says Akoojee. “We have specific niches in the German economy, we are in Europe but our main business is in Germany. “We do inland shipping and contract logistics in the automotive and steel industry as well as the chemical industry. We are very tied in with German manufacturing, industry and export and that is a big part of Germany. Fortunately for us, despite what’s going on in Europe, we’ve come through this period of economic crisis there virtually unscathed. “A lot of our customers in Germany are now looking to markets in Eastern Europe, Russia, China and South America for manufacturing as markets are emerging there. We are also following customers and growing with them there so that we can take on new markets.” In line with the trend seen across the group, the international logistics business has an impressive set of figures, growing from a R300 million to a R750 million operating profit business over the last five years.
UNDERSTANDING SIZE When looking at the Imperial Holdings group from the outside, it is easy to forget just how big the group actually is. There are hundreds of brands represented in one way or another by Imperial and on the motor side of things, the business operates in a unique way both vertically and horizontally integrated and after a car is sold, Imperial will be someway involved in that cars life right until it is old. “We sell a lot of cars through the group, we own many dealerships,” says Akoojee. “We sell 65,000 used cars each year. We are also very active in the parts business which is big in SA. “Our business in the motor space is more than just selling cars. “One in six cars sold in South Africa is sold by Imperial. We sell around120,000 new cars each year in SA and the market is about 650,000. We have more than 200 new car dealerships, a dedicated used car dealership through our rental business. We are a powerful motor group and it’s a unique model. Other companies are not as integrated as we are. “Our motor business, you have to get your mind around it, it is a unique business in how we have positions across the entire value chain of a car. From the time a car is bought right through to when it is old and out of warranty, we touch it throughout its life.” This success in the motor trade has acted as a catalyst for the groups success in the financial services sector so much so that financial services is now recognised as one of the key pillars in the groups portfolio. In the last year
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alone financial services achieved an operating profit growth of 22%. The growth was driven by the strong annuity income streams that flow from the service and maintenance plans, vehicle financing alliances and a growing range of value added financial products sold within this division. “When a car is sold, that is the trigger for a number of other things that come with it in terms of financial services and other value added products,” explains Akoojee. “As Imperial we are taking part in this in some way or another either with banks, for finance, our directly, with maintenance plans. “Our financial services business has grown to nearly R1 billion operating profit business on the back of our motor business.” Evidently, success equals success for Imperial and good performance in the motor business has led to expansion with the group now seeing substantial contribution from the distribution of industrial equipment. “We’ve also moved into industrial distribution and added that into the group as well,” says Akoojee. “We understand importing and distribution of cars very well and we saw an opportunity to import and distribute industrial equipment, forklifts, reaching equipment, cherry pickers etc. That is also now a significant contributor to the group.” It seems that the growth of Imperial is almost unstoppable. The delivery of such a solid set of results, even with the tough trading conditions, demonstrate that this is a group with a clear ambition and a concise strategy in place to achieve that ambition. As the portfolio continues to grow, Akoojee concludes that the focus will remain on taking up opportunities in logistics. “We are always looking for new opportunities to enhance our motor chain but the focus is on logistics as that is where there are big opportunities in terms of size.”
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+27 11 372 6500 www.imperial.co.za
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