Suresh Kana


It is an honour to be the chairman of the board presiding over what is almost certainly to be the concluding chapter in the story of an extraordinary South African company, Imperial Holdings; a board whose duty it has been to weigh up the options in the best interests of all our stakeholders, and to make the decision to set Imperial Logistics and Motus on separate paths to growth, returns and sustainability, to unlock value for our shareholders.

Organisational context and separation

The Imperial story, an overview of which is illustrated in the introductory pages of this year's report, is one of extraordinary entrepreneurial, and in latter years, clear strategic growth: from a single motor dealership seven decades ago to one of South Africa's largest listed companies, with extensive international interests.

The strategic renewal of Imperial Holdings over the last few years has touched every part of the organisation. Directed at positioning the group for sustainable value creation, it has culminated in the separation of its strategically distinct mobility businesses into two self-sufficient divisions, Imperial Logistics and Motus. This made a realignment of the group's governance structure necessary and two strong subsidiary boards were established, which have since presided over the implementation of exemplary governance standards within each business.

On 21 June 2018, the board decided to proceed with the unbundling and separate listing of Motus, subject to shareholder and regulatory approval, which is detailed in recent announcements. Should the transaction proceed, the group will be renamed Imperial Logistics. As the final steps in the process of renewal, separate listings will give shareholders the opportunity to participate directly in either or both the businesses, each of which has a clear and compelling investment proposition (set out in their reports on Imperial Logistics Investment highlights and key investment highlights and Motus Investment highlights and key investment highlights respectively).

Key aspects of our reasoning for separate listings include the enhanced strategic flexibility and effectiveness each business will have in managing their opportunities and risks, particularly in response to the disruptive changes expected in their markets. With direct access and accountability to the equity and debt capital markets, each will be able to maintain the appropriate capital structure and funding mix to support the delivery of its strategy on a long-term sustainable basis, and investors will be able to more accurately assess the value of each business in comparison to relevant peers.

Market context and performance

As large multinational companies, engaged in the movement of goods, Imperial Logistics and Motus Holdings have a profound impact on the efficiency of industry supply chains and on affordable vehicle ownership, respectively; as such they are major contributors to real economic activity and quality of life in South Africa and in markets elsewhere in the world. Conversely, they are impacted by the global and domestic factors affecting real economic growth, including the socio-political drivers of sentiment and growth in diverse markets.

The board is cautiously optimistic about the advent of a political "new dawn" in South Africa and welcomes the new administration's efforts to attract investment and resolve inconsistent policy positions. The reality, however, is that the upturn in business and investor sentiment within and towards South Africa has yet to translate into better trading conditions for the group's businesses, as consumers are under heightened pressure, evidenced by the disappointing first and second quarter gross domestic product (GDP) results of the 2018 calendar year. This is despite upward revisions to the country's economic growth forecasts for 2018 and 2019.

Of specific concern in South Africa is the increasing public debt burden, and persistently high unemployment, which is again reaching record levels especially among the youth, together with deep socioeconomic inequality and the consequent threat of instability. Globally, the negative implications of protectionist trade policies – and resulting tensions between global superpowers – on a sustained improvement in global economic growth and currency volatility are also worrying. These factors threaten to take their toll on the markets in which the group's businesses operate, along with the translation of their Rand-denominated earnings.

In the last year, economic conditions and consumer demand in most of sub-Saharan Africa improved largely due to the recovery in commodity prices, and underpinned by policy reform, although certain markets experienced subdued growth and recession. In Europe, economic conditions were generally positive, although certain sectors remained under pressure. The uncertainty around the nature of the UK's exit from the EU next year continued to weigh on economic growth, whereas the Australian economy remained strong.

Within this context, Imperial delivered the improvement in performance and returns expected, in line with market guidance. The divisional management teams were effective in readying the divisions for external separation, and the group executive equally so in the detailed planning required to ensure self-sustaining and efficient capital structures within each business, and a successful unbundling and listing process. Despite the intense focus this required, the group posted solid results, supported by acquisitions, increased vehicle sales and a good performance from Motus, alongside a satisfactory performance from Imperial Logistics in mixed trading conditions.

Governance context and leadership

Last year I voiced the board's concern about the deteriorating ethical climate, especially in South Africa. In this respect, we greet the new administration's decisive actions to root out corruption in the public and the private sectors alike with some relief. Along with rational and consistent policy positions and implementation, a credible stance on corruption is critical to attracting the local and foreign direct investment needed to support government's objectives for growth, job creation and poverty alleviation.

In all its markets the world over, the group's approach to ethics is to leave no room within its sphere of influence – in its operations or its supply chains – for corrupt and unethical conduct and its proliferation. It has been important for the board to ensure that the entrepreneurial high-performance culture, intrinsic to the group's DNA, is circumscribed by exemplary governance standards and social conscience. Similarly, that these characteristics that imbue the group's reputation have been transferred to each subsidiary, as a function of the ethical leadership and corporate citizenship ideals that underpin sustainability.

The devolution of leadership and governance from Imperial Holdings to the divisional boards has ensured that the governance and policy frameworks, and related oversight processes and internal controls, that give effect to these ideals have been embedded in both businesses. This has been both a consequence of Imperial's ownership, and replicated under the direction of the divisional boards, which included independent non-executive directors of the Imperial Holdings board. King IV, the principles and practices of which have been implemented at Imperial Holdings, has been the blueprint for the governance approach and the reconstitution of the board and committee structures within each division.

In the last year, the nominations committee identified the individual skillsets and range of experience required on each of the divisional boards, to provide strong and independent oversight and strategic counsel relevant to the growth strategies and diverse market contexts of each business. The process of identifying and appointing directors with the relevant professional and industry expertise is largely complete, with due cognisance of diversity taken in each case, specifically in relation to South African transformation requirements for race and gender. We are pleased to report that in our view, we have achieved the optimal board composition in line with the relevant market, industry and growth priorities of each business under the auspices of the Imperial Logistics and Motus boards, which can be found on here and here respectively.

High standards of accountability, transparency and integrity in running the business and reporting to shareholders and other stakeholders have become a matter of course over the separation, and the strategy of each business takes adequate account of the tenets of integrated thinking, with the six capitals model of value creation in evidence in their respective sections of this year's report.

The numerous executive management changes made to accommodate the new structure of the group, and the comprehensive succession planning it entailed, as well as the systematic devolution of executive authority from Imperial Holdings to its subsidiaries, have served the group well. This has been borne out by Mark Lamberti's resignation as chief executive officer (CEO) of Imperial Holdings earlier in the year, at which point Osman Arbee assumed the position in addition to his role as CEO of Motus, and more recently, Osman's extended medical leave. Neither of these unfortunate circumstances have affected the preparation for and eventuality of the separation, nor the ability of each subsidiary to achieve its strategic and financial objectives.

Management depth, both at group and divisional levels, continues to be underpinned by ongoing succession planning to ensure continuity, especially in ensuring management credibility among the investment community in the lead-up to separate listings. Mohammed Akoojee was appointed acting CEO of Imperial Holdings, in addition to his role as chief financial officer (CFO), until the conclusion of the unbundling. As announced, Mohammed has been appointed CEO designate of Imperial Logistics and will assume the position when Marius Swanepoel retires in June 2019. Marius will remain a director until 31 December 2019 to ensure a smooth handover process. Ockert Janse van Rensburg has stepped into the role of acting CEO of Motus, in addition to being CFO of Motus, until Osman's expected return in January 2019.

Whereas the circumstances leading to Mark Lamberti's resignation have been ventilated in the media and the board has made its position clear on the matter, persistently damaging coverage following the High Court judgment requires further comment. The negative impression created in the public sphere does not take account of the priority given by the leadership of Imperial Holdings to accelerating executive development and transformation and aligning Imperial's employee and leadership profile with the economically active demographics of South Africa. Nor does it fairly reflect the progress made since 2014, the time at which the matter arose that became the subject of the legal action.

Transformation is not an easy or an overnight process. In the time since, at group level, initiatives have been undertaken to understand the barriers to inclusivity, implement a broad-based black economic empowerment (B-BBEE) scorecard for the group as a consolidated measure of progress, and employment equity targets have been linked to executive pay. Each division has made progress in diversifying its management structures, and has clearly signalled how critical transformation is in retaining its market leadership, competitive advantage and social relevance. In each case relevant plans to address all the dimensions of B-BBEE are in progress. The leadership of both businesses are deeply aware of the importance of setting the tone from the top in instilling a business culture that is inclusive and encourages diversity in all its forms, given the diverse stakeholders and markets they serve.

It bears repeating, explicitly, that the board is confident that due consideration has been given to the myriad aspects of ethical corporate citizenship in the process of separation, ensuring that there are no forms of anti-competitive behaviour and corruption. Further, the group ensures that it adheres to ethical people practices, including remuneration practices that respond to income inequality in specific markets, and diversity and inclusion that prioritises local hiring and skills development and training; all of which are underpinned by compliance with the laws, regulations, standards and codes across the jurisdictions in which its businesses operate.

In respect of sustainability management, each business continues to respond to the socioeconomic and environmental imperatives in their market contexts, according to the priorities attendant to the nature of their businesses, market positions and respective stakeholders. Each business has a social, ethics and sustainability committee, reporting into their respective boards, responsible for overseeing the management and reporting of social, environmental and ethical issues, in line with the related policies.

Board changes and appreciation

Mark Lamberti served Imperial with distinction from March 2014 until his resignation on 30 April 2018, whereupon Osman Arbee was appointed CEO from 1 May 2018. The board once again extends its appreciation to Mark for his excellent leadership of the group and of a strong executive team who implemented a complex portfolio, organisation and management restructuring.

After a long and distinguished career with the group, Manny de Canha retired as a non-executive director on 31 January 2018, and the board wishes him well in his retirement. Moses Kgosana and Younaid Waja resigned as independent non-executive directors on 8 September 2017 and 13 October 2017, respectively. We thank them both for their service.

The board has every confidence that the painstakingly detailed process of internal and external separation has ensured that Imperial Logistics and Motus Holdings are uniquely positioned, adequately resourced, and are led by entrepreneurial and experienced leadership teams with depth; and that each business is instilled with the ethos of exemplary governance and ethical leadership that was expected as part of Imperial Holdings.

For this remarkable achievement in such a short time, I congratulate my colleagues on the Imperial Holdings board and divisional boards, the executive teams across the group and the many advisers involved in this multi-faceted undertaking. To our shareholders who have largely without exception supported this historic development, we extend our thanks. In closing, we reiterate our conviction that the legacy of this great company will live on in the enduring success of Imperial Logistics and Motus Holdings.

Suresh Kana


14 September 2018