COMMENTARY

RESULTS OVERVIEW

Imperial’s performance in the six months to December reflects sound management of controllable factors under testing circumstances.

> Revenue and operating profit for the Imperial Group grew 6% to R59,8 billion and 7% to R3,1 billion respectively, partly due to the inclusion of the Imres and S&B Commercials acquisitions for the full six months.
> Excluding current year acquisitions, revenue and operating profit increased 4%. Revenue and operating profit from continuing operations, excluding Regent, was up 6% to R58,2 billion and 4% to R2,8 billion respectively.
> The Group’s operating margin was maintained at 5,1%.
> A full reconciliation from earnings to headline earnings and core earnings is provided in the Group Financial Performance section.
> The net debt to equity ratio (including preference shares as equity) improved to 76% from 79% in December 2014.
> The Group’s return on invested capital (ROIC) was 11,6% and the weighted average cost of capital (WACC) was 8,7%.
> Cash flow from operating activities decreased to R89 million from R909 million in the prior period, largely as a result of increases in capital expenditure on rental assets, working capital, interest and taxes paid.
> An interim cash dividend of 370 cents per share was declared, up 6% on the prior period.

These results reflect progress with Imperial’s previously espoused intent to decouple the Group’s performance from the impact of Rand weakness on the Vehicle Import, Distribution and Dealerships division, as it pertains specifically to the competitiveness and profitability of directly imported new vehicles.

> Non vehicle revenue and operating profit increased 6% to R24,8 billion (41% of Group* revenue) and 3% to R1,5 billion (54% of Group* operating profit) respectively.
> Foreign revenue increased 21% to R24,5 billion (41% of Group* revenue) and foreign operating profit increased 22% to R969 million (34% of Group* operating profit). Rest of Africa revenue increased 26% to R6,8 billion (12% of Group* revenue) and operating profit increased 42% to R446 million (16% of Group* operating profit).

* Excluding Regent, head office and eliminations.

ENVIRONMENT

In January 2016 the IMF again lowered its global growth forecasts for 2016 to 3,4%; for Advanced Europe to 1,7%; for Germany to 1,7%; and for the United Kingdom to 2,2%. The sub-Saharan Africa 2016 forecast has been reduced to 4,0%, with South Africa forecast to grow below 0,7% compared to 1,5% in 2015.

In addition to slowing global growth and the factors affecting all commodity based emerging economies, South Africa’s growth during the reporting period was depressed by the structural impediments of unemployment and low skills and the early effects of the drought. The deterioration of business confidence, private sector investment, capital flows, the balance of payments and the Rand was exacerbated by political ineptitude, policy uncertainty and rising perceptions of corruption.

With 59% of its revenues generated in South Africa, 29% in Advanced Europe and 12% in sub Saharan Africa north of South Africa in H1 F 2016, Imperial is affected by these global and local economic conditions.

More specific uncontrollable factors directly influencing Imperial’s businesses in the first half of the 2016 financial year were: a sharp decline in commodity volumes; subdued consumer goods volumes; currency movements in Africa; unusually long periods of low water levels on the River Rhine; a 24% decline of the average R/$ exchange average rate on the comparable half and a 6% decline in national new vehicle sales.

Against this background we provide shareholders with current information on the Group’s strategy and performance.

STRATEGY

Imperial strives to create long term value for stakeholders though strategic clarity, financial discipline, operational excellence and strictly defined capital allocation principles.

Our investment thesis is unchanged:.

> We will release capital and sharpen executive focus, by disposing of non-core, strategically misaligned, underperforming or low return on effort assets.
> We will invest capital in South Africa to maintain the quality of our assets and our market leadership in logistics and motor vehicles.
> We will invest capital in the Rest of Africa primarily to achieve our 2020 objective for the revenue and profits generated by logistics in that region to equal that of our South African logistics business, and secondarily to expand our vehicles and related businesses in the region.
> We will invest cash generated from operations and from divestments to grow our businesses beyond the continent, but with an emphasis on logistics.

The development and sustainability of Imperial will be underpinned by investment in human capital and information systems.

DIVISIONAL PERFORMANCE

LOGISTICS AFRICA

  HY1
2015
  HY1
2016
  %
change
 
HY2
2015
  % change
on HY2
2015
 
Revenue (Rm) 13 265   13 714   3   12 082   14  
Operating profit (Rm) 802   802       785   2  
Operating margin (%) 6,0   5,8       6,5      
Return on Invested Capital* (%) 11,9   9,6              
Weighted average cost of capital* (%) 8,9   8,9              

* Calculated on a rolling 12 month basis

In South Africa, the division’s revenue and profitability was under pressure due to soft volumes in most sectors, particularly in consumer products and commodities.

The industrial logistics businesses servicing the manufacturing, mining, commodities, chemicals and construction industries continued to experience declining volumes, which depressed revenue growth and operating margins.

The consumer logistics businesses recorded revenue growth but operating profit was depressed by new systems implementation and the resultant managerial diversion and operational complexities.

The division’s operations in the Rest of Africa continued to perform well, with revenue and operating profit growing by 15% and 35% respectively. This performance was supported by volume growth, the contribution of strategically aligned acquisitions in the pharmaceuticals sector, and the inclusion of Imres for the full six months in H1 2016. Expansion into new markets and partnerships with new principals delivered favourable results. The strategy to be a significant provider of consumer goods and pharmaceutical routes-to-market in Southern, East and West Africa is on track with acquisitions performing in line with or ahead of expectations.

The division incurred net capital expenditure of R597 million (2014: R441 million), the increase mainly attributable to the transport fleet and property investments.

In HY2 2016 the continued slowdown of the South African economy is expected to exert ongoing pressure on profitability and margins in the South African division, while operations in the Rest of Africa are expected to sustain a positive trend.

Overall, we expect Logistics Africa to grow revenue, with a marginal growth in operating profit in F 2016.

LOGISTICS INTERNATIONAL

  HY1
2015
  HY1
2016
  %
change
 
HY2
2015
  % change
on HY2
2015
 
Revenue (Rm) 9 595   10 306   7   9 476   9  
Operating profit (Rm) 386   397   3   572   (31)  
Operating margin (%) 4,0   3,9       6,0      
Return on Invested Capital* (%) 7,6   8,1              
Weighted average cost of capital* (%) 6,7   6,2              

* Calculated on a rolling 12 month basis

  HY1
2015
  HY1
2016
  %
change
 
HY2
2015
  % change
on HY2
2015
 
Revenue (Euro m) 678   688   2   713   (4)  
Operating profit (Euro m) 27   27     43   (37)  
Operating margin (%) 4,0   3,9       6,0      

The restructuring of the division into two integrated client facing sub divisions (Imperial Transport Solutions and Imperial Supply Chain Solutions) was executed as planned, and opportunities for simplification and cost reduction are being exploited.

Operating profit pressures arising from soft volumes and unusually long period of low water levels on European waterways were offset by contract gains, cost-cutting measures and a growing contribution from the South American inland shipping business. The weakening of the Rand against the Euro assisted the Rand-denominated results.

Divisional net capital expenditure of R513 million (2014: 614 million) was incurred during the year. Most of this was invested in additional capacity for the chemical manufacturing business and two additional convoys commissioned during the year to meet the growing demand for inland waterway transport on the Rio Parana in South America. This business now utilises five push boats with 60 barges, some redeployed from Europe. The success of this business is evidence of the division’s ability to transfer core capabilities to new markets.

We expect Logistics International’s revenue and operating profit to decline in Euro’s in F 2016, due to strategic disposals (largely Neska) and increased labour costs in certain of the automotive sites we serve.

VEHICLE IMPORT, DISTRIBUTION AND DEALERSHIPS

  HY1
2015
  HY1
2016
  %
change
  HY2
2015
  % change
on HY2
2015
 
Revenue (Rm) 14 278   14 590   2   13 159   11  
Operating profit (Rm) 461   532   15   499   7  
Operating margin (%) 3,2   3,6       3,8      
Return on Invested Capital* (%) 5,7   6,1              
Weighted average cost of capital* (%) 9,1   9,5              

* Calculated on a rolling 12 month basis

Notwithstanding extremely challenging trading conditions during the period, operating profit increased by 15% and the operating margin increased to 3,6% from 3,2% in the prior period. Both were affected by lower new vehicle sales volumes, offset by price increases.

Although the Rand was weaker against the Euro and more so against the US Dollar, the division achieved increased profitability, which was enhanced by a strong performance from Renault, Goscor, the newly developed African operations and improved parts sales. Forward cover on the US Dollar and Euro imports currently extends to July/August 2016.

In South Africa, the division retailed 44 629 (2014: 49 269) new and 19 378 (2014: 18 690) pre-owned vehicles during the period. The division’s South African new vehicle registrations as reported to NAAMSA were 9% lower than the previous period.

Annuity revenue streams generated from after-sales parts and service were under pressure with revenue from the rendering of services down 3%. The growing vehicle parc of our imported brands, over 1 million, is delivering good levels of after-market activity for the dealerships.

Divisional net capital expenditure increased to R1,1 billion (2014: R813 million) as a result of additional vehicles leased to car rental companies and an increased investment in properties.

In the absence of a marked deterioration of vehicle sales, we expect the Vehicle Import, Distribution and Dealerships division to deliver a real growth in revenue and flat operating profit in F 2016, despite the sale of the Goscor business.

VEHICLE RETAIL, RENTAL AND AFTERMARKET PARTS

  HY1
2015
  HY1
2016
  %
change
  HY2
2015
  % change
on HY2
2015
 
Revenue (Rm) 18 736   20 790   11   18 811   11  
Operating profit (Rm) 798   801     879   (9)  
Operating margin (%) 4,3   3,9       4,7      
Return on Invested Capital* (%) 15,5   14,5              
Weighted average cost of capital* (%) 9,8   9,9              

* Calculated on a rolling 12 month basis

In South Africa, the division retailed 14 363 (2014: 15 611) new and 16 171 (2014: 16 249) pre-owned vehicles during the period.

The division delivered good growth in revenue as prices increased, while operating profit was flat.

In line with the market, South African passenger and commercial vehicle sales experienced a decline in new retail units. After sales parts revenue grew 8% from both price and volume increases with anticipated growth a result of the strong new vehicle sales in the past three years. Despite this, both revenue and operating profit in the local new and pre-owned vehicle businesses declined.

During the period car rental, Auto Pedigree and panel shops were placed under a single management team to facilitate integration throughout the rental, accident repair and resale value chain. Rental volumes felt the effects of lower usage as government and companies reacted to challenging market conditions. Unit sales at pre-owned specialist Auto Pedigree experienced moderate growth despite higher interest rates and a fragile consumer sentiment. Panel shops delivered a disappointing performance as a result of lower volumes and the disposal of two outlets, effective 30th September 2015.

The Aftermarket Parts business saw revenue growth arising from price increases but operating profit was unchanged.

The United Kingdom commercial vehicle market continued to grow strongly with the truck market up 27% and the light commercial vehicle market up 15%. Imperial’s results were buoyed by this market growth and the acquisition of S&B Commercials, a Mercedes Benz commercial vehicle dealer, which is performing in line with expectations and is included for the full 6 months in H1 F 2016. A weaker Rand enhanced the growth in Rands.

Divisional net capital expenditure of R573 million was incurred (2014: R792 million) largely on vehicles for hire and property development.

We expect the Vehicle Retail, Rental and Aftermarket Parts division to deliver single digit growth of revenue and single digit decline in operating profit in F 2016.

FINANCIAL SERVICES

  HY1
2015
  HY1
2016
    %
change
  HY2
2015
      % change
on HY2
2015
 
Motor Related Financial Products and Services                          
Revenue (Rm) 658   801     22   771       4  
Operating profit – restated (Rm) 307   336     9   313       7  
Operating margin (%) 47   42         41          
Insurance (discontinued operations)                          
Revenue (Rm) 1470   1 565     6   1 564        
Operating profit (Rm) 180   274     52   384       (29)  
Adjusted investment income 87   120     38   121       (1)  
Adjusted underwriting result 166   244     47   313       (22)  
Intergroup eliminations (73)   (90)     23   (50)       (80)  
Operating margin (%) 12,2   17,5         24,6          
Underwriting margin (%) 11,3   15,6         20,0          

The Motor Related Financial Products and Services business continued its strong financial performance and grew operating profit by 9% despite lower vehicle sales. Innovative new products and improved retention and penetration rates in our sales channels contributed positively to the growth in these businesses, providing valuable annuity earnings to underpin future profits. During the period, funds held under service, maintenance, roadside assistance and warranty plans remained stable. The book growth in the alliances with financial institutions continued to grow strongly and the profits are healthy, driven mainly driven by low credit loss ratios.

Notwithstanding management’s additional responsibilities relating to executing the previously announced sale process, Regent is performing in line with expectations. Regent’s underwriting result increased by 47% mainly due to a lower claims ratio. Investment income increased by 38% due to good growth in the off-shore equity portfolio as a result of Rand weakness, and the absence of the R16,0 million ABIL loss reported in the prior period.

The underwriting performance in Regent’s short term business continued to benefit from more effective risk management resulting in improved loss ratios in the heavy commercial vehicle business. New business penetrations of motor related value added products remained under pressure due to subdued vehicle sales. Regent Life grew new business volumes. Regional business beyond South Africa remained a meaningful contributor to the division and performed to expectations.

We continue to focus on growing the leasing business via Imperial Fleet Management and Ariva (Private leasing alliance) and building synergies within the retail motor divisions.

Net capital expenditure of R453 million (2014: R636 million) was incurred in the Motor Related Financial Products and Services division, relating mainly to vehicles for hire.

We expect real growth of revenue and operating profit from Motor Related Financial Products and Services. However, the impact of the disposal of Regent on the Financial Services division’s second half revenue and operating profit will depend on the timing of the regulatory approvals.

DISPOSALS

Our strategy to dispose of non-core, strategically misaligned, underperforming or low return on effort assets gained momentum during the reporting period. The disposals described below will generate proceeds of approximately R4,7 billion, which will initially be used to reduce debt until redeployed in accordance with our strategic, investment and capital allocation criteria. Proceeds of R2,5 billion have been received to date.

REGENT

On 29th September 2015 we announced the disposal of Imperial’s 100% interest in the Regent Group. Imperial accepted an offer from the Hollard Insurance Group and Yellowwoods Group (the umbrella holding company of Hollard), to acquire the Regent Group, Regent Botswana and Regent Lesotho for a purchase consideration of R2,2 billion.

Agreements on this extraordinarily multifaceted transaction are approaching finality, with closure soon to be dependent only on regulatory approvals, the timing of which is unlikely to be before the end of Imperial’s financial year on 30th June 2016.

NESKA GROUP

On the 5th October 2015 we announced the disposal of our 65% interest in Neska to Häfen und Güterverkehr Köln (‘HGK’), the Port Authority in Cologne, Germany, for a total consideration of EUR 75 million (R1,3 billion), including loans repayments.

Neska, a leading player in inland port operations in Europe, was facing growing competition and disintermediation from landlords (port owners). As a result, Neska’s growth prospects under Imperial’s ownership were limited.

The transaction was finalised on 11th December 2015.

GOSCOR GROUP

On 3rd November 2015, the Group announced that an agreement had been entered into to dispose of the 67,5% share of the Goscor group to management for a total purchase consideration of R1,03 billion, including loan repayments. Goscor, a subsidiary of our Vehicle Import, Distribution and Dealership division, is an importer and distributor of industrial equipment, which we regard as non-core to Imperial’s logistics and vehicles businesses.

The transaction was finalised on 5th February 2016.

OTHER

During the period, the Vehicle Retail, Rental and Aftermarket Parts division disposed of two panel shop outlets and two commercial dealerships were sold to Lereko Motors, an Associate company, approved appropriately for a related party transaction.

Imperial Logistics International sold its 75% stake in ALS, a small shipping company, to the minority founder manager shareholders for EUR 5 million (R84 million). The transaction was finalised on 27th January 2016.

ACQUISITION OF THE REMAINING INTEREST IN THE AMH GROUP

In anticipation of the retirement of Mr Manny de Canha in January 2018 and in pursuit of inherent operational efficiencies and synergies that exist within Imperial’s two vehicle divisions, Imperial has entered into an agreement to acquire Mr de Canha’s indirectly owned 10% share of the AMH Group held via a holding company (“the Transaction”). Imperial currently has a 90% shareholding in AMH Group and if the Transaction is successfully implemented, AMH Group will become a wholly owned subsidiary of Imperial.

Mr de Canha is the Chief Executive Officer of the AMH Group and an executive director of Imperial Holdings Limited therefore due to its size in comparison to the market capitalisation and in terms of JSE Listings Requirements the Transaction is classified as a small related party transaction.

It is the express intent of Imperial and Mr de Canha that he should remain highly invested in the Imperial Group, and remain a director thereof. To this end the purchase consideration will insofar as possible be discharged by means of an exchange of Imperial shares.

The salient terms of the Transaction are as follows:

> The AMH Group comprises Associated Motor Holdings (Pty) Ltd and Boundless Trade 154 (Pty) Ltd (“the South African shares”), Associated Motors Australia (Pty) Ltd (“the Australian shares”), Automotive Distributors Africa Limited (the Rest of Africa shares”) collectively the (“AMH Group”). These companies have been reported on in Imperial’s segmental accounts as the Vehicle Import, Distribution and Dealerships division and the Motor Related Financial Products and Services division
> The consideration, which shall be discharged on the effective date, will in value be equivalent to R750m (seven hundred and fifty million Rand) comprising:
 
R650m (six hundred and fifty million Rand) discharged by means of the issue of Imperial shares for the South African shares, if so approved by Imperial shareholders within 75 days of the date of this SENS Announcement by way of a Special Resolution pursuant to Section 41(1) (b) of the Companies Act 71 of 2008. The number of shares will be determined by dividing R650m by the weighted average price of an Imperial share in the 45 days prior to the effective date. If for any reason shareholder approval has not been received within 75 days and the conditions precedent have been met, this portion of the purchase price will be discharged in cash by the Imperial Group; and
the balance of R100m (one hundred million Rand) will be discharged in cash for the Rest of Africa shares and the Australian shares.
> PricewaterhouseCoopers Corporate Finance (Pty) Ltd, an independent professional expert acceptable to the JSE, has been appointed to provide a fairness opinion and advise the relevant Boards of the Imperial Group whether the Transaction is fair insofar as shareholders are concerned.
> The Transaction is subject to the following conditions precedent being met within 75 days of the date of this SENS Announcement:
 
Compliance by Imperial with the provisions of section 10.7 of the Listings Requirements in respect of small related party transactions;
Approval by shareholders in terms of Section 41(1)(a) and (b) of the Companies Act; and
Any other regulatory approvals.
> The effective date will be the day on which the conditions precedent are met.

Planning of the strategies, structures, systems and processes necessary to enhance the value of Imperial’s total vehicle interests will commence immediately, with a view to a staged implementation and realisation of benefits commencing on 1st July 2016. As an Imperial board member, Mr de Canha’s experience and expertise will be referenced to prioritise projects and mitigate risk in this process.

It is important to stress that Imperial is fully committed to preserving the independence of the Original Equipment Manufacturers and International Brands for whom we act as motor vehicle distributors and retailers. Any restructuring pursuant to this transaction will in no way infringe on our contractual commitments, compromise our obligations, or test the valued relationships with the OEM’s and Brands that Imperial and its subsidiaries have developed over decades.

From 1st July 2016 Imperial’s vehicle businesses, which generated combined revenues and operating profits of R35,38 billion and R1,33 billion respectively during the F1 2016, will be reported on as a single entity with due regard to the disclosures and transparency necessary to facilitate understanding and insight for shareholders.

A circular regarding the AMH Group acquisition will be distributed to shareholders in due course.

Please refer to the relevant cautionary announcement at the end of this statement.

GROUP FINANCIAL PERFORMANCE

PROFIT AND LOSS

GROUP PROFIT AND LOSS (Including discontinued operations)

  HY1
2015
  HY1
2016
  %
change
  HY2
2015
  % change
on HY2
2015
 
Revenue (Rm) 56 234   59 766   6   54 253   10  
Operating profit (Rm) 2 872   3 066   7   3 363   (9)  
Operating margin (%) 5,1   5,1       6,2      
Return on Invested Capital (%) 11,9   11,6              
Weighted average cost of capital (%) 9,1   8,7              

GROUP PROFIT AND LOSS (Excluding discontinued operations)

  HY1
2015
  HY1
2016
  %
change
  HY2
2015
  % change
on HY2
2015
 
Revenue (Rm) 54 764   58 201   6   52 689   10  
Operating profit (Rm) 2 692   2 792   4   2 979   (6)  
Operating margin (%) 4,9   4,8       5,7      

Revenue increased by 6% to R59,8 billion (4% up excluding acquisitions). Revenue for continuing operations, excluding Regent, increased 6% to
R58,2 billion.

Operating profit increased 7% to R3,1 billion (4% up excluding acquisitions). Operating profit from continuing operations, excluding Regent, was R2,8 billion, up 4%. The increases in revenue and operating profit were enhanced by the inclusion of the Imres and S&B Commercials acquisitions for the full six months.

Group operating margin, including Regent, was maintained at 5,1%.

Net finance costs increased by 9% compared to the prior period on the back of increased debt levels and interest rates. Increase in debt is due to additional working capital, capital expenditure, higher tax and interest payments, translation of the foreign debt into Rand, and acquisitions and disposals.

Income from associates and joint ventures increased by R46 million on the prior period mainly attributable to Ukhamba and MiX Telematics, in which Imperial holds a 25,3% shareholding.

The effective tax rate of 28,6% increased from 26,2% in the prior period mainly due to the goodwill impairments which are not tax deductible.

EARNINGS PER SHARE

  HY1
2016
  H1
2015
  %
Change
 
Basic EPS (cents) 881   738   19  
Diluted EPS (cents) 869   736   18  
             
Basic HEPS (cents) 801   759   6  
Diluted HEPS (cents) 791   756   5  
             
Basic Core EPS (cents) 861   803   7  
Diluted Core EPS (cents) 849   800   6  

RECONCILIATION FROM EARNINGS TO HEADLINE AND CORE EARNINGS:

R million HY1
2016
  H1
2015
  %
Change
 
Net profit attributable to Imperial shareholders (earnings) 1 699   1 426   19  
Profit on disposal of assets (41)   (15)      
Impairments of goodwill and other assets 303   33      
Profit on sale of businesses (445)   11      
Other 10   17      
Tax effects of re-measurements 85   (1)      
Non-controlling interest (66)   (5)      
Headline earnings 1 545   1 466   5  
Amortisation of intangibles 207   205      
Foreign exchange gain on intergroup monetary items (92)   (104)      
Re-measurement of contingent consideration, put option liabilities and business acquisition costs 36   29      
Change in economic assumptions on insurance funds 18   (1)      
Tax effects (35)   (28)      
Non-controlling interest (19)   (15)      
Core earnings
1 660   1 552   7  

Profit attributable to shareholders increased by 19% from R1,4 billion in the prior period to R1,7 billion. The net increase was largely as a result of an increase in operating profit of R194 million and a profit of R447 million recognised on the disposal of Neska, reduced by impairments of goodwill and other intangibles of R303 million.

FINANCIAL POSITION

R million HY1
2016
  H1
2015
  %
Change
 
Goodwill and intangible assets 7 866   7 193   9  
Property, plant and equipment 11 736   10 967   7  
Investment in associates and joint ventures 1 618   1 351      
Transport fleet 6 372   5 610   14  
Vehicles for hire 3 841   3 603      
Investments and loans 357   357      
Net working capital 11 475   9 267   24  
Other assets 1 597   1 428      
Assets classified as held for sale 6 530   4 618      
Net debt (17 709)   (13 886)   28  
Non-redeemable non-participating preference shares (441)   (441)      
Other liabilities (8 808)   (8 121)      
Liabilities directly associated with assets classified as held for sale (3 243)   (2 713)      
Total shareholders’ equity
21 191   19 233   10  
Total assets 74 863   65 712   14  
Total liabilities 53 672   46 479   15  

Goodwill and intangible assets rose to R7,9 billion as a result of Rand weakness and acquisitions.

Property plant and equipment increased by R769 million to R11,7 billion due mainly to investments in properties.

The transport fleet increased by R762 million mainly due to investment in trucks and barges of R505 million, currency adjustments of R632 million resulting from a weaker Rand, reduced by depreciation of R396 million.

Vehicles for hire increased by R238 million. Vehicles rented to companies outside the group increased by R665 million. Imperial Car Rental increased its fleet by R269 million ahead of its peak season. The additions to vehicles for hire were offset by the reclassification of Goscor and Bobcat’s rental assets of R696 million to assets held for sale. Price increases have contributed further to the increase in vehicles for hire.

Net working capital increased by 24% to R11,5 billion compared to R9,3 billion at June 2015, largely as a result of the increase in trade receivables and inventory. OEM discounts created incentive for the vehicle importers to increase inventory.

Total assets increased by 14% to R74,9 billion due mainly to acquisitions, capital expenditure and currency adjustments.

Net debt to equity (including preference shares as equity and including Regent’s cash resources) at 76% (Dec 2014: 79%) was higher than the 66% at June 2015 due to additional working capital, capital expenditure, higher tax and interest payments, translation of the foreign debt into Rand and acquisitions.

The net debt level is within the target gearing range of 60% to 80%. The net debt to EBITDA ratio (rolling 12 months basis) was 1.8 times (2014: 1.8 times).

In addition to attributable profits, shareholders’ equity was positively impacted by: the weakening of the Rand against the Euro which resulted in a gain on foreign currency translation reserve of R 814 million; and a hedging reserve of R403 million as a result of the weakening Rand.

CASH FLOW

R million HY1
2016
  H1
2015
  %
Change
 
Cash generated by operations before movements in working capital 4 485   4 357   3  
Movements in net working capital (excludes currency movements & net acquisitions) (1 194)   (1 069)      
Cash generated by operations before capital expenditure on rental assets 3 291   3 288    
Capital expenditure on rental assets (including Goscor) (1 561)   (1 348)      
Interest paid (696)   (580)      
Tax paid (945)   (451)      
Cash flows from operating activities 89   909   (90)  
Net proceeds from sale of businesses (net of acquisitions) 726   (905)      
Capital expenditure (non-rental assets) (1 501)   (1 417)      
Equities, investments and loans (43)   (972)      
Dividends paid (1 030)   (917)      
Other (550)   (206)      
Increase in net debt (excludes currency movements & net acquisitions)
(2 309)   (3 508)   (34)  

Cash generated by operations before capital expenditure on rental assets was R3,3 billion, unchanged on the prior period. After interest, tax payments and capital expenditure on rental assets, net cash flow from operating activities decreased to R89 million from R909 million in the prior period.

Capital expenditure on rental assets of R1,6 billion includes R140 million spent at Goscor which was sold in February 2016.

The main contributors to the net R726 million proceeds from sale of businesses (net of acquisitions) were the disposal of Neska, two dealerships and two panel shop outlets.

Outflows from equities, investments and loans amounted to R43 million, down from R972 million in 2014 due to the decision to decrease exposure to equities in the Regent portfolio.

Dividends amounting to R1,0 billion were paid during the period.

LIQUIDITY

The Group’s liquidity position is strong with R8,5 billion in unutilised facilities (excluding asset based finance facilities). Fixed rate debt represents 41% of total debt and 71% is of a long term nature. The Group’s credit rating as determined by Moody’s was unchanged at Baa3 with a stable outlook.

DIVIDEND

An interim cash dividend of 370 cents per ordinary share (2014: 350 cents per share) has been declared.

BOARD CHANGES

As announced on 25 August 2015, Dr Suresh Kana, recent past Chief Executive Officer of PwC, was appointed as independent non-executive director of Imperial Holdings Limited from the 1st September 2015 and as Chairman of the board from the 3rd November 2015.

Mr. Moses Kgosana, a highly regarded member of the accounting profession, who established and later merged his own firm with KPMG where in recent years he served as Chief Executive and Senior Partner, was appointed as an independent non-executive director and chairperson of the Audit Committee from the 1st September 2015.

On the 3rd November 2015, Mr Roddy Sparks, who has served as a director since August 2006, was appointed Lead Independent Director.

PROSPECTS

The performance and volatility of commodity, equity and bond markets since the start of 2016 is cause for concern as a reflection of general uncertainty about the performance of economies worldwide. While there is no panacea for South Africa’s economic recovery we are encouraged by government’s more recent engagements with business. Imperial will continue to participate in and contribute to dialogue that results in economic growth and decisive action to avoid a rating downgrade and recession.

There is no reason to anticipate an improvement in the trading conditions facing Imperial during 2016. We expect volume growth throughout our logistics operations to be subdued, and national new vehicle sales in South Africa to decline between 5% and 10% in response to fragile consumer confidence and rising interest rates.

Despite a pleasing start to the second half we therefore anticipate single digit revenue growth and unchanged operating profit in continuing operations for the year to June 2016.

We will continue to execute on our espoused strategies.

MARK J. LAMBERTI – Chief Executive Officer
OSMAN S. ARBEE – Chief Financial Officer

The forecast financial information herein has not been reviewed or reported on by Imperial’s auditors.

CAUTIONARY ANNOUNCEMENT

With regards to the valuation of the AMH Group, a further announcement will be published upon receipt of the fairness opinion. Until then shareholders should exercise caution when dealing in Imperial's securities.

DECLARATION OF PREFERENCE AND ORDINARY DIVIDENDS FOR THE SIX MONTHS ENDED 31 DECEMBER 2015

PREFERENCE SHAREHOLDERS

Notice is hereby given that a gross interim preference dividend of 3.93401 cents per preference share has been declared payable to holders of non-redeemable, non-participating preference shares. The dividend will be paid out of reserves.

The preference dividend will be subject to a local dividend tax rate of 15%. The net preference dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 3.34391 cents per share.

ORDINARY SHAREHOLDERS

A further notice is hereby given that a gross interim ordinary dividend in the amount of 370 cents per ordinary share has been declared payable to holders of ordinary shares. The dividend will be paid out of reserves.

The ordinary dividend will be subject to a local dividend tax rate of 15%. The net ordinary dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 314.50 cents per share.

The company has determined the following salient dates for the payment of the preference dividend and ordinary dividend:

  2016
Last day for preference shares and ordinary shares respectively to trade cum-preference dividend and cum ordinary dividend
Wednesday, 16 March
Preference and ordinary shares commence trading ex-preference dividend and ex-ordinary dividend respectively Thursday,17 March
Record date Thursday, 24 March
Payment date Tuesday, 29 March

The company’s income tax number is 9825178719.

The number of preference shares in issue at the date of declaration was 4 540 041.

The number of ordinary shares in issue at the date of the declaration was 202 782 278.

Share certificates may not be dematerialised/rematerialized between Thursday, 17 March 2016 and Thursday, 24 March 2016, both days inclusive.

On Tuesday, 29 March 2016, amounts due in respect of the preference dividend and the ordinary dividend will be electronically transferred to the bank accounts of certificated shareholders that utilise this facility. In respect of those who do not, cheques dated 29 March 2016 will be posted on or about that date. Shareholders who have dematerialised their shares will have their accounts, held at their CSDP or Broker, credited on Tuesday, 29 March 2016.

On behalf of the board

RA Venter
Group Company Secretary

22 February 2016