Divisional reports
Logistics
Africa Logistics
The division had an excellent six months, delivering strong revenue growth and a much improved operating margin. Contract gains, the benefits
of the rationalisation which was completed in the second half of the prior financial year and recent acquisitions contributed to the strong
performance. The comparative period also includes the negative impact of the transport workers strike in South Africa.
The Transport and Warehousing business, which services the manufacturing, mining, commodities and construction industries performed well,
despite trading in a difficult economic environment. The business benefited from restructuring initiatives and delivered growth through contract
gains and operational efficiencies.
The Bulk Commodity services business performed well. The newly acquired KWS Carriers is performing in line with expectations. KWS is a
managed logistics business focused on the movement of bulk commodities from source to the end-users and ports utilising mainly dedicated
contracted vehicles.
The Specialised Freight business experienced volume pressure and a tough competitive environment especially in chemicals and food products.
Despite this, better margins were achieved due to the benefits of the rationalisation process.
The Consumer Logistics business performed well but the market remains depressed by lackluster volume growth, mainly in our manufacturing
client base. The business realised benefits from the consolidation of retail logistics operations, including the successful integration of the
FMCG businesses acquired from RTT (now Imperial Health Sciences). Significant new contracts were gained and the business continues to grow
market share.
The Cold Chain continues to impact divisional growth and margins negatively as difficult trading conditions persist. This business is being
streamlined.
The Rest of Africa business delivered strong growth during the period. Turnover and operating profit grew by 23% and 54% respectively. The
distributorship business continues to perform well as it adds new principles and benefits from the fast-growing consumer demand in Africa. The
rest of Africa component of the new Imperial Health Sciences business saw excellent volume growth and performed ahead of expectations.
MDS Logistics Nigeria, the recently acquired associate, made a positive contribution to earnings, in line with expectations. The acquisition gives
us a full distribution capability and footprint in the FMCG, pharmaceutical and telecommunications industries in Nigeria. With the Ecohealth
acquisition we will be able to offer an end-to-end capability for our customers in Nigeria’s fast-growing pharmaceutical sector.
Within the Integration Services business, Imperial Air Cargo experienced poor volumes in a challenging environment. The professional services
businesses were consolidated, establishing a strong base for growth. New contract gains will contribute towards expansion of capabilities.
We incurred gross capital expenditure of R706 million (2012: R579 million), up 22%, which was used to fund expansion and replacement of
fleet and expansion of facilities.
International Logistics
The International Logistics division performed satisfactorily in an environment where activity levels in some of its core markets were under
pressure. The translation effects of a weaker Rand exchange rate assisted the growth in Rands.
The Shipping division performed satisfactorily despite difficult trading conditions where volumes and freight rates were under pressure, especially
in December. In line with our strategy of cautiously entering new markets, we have secured a long-term contract to transport iron ore from Brazil
to Argentina along the Rio Parana River. The contract commenced in February 2014, and when fully operational will utilise two convoys of
12 barges each, including some vessels redeployed from Europe. We have entered this market as a first step to expanding in a region with excellent
growth prospects. Our expertise as the leading inland shipping company in Europe will stand us in good stead.
Lehnkering, which houses all our non-shipping chemical industry logistics activities, including warehousing, road transport and chemical
manufacturing services, performed satisfactorily considering that the first half is a seasonally low activity period.
Panopa, which provides parts distribution and in-plant logistics services to automotive, machinery and steel manufacturers, had a challenging first
half. Volumes in the steel industry remain under pressure and activity levels in the automotive and spare parts markets were subdued in a
competitive environment.
Neska, the terminal operator, had a difficult six months. Activity levels at terminals, especially in paper and containers were under pressure. Its
performance was also affected by the container terminal in Krefeld, which remains underutilised.
Gross capital expenditure of R673 million (2012: R150 million) was incurred, which is significantly higher than the prior year. This is mainly due to
the expansion of Lehnkering and the investment in a number of inland and coastal shipping projects, which included barges acquired from a
subcontractor to secure additional business and optimise the use of the fleet. The weaker Rand exchange rate also contributed to the increase.
Automotive and Industrial
The Automotive and Industrial pillar as described above houses the group’s distribution and retail activities named Distribution, Retail and Allied
Services; the Automotive Retail division; and the Other Segments division. Other Segments includes Autoparts, Car Rental, Tourism and NAC.
Distribution, Retail and Allied Services
The Distribution, Retail and Allied Services division faced difficult trading conditions and was under pressure during the period. A significant
weakening in the currency, a slowdown in vehicle sales and a more competitive market impacted on volumes and margins during the period.
Excluding the Australian operation, new vehicle registrations as reported to NAAMSA by Associated Motor Holdings (AMH), Amalgamated
Automobile Distributors (AAD), TATA, Mitsubishi and Renault (December 2013 only) were 4% lower, compared to a flat market. Growth was
experienced in used car sales and annuity revenue streams generated from after-sales parts and service. Revenue from rendering of services
was up 14% for the year. The growing vehicle parc of our imported brands is securing good levels of after-market activity for its dealerships.
Renault became a subsidiary of this division with effect from 1 December 2013.
In Australia, both new and used retail unit sales were significantly down on the prior period. Volumes in Australia continue to be negatively
affected by the initiative to change our mix to retail from car rental vehicle sales.
The Goscor Group had an excellent first half, showing strong operating profit growth compared to the prior period. The Bobcat business
experienced some pressure, in both equipment sales and rental income, while E-Z-GO was in line with the prior period.
Businesses that augment and are allied to our motor-related activities, which include Car Find, Bid 4 Cars, Graffiti and Datadot performed in line
with expectations.
Automotive Retail
The division had an excellent first half and produced strong growth in both revenue and operating profit. In South Africa, passenger car volumes
were subdued and performed in line with the market. Industrial action during the period also impacted on volumes. Passenger car revenue
grew on the back of an improved sales mix and new car price inflation. Commercial vehicle unit sales were strong and achieved 22% volume
growth year on year. Used vehicle sales also improved compared to the prior period.
In the UK, the division continues to perform well and good growth in unit sales was achieved. The recently acquired Orwell is performing in line
with expectations. The translation effects of a weaker Rand exchange rate assisted the growth in Rand.
After-sales services showed good growth despite the negative effects of the industrial strike action, which impacted parts supply and delivery.
Turnover from our vehicle service operations was 18% up. Parts revenue grew on the back of price and volume increases. The significant
increase in new car sales over the last few years bodes well for the future after-sales parts and services revenue for the division.
Beekman Canopies performed satisfactorily and achieved strong growth in turnover and unit sales, while margins were impacted by higher
input costs. Jurgens Ci was negatively impacted by industrial action and production halted for three weeks in September. Jurgens Australia
volumes continue to improve, which has a positive effect on production, which is done in South Africa.
Car Rental
Trading conditions in the Car Rental business remain tough. Revenue in the core Car Rental business was flat as revenue days declined 5% and
revenue per day increased by 4%. Revenue days declined mainly as a result of a strategy to improve the overall mix in business. Utilisation
was slightly down on the prior period and the average fleet size was 3% lower, which assisted the returns achieved by the business.
Retail unit sales at Auto Pedigree were significantly higher and the business improved its performance significantly from the prior period.
The panel business was affected in the last quarter by strike action. This had a negative impact on the business in the second quarter, resulting
in an unsatisfactory performance for the first half.
Autoparts
The Autoparts business, which forms a valuable part of our motor value chain, includes Midas, Alert Engine Parts, Turbo Exchange and Afintapart.
Midas and Alert Engine Parts performed satisfactorily in a competitive and mature market. Price increases as a result of the weakening in the
currency assisted turnover growth.
Turbo Exchange continues to be impacted by pricing pressures as a result of strong competition. The recently acquired Afintapart SA (Pty)
Limited, a commercial vehicle parts distributor, is performing in line with expectations.
Geribran, a 30% held associate in Zimbabwe performed satisfactorily and NGK, a 25% held associate performed well and showed good growth.
Financial Services
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R’million |
H1
2014 |
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H1
2013 |
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%
change |
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H2
2013 |
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% change
on H2
2013 |
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| Insurance |
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| Revenue |
1 492 |
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1 659 |
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(10,1) |
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1 628 |
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(8,4) |
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| Operating profit |
306 |
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270 |
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13,3 |
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240 |
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27,5 |
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| Adjusted investment income |
168 |
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151 |
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11,3 |
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100 |
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68,0 |
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| Adjusted underwriting result |
138 |
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119 |
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16,0 |
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140 |
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(1,4) |
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| Operating margin % |
20,5 |
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16,3 |
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14,7 |
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| Net underwriting margin % |
9,2 |
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7,2 |
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8,6 |
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| Other financial services |
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| Revenue |
563 |
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506 |
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11,3 |
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445 |
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26,5 |
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| Operating profit |
237 |
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221 |
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7,2 |
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214 |
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10,7 |
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| Operating margin % |
42,1 |
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43,7 |
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48,1 |
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| Total financial services |
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| Revenue |
2 055 |
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2 165 |
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(5,1) |
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2 073 |
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(0,9) |
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| Operating profit |
543 |
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491 |
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10,6 |
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454 |
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19,6 |
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| Operating margin (%) |
26,4 |
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22,7 |
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21,9 |
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Note: The adjusted underwriting result in the above table reflects a reallocation of policyholder investment returns from investment income to the underwriting result.
The Financial Services pillar performed well and showed good growth at the operating profit level.
Insurance
The insurance underwriting performance was much improved, and despite tough underwriting conditions in the motor comprehensive and
commercial vehicle classes, it was up 16% on the prior period. As part of its strategy to focus on its core markets and distribution channels,
Regent exited certain non-performing classes of business, which had not been generating adequate returns for some time. These had a
significant negative impact on underwriting performance in prior years. As result, revenue reduced by 10% when compared to the prior period.
Regent’s other significant product lines in the short-term insurance business performed solidly.
Regent Life performed well, with gross written premiums up 11%. Botswana and Lesotho continue to contribute meaningfully to the division.
Investment returns were higher than the prior period as a result of favourable equity markets.
Other Financial Services
The business performed satisfactorily as growth in operating profit was negatively impacted by more conservative impairment provisions on
vehicle financing joint ventures in line with expectations and current market conditions. The advances book generated through these joint
ventures has however grown encouragingly, as have the funds held under service and maintenance plans, warranties and roadside assistance.
This provides a valuable annuity earnings underpin to our future profits. Volumes in Imperial Fleet Management continue improving as we gain
new contracts.
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