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Mark Lamberti, CEO – Imperial Holdings

‘We are diversifying away from the impact of the rand by doing other things around the motor business and in logistics’.

HANNA BARRY: Logistics and transport company, Imperial Holdings, issued results this morning for the six months ended December 31. Revenue up 9% to R56.2bn largely as a result of acquisitions, operating profit falling 9% to R2.8bn, with headline earnings per share also lower. Mark Lamberti is Imperial’s CEO and joins us now. Mark, thank you for your time.

MARK LAMBERTI: It’s a pleasure.

HANNA BARRY: These results reflecting tough trading conditions but are in line with your expectation.

MARK LAMBERTI: Yes but more specifically than just general difficult trading conditions, the decline in operating income is almost totally attributable to the rand impact on our import of new vehicles and the effect that that had on it. So that was a really tough one to deal with. The profits in our import division fell precipitously, 51%, because of this. Since May 2012 the rand has declined 40%, it’s absolutely impossible to pass through price increases anything like that in any consumer market.

HANNA BARRY: Absolutely and how is Imperial dealing with that? It doesn’t look like the rand is going to strengthen any time soon, so what is Imperial doing to try and mitigate some of this risk?

MARK LAMBERTI: Well, what we’ve done is over a period of some years now, a fantastic job has been done in building up almost, there are almost 1m cars that we have imported out there and we get considerable income from the parts that we sell to them, the after-sales service and we’ve built a financial services business around that. So within our motorcar import division we’ve mitigated it. But, of course, we have a second division where we don’t import and we buy from local original equipment manufacturers and that division has done very well under the circumstances, showing a nice growth of profit and revenue. Of course what we’re trying to do is to grow our logistics businesses very quickly, our logistics business in Africa has grown particularly well over this past period, we grew our turnover by 84% and our profits 91% over this half-year, and our logistics South Africa business also held its own. So the simple answer to your question is that we are diversifying away from the direct impact that the rand has on new car sales by doing other things around the motor business and in logistics.

HANNA BARRY: Just on that diversification, you also cited a slower than expected recovery of the German economy and that’s somewhere else where Imperial has significant operations, can you talk to us a little bit about that and more broadly I think how the impact of the current low growth environment and some political uncertainty that we’re seeing in the Eurozone, how that is impacting Imperial’s business?

MARK LAMBERTI: Yes, in the context of Imperial, logistics is a very big word because we do things as basic as simple distributorship in countries like Nigeria and Kenya to the most sophisticated logistics that we do in Germany, we are doing things there in our contract logistics business, in our Panopa business, such as taking products onto the production lines of the major motor manufacturers on a just in sequence basis, it’s very sophisticated stuff.

But to answer your question more directly, the German economy has been impacted by some of the sanctions on Russia and by Ukraine, it’s hard to say exactly how much that is. I must say that we were very encouraged by the shoot-up in GDP that happened in the last quarter of last year and there seem to be some green shoots there. We have a spread across inland shipping, this contract logistics business that I described, we are also in contract logistics in chemicals, where we synthesise and formulate chemicals for the major chemical manufacturers of the world like BASF and Bayer. So we’ve got a big spread of businesses and when the German economy hiccups we catch a cold, so it has been not a terrible performance but below what we expected out of logistics international. On the other side of it the weakening of the rand against the euro over that period gave us a little bit of a hedge.

HANNA BARRY: In light of that and perhaps alongside some of these diversification initiatives that you were telling us about earlier, is Imperial looking at entering new markets?

MARK LAMBERTI: Yes, we are very strong in the German economy in motor, in automotive and chemicals and so on. We are looking to acquire businesses in adjacent sectors where our skillsets could apply and our capabilities could apply but that comment applies throughout our group, we have great capability in logistics in South Africa and similarly we would be looking to acquire businesses. Much of our growth in Africa at the moment is founded on acquisitions, so I think we’ve developed a proud record of doing sound acquisitions and integrating them into our group and that’s very much part of how we will grow in the future, recognising always that we have to grow the businesses that we’ve got.

HANNA BARRY: Two Imperial board appointments becoming effective today, that’s of Peter Cooper, he’s the former CEO of RMB and Graham Dempster, former COO of Nedbank. Now in terms of strategy is there a specific reason why Imperial has employed expertise from a financial services background?

MARK LAMBERTI: It’s not just so much from a financial services background, it’s that some of the departures from our board in the last year or so, in fact five individuals left, two of them had great competence in mergers and acquisitions. It was that corporate finance capability that we wanted on our board and we are absolutely thrilled and, in fact, honoured to have people of the calibre of Peter and Graham join us.

HANNA BARRY: Mark, you sound confident and I think your share purchases of late are a sign of confidence. I’m not sure if you now own I think it’s 450 000 Imperial shares, what do you expect from the year ahead?

MARK LAMBERTI: Those are two separate issues. I’m not an investor for the year ahead, I’m an investor for the long term. So yes, I own a few more than that today but nonetheless the answer to your question is the thing that is damaging our performance is this rand impact on new car prices and that’s not going to change because we’ve ordered the cars for the rest of this financial year. So it was because of that that we were quite confident in predicting – not happily – but we predicted nonetheless that our performance for the full year would be slightly below last year in terms of earnings.

HANNA BARRY: Mark Lamberti is the CEO of Imperial.

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