Chairman’s report

Thulani Gcabashe

Thulani S Gcabashe Chairman

imperial has been recognised for its Commitment to skills development in the logistics and supply Chain industry through awards including Corporate educator of the year.

For the year to 30 June 2009, Imperial Holdings has delivered a pleasing performance under extraordinarily challenging conditions. In a year characterised by two distinct halves for most of the group’s divisions, the global economic crisis affected trading volumes across the board while tight credit criteria and reduced demand affected motor retailing and distribution in South Africa.

Strategic actions and operational streamlining during the review period and in the prior period have resulted in cost efficiencies, a strong balance sheet and the capability to deliver on the group’s strategic intentions. Shareholders’ capital was managed with great care and is reflected by the switch to higher-return industries and a lighter asset orientation. As detailed in the chief executive officer’s report, the focus is on pursuing decreased risk and cyclicality of operational earnings without forfeiting growth.

Acquisitions and greenfield investments in existing or complementary businesses are being carefully pursued, with an ongoing emphasis on optimal capital management.

Despite major restructuring and tough market conditions since 2007, Imperial has continued paying dividends, albeit at a lower level due to credit and industry circumstances.

Sustainable development

Leadership skills and technical training are key drivers for our business and therefore prominent in our people development initiatives. These initiatives together with our on-going management development programmes are important in achieving our transformation goals.

During the year, R24 million was invested in a second state-of-the-art technical training centre. In addition, Imperial spent over R61 million during the year on training and development for our people – a key stakeholder group. People development and transformation has now been elevated to an executive portfolio, underscoring the importance of these initiatives in the group’s sustainable growth.

Imperial has been recognised for its commitment to skills development in the logistics and supply chain industry through awards including Corporate Educator of the Year and was recognised by the Department of Labour for good practice in skills development.

Imperial companies remain active in the communities that provide our employees, nurture our future leaders and buy our products and services. The opening of an administration block at an underprivileged school in Gauteng, noted earlier, is visible evidence of this commitment. Through the Imperial Ukhamba Community Development Trust, and in close co-operation with the Gauteng Education Department, our active initiatives benefit some 3 500 learners from disadvantaged backgrounds during the vital formative years.

Corporate governance

The principles contained in King II are reflected in the group’s corporate governance structures and are reviewed to accommodate organisational changes and any developments in this area. We believe our overall corporate governance standards will stand us in good stead to comply with the requirements of King III which is effective from our new financial year. Our sub-committees that cover the various aspects of corporate governance including audit, risk, remuneration, treasury and transformation are functioning well.

Directorate and management

The Imperial board now has 15 members, with a good balance between independent, non-executive and executive directors. Of the nine non-executive directors, six are independent according to the King II codes of corporate governance.

During the year, Max Sisulu resigned as a director of the group following his election as speaker of the National Assembly. Nazeer Hoosen, who was an executive director and also joint managing director of Regent group, resigned during the year. We thank both Max and Nazeer for their respective contributions over the years.

Several changes have been made to Imperial’s executive committee, strengthening this team and broadening its base of skills. In May 2009, David Gnodde joined the executive committee of Imperial Holdings after being appointed chief executive officer of the Regent group, comprising of Regent Insurance Company Limited and Regent Life Assurance Company Limited. Prior to that, he was an executive director and chief operating officer of the Professional Provident Society (PPS).

At year end, Moeketsi Mosola and Berenice Francis were appointed to Imperial’s executive committee. Moeketsi was previously the CEO of SA Tourism, after serving as chief director in the Department of Environmental Affairs and Tourism and as a director at the Department of Provincial and Local Government. He will head the group’s tourism division including Springbok Atlas (touring and charter), Grosvenor Tours, Eastgate Safaris and Imperial Chauffeur Drive. Berenice joined Imperial Holdings in July 2008 as group risk manager, after serving as chief risk officer of the State IT Agency (SITA). Her portfolio on the executive committee will be risk, transformation and people development.

An executive share purchase scheme was established in June 2005 under which 115 senior managers of the group were granted interest-bearing loans to acquire shares in the company. This loan was impaired in the previous year due to the shortfall of its balance against the underlying shares. The outstanding debt, including interest to the end of June 2009, was R170 per share compared to the combined share price of Imperial and Eqstra of R65. This amount is unlikely to be recovered due to the shortfall which would escalate as interest of approximately R1,50 per share accrues monthly.

The board considered the very strong possibility that the debt would not be finally recoverable against the serious consequences of instituting collection action against our senior management which would not be in the interest of the group. Accordingly, the board has resolved to settle the shortfall on the loans to senior management after the sale of the underlying shares by using the related impairment provisions created in previous years. In respect of the executive directors, a special share appreciation right award has been made to assist in settling the loan in due course. It is not anticipated that the termination of this share purchase scheme will require any further impairments or cost to the group.

Black economic empowerment

We believe black economic empowerment (BEE) is a strategic imperative and that our future success and sustainability depends on it. We are committed to transformation and empowerment, and will continue to pursue and promote all facets of empowerment in our business.

Although recent global economic events have put pressure on BEE deals, we remain committed to our BEE partners Ukhamba Holdings and Lereko Mobility.

During the year Imperial issued a guarantee in support of Lereko Mobility in favour of its lenders to underpin the transaction. In July 886 269 deferred shares owned by Ukhamba were converted into ordinary shares and listed.

Acknowledgements

The review period fully tested the mettle of the Imperial Group. It also demonstrated the calibre and commitment of people at every level. On behalf of the board, sincere thanks to Hubert Brody and his executive management team for keeping this group firmly on the path to sustainable growth and steady returns.

I thank my fellow board members for their insight and counsel which plays such a valuable role in refining the strategy that is spearheading our growth.

Thulani S Gcabashe
Chairman

25 August 2009