Divisional reviews

Logistics

Southern African Logistics

The division faced a challenging trading environment but gained and retained a number of significant contracts. Acquisitions also contributed positively. Several of our customers experienced strike action in July 2011 and volumes were under pressure throughout the year. Volumes in the manufacturing sector suffered in the second half. CIC, which is involved in the distribution of FMCG products into many African markets performed well, despite increased competition. It was included for a full year against eight months in the prior period.

Despite challenging trading conditions, the operating margin was in line with the prior year. CIC, which operates at lower margins than the rest of the division, also impacted margins but it generated good returns.

Our Transport and Warehousing business, which services the manufacturing, mining, commodities and construction industries, performed satisfactorily, despite volumes being under pressure. New contract gains made a positive contribution to results.

A tipper division which is mainly servicing the mining industry, was established two years ago and is now contributing meaningfully to the division’s results.

The Specialised Freight business produced good results as volumes grew in the fuel and gas markets due to new contract gains. The cement and sulphuric acid markets were under pressure, whilst volumes in bulk food and chemicals remained stable.

The Consumer Logistics business was negatively impacted by weak volumes, mainly in our manufacturing client base. This affected all businesses in the supply chain, including our warehousing and distribution operations. The Cold Chain also experienced difficult trading conditions and whilst the operations have been stabilised, it continues to underperform from a trading perspective.

Integration Services produced good results with Volition and E- Logics performing well. The division continues to make a valuable contribution to the intellectual capital of the group, specifically by assisting other divisions to expand and integrate client solutions, and offer value-added services to their customers. Megafreight performed well but due to a dispute we are in negotiations with our co-shareholders, who own 40%, to dispose of our shareholding.

In the Africa division, transport volumes were under pressure. We experienced lower volumes being transported from South Africa into the rest of Africa, as other trade corridors become more reliable and cost effective. Certain customers in our Namibia business were also under pressure during the period. CIC, which is involved in the distribution of FMCG products into many African markets, continues to enjoy good growth and performed well on the back of buoyant consumer spending in its markets, although we are experiencing a heightened level of competition.

Gross capital expenditure of R1,3 billion was incurred. The net investment in the fleet is higher than the prior year, which is in line with the scheduled replacement cycle.

International Logistics

International Logistics

Imperial Logistics International achieved an outstanding result and the strong performance in the first half which continued into the second half of the year, not only as a result of the Lehnkering acquisition but also due to new contract gains and solid trading conditions in Germany. Imperial Logistics International’s key markets, namely steel, automotive manufacturing, chemicals and export industries in Germany, performed well and their growth exceeded our expectations. Revenue growth was experienced across all major business units. Excluding the contribution from Lehnkering, the revenue and operating profit grew 11% and 16%, in Euro terms, respectively.

The group’s shipping activities, including that of Lehnkering, have been integrated into one unit, namely the Imperial Shipping group. The division had an excellent year in a market where volumes were strong.

The integration of the newly acquired Lehnkering was successful and it performed in line with expectations. Lehnkering will, subsequent to its integration into the group, be housing all our chemical industry logistics activities in Europe, except for shipping. This includes warehousing, road transport and chemical manufacturing services.

Panopa, which provides parts distribution and in-plant logistics services to automotive, machinery, and steel manufacturers performed well. Contract gains and renewals, combined with a solid market, especially in the automotive and machinery segment, were the main drivers of growth and improved profitability.

Neska performed satisfactorily and benefited from increased volumes on the back of increased export and import activity. Despite the European economic crisis, transshipment volumes in the bulk segment remained stable. The paper, liquid chemical and food segments experienced growth. Although container volumes were strong, rates remained subdued.

Gross capital expenditure of R344 million was incurred. This is higher than the prior year, but in line with the growth being achieved in this division.

Car Rental and Tourism

The division performed well in the second half notwithstanding a sluggish used vehicle market. Trading conditions in the Car Rental business improved with utilisation at 71% and revenue per day increasing by 4%. The average rental fleet size was 8% up from last year, mainly due to higher demand. Both volumes of international inbound and local leisure remained subdued.

Retail unit sales at Auto Pedigree were lower with operating margins also depressed. This had a negative impact on the overall divisional margins. The stock position at Auto Pedigree has improved significantly and the business performance is now expected to improve.

The panel business performed below expectation, but its performance improved in the latter part of the year following management and structural changes.

Low inbound tourism volumes persist and the inbound tour operator business has been restructured and consolidated to reduce costs. The Coach Charter fleet has also been reduced to improve utilisation in a market that is over supplied. Edusport and Grosvenor Tours performed well with the former benefiting from arranging outbound tours to the Rugby World Cup in New Zealand.

Distributorships

This division had an exceptional year with operating profit up 33%. In South Africa, new vehicle registrations as reported to NAAMSA by Associated Motor Holdings (AMH) and Amalgamated Automobile Distributors (AAD) were 20% higher, compared to a market increase of 13%. The improved stock availability of key models has allowed us to gain market share in the second half. Unit sales were up 34% in the second half versus the prior year. As a result, our imported brands have strengthened their market positions significantly. The growing vehicle parc of our imported brands will secure good future levels of after-market activity for our dealerships, which are performing better.

Margins improved due to positive operating leverage and the growing after-market parts and service business. Our strategy of hedging our imports assisted in dealing with a weakening currency.

The Australian dealerships performed well with new retail unit sales increasing by 2% while used vehicle sales were 21% up.

In the Auto parts division, Midas continues to perform satisfactorily, although some pressure on discretionary products like camping equipment and accessories was experienced. The engine parts businesses performed well and Turbo Exchange made a full year contribution versus four months in the prior year.

The Goscor Group performed very well, trading ahead of expectations. Crown and Doosan continue to increase their market share whilst maintaining a strong order book. Graffiti and EZGO performed satisfactorily, whilst businesses like Carfind, KMSA, Segway and Datadot continue to grow.

The newly acquired Bobcat, a leading supplier of compact equipment into the construction, mining and agricultural sectors complements our existing offering of quality products and after sales service. There are inherent synergies between Goscor and Bobcat as well as cross selling opportunities and it is a valuable addition to this division.

NAC performed better with aircraft sales increasing on the back of higher demand and increasing availability of bank funding for this asset class. The group has entered into negotiations for the possible sale of NAC as our aviation interest in the context of the group is very small.

Automotive Retail

The division performed well and produced good growth in operating profit for the year. The operating margin was also maintained at a healthy 2,9%. New passenger car and LCV sales of the division rose 17%, ahead of growth in this segment of the vehicle market, which was up 13%. There was a notable shift in the mix to entry-level vehicles. As a result, the mid-priced and luxury vehicle markets were less buoyant.

The narrowing gap between new and used vehicle prices affected used vehicle sales, with volume growth subdued in a generally sluggish market.

The commercial vehicle market in SA, which tends to lag the growth in the passenger car market also improved during the period, with a 13% rise in unit sales across all brands.

Growth in after sales parts and service revenue was slow but the strong growth in new car sales over the last few years bodes well for the future.

In the UK, the truck dealerships performed well despite a market that remained depressed. The strategy to add an LCV business to our existing footprint is very successful and contributed positively.

Beekman Canopies’ performed well, with sales up on last year. Sales volumes at Jurgens Ci were however lower due to a caravan market that is suffering from lower consumer spending on leisure activities.

Jurgens is actively expanding its manufacturing activities into new market segments in order to counter the stagnant caravan sales market. It is now also active in the manufacture of canvas products, road and off-road trailers, canopies and truck bodies. Jurgens and Beekmans employ a combined 1 196 staff in manufacturing in the Western Cape, KZN and at its plants in Brits in the North-West Province.

Financial Services

The Financial Services division as a whole performed satisfactorily.

Regent’s underwriting result declined 24% from R319 million to R244 million. The primary driver behind the underwriting result was a deteriorating claims experience in the short-term motor comprehensive business and certain other specialised lines. The performance of Regent’s other significant product lines in the short-term insurance business (Adcover, Paintech and Warranties) performed better and showed growth from the prior year. Regent disposed of its marine and aviation insurance books during the second half of the year.

The individual life business had an excellent year, with gross written premiums up 16% for the year.

Regent Botswana and Regent Lesotho also performed well.

Investment returns were lower year on year, reflecting the low interest rate environment. Regent’s exposure to equity markets increased from the prior year but still remains low relative to our exposure to interest-bearing investments.

The growth in Other Financial Services was exceptional and it performed ahead of expectation. Liquid Capital has benefited from its exposure to the motor industry, which has shown strong growth especially in the entry level segment of the market where our Distributorships division is well positioned. The growth in the number of new maintenance plans written on the back of the strong new vehicle market provides a valuable annuity earnings underpin to our future profits.

The value of the advances book generated in our joint ventures with financial institutions to provide financing for vehicles has grown encouragingly, as has the funds under service, maintenance plans, warranties and roadside assistance.

The release from the funds created on the sale of service and maintenance plans was significantly higher than prior years due to a change in accounting estimate. Due to the lack of history, these releases have previously been accounted for at the end of a specific contract’s life. As these funds have now been in the group for a number of years with a good history of trends and claims experience, we have changed our accounting estimate on recognising these releases throughout the contract life, resulting in a normalised additional profit of R117 million in this year.

Volumes in Imperial Fleet Management are improving with a good pipeline of new business.

During the year, Ariva, a private leasing joint venture with JD Group targeting the entry level car market to increase vehicle ownership in South Africa was launched. This is another example of where we continue seeking new strategic partnerships where we can leverage off each other’s skills set and add value.