Imperial Holdings: Breaking up is the easy part
Imperial is splitting into two listed entities — but will their potential be turned into reality?
Logistics and automotive industry giant Imperial Holdings has been stuck in a rut since 2011 — its headline earnings and share price have gone nowhere and return on equity has faded from 22.7% to 12.5%.
Radical change became imperative.
That change is now at hand.
Imperial Holdings’ board has finally set in motion the process — first mooted two years ago — that will result in the group being divided into two separately listed independent businesses. These are Imperial Logistics, which operates in 17 European countries and 12 African countries; and Motus, which houses all automotive operations in SA and is fast expanding to the rest of the continent. In the process, due to be executed in the fourth quarter, Motus will be unbundled to Imperial shareholders.
Imperial has lined up experienced executives to lead the two companies. Imperial Logistics will be headed by current Imperial CFO Mohammed Akoojee, who will assume the position of CEO next June when the incumbent, Marius Swanepoel, retires. Motus will fall under current Imperial CEO Osman Arbee, who has been with the group for 14 years.
Splitting Imperial in two was the brainchild of former group CEO Mark Lamberti, who saw it as the answer to unlocking shareholder value. Lamberti resigned as CEO in April following his censure in March by a Pretoria high court judge for making a discriminatory remark to an Imperial employee.
Lamberti became Imperial CEO in March 2014, with his tenure set to last for five years. His departure is of no real consequence, says Warren Jervis of Old Mutual Investment Group. "Lamberti had already achieved what he set out to do when he resigned," he says.
Imperial Logistics and Motus had already formally come into being as two completely separate divisions in July 2016.
Lamberti left his mark on Imperial in another significant way. He considered Imperial’s old business model, built on a foundation of multiple acquisitions — many of them ill-conceived — to be unsustainable.
"Their approach had been to buy anything that made a profit," he told the FM in September.
Lamberti went about addressing the situation aggressively and, by the end of Imperial’s year to June 2017, he had overseen the sale of 42 noncore businesses and 52 properties.
Sweeping changes were also made to Imperial’s top executive team. By June 2016, 23 of the company’s 35 top executives were new to their positions.
With the stage now set for Imperial to split into two companies, the big question is whether it will deliver Lamberti’s goal of unlocking shareholder value.
Jervis is sceptical, saying he "can’t see it creating value".
Nadim Mohamed of First Avenue Investment Management also has doubts: "I can’t see much value being unlocked."
The market appears to share their scepticism. Imperial’s share price, having run hard after the announcement of the proposed split in 2016, has lost almost a third of its value since January.
One positive that will come out of the split is that it will give investors a choice between two very different companies. On their recent performances, however, there is not much difference between them.
Measured at Imperial’s half-year to December, Motus’s revenue had over three years grown 6%/year to an annualised R79.4bn and operating profit was up 3%/year to an annualised R3.4bn.
Over the same period Imperial Logistics had grown revenue at an average of 6%/year to an annualised R54bn, and operating profit at 5%/year to an annualised R2.8bn, of which 62% was generated by non-SA operations.
Prospects for Motus — by far SA’s largest non-manufacturing automotive industry player — have improved this year, with the National Association of Automobile Manufacturers of SA (Naamsa) reporting a 2.4% rise in new vehicle sales in May compared with the year before. Naamsa expects this trend to gain momentum, and is predicting growth of more than for the full year. Investors will have to weigh up Motus’s prospects against those of Imperial Logistics, which has a potential advantage of further acquisitions in the fragmented international logistics market.
It is also expanding aggressively in Africa, where its focus is on providing distribution services to international pharmaceutical groups.
Progress in African operations, which were started from scratch only six years ago, has been impressive, with annualised revenue in the half-year to December coming in at R11bn and annualised operating profit at R816m. The objective is to have the contribution from African operations equal that of its SA logistics business by 2020. By then this would represent an operating profit of about R1bn.
There seems to be potential for Motus and Imperial Logistics to break out of the growth trap that Imperial has been stuck in for years. But the market will want to see that translated into reality.