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Imperial Sees 2015 Profit Steady If South African Rand Holds

Imperial Holdings Ltd. (IPL), owner of South Africa’s biggest car-dealership network, said operating profit will be flat this year if the rand doesn’t weaken further and significantly increase the cost of importing vehicles.

“We should have a flat year if the rand holds,” Chief Executive Officer Mark Lamberti said by phone today, referring to earnings for the year ending June 2015. “If the rand weakens, we cannot hold to that guidance.” The Johannesburg-based company imports cars including those made by Hyundai Motor Co. (005380) of South Korea to sell in its domestic market.

The rand is on track to decline against the dollar for a fourth consecutive year, the longest streak since 2001. It strengthened 0.3 percent to 10.65 by 11:52 a.m. in Johannesburg. The weaker currency has been an added burden on Africa’s second-biggest economy, which is forecast to expand at its slowest pace in five years in 2014 after lengthy strike action in the mining and metalworker industries.

The impact of the rand eroded Imperial’s operating profit by 740 million rand ($69.4 million) in the year ending June 30, according to Lamberti. South Africa is the company’s biggest market, generating about 66 percent of sales.

Imperial shares fell as much as 5 percent, the steepest intraday decline since Feb. 26, and traded 2 percent lower at 191.22 rand. The stock is down 5.6 percent this year.

Daunting Outlook

Full-year earnings per share, excluding one-time items, fell 7 percent to 16.06 rand, the company said in a statement today. That missed analysts’ estimates of 16.69 rand, according to data compiled by Bloomberg. Sales increased 12 percent to 103.6 billion rand.

“The short-term outlook is daunting,” the company said. “We expect earnings in the first half of the 2015 financial year to decline on the prior period as the currency impact on the vehicle import, distribution and dealership division flows through.”

Vehicle sales will probably drop 4.6 percent in 2014 to 621,000 units, the National Association of Automobile Manufacturers of South Africa said Aug. 19. Imperial, which has the exclusive rights to sell the Hyundai brand in the country, expects car sales to be flat over the next two to three years, according to Lamberti.

“We continue to expect weak performances in the consumer facing businesses over the short to medium term,” Roy Mutooni, a Johannesburg-based analyst at Renaissance Capital, said in e-mailed comments.

Imperial appointed Massmart Holdings Ltd. founder Lamberti as the new CEO starting March 1, succeeding Hubert Brody. The full-year dividend was unchanged at 8.20 rand per share.

To contact the reporter on this story: Kamlesh Bhuckory in Johannesburg at kbhuckory@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net John Bowker, Kim McLaughlin

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