Imperial’s results reflect strong recovery and significant strategic progress

7 September 2021


* Excludes the discontinued European shipping business and CPG in the prior year. Includes Pharmed and the South American shipping business.
** Headline earnings are adjusted by items that are not considered to be of a trading nature to arrive at Core EPS. Core EPS is not an IFRS requirement.

"The significant strategic actions we have taken to reorganise, restructure and simplify the business, improve our profitability and competitiveness, strengthen the balance sheet and grow our business have resulted in significant value being unlocked for our key stakeholders," says Mohammed Akoojee, Group CEO at Imperial. "This is clearly reflected in the significant progress on all fronts since 2019, culminating in excellent results for financial year 2021, despite the continued impact of COVID-19."

Imperial recorded a strong recovery in volumes and profitability and generated strong free cash flow from continuing operations, excluding CPG, of R900 million. The balance sheet remained strong, supported by proceeds of R4.7 billion from the sale of the European and South American shipping businesses. Revenue, EBITDA and operating profit rose significantly, mainly due to stringently managed costs across all businesses, a recovery in volumes as COVID-19 restrictions eased in key markets, new business gains, and acquisitions. However, businesses in many of our key markets were negatively impacted by COVID-19 lockdown restrictions, especially those exposed to alcohol and tobacco sales in Africa. The automotive industry in Europe was negatively impacted by a global shortage of semi-conductors, and the heightened impact of Brexit resulted in slower imports into and exports from the UK and a shortage of drivers in the UK.

Continuing HEPS increased by 113% to 332 cents per share and continuing Core EPS increased by 215% to 448 cents per share. At interim results 2021, we re-introduced Core EPS as management believes it is a fairer reflection of Imperial's trading performance.

Annualised costs of c.R200 million removed from Logistics Africa will assist in maintaining the Group's competitive market positioning. Imperial's contract renewal rate remained strong at 88%, with a strong pipeline of new opportunities. New business revenue of c.R5.9 billion p.a. was secured on a rolling 12-month basis to the end of June 2021.

Net working capital of R787 million increased by 45% from R544 million at June 2020 but is below the guidance of 4% to 5% of revenue. The more effective and efficient fleet management technology implemented in Logistics Africa was one of the contributors to lower net capex from continuing operations of R701 million. Net debt of R4,038 million decreased by 52% mainly due to the proceeds from disposals. The Group's liquidity position remained strong with R14.4 billion unutilised banking facilities.

In July, Imperial announced that the Group entered into a transaction implementation agreement regarding a cash offer of R66 per share from DP World Logistics FZE to acquire all outstanding shares of Imperial. "Our Logistics International business is within the scope of the offer. In light of this transaction, which is still subject to shareholder and regulatory approvals, no final dividend was declared in 2021. Therefore, the total dividend for the year was 83 cents per share, paid to shareholders in March", explains Akoojee.

Imperial plays a critical role in the supply of essential services and products in the many countries in which it operates and we continue to keep the wheels turning so that people can receive medication, food and other essential services and products.

Our focus during the pandemic remains first and foremost to protect our people and operations from infection.

In April, Imperial was awarded the opportunity to participate in the importation of COVID-19 vaccines into South Africa, as part of the National Department of Health's vaccine distribution campaign. The Group remains well-placed to transport, store and distribute the COVID-19 vaccine from a capability perspective.

While the impact of COVID-19 on operations was not as severe as the impact recorded in the 2020 financial year, management estimates that COVID-19 negatively impacted revenue and operating profit by c.R2.6 billion and c.R346 million respectively in F2021

Akoojee adds, "Throughout the COVID-19 pandemic we have maintained a sound financial position, generating cash, tightly managing costs and executing our strategic imperatives to make us resilient for the future. The benefits are reflected in these results. We also continue to support all our key stakeholders and countries of operation, strongly demonstrating our purpose as a business, which is connecting Africa and the world and improving people's lives with access to quality products and services."

The Market Access business grew revenue and operating profit by 30% and 13% respectively, supported by successful integration of acquisitions, a strong recovery in most businesses particularly in consumer, and good contract gains. Operating margin continued to be under pressure mainly in the Healthcare business in Nigeria, the Consumer business in Mozambique, and the Healthcare medical supplies and kitting business (Imres), decreasing overall from 6.1% in F2020 to 5.3% in F2021. COVID-19 resulted in supply chain disruptions with the procurement cost of certain product categories increasing significantly during the year.

The investment in the new Market Access organisational structure is proving its success with new business being converted and a healthy pipeline of new opportunities being built. New business revenue of approximately R1.7 billion p.a. was secured on a rolling 12-month basis to the end of June 2021. The renewal rate on existing contracts remains strong at c.100%. The commercial efforts to drive integrated solutions across our Consumer and Healthcare businesses are gaining traction and are positively contributing to performance.

Logistics Africa increased revenue and operating profit by 2% and 31% respectively, despite the first half's performance being significantly impacted by COVID-19 lockdown restrictions and the ban of alcohol and tobacco sales (c.12% of revenue). Operating margin improved to 6.2% from 4.9% in F2020. Results were positively supported by solid contract renewal rates, contract gains and cost saving initiatives.

New business revenue of approximately R2 billion p.a. was secured on a rolling 12-month basis to the end of June 2021. Logistics Africa's contract renewal rate remains strong at c.79%. Despite revenue growth, the lockdown restrictions resulted in a decline in volumes across most sectors – particularly in alcohol, tobacco and fuel.

Two provinces in South Africa, KwaZulu-Natal and Gauteng, were significantly impacted by over a week of unrest in July 2021. We increased security measures and subsequently resumed operations when it was safe to do so. As Imperial, we also continue to support our employees and communities during this time of need. We provided over 2500 food parcels to our employees and their families in KwaZulu-Natal, we made a cash donation of R1 million to the Gift of the Givers Humanitarian organisation, and we are contributing R3 million to the Solidarity Fund's Humanitarian Crisis Relief in South Africa.

The Logistics International business recorded significant improvement in trading activity on the back of the easing COVID-19 restrictions and economic recovery over the past 12 months. As a result, Logistics International achieved strong revenue and operating profit growth in Euros of 10% and in excess of 100% respectively, and, in Rand terms, revenue rose 17% while operating profit increased by over 100% compared to the previous year.

Results were supported by new contract gains, effective cost management and volume recovery in the key industries of operation as production ramped up, despite the negative impact of Brexit on the UK operations and the global shortage of semi-conductors in the automotive industry. Logistics International's contract renewal rate on existing contracts remains strong at c.87%, with an encouraging pipeline of new opportunities. New business revenue of approximately R2.2 billion was secured on a rolling 12-month basis to the end of June 2021.

"We continue to record significant progress in our strategic journey to transform from a portfolio of regional businesses to an integrated end-to-end market access and logistics business – with the strategic intent of becoming ‘One Imperial' and a ‘Gateway to Africa', with committed and well-skilled executive management teams," explains Akoojee. "Top of mind is to ensure that Imperial remains a business of scale, despite significant asset disposals and restructuring, and that both organic and acquisitive growth are prioritised. We continue to navigate the macro-economic challenges well, with investment in growth and driving digital and innovation being key focus areas."

Strategic acquisitions of R120 million were concluded during the year, including a 49% shareholding in Pharmafrique (Pty) Ltd (trading as Kiara Health), effective 1 August 2020, and a 60% shareholding in Parcel Ninja, effective 1 February 2021. In addition, we also announced two additional significant strategic acquisitions: Deep Catch Namibia Holdings and the J&J Group, which are subject to relevant approvals. We also concluded a broad-based black economic empowerment deal for 25% of our Logistics South Africa Group in July.

Disposals included Pharmed, the European shipping operations for c.R3.4 billion and the South American shipping business for c.R1.3 billion.

Akoojee notes, "Many of our markets continue to face uncertainty and volatility, being in various levels of lockdown and restrictions. While some of these restrictions are easing, we anticipate the impact of the COVID-19 pandemic and the ensuing uncertainty to continue affecting our operations and performance in the short-term."

"The start to the 2022 financial year has been challenging, with July and August trading negatively impacted by the social unrest in South Africa, extended COVID-19 related restrictions on the sale of alcohol in South Africa and Mozambique, the shortage of semi-conductors across Europe, and higher supply chain costs negatively impacting volumes due to the unavailability of shipping containers and subsequent higher freight rates."

Subject to stable currencies and a steady recovery in volumes and revenue on the back of easing COVID-19 restrictions – for financial year 2022, Imperial expects to deliver growth in revenue, operating profit, HEPS and core EPS from continuing operations compared to fiscal 2021. In addition, the Group expects to continue to generate good free cash flow with free cash conversion expected to be between 70% and 75%.

With regards to the DP World offer to acquire Imperial, the proposed transaction is still subject to Imperial shareholder approval and other customary completion conditions, including regulatory approvals, which are in progress. The circular for this transaction was distributed on 19 August 2021 and the general meeting convened for shareholders is scheduled for 17 September 2021. We anticipate that the proposed transaction will be concluded by February 2022, pending the successful outcome of the outstanding approvals. In the interim, Imperial will continue with its daily business activities.

Akoojee concludes, "Our balance sheet remains strong and resilient, with headroom in terms of debt capacity and liquidity to facilitate our strategic growth aspirations. We have a strong pipeline of new business opportunities which we are working hard to translate into new business. While we will continue to meet the demands and manage the implications of the pandemic in the short-term, we will also ensure that we continue to deliver on our strategic objectives."

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