Mohammed Akoojee, Group CEO of Imperial, said, “The past year has been extraordinary and challenging - and as individuals and a business we have faced unprecedented circumstances and difficult market conditions across operations. I am proud of how Imperial and its 25 000 people have risen fearlessly to these challenges, demonstrated resilience and grabbed the opportunities.”
“Despite the challenging trading conditions, exacerbated by the Covid-19 pandemic, Imperial increased revenue from continuing operations, generated strong free cash flow, maintained a strong balance sheet, effectively managed costs and recorded significant progress against its strategy.”
The Market Access business delivered a resilient performance in challenging circumstances, growing revenue by 18% to R12.4 billlion and decreasing operating profit marginally by 1% to R710 million. Despite the negative impact of Covid-19 on trading and volumes, results benefited from significant new contract gains of c.R1.7 billion annualised revenue and the inclusion of new acquisitions concluded in the second half of the 2020 financial year.
Our strong position as a leading healthcare and consumer market access player in Africa stood us in good stead, particularly during the pandemic. While our healthcare businesses performed well and we are still able to service various channels in most markets in our consumer business, demand has reduced due to lower activity, mainly in markets where sales of liquor and tobacco were negatively impacted due to Covid-19 related trading restrictions. Most countries in which we operate have now relaxed their Covid-19 restrictions and some level of recovery has been evident since May 2020. We expect a steady recovery in revenue as lockdown restrictions ease.
In an already difficult, low-growth and increasingly competitive trading environment -exacerbated by the impacts of Covid-19 - Logistics Africa recorded revenue growth of 3% but operating profit declined by 34%. There was a 45% drop in revenue during the peak of lockdown in April. Results were negatively impacted by Covid-19 related trading restrictions, associated once-off costs and lower margins in the healthcare businesses in South Africa. Results were supported by new contract gains of c.R2 billion annualised revenue, the benefit of cost-saving initiatives undertaken in F2019 and excellent cost management during Covid-19.
Around 90% of this business is currently in operation. We anticipate normal trading to return in the short to medium term given that lockdown restrictions on alcohol and tobacco have been lifted. This business will also benefit from further cost reduction initiatives of c.R200 million planned in F2021.
Most impacted by the Covid-19 pandemic, revenue and operating profit from Logistics International decreased by 7% and 78% respectively in Euro terms. Revenue of c.€78 million was lost during the peak of Covid-19 as this business has significant exposure to the automotive and industrial sectors (c.65% of revenue), where the impact of the pandemic was most severe. The high fixed cost base (c.50%) in this business, once-off impairments due to Covid-19 and low water levels in South America negatively impacted operating profit.
A marked decrease in volumes across most operations resulted in the operating margin declining to 0.7% from 3.1% in the prior year. Results for the 12 months were supported by the benefits of the significant cost-cutting initiatives in the prior year, contract renewals and new business gains of c.R2.5 billion annualised revenue. All businesses in Logistics International are currently in operation, and while volumes remain impacted, there is a steady increase.
Response to Covid-19
Akoojee says, “Our focus has been and continues to be on ensuring that we protect our staff and operations from infection. This, while delivering high service levels to key customers and clients to meet their demands, and supporting our countries and communities of operation in a time of great need, through distributing essential products and services. Imperial plays a critical role in the supply of essential services and products in the countries in which it operates - delivering medication, food and other necessities.”
Imperial’s operations have strict access control procedures, additional hygiene, stringent cleaning and disinfecting processes. Staff training has been customised to heighten awareness of risks and necessary preventative measures, with online training and Covid-19 induction programmes. Various platforms share best practice information.
Dedicated resources have been appointed at each operation to ensure effective communication, to handle suspected Covid-19 cases in accordance with the necessary protocols and to ensure compliance. Up to the end of July 2020, 385 employees tested positive, with the majority making a full recovery. “Sadly, 11 of our colleagues succumbed to the virus and we have extended our heartfelt condolences to their families and colleagues,” said Akoojee.
Imperial introduced various initiatives to support stakeholders and countries of operation, including adding capacity to assist clients in meeting increased demand. We contributed R5 million each to the Solidarity Fund and Giving for Hope Foundation, and R500 000 to the Gift of the Givers Foundation. We sourced and delivered personalised protective equipment (PPE) and sanitisers to public and private sectors in South Africa and Europe. We partnered with charity organisations, providing vehicles and resources to deliver food parcels and other basic needs to communities. Over 75 000 patients were screened through Unjani clinics, a CSI initiative supported by Imperial. In addition, Imperial’s non-executive directors reduced their fees by 25% from April to June 2020 and the Group’s Executive Committee took a 25% salary cut for the same period. Imperial also paid salaries of c.R160 million to staff not required at its operations between March and June.
Throughout the pandemic Imperial retained its focus on maintaining a sound financial position, generating cash and executing its strategic imperatives to make it resilient for the future - which are reflected in these results.
Akoojee adds, “The crisis has amplified the need to position Imperial for growth and longevity well beyond the pandemic. Our decisive strategic actions over the last 18 months have stood us in good stead, and the tough decisions we made as a business have contributed to Imperial’s resilience as we now navigate these uncertain times.”
“The pandemic has provided lessons for us that will fundamentally change the way we live and work in the future,” emphasises Akoojee. “Being an essential services’ provider with a unique value proposition, Imperial is well positioned to capture the many opportunities that will arise from changing market trends.”
Referring to Imperial’s strategy, Akoojee notes, “We are transforming Imperial from a portfolio of regional businesses to an integrated, end-to-end market access and logistics business. It is our strategic intent to become the ‘Gateway to Africa’ - transforming from an asset heavy, 3PL logistics player to an innovative, asset right business. Our ability to build this business and serve our clients and principals in some of the most challenging markets in Africa is a key differentiator for Imperial. We will seek to grow the business both organically and through strategic acquisitions in Africa and selected markets - remaining a business of scale and unlocking increasing value for our clients, principals, shareholders and other stakeholders.”
He adds, “A fundamental shift in our strategic transformation journey is organising and positioning Imperial, based on the solutions we offer to our clients rather than on regions. Imperial now operates within two overarching solutions - market access and logistics and is categorised into three businesses: Market Access, Logistics Africa and Logistics International. The logistics businesses encompass contract logistics and freight (road, air/ocean and Lead Logistics Provider).”
Significant strategic progress was recorded over the past 12 to 18 months in which Imperial:
Imperial’s focus remains on delivering the best from its current operations by making them lean, servicing its clients profitably, executing flawlessly and growing organically, while still executing on its strategy for growth.
Akoojee says, “This is a difficult and demanding time for us as the virus is yet to be contained and we face increasing uncertainty and volatility. We anticipate the impact of Covid-19 to significantly impact our operations and performance in the short term. However, a significant recovery was recorded across the business in July and August 2020”
He said that at this stage, for the 2021 financial year - subject to stable currencies, steady recovery in volumes and revenue on the back of easing Covid-19 restrictions, and a recovery in economies in which its operates - Imperial’s continuing operations are expected to deliver revenue, operating profit and continuing HEPS growth compared to the prior year. Good free cash flow generation is expected with free cash conversion between 70% and 75%. Imperial’s balance sheet is strong and resilient with sufficient headroom in terms of capacity and liquidity to facilitate its strategic growth aspirations. The dividend will be reviewed based on trading conditions over the next 6 months.
Akoojee concludes, “Imperial will continue to meet the demands and manage the implications of the pandemic in the short-term, and ensure that significant time and energy is given to delivering against our strategy - to build a resilient and sustainable business well into the future.”