Imperial

	Logistics African Regions	HY1  2019			HY1   2018*		%  change  on HY1		HY2  2019			HY2  2018		%  change  on HY2	2019			2018		%  change
	Revenue (Rm)	6 339			5 385		18		5 766			5 076		14	12 105			10 461		16
	EBITDA (Rm)	511			469		9		373			403		(7)	884			872		1
	Operating profit (Rm)	465			401		16		322			325		(1)	787			726		8
	Operating margin (%)	7,3			7,4				5,6			6,4			6,5			6,9
	Return on invested capital (%)	17,8			20,8										16,2			17,5
	Weighted average cost of capital (%)	14,2			8,2										15,4			11,1
	Net debt (Rm)	1 161			1 896		(39)								836			635		32
	Net working capital (Rm)	1 564			1 004		56								1 182			1 206		(2)

*	Restated due to the reallocation of results relating to our infrastructure solutions business from Logistics South Africa to Logistics African Regions.

Note: Continuing operations; excluding businesses held for sale.

Operating context

• Economic prospects improved in most African countries due to firming commodity prices, strengthening currencies, gradually improving domestic demand and policy reforms.
• Trading conditions were, however, mixed with lower growth and increased parallel imports of pharmaceuticals in Kenya, the recession in Namibia and the ongoing economic crisis in Zimbabwe resulting in lower consumer goods and commodities volumes.
• Our significant positions in the defensive healthcare and consumer industries allowed us to benefit from the improving conditions despite subdued growth in some African economies.

Performance highlights

• We delivered a good performance, increasing revenue and operating profit by 16% and 8% respectively.
• The healthcare distributorship segment delivered excellent results, supported by a strong performance from our businesses in West Africa and market share gains in Ghana.
• Surgipharm in Kenya contributed positively despite market-related constraints.
• Significant new contract gains (c.R1,3 billion annualised revenue), including the first pharmaceutical client for our multi-market aggregator model, secured.
• Healthcare sourcing and procurement business, Imres, increased revenue and operating profit by benefiting from a strong order book and long-term contract gains.
• Our consumer business performed well, supported by good performances in Mozambique and Namibia, despite the ongoing recessionary conditions in Namibia.
• The managed solutions business was impacted by lower chrome volumes, challenging economic conditions in Zimbabwe which led to lower cross-border activity and lost volumes from global aid organisations (loss of a large public health contract reported on previously).
• Net capital expenditure of R16 million was incurred during the year.
• ROIC remained healthy at 16,2% but declined from 17,5% due to normalisation of average working capital and higher inventory levels.

Positive long-term growth expectations for the continent, and the demands of its burgeoning middle class, inform the division's strategic priorities. We aim to grow our service offering, product basket and extend our distribution reach in the defensive healthcare and consumer industries, expanding into new geographies. Africa's economic fundamentals also underpin our pursuit of new opportunities in other attractive industries, such as automotive, chemicals and industrial products. Without diluting our core industry focus, we remain flexible enough to include relevant opportunities to apply our capabilities in specific markets with high potential.

We continue to expand our reach through our on-the-ground presence in larger markets, while also providing access to smaller markets through our multi-market aggregation model. This model rests on building relationships with local distribution partners that provide us with local market intelligence and access, and to whom we add value through demand planning, inventory management and sharing of best practices. Ensuring supply chain visibility and meeting the high standards of service expected is critical to serving our multinational principals. Despite the difficulty and volatility inherent in some of these markets, this model provides a simplified and highly competitive solution to clients.

Another feature of our growth story is to enhance the effectiveness of our distribution networks with supply chain services. In each major market, our blueprint will be to establish or acquire distribution networks in the relevant industries, supported by a supply chain management capability that is focused on optimising these networks and maximising efficiencies. This intent is reflected in the acquisitions of Geka Pharma, a distributor of pharmaceutical, medical, surgical and allied products in Namibia and acquiring a controlling stake in MDS Logistics, Nigeria's leading provider of integrated supply chain solutions – both acquisitions are subject to regulatory approval. We favour acquisitions to accelerate our growth strategy, based on our track record of identifying, acquiring and consolidating businesses that are strategically aligned and have strong organic growth potential, especially as they are integrated with and linked in to our existing networks.

In terms of new capabilities, a key focus for us is light contract manufacturing. This capability is attractive as it lowers our cost to serve and supports higher profitability by attracting lower import duties, while also fulfilling the local beneficiation and skills development agendas of many African countries. Another focus is to add to our global sourcing and procurement capability (currently only in healthcare), to facilitate growing trade flows between Africa and Asia or other emerging regions. As our regional expansion and capability development plans come to fruition, we will be positioned to source, procure, quality control, manage the supply chain and deliver products anywhere in Africa, seamlessly.

Our people are central to delivering on these ambitious growth plans and we are intensifying our efforts to align our human capital management with best in class practices. We recognise we have work to do in this respect, and we have strategies in place to enhance levels of training investment. We are excited about the potential of the Imperial Logistics e-Learning platform and the new performance management practice we have introduced to improve our training and development impact. A related priority is to develop local management teams with succession depth, particularly as the founders of the businesses exit in due time. Our initial approach is to retain and develop the management teams of acquired businesses, to preserve client-centric agility, and we encourage them to employ local talent.

Our credibility as a well-governed listed group is fundamental to our competitive advantage, given our multinational client base. It is non-negotiable that we protect our legitimacy, which at its most basic level is a function of having well-developed systems and processes in place that enable us to manage the risks pertinent to the countries in which we operate. This spans socio-political uncertainty, the availability of skills and foreign exchange, through to meeting exacting industry requirements for product responsibility and employee safety. Multiple accolades attest to this, with our healthcare business in Nigeria being recognised by the London Stock Exchange Group as one of the "Companies to Inspire Africa" and for being the most responsible importer of pharmaceutical products in the country.

Equally important, and top-of-mind for many of our clients, is ethical conduct without exception, given the prevalence of corruption across the continent. We have zero tolerance for unethical behaviour, and have the processes in place to discourage, identify and prosecute wrongdoing. This includes internal audits and audits by our principals, regular training and awareness campaigns on anti-bribery and corruption topics as well as an anonymous tip-off line available to staff. Plans to strengthen our ethical culture include an e-Learning tool to deliver ethics training across the group. We are also implementing processes to ensure our suppliers commit to the ethical business practices specified in our anti-bribery and corruption policy. A dedicated resource has been appointed to focus on risk and governance matters and our legal team also monitors regulatory developments specific to the division.

Beyond these considerations, our relevance is circumscribed by our social impact. As Africa's leading healthcare and consumer distributor partner, we play a key role in providing access to affordable quality medicines and consumer goods through our distribution reach, efficient service delivery and strong governance practices. During the year, we rolled out modular medicine stores for the Ministries of Health in Malawi and Zambia, and repaired 10 regional pharmaceutical warehouses for the Ministry of Health in Ethiopia. We also tested and launched a new Passive Storage/Dispensary-in-a-Box™ solution, primarily for rural health centres, we are deploying four Warehouse-in-a-Box™ facilities in Mali and constructing a 2 630 m² regional medical store for the Ministry of Health in Mozambique.

Our CSI programme extends the benefit of our core business, with a flagship example being our USD1 million investment in the Tulsi Chanrai Foundation's new world-class eye hospital in Abuja, Nigeria, over a four year period which also provides free eye surgeries for underprivileged patients.

These imperatives are deeply embedded in the way we do business – we hold ourselves not only as ambassadors for the "one business, one brand" that is Imperial Logistics, but also for the remarkable opportunities that Africa presents. We demonstrate what can be achieved in Africa – our ability to design and deliver effective and innovative solutions, which turn the challenges of attractive yet unpredictable marketplaces into opportunities to grow our clients' businesses, is at the heart of staying ahead of the competition and achieving our potential on the continent.

Although African economies are seeing slower growth, and are susceptible to expectations of deteriorating global growth prospects, we believe our Africa growth story is as unique as it is compelling.

Strategic objectives

Expand the multi-market aggregation model that delivers simplified solutions in healthcare

Use targeted acquisitions and strategic partnerships with clients to enhance scope of services and expand geographical reach

Drive category optimisation in our distributor businesses to ensure a balanced portfolio to stay relevant in markets of operation

Expand capabilities and services to enhance service offering and drive revenue opportunities

Evolve client engagement to become best-in-class distributors and strategic partners

Effects

Stronger partnerships with clients and increased revenue growth with minimal capital investment.

Demonstrates our client-centric and adaptive solutions, with rapid deployment and demand generation offering additional benefits to clients, positioning us as the strategic partner of choice in Africa.

Greater market reach increases volumes through our distribution network, enabling greater scale benefits and at higher margins.

Evaluation

Appropriate measures that are in place as implementation of the model gains momentum include:

• Revenue pipeline.
• Contract retentions.
• Client satisfaction, through net promoter score.

Progress

• Signed our first client, MSD, one of the world’s largest pharmaceutical companies, for the distribution and promotion of their products in selected African markets.
• Developed and implemented an operating model for sub-Saharan Africa, and a simplified client interface in line with our “ONE Imperial” approach.
• Identified and established appropriate strategic partnerships to meet distributor contracting requirements.
• Assessed resourcing requirements to effectively deploy our people to meet demand generation and client relationship gaps. Entered into a partnership with a specialised demand generation business
• Designed a consumer goods multi-market aggregation strategy to leverage our current model and capabilities in that industry.

Effects

Expanding our African footprint and extending our client solutions into the Middle East will drive growth, among existing and attract new clients.

Enhancing our services and reach to become a total solutions provider builds sustainable partnerships with multinational clients.

Offering specific capabilities in industries with high returns enhances profitability.

Evaluation

• Growing our footprint by entering new markets through either leading or following our principals into strategic territories.
• Expanding our capabilities in markets where it makes sense to do so.

Progress

We have developed a clear strategy for expansion of priority capabilities and countries. During the year, there were no material acquisitions or disposals. Two transactions are nearing finalisation, pending relevant regulatory approvals.

Geka Pharma (Namibia)			MDS Logistics (Nigeria)
We are acquiring a 65% stake in Geka Pharma, a distributor of pharmaceutical, medical, surgical and allied products in Namibia for approximately R80 million, subject to competition commission approval. The transaction supports our strategy to expand into new verticals in existing markets of operation. The acquisition will expand our product portfolio and establish a footprint in the Namibian healthcare industry.			We are acquiring a further 8% equity stake in MDS Logistics, Nigeria's leading provider of integrated supply chain solutions for approximately USD2,4 million and additional contract work, subject to approval from regulatory authorities. The equity value of the business is around USD40 million. This transaction will take our shareholding in the business from 49% to 57%. Securing majority control of MDS Logistics drives integration with our other operations in Nigeria, enabling us to offer an end-to-end solutions and leveraging our capabilities in this important market.

Effects

Focused growth into complementary categories diversifies our portfolio and requires minimal investment.

A broader offering deepens our relevance to clients and improves efficiencies.

Category expansion leverages existing infrastructure, improving returns and margin mix.

Evaluation

Appropriate measures will include:

• Organic revenue growth and increasing market share.
• Achieving ROIC targets.
• Diversification of the business.

Progress

• Conducted market research to evaluate opportunities to supply generic medicines in Nigeria and subsequently added a number of generic medication principals in the country.
• Evaluated existing CPG distributor business to identify key opportunities for category expansion.
• Diversified existing CPG distributor businesses into healthcare.
• Initiated target strategies, including the development and placement of category experts and preliminary engagements with clients.

Effects

New revenue streams generated from existing clients, and new client engagement and acquisition.

More comprehensive solution design enhances competitiveness, increases the ability to provide integrated and optimised solutions and reduces the risk of disintermediation.

Increased profitability and returns from higher margin solutions.

Evaluation

Appropriate measures will include:

• Organic revenue growth and increasing market share.
• Achieving ROIC targets.
• Diversification of the business.

Progress

• Identified areas in which to offer contract manufacturing, focusing on the development of a commercial model for capability development and expansion of existing capabilities.
• Piloting a brand partnership business model in Kenya.
• Partnering with a demand generation (sales and marketing) company.
• Equity joint venture with Vitalliance which offers a unique combination of innovative network technology and supply chain expertise, gained on the ground in Africa, along with experience transforming operations and coaching local teams to proficiency.
• Investigating expansion into e-commerce, focusing on the feasibility of B2B solutions.

Effects

Mutually beneficial partnerships with clients drive synergistic growth.

Deep understanding of client needs and improved client engagement will enable differentiated solutions that increase client stickiness and position us as the strategic partner of choice in Africa.

Enhanced growth and higher returns through greater share of wallet and better efficiencies.

Evaluation

Appropriate measures will include:

• Revenue growth and pipeline.

Progress

• Developed a clear client engagement model relating to strategic account management, focusing on appropriate market insights to enable client access and engagement.
• Developed best practice sales training and incorporated this into the e-learning platform.
• Investigated data sources and requirements to develop a centralised database that enables data analysis and dashboard automation.
• Evaluated current technology platforms used for business intelligence and reporting to understand gaps, establish internal and external user needs and identify areas for future development.

People, processes, systems and innovation

Progress

• Invested approximately R1,2 million in development interventions to build a pipeline of competent leaders.
• Started the core data project with job profiling completed to date.
• Improved engagement between human resources teams at head office and group companies to drive the standardisation of people practices and ensure best practice people measures are implemented. This included coaching and mentoring on the human resources business partner model.
• Standardised the performance management practice across group companies and trained company human resources managers in preparation for the new practice, which will be implemented in the 2020 financial year.
• Made good progress in identifying skills gaps, some of which will be addressed using the new e-Learning platform.
• Started conducting formal salary benchmarks for selected jobs.
• Ensured that all group companies comply with any new legislation relating to minimum wage.

Looking forward, we will focus on linking job profiles to learning and development interventions and develop standardised career paths. This will facilitate better workforce planning in the division. We will also investigate the feasibility of implementing a remote human capital management system and consider graduate training programmes and employee/student exchange programmes in the medium term.

More information is available online: Effective human capital management.

During the year we focused on:

• Protecting our IT ecosystem by deploying critical protection and environment monitoring tools and improving our service provider management.
• Driving the digitalisation strategy, focusing on automating processes to reduce paper use and creating visibility via mobile applications to improve productivity and efficiencies and reduce costs.
• Implementing best practice group IT governance and security policies and practices.

Our priorities going forward will be to develop our IT capability to support the development of innovative commercial and operational solutions that drive growth, differentiation and process efficiencies. We will continue to focus on identifying cost-efficient procurement initiatives and evaluating our IT architecture to maintain cost-effective hosting and connectivity opportunities.

More information on the group approach to innovation is available in the innovation report.