Through our operations in mainly East, West and Southern Africa, we are able to provide market access services in more than 20 countries on the African continent. Our activities currently focus on two key and defensive industries – healthcare and consumer. Our solutions also create opportunities to leverage our freight and contract logistics capabilities.

Over the short and medium term, we plan to expand our footprint into new regions, including South Africa, Francophone and North Africa, and to leverage our expertise in other key industries. We aim to differentiate Imperial by leveraging our unique 'Gateway to Africa' positioning and value-added services to grow our multinational client franchise.

Our core offerings

• Integrated market access and logistics solutions.
• Distributorships in the healthcare and consumer industries.
• Efficient access to smaller markets through a multi-market aggregation model.
• Sourcing and procurement services.
• Emergency relief and kitting services.
• Demand generation, marketing and promotion services.
• Contract manufacturing services.

Our unique value proposition

Our extensive experience in navigating the complex African continent – and proven success in developing and implementing market access solutions and value-add
logistics – sees us uniquely placed as a strategic partner to clients and principals wanting to enter and grow in emerging and challenging economies.

Operating context

Africa is one of the fastest growing consumer markets in the world. In recent years, household consumption growth has exceeded GDP growth, paralleled by increases in affluence, population growth, urbanisation, internet access and mobile phone usage. Africa's emerging economies present exciting opportunities for expansion across various industries including the healthcare and consumer sectors, which are expected to grow by CAGR of 18% and 9% respectively.

The operating environment in most of our African markets continued to see some level of volatility. The Covid-19 pandemic is having a significant impact on Africa and its people - with consumer and household spend impacted negatively as a result of job losses, job scarcity and diminished disposable spend. Oil-dependent markets are being impacted by reduced global demand and low oil prices.

Covid-19 will present substantial challenges in the short term, with negative GDP growth expected across most economies. Disruptions to both the supply and demand sides of the economy will persist until the disease is contained. This economic reality will weigh heavily on consumer sentiment and curb spending, especially on non-essential goods.

Currency weakness is likely to lead to high imported inflation despite muted domestic demand. Our sub-Saharan African markets are particularly vulnerable due to their dependence on international tourism and trade and investment – as well as their exposure to shifts in risk sentiment.

Most countries in which we operate have relaxed their Covid-19 restrictions and some level of recovery has been evident since May 2020, although activity is not yet back to normalised levels. All businesses in Market Access are currently in operation although volumes remain impacted. We expect a steady recovery in revenue as lockdown restrictions ease.

Read more about our operating context.

Market trends

Healthcare		Consumer
Growing pharmaceutical market. Increasing demand for generic medicines. Digital innovation and disruption. Harmonisation of the regulatory environment in Africa. Healthcare companies increasingly open to strategic partnerships. Increasing investment in local manufacturing. The rise of ecommerce.		Growing consumer market. Increasing affluence, population growth, urbanisation, mobile phone usage and access to the internet. Growing brand recognition and importance. Increasing presence and acceptance of quality and affordable no-name brands. Multinationals seeking to grow in Africa. Increasing investment in local manufacturing.

How we support the Imperial strategy

Market Access is central to the group's 'Gateway to Africa' strategy. Applying our deep expertise, we provide access to challenging and rewarding markets across the continent, which drives the group's growth by:

• Positioning Imperial as unique in its 'Gateway to Africa' offering.
• Servicing a number of lead principals in the defensive healthcare and consumer industries, with plans to expand into other strategically aligned industries, including automotive and chemical.
• Driving demand for inbound logistics and creating demand for air/ocean logistics, thereby expanding opportunities to cross-sell and upsell our other services.
• Leveraging digital and data to offer value-added services to clients, principals and customers.
• Unlocking operational efficiencies and new revenue streams across the value chain.

Our strategy

We aim to provide clients, principals and customers with complete, best-in-class solutions, giving them easy access to end-consumers through an integrated sourcing, sales, distribution and marketing service. Our strategic initiatives are aligned to our focus areas and are designed to drive growth, consolidate our competitiveness and relevance, and retain our legitimacy.

Strategic objectives

	Principal and customer focused		Technological and digital enablement		Backward and forward integration		Geographical expansion
	Provide people with more affordable and better quality consumer and healthcare products.		Build a future-proof organisation through digitalisation.		Expand our capabilities to capture more of the value chain.		Sell and service across our regions and markets.
	Increase sales and market share for our principals.		Integrate with point of sale.				Strengthen and expand our leading market positions in the geographies in which we operate.

Core strategic initiatives

• Increase our relevance in the healthcare and consumer industries.
• Expand our market access offering to other industries in select markets.
• Expand our solutions to capture the integrated value chain.
• Evolve from a portfolio of distributor businesses to an integrated marketing, sales and distribution (market access) business under the 'One Imperial' brand.
• Make targeted acquisitions in select emerging markets.
• Embrace and implement the Imperial people strategy.
• Differentiate through digitalisation, continual innovation and leveraging our data assets.

Healthcare initiatives

• Expand multi-market aggregation model that delivers simplified solutions in healthcare in Africa.
• Diversify integrated healthcare services by establishing centralised capability in demand generation, sales, marketing, medical and regulatory affairs, and client relationship management.
• Backward integrate (contract manufacturing and value-added services) and forward integrate through technology (ecommerce and point of sale solutions) to control more of the value chain.
• Extend footprint in South Africa, Francophone and North Africa and evaluate clustering opportunities for expansion into other selected emerging markets.
• Leverage our world-class source and procure capabilities; create a portfolio of generic pharmaceuticals and medical consumables, equipment and devices, to distribute into our markets by leveraging the Imperial network.

Consumer initiatives

• Focused principal engagement to become the best-in-class distributor and strategic partner, supported by investment in enabling technology and deepening market intelligence.
• Expand sources of growth through category optimisation and expansion to ensure a balanced portfolio.
• Expand capabilities to include contract packaging, brand activation and promotion, sourcing and procurement, and brand partnerships.
• Extend footprint with focus on South Africa and Anglophone West Africa.
• Integrate our marketing, sales and distribution business, ensuring standardisation across businesses and territories, and operate under 'One Imperial' brand.

Supported by our key enablers

PEOPLE AND CULTURE	SYSTEMS		PROCESSES		DIGITAL AND DATA
Measured by our strategic KPIs Driving organic growth. Adding new principals in consumer and healthcare. Building the right organisational structure to implement the strategy, coupled with good succession planning. Expanding into new geographies, industries and capabilities. Client, principal and customer satisfaction, through net promoter score.

Focus areas

Our six focus areas and associated targets for F2021 – F2023 will concentrate the minds of management as we seek to drive growth and successfully transform our business without disruption to service levels.

Capture end-to-end value chain			Further extend the scope of services up and down the value chain leveraging technology and digital services where relevant.			Organic capability build (F2021) Business IT initiatives: Analytics – IT (F2021) One Market Access business integration (F2021 – F2022) Wholesale and distribution template (F2021 – F2022) Business IT initiatives: Integrated planning (F2021 – F2022) Forward and backward integration (F2021 – F2023) Geographic expansion (F2021 – F2023) Commercial excellence (F2021 – F2023) Business IT initiatives: Agile operations (F2021 – F2023)
Strategic partner in Africa to brand owners			Become the leading player in Africa providing integrated consumer and healthcare market access and logistics solutions.
'One Imperial'			Develop 'One Imperial' blueprint to deliver consistent, integrated and compliant services and brand experience across different markets.
Clear purpose			Connect every patient and consumer with quality products every day.			Control towers (F2021 – F2022) Mobile commerce (F2021 – F2022) Point of sale integration (F2022) Value from data (F2021 – F2023) Ecommerce (F2022 – F2023)
Culture and people			Embed the values and behaviours that bring 'One Imperial' to life in our operations; attract the best local talent by telling our 'One Imperial' and 'Gateway to Africa' story; and identify and empower leaders for senior management positions to deepen our succession pipeline and drive localisation.
Technology and digital innovation			Integrate all data from across our various businesses, giving us better visibility on inventory, promoting better demand planning and forecasting; and improving quality of information for our principals and customers. We will continue to monitor and seek exposure to the boom in ecommerce as a platform of trade in Africa.

Performance

The Market Access business delivered a resilient performance in challenging circumstances, growing revenue by 18% and decreasing operating profit marginally by 1%. 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 F2020.

Pro forma Market Access segment results
		Half year 1 unaudited					Half year 2*					Full year unaudited
Market access		2020	2019	% change			2020	2019	% change			F2020	F2019^	% change
Revenue (Rm)		5 769	5 402	7			6 674	5 103	31			12 443	10 505	18
EBITDA (Rm)		561	475	18			339	380	(11)			900	855	5
Operating profit (Rm)		485	407	19			225	311	(28)			710	718	(1)
Operating margin (%)		8,4	7,5				3,4	6,1				5,7	6,8
Return on invested capital (%)		15,5	15,9									12,1	14,2
Weighted average cost of capital (%)		13,1	13,3									12,7	14,1
Net debt including IFRS 16 – lease liability (Rm)		1 764	1 534	15								1 924	1 274	51
Net debt excluding IFRS 16 – lease liability (Rm)		1 342	1 111	21								1 360	813	67
Working capital (Rm)		1 584	1 459	9								1 810	1 169	55

Note: Continuing operations, excluding head office costs and eliminations.
^	Prior year numbers have been restated for the impact of IFRS16 - Leases, where applicable.
*	Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2020.

Operating margin, however, declined from 6,8% in the prior year to 5,7% mainly due to lower volumes resulting from the impact of Covid-19 restrictions in countries of operation.

Our strong position as a leading healthcare market access player in Africa stood us in good stead, particularly during the pandemic. The healthcare segment delivered resilient results, supported by a good performance from our business in West Africa – where we continue to operate as the leading distributor of pharmaceuticals in Nigeria and recorded market share gains in Ghana. We have in excess of c.120 days' paid-up stock in Nigeria, which positions us well to deal with the currency risks in the country. Our healthcare operations in East Africa (Surgipharm) also contributed positively, growing revenue and operating profit during the year in a market that showed no growth.

Our healthcare medical supplies and kitting business (Imres) continues to benefit from a strong order book, although the supply and delivery of products from India and the lack of air freight capacity impacted performance negatively.

While we are still able to service various channels in most markets in our consumer business, lower activity was recorded mainly in markets where sales of liquor and tobacco were negatively impacted due to Covid-19-related trading restrictions. As a result of reduced volumes, revenue and operating profit from our consumer businesses in Namibia and Mozambique declined during the year, with margins generally under pressure. Our newly acquired consumer business in Ghana contributed positively to results and is performing in line with expectations.

In the past 12 months we have concluded and integrated acquisitions which included the acquisition of a 65% stake in Geka Pharma; acquiring a 51% interest in Far East Mercantile Ghana; and a 60% shareholding in Axis Group International. After year-end, we acquired a 49% shareholding in Pharmafrique Proprietary Limited (trading as Kiara Health) - a step in expanding our market access footprint in South Africa.

Our South African wholesaling business Pharmed – with its high cost base and limited scale - has become increasingly uncompetitive and continues to underperform. Despite numerous management efforts and initiatives undertaken over the past months to turn the business to profitability again, it is evident that the business would be better placed to grow in the hands of another owner. As such, management has decided to dispose of this business and it is consequently classified as 'assets held for sale'.

Read more about our strategic acquisitions and disposals in the CFO’s review.

Net capital expenditure of R161 million was incurred during the year largely on additions to fleet, warehouse equipment and some warehouse leasehold improvements.

ROIC decreased from 14,2% to 12,1% and is marginally lower than WACC due to lower profits as a result of Covid-19 and higher invested capital from recent investment in acquisitions.

The pro forma regional performance results for African Regions is included below for noting:

		Half year 1 unaudited					Half year 2*					Full year unaudited
Logistics African Regions		2020	2019	%  change			2020	2019	%  change			F2020	F2019^	%  change
Revenue (Rm)		6 359	6 339				7 037	5 766	22			13 396	12 105	11
EBITDA (Rm)		606	569	7			370	433	(15)			976	1 002	(3)
Operating profit (Rm)		511	479	7			240	338	(29)			751	817	(8)
Operating margin (%)		8,0	7,6				3,4	5,9				5,6	6,7
Return on invested capital (%)		15,9	16,4									12,1	15,1
Weighted average cost of capital (%)		13,4	13,2									12,7	14,3
Net debt including IFRS 16 – lease liability (Rm)		1 724	1 608	7								1 914	1 239	54
Net debt excluding IFRS 16 – lease liability (Rm)		1 288	1 161	11								1 325	836	59
Working capital (Rm)		1 584	1 561	1								1 822	1 182	54

Note:	Continuing operations, excluding head office costs and eliminations.
^	Prior year numbers have been restated for the impact of IFRS16 - Leases, where applicable.
*	Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2020.

Strategic progress and outlook

As is evident throughout this report, during the 2020 financial year Market Access recorded significant progress against its strategic objectives. We are confident that our strategy is sound and we are encouraged by the talent that our unique positioning attracts. Our growth strategy and the business transformation that will future-proof our business ultimately depends on the calibre, alignment and engagement of all of our employees, and our success depends on having the right people on board. We appointed two seasoned executives with excellent track records in the consumer and healthcare industries, which attests to our attractiveness as a destination for talented leaders.

We have attracted new principals in both consumer and healthcare in existing territories, as well as successfully integrating our new acquisitions by introducing our principals to these new markets. We are expanding our market access capability in South Africa and this is proving highly successful as multinationals recognise our unique offering and unrivalled presence in Africa. We are also planning a supply chain control tower that ensures integration of all data from our various businesses, allowing better visibility of sales effectiveness, inventory planning and forecasting.

Our expansion into Ghana's consumer space, into Namibian healthcare via the acquisition of Geka Pharma - and our investment in Axis Group International, which gives us source and procure capability out of China and South East Asia – affirms our position as the trusted strategic partner in Africa. We will also continue to prioritise our capital allocation for those areas that amplify our primary strategic positioning and focus, being Africa and Market Access – and we will continue to explore growth opportunities accordingly.

Our approach and strategy should assure stakeholders that our proposition is highly attractive to high-profile multinational players seeking a foothold in Africa, one of the world's most exciting growth stories.