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Integrated Report 2020
Currently viewing: Our operating context / Next: Our business model
The supply chain and logistics industry serves the dynamic needs of a complex world and plays a pivotal role in the African economy – connecting manufacturers and consumers, and directing the flow of goods and services. Our deep understanding of our markets and industries underpins our competitiveness and resilience, and that of our clients, in full view of the emerging risks and opportunities within our strategic scope.
Imperial has a strong track record and experience in operating and growing in Africa, taking our clients and principals to customers in some of the fastest growing and most challenging markets in the world.
Across our regions, our businesses were exposed to increasingly difficult economic and market conditions – particularly in South Africa and Europe (including the UK). This tough macroenvironment was exacerbated by the negative impact of Covid-19 on volumes across most sectors.
Covid-19 has significantly impacted Africa and its people, with reduced consumer and household demand. Oil-dependent markets were impacted by reduced global demand and lower oil prices, although the latter has recovered somewhat since May 2020. Negative gross domestic product (GDP) growth is expected across most economies and this is likely to weigh heavily on consumer sentiment and curb spending, particularly on non-essential goods. Currency weakness is likely to lead to high inflation despite muted domestic demand. Our sub-Saharan African markets are particularly vulnerable to this due to their dependence on international tourism, and trade and investment, as well as exposure to shifts in risk sentiment.
Most countries in which we operate have relaxed their Covid-19 restrictions and some level of economic recovery has been evident, although activity is not yet back at normalised levels. All our Market Access businesses are currently in operation but volumes remain impacted. We expect a steady recovery in revenue as lockdown restrictions continue to ease.
Despite the impact of Covid-19, ongoing subdued growth and lower consumer spending in certain countries of operation, our primary positioning as a leading market access partner in the healthcare and consumer industries continues to stand us in good stead in Africa. We remain optimistic about the opportunities inherent in Africa's rising consumerism, urbanisation, population growth and the strengthening of healthcare systems. These trends present growth opportunities and continue to drive demand for our market access and logistics capabilities. Our credibility, experience, innovative business models and commercial solutions position Imperial as a uniquely skilled partner to multinational manufacturers and brand owners.
Prevailing weak economic conditions, high unemployment and low consumer spending have been exacerbated by Covid-19 and volumes declined across most sectors. Tobacco, alcohol and fuel volumes, in particular, saw significant declines as a result of lockdown restrictions. We saw increased demand from fast-moving consumer goods (FMCG) and healthcare clients as the pandemic drove heightened demand and consumption of related products. Nearly 90% of this business is currently in operation (based on revenue). We anticipate normal trading to return in the short to medium term as lockdown restrictions are lifted.
With industry exposure still largely focused on mature German manufacturing industries – such as automotive, chemicals and steel – our European operation was most impacted by the pandemic. We experienced significant reduction in volumes and activities in March, April and May 2020 as our core industries experienced complete lockdown.
Many countries in Europe, including the UK, have now eased lockdown restrictions and there has been a noticeable increase in activity and volumes since June 2020. Although volumes remain impacted, all businesses in Logistics International are currently operational. In an effort to boost economic recovery, create employment and protect jobs, the European Union (EU) is proposing a comprehensive recovery plan to fully exploit the potential of the EU budget. Alongside the EU initiatives, each member country is providing emergency economic recovery packages. In Germany – our largest market – the government is acting definitively and systematically to protect the German economy and the emergency economic stimulus package in place is the largest in the country's history.
The global logistics industry is facing immense change, presenting both risks and opportunities for solution providers like Imperial. Key areas of potential disruption for the group include socioeconomic and political trends, the nature of our competition, our ways of doing business, and the changing needs and expectations of our clients, principals and customers. The emergence of Covid-19 has impacted the industry, however, it has also demonstrated the essential role played by the logistics industry and, at Imperial, has renewed our sense of relevance and purpose.
Demand for healthcare products continues to rise and a five-year CAGR of 18% has been forecast for the healthcare industry in Africa. To better position ourselves for this growth, Imperial is becoming more involved with the generics and medical device markets, forecast to grow significantly by 2023. Over the past year, healthcare generated 21% of total revenue for Imperial and delivered revenue growth of close to 10%.
Key trends and drivers impacting the healthcare sector include evolving population dynamics, growing urbanisation, increasing demand for generic pharmaceuticals (primarily government-driven), technological advances, access to patients and changing patient expectations.
Covid-19 has altered purchasing trends and consumer behaviour and demand for increased convenience is growing exponentially, with ecommerce driving growth. Many consumers are expected to continue shopping online once conditions normalise. The consumer sector was under pressure prior to the pandemic due to challenging macroeconomic conditions; however, despite this and the impact of lockdown restrictions on South African operations, our consumer sector achieved c.16% revenue growth, generating c.32% of group revenue this year.
Our extensive footprint across Africa will play a role in meeting increasing needs for market access and logistics solutions in previously inaccessible and challenging markets.
Our automotive and transport-related businesses in Europe were most impacted by Covid-19 as manufacturing of motor vehicles and all related activities ceased completely. However, we delivered single digit revenue growth during the year and an overall decrease in volumes was offset by new business gains.
Electric modes of transport are expected to impact automotive supply chains in the future as these will require alternative component parts with complex requirements. We are prepared for this disruption and have the necessary infrastructure and expertise to transport and store batteries, which are classified as hazchem products and require specialised conditions and adherence to strict safety and health regulations across regions.
The sector is heavily reliant on China which is expected to become the world leader in production and consumption of chemicals. This reliance has resulted in feedstock price volatility, supply chain and logistics challenges, exacerbated by unpredictable customer demand. The sector is also becoming more challenging due to enforcement of stricter regulatory compliance and increasing focus on green logistics, creating opportunities for Imperial.
This year, the sector contributed c.14% to group revenue, with Covid-19-related global supply chain and distribution network disruption negatively impacting performance. Our exposure to agrochemicals mitigated some of the adverse conditions experienced this year.
Energy is a sub-sector of Chemicals and despite the impact of the Covid-19 pandemic, our fuel and gas operations grew revenue by 5% year-on-year mainly due to new business gains in the gas sector.
Many of Imperial's sub-sectors were performing consistently prior to Covid-19 but were severely impacted by the non-essential classification under national lockdown restrictions across multiple countries. Some sub-sectors, however, demonstrated resilience as demand for packaging materials for the food and hygiene sectors increased.
This sector contributes 18% of total revenue and Imperial has a well-diversified spread across the sub-sectors in this segment. Diversification and the disproportionate impact of Covid-19 measures across sub-sectors diluted our performance in this sector.
Our asset-right business model employed for the Mining sub-sector ensures greater flexibility and reduced exposure during these uncertain times driven by the Covid-19 pandemic. The majority of c.90% (revenue) of Imperial's mining activities are performed in South Africa. Notwithstanding the overall decline in volumes in the industry, Imperial demonstrated resilience and achieved single-digit revenue growth in F2020, which contributed c.17% to total industrial revenue for the group. Our mining sub-sector has a healthy pipeline of new business opportunities.
Imperial provides various materials such as cement, construction glass and steel and metals to the construction sub-sector.
1 Revenue allocation is based on the revenue contributed by our five key industries and excludes revenue contributed by other markets.
Note: Data from internal reports.