A deep understanding of our clients, principals and customers, as well as our markets and industries informs our strategy and underpins our competitiveness and resilience in full view of the emerging risks and amplified opportunities within our strategic scope.
COVID-19 and climate change highlight the vulnerability of global supply chains to systemic risk; but also demonstrated the essential role played by the logistics industry in driving growth, recovery and sustainable development, especially in Africa.
As a trusted partner to our clients and principals, we remove the complexity and help them navigate the challenges of highly dynamic and fast-changing markets and industries, to realise the compelling growth opportunities the continent presents as we seek to improve the quality of life of people.
Operating context overview
During the past 12 months, many of Imperial's markets of operation faced challenging trading conditions due to the extended impact of COVID-19 and lockdown restrictions as infection rates continued to rise again in H2 F2021. A third wave of COVID-19 infections has gathered momentum on the African continent, particularly in countries where vaccination rates are currently very low. In the absence of stimulus by governments, these effects are expected to continue to hamper the economic recovery and growth in these markets.
Most European countries have eased lockdown measures due to decreasing numbers of infected people. In Germany, however, certain lockdown restrictions remain in place but are gradually easing. The automotive sector is being negatively impacted by the global shortage of semi-conductors. The heightened impact of Brexit has resulted in slower imports into and exports from the UK and a shortage of drivers in the UK. More clarity is expected when the new Brexit regulations have been fully implemented.
The imbalance in supply chains due to lack of availability of shipping containers in certain key markets is resulting in higher supply chain costs due to higher freight rates that are negatively impacting volumes in our businesses in these markets.
Forecasts indicate that most economies in key African markets in which we operate contracted in 2020, with low to modest growth expected in calendar 2021. Further, some of our markets of operation experienced levels of social unrest which negatively impacted operations.
We will experience overall volatile trading conditions across the markets in which we operate until some level of normalisation is reached around the COVID-19 pandemic.
Global health spending is expected to rise at a 3,9% compound annual growth rate (CAGR) from 2020 to 2025, up from 2,8% for 2015 to 2019. Demand in Africa will track, or likely surpass, this growth. Various factors will drive this demand: population growth, urbanisation, post-Covid-19 economic recovery, innovation and technology advances, increasing consumer expectations, growth of generics, and the expansion of public health care systems. Imperial's strong presence in the continent's healthcare sector (which contributed 22% to group revenue in F2021) positions us well for higher growth rates in the sector.
The Covid-19 pandemic has offered a stark reminder of the critical importance of local healthcare product manufacturing capability on the African continent. South African-based pharmaceutical manufacturers are set to benefit from the creation of the African Continental Free Trade Area (AfCFTA), which commenced in January 2021, and key role players are hoping to expand pharmaceutical exports into the rest of the continent.
From 2001 to 2014 consumer spending (also known as final consumption) in sub-Saharan Africa grew from USD302 billion to USD1,425 trillion. It declined through to 2016, before climbing again to 2019. But the upward trend was reversed by the pandemic as consumer expenditure in sub-Saharan Africa dropped to USD1,33 trillion in 2020.1
As the economic recovery gathers steam, and households feel more emboldened to spend their savings, consumer spending is set to continue its upward trend. According to Fitch Solutions, real household spending in South Africa is projected to grow by 4,3% in 2021, against (5,9)% in 2020. South Africa accounts for 38% of consumer revenue in F2021.
If properly implemented, the AfCFTA agreement could see Africa generate combined consumer and business spending of USD6,7 trillion by 20302. There may also be a silver lining to the pandemic, should it encourage closer integration among African countries to boost mutual self-sufficiency and reduce dependence on overseas countries. Also, technology transfers from rich to poor countries invariably benefit the continent. Africa will undoubtedly benefit from the growing efficiencies of e-commerce, last-mile delivery and smart logistics, and Imperial's significant investment in new technologies and digital enablement will track this shift.
The revenue contribution from our automotive operations in F2021 was 17%. Germany is Europe's number one automotive market, accounting for approximately 25% of all passenger cars manufactured (3,5 million) and roughly 20% of all new car registrations (2,9 million) in 2020. Stimulus packages, the temporary lowering of the VAT rate, and an increase in the government's share of the environmental bonus has spurred the recovery of the German auto sector. Germany is also the second largest individual external market for South African motor vehicle exports (9,5%).
According to the financial services provider UBS, by 2040 almost all new cars will be electric.3 This is expected to create massive demand for lithium-ion batteries, a sector Imperial is targeting as part of our involvement in automotive supply chain logistics. The market size of lithium-ion batteries in Europe is estimated to record 12,9% growth in 2021 with a market value of USD10,2 billion. This market will expand at a CAGR of around 7,5% from 2021 – 2031.4
This industry contributed around 12% to group revenue. Some 86% of Imperial's chemicals industry revenue (excluding energy) is generated from clients in the European Union (EU). The outlook for global chemical production (excluding pharmaceuticals) is expected to grow by 4,4% (2020: (0,4)%) in 2021.
Energy is a sector of our chemicals industry focus. Despite a decline in the consumption of petrol, diesel and liquefied petroleum gas (LPG) in the Southern Africa region, our revenue from fuel and gas only contracted 2,2%. The pandemic saw South Africa's LPG demand drop by around a third in 2020. However, over the coming years demand for LPG is likely to increase, driven by various factors, including the rising cost of electricity. In addition, the government's LPG Expansion Initiative aims to double the consumption of LPG over the next five years, while promoting local manufacturing of gas cylinders and appliances.
The industrial and commodities industry contributed around 17% to group revenue. The cement and paper/board sectors in South Africa were heavily impacted by COVID-19 and the associated economic contraction. The recovery in the global steel environment since the second half of 2020 has accelerated in 2021; and activity levels in steel markets have continued to recover. Further, strong demand and low supply chain inventories – following significant destocking in previous periods – have supported a recovery in steel spreads (the price difference between steel and raw material inputs).
Connecting volumes with the strong consumer demand in Africa is set to spur the packaging market, with forecasters predicting a CAGR of 8,4% for 2021 to 2026.
|1||(The World Bank, 2021)|
Global trend overview
The following provides an overview of the global trends that present both risks and opportunities for solution providers like Imperial, highlighting areas of potential disruption and guiding our strategic priorities.
to the trusted
- One of the fastest-growing consumer markets in the world.
- Healthcare and consumer sectors are expected to outpace national economic growth rates.
- Geopolitical tensions, global trade dislocation and shortages, extreme weather events and COVID-19 related restrictions continue to disrupt the movement of goods and people.
- The vulnerability of global supply chains is accelerating the shortening of supply chains in favour of local manufacturing, 'near-shoring' and 'on-shoring'.
- The emphasis on local beneficiation presents significant opportunities for our integrated market access and logistics solutions.
- Clients are re-evaluating their supply chain strategies, favouring opportunities for expert outsourcing, end-to-end offerings, innovative solutions, and increased supply chain resilience, efficiencies and visibility.
Opportunities and threats
Digital and IT
- A more stringent regulatory environment reflecting heightened activism from investors, funders non-governmental organisations and the public alike, mean businesses must demonstrate ESG and shared value principles, practices and targets aligned to international commitments.
- The need for digital and other scarce skillsets will intensify competition in a tough economic environment where critical skillsets are scarce.
- To meet this challenge, organisations must develop, attract and retain talent by creating a compelling and competitive employee value proposition.
- Consumer behaviour is shifting, with the remote economy gathering momentum in higher adoption of e-commerce, online engagement and services such as telemedicine, which is reshaping traditional business models.
- Digitally enabled organisations and data capabilities will play a central role in meeting many of the current market and industry demands.
- Advancement in digitalisation provides increasing options for automating repetitive processes, for greater accuracy and efficiency and cost savings.
- Technical and industrial progress has had a significant impact on the planet with increasing climate-related risks. The opportunity to leverage green logistics and technology through a focused ESG strategy and green finance will advance solutions to create economic growth and export opportunities through new industries.
- Disintermediation continues to present a threat to the group's client franchise, and the integrity of our end-to-end service offering.
- This is heightened by new competitors with highly innovative and disruptive operating models.
- To compete and win, against existing and new competitors, requires organisations to become highly client-centric, able to understand the current needs of their clients, principals and customers, and to anticipate how these are likely to change in the future.
- Changing consumer behaviour, rapid technological improvements and global competition are increasing demand volatility, impacting supply chain management and planning.