Performance review Solution: Logistics
Our logistics businesses underpin both our ‘Gateway to Africa’ and ‘One Imperial’ positioning, enabling us to leverage crossselling and upselling opportunities with our market access business.
Our logistics solutions encompass contract logistics, freight management and LLP services. These are offered within and across two businesses, Logistics Africa and Logistics International.
Logistics Africa encompasses logistics activities throughout the African continent, i.e., road freight, contract logistics and LLP. Logistics will continue to play an integral role in achieving our ‘Gateway to Africa’ and ‘One Imperial’ strategic imperatives – leveraging and expanding freight, contract logistics and supply chain support, and leveraging crossselling and upselling opportunities with our market access business.
Logistics International encompasses road freight, contract logistics, air/ocean and LLP activities outside of Africa – most notably our contract logistics and freight businesses in Europe and the UK.
In February 2021, we announced that our Logistics International business was non-core to our ‘Gateway to Africa’ strategy and we would therefore be exploring an appropriate exit plan for this business. This business is, however, within the scope of the proposed offer from DP World. As the Logistics International business is non-core, aspects of its operation are not covered in this report.
Our core offerings
Contract logistics |
Freight |
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Our contract logistics services include developing market entry strategies, consulting, production logistics, warehousing, distribution, spare parts logistics and value-added services. Our unique value proposition enables our clients to establish and grow their brands in Africa. Our focus is on leading in Africa by offering clients, principals and customers integrated supply chain solutions grounded in our on-the-ground African presence. |
Road freightOur robust African freight forwarding capability and overall focus on Africa supports our value proposition. We continue to focus on integrated solutions that improve real-time end-to-end visibility; and to invest in people and technology that deliver client-centric offerings. |
Air/ocean freightAn air and ocean freight forwarding capability, necessary to support trade flows into and out of Africa as part of our 'Gateway to Africa' strategy. It also generates sustainable organic growth through direct cross-selling opportunities. |
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LLPThere is increasing demand for supply chain integrators that assemble and manage an optimal solution for clients, principals and customers by collaborating with regional and specialist service providers. Our 'One Imperial' and 'Gateway to Africa' strategy directs us toward the vision of a homogeneous LLP capability across all our regions. It is a capability by which we design and operate integrated multi-modal freight management solutions that complement our freight, contract logistics and market access solutions. |
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Our clients, principals and customers expect:
Integrated value chain solutions
Optimised network
Efficiency/cost reduction
Sustainability and circular supply chains
Comprehensive reach and footprint
Fit-for-purpose industry solutions
Real-time end-to-end visibility
Data rich platforms
How we meet these expectations:
- We have a deep understanding of our clients, principals and customers' businesses and the industries in which they operate, as well as an extensive footprint that offers local market presence across most of Africa.
- We expertly manage the movement of goods on behalf of clients, principals and customers between specified sources and destinations.
- We skillfully navigate different transportation modes and use a range of transportation types.
- We partner with our clients, principals and customers to integrate logistics into their end-to-end supply chain.
- As an LLP, our integrated solutions span supply chain design; end-to-end control towers; orchestrating freight management and contract logistics; and enabling market access offerings.
- Our customised information technology provides real-time visibility and transparency along the entire value chain.
- Our contract logistics and distribution networks in major geographies allow for full, seamless integration.
Key market trends informing our strategy
- Shift towards intelligent supply chains evolving into customer-centric, agile, asset-right networks that are connected, responsive and cost effective.
- Deeper understanding of clients, principals and customers underpinned by robust data analytics capabilities.
- Increasing need for supply chain networks to be flexible, transparent and resilient to dislocation and disruption.
- Shift towards "direct-to-customer" and "direct-to-consumer" operating models.
- Increasing and accelerating demand for digitalisation.
- Increasing focus on sustainably sourced products and practices.
- Sharp increase in online sales and e-commerce, despite this remaining inaccessible to many lower-income consumers and informal traders.
- Demand for e-commerce is expected to continue to increase post the COVID-19 pandemic.
Our strategy
Achieving our strategic objectives will enable us to consistently and competitively provide clients, principals and customers with an international and fully integrated 'One Imperial' managed, multi-modal network, that sustainably grows our business and deepens the group's 'One Imperial' and 'Gateway to Africa' positioning.
Creating an owned, international, multi-modal network applying an asset-right operating model.
Retention and growth of existing clients, principals and customers, and new clients, principals and customers in existing service segments.
Upselling and cross-selling global strategic accounts.
Custom-designed solutions to address clients’ unique requirements.
Enhance specialised industry capabilities where there are greater barriers to entry and generally higher financial returns.
Focus on standardisation and integration of best-in-class processes and systems to unlock value in current operations.
Invest in digital innovation and leverage integrated technology and data platforms to create opportunities for new products and services.
Supported by our key enablers:
How we support the Imperial strategy
- We play an integral role in strengthening the 'Gateway to Africa' and 'One Imperial' positioning.
- We operate in key industries: consumer, healthcare, industrials and commodities, chemicals, and automotive.
- We are restructuring our portfolio to move from asset-heavy industries to those in which we can apply an 'asset-right' operating model.
- We will venture into new industries covering retail and e-commerce.
- Our ability to influence distribution logistics creates opportunities to further cross-sell and upsell services across our businesses.
- We are well positioned to use technology and data to differentiate our core offerings.
Strategic performance
We measure our performance against defined strategic KPAs:
Strategic performance measures
Progress made in F2021
- Logistics Africa recorded a recovery in volumes and profitability compared to the prior year, increasing revenue and operating profit by 2% and 31% respectively. Operating margin improved to 6,2% from 4,9% in F2020.
- Logistics International achieved strong revenue and operating profit growth in Euros of 10% and in excess of 100% respectively.
- Results were positively supported by solid contract renewal rates, contract gains and cost saving initiatives in both businesses.
- We invested in the acquisition of Parcel Ninja, a specialised warehousing and distribution management business that provides fulfilment in B2C and B2B channels. This supports the acceleration of our digital capabilities and expands our logistics and market access into last-mile distribution, e-commerce fulfilment, and our footprint and scale in Africa, while ensuring local relevance for our clients, principals and customers.
- We disposed of the non-core European shipping business for c.R3.4 billion.
- We concluded the sale of our South American shipping business for c.R1.3 billion.
- Our B-BBEE partners (Afropulse, Willowton and Converting Trade) are participants in a 25% B-BBEE shareholding in Imperial Logistics South Africa Group, enhancing its black and women ownership. This underlines our commitment to sustainable empowerment and transformation and improves the B-BBEE status of Imperial’s South African operations.
- Post year-end, we announced the acquisition of the J&J Group in Logistics Africa business. The J&J Group offers end-to-end logistics solutions along the Beira and North-South corridor, specialising in the transport of break-bulk, containerised, project, fuel and out-of-gauge cargo. This transaction is aligned to Imperial’s ‘Gateway to Africa’ strategy as it will optimise and expand Imperial’s reach into Africa by providing scale in end-to-end cross-border transportation services, as well as complement Imperial’s asset-right focus and expand access to critical trade networks.
- Strong contract renewal rates of 79% and 87% in Logistics Africa and Logistics International respectively.
Read more in our digital and IT review on Digital and IT review.
Logistics Africa pipeline
in contracts
(2020: 93%)
by top five clients to contracts
gained
(new business)
by top five clients to
renewed
contribution to open pipeline
Logistics International pipeline
(2020: 88%)
by top five clients to contracts
gained
(new business)
by top five clients to contracts
renewed
contribution to open pipeline
Our operating context and performance in F2021
Logistics Africa
Context
- Prevailing weak economic conditions, high unemployment and low consumer spending were exacerbated by COVID-19 and continue to impact volumes and margins across many of our sectors, particularly in South Africa.
- While a recovery across key sectors was recorded in the last quarter of F2021 particularly in commodities, fuel and gas, a third wave of COVID-19 infections in South Africa and restrictions on alcohol sales in the latter part of F2021 resulted in further weakening of the economy and the FMCG sector, which remains under pressure.
- We anticipate trading activities in certain businesses in Logistics Africa to be impacted until COVID-19 infections reduce and restrictions ease.
- There is also continued pressure in the South African market for growth as transport rates remain competitive due to competitors imposing margin cuts to win new or retain contracts.
- During the year, we invested in additional capacity in consumer goods (FMCG) and healthcare clients as the pandemic drove heightened demand and consumption of related products.
Pro forma Logistics Africa segment results
| Half year 1 | Half year 2* | Full year | |||||||||||||||
| Logistics Africa (R) | 2021 | 2020 | % change |
2021 | 2020 | % change |
F2021 | F2020 | % change |
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| Revenue (Rm) | 8 077 | 8 261 | (2) | 7 727 | 7 306 | 6 | 15 804 | 15 567 | 2 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EBITDA (Rm) | 982 | 1 058 | (7) | 1 015 | 652 | 56 | 1 997 | 1 710 | 17 | ||||||||
| Operating profit (Rm) | 473 | 627 | (25) | 514 | 129 | 298 | 987 | 756 | 31 | ||||||||
| Operating margin (%) | 5,9 | 7,6 | 6,7 | 1,8 | 6,2 | 4,9 | |||||||||||
| Return on invested capital (%) | 6,4 | 11,8 | 10,9 | 8,1 | |||||||||||||
| Weighted average cost of capital (%) | 7,9 | 8,9 | 7,7 | 8,4 | |||||||||||||
| Net debt (Rm) | 4 115 | 4 498 | (9) | 3 524 | 4 665 | (24) | |||||||||||
| Lease obligations included above (Rm) | 1 638 | 1 817 | (10) | 1 365 | 1 981 | (31) | |||||||||||
| Net debt excluding lease obligations (Rm) | 2 477 | 2 681 | (8) | 2 159 | 2 684 | (20) | |||||||||||
| Net working capital (Rm) | 11 | (224) | >100 | (267) | (537) | (50) |
| Note: Continuing operations | |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021. |
| Half year 1 | Half year 2* | Full year | |||||||||||||||
| Logistics Africa (R) | 2021 | 2020 | % change |
2021 | 2020 | % change |
F2021 | F2020 | % change |
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| Freight | |||||||||||||||||
| Revenue (Rm) | 5 762 | 6 261 | (8) | 5 544 | 4 952 | 12 | 11 306 | 11 213 | 1 | ||||||||
| EBITDA (Rm) | 786 | 832 | (6) | 771 | 482 | 60 | 1 557 | 1 314 | 18 | ||||||||
| Operating profit (Rm) | 412 | 533 | (23) | 397 | 138 | 188 | 809 | 671 | 21 | ||||||||
| Operating margin (%) | 7,2 | 8,5 | 7,2 | 2,8 | 7,2 | 6,0 | |||||||||||
| Contract Logistics | |||||||||||||||||
| Revenue (Rm) | 2 315 | 2 000 | 16 | 2 183 | 2 354 | (7) | 4 498 | 4 354 | 3 | ||||||||
| EBITDA (Rm) | 196 | 226 | (13) | 244 | 170 | 44 | 440 | 396 | 11 | ||||||||
| Operating profit (Rm) | 61 | 94 | (35) | 117 | (9) | >100 | 178 | 85 | 109 | ||||||||
| Operating margin (%) | 2,6 | 4,7 | 5,4 | (0,4) | 4,0 | 2,0 |
| Note: Continuing operations | |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021. |
We have made good progress on our strategic initiatives to deliver ‘One Imperial’ and ‘Gateway to Africa’, in a challenging environment where many of our markets continue to face uncertainty and volatility, driven by COVID-19 and resulting levels of lockdown and restrictions.
Logistics Africa recorded a recovery in volumes and profitability compared to the prior year, increasing revenue and operating profit by 2% and 31% respectively, despite the first half’s performance being significantly impacted by COVID-19 lockdown restrictions which resulted in the ban of alcohol and tobacco sales (c.12% of revenue).
Operating margin improved to 6.2% from 4.9% in F2020. Results were positively supported by solid contract renewal rates, contract gains and cost saving initiatives. Logistics Africa achieved full-year cost savings of c.R200 million (p.a.). The benefits of these cost savings will be fully realised from F2022 and will assist in maintaining our competitive market positioning.
New business revenue of approximately R2 billion (p.a.) was secured on a rolling 12-month basis to the end of June 2021. Logistics Africa’s contract renewal rate remains strong at c.79%.
Despite revenue growth, the lockdown restrictions resulted in a decline in volumes across most sectors – particularly in alcohol, tobacco and fuel.
The consolidated road freight businesses are benefitting from improved efficiencies. Revenue from the road freight business increased by 1%, supported by good volumes in the commodities businesses. Volumes were negatively impacted by the ban on alcohol sales and cross-border travel restrictions due to COVID-19 during the year. Operating profit increased by 21% supported by new business gains, improved fleet utilisation and efficient cost management.
Contract Logistics increased revenue and operating profit by 3% and 109% respectively due to new business gains despite volumes being negatively impacted by the ban of alcohol and tobacco sales due to COVID-19 lockdown restrictions.
Net capital expenditure from continuing operations (excluding IFRS 16) of R151 million was incurred during the period mainly due to the replacement cycle of fleet and investment in additional capacity for new contract gains. ROIC increased from 8.1% to 10.9% and is above our hurdle rate of WACC + 3%.
Logistics International
In February 2021, we announced that our Logistics International business was non-core to our ‘Gateway to Africa’ strategy and we would therefore be exploring an appropriate exit plan for this business. This business is, however, within the scope of the proposed offer from DP World.
Context
- Despite the significant overhang of COVID-19, economic activity, growth forecasts and employment rates in Europe and the UK are steadily improving due to additional fiscal support in certain countries and swift progress in the roll-out of COVID-19 vaccines.
- In Germany, some lockdown restrictions remain in place but gradually eased towards the latter part the 2021 financial year. However, the automotive sector continues to be negatively impacted by ongoing semi-conductor shortages.
- In the UK, Brexit has resulted in slower imports and exports from the UK, and a shortage of drivers in the UK, negatively impacting our road freight businesses.
Pro forma Logistics International segment results
| Half year 1 | Half year 2* | Full year | |||||||||||||||
| Logistics International (R) | 2021 | 2020 | % change |
2021 | 2020 | % change |
F2021 | F2020 | % change |
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| Revenue (Rm)^ | 10 714 | 8 755 | 22 | 10 444 | 9 359 | 12 | 21 158 | 18 114 | 17 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EBITDA (Rm)^ | 1 079 | 951 | 13 | 911 | 505 | 80 | 1 990 | 1 456 | 37 | ||||||||
| Operating profit (Rm)^ | 356 | 347 | 3 | 186 | (360) | >100 | 542 | (13) | >100 | ||||||||
| Operating margin (%)^ | 3.3 | 4.0 | 1.8 | (3.8) | 2.6 | (0.1) | |||||||||||
| Return on invested capital (%)^ | 0.2 | 4.9 | 5.7 | 0.1 | |||||||||||||
| Weighted average cost of capital (%)^ | 6.1 | 5.7 | 6.5 | 5.5 | |||||||||||||
| Net debt (Rm) | 4 698 | 6 784 | (31) | 3 619 | 8 211 | (56) | |||||||||||
| Lease obligations included above (Rm) | 3 213 | 3 080 | 4 | 3 195 | 3 751 | (15) | |||||||||||
| Net debt excluding lease obligations (Rm) | 1 485 | 3 704 | (60) | 424 | 4 460 | (90) | |||||||||||
| Net working capital (Rm) | (630) | 711 | (189) | (483) | (395) | 22 |
| Note: Continuing operations | |
| ^ | Excluding businesses held for sale |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021. |
| Half year 1 | Half year 2* | Full year | |||||||||||||||
| Logistics International (EUR) | 2021 | 2020 | % change |
2021 | 2020 | % change |
F2021 | F2020 | % change |
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| Revenue (€m)^ | 558 | 537 | 4 | 598 | 518 | 15 | 1 156 | 1 055 | 10 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EBITDA (€m)^ | 57 | 59 | (3) | 52 | 29 | 79 | 109 | 88 | 24 | ||||||||
| Operating profit (€m)^ | 18 | 22 | (18) | 12 | (19) | >100 | 30 | 3 | 900 | ||||||||
| Operating margin (%)^ | 3,2 | 4,1 | 2,0 | (3,7) | 2,6 | 0,3 | |||||||||||
| Return on invested capital (%)^ | 0,4 | 3,9 | 4,6 | 1,0 | |||||||||||||
| Weighted average cost of capital (%)^ | 5,7 | 5,9 | 5,9 | 5,5 | |||||||||||||
| Net debt (€m) | 261 | 432 | (40) | 214 | 421 | (49) | |||||||||||
| Lease obligations included above (€m) | 179 | 196 | (9) | 189 | 192 | (2) | |||||||||||
| Net debt excluding lease obligations (€m) | 82 | 236 | (65) | 25 | 229 | (89) | |||||||||||
| Net working capital (€m) | (35) | 45 | (178) | (29) | (20) | 45 |
| Note: Continuing operations | |
| ^ | Excluding businesses held for sale |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021. |
| Half year 1 | Half year 2* | Full year | |||||||||||||||
| Logistics International (R) | 2021 | 2020 | % change |
2021 | 2020 | % change |
F2021 | F2020 | % change |
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| Freight | |||||||||||||||||
| Revenue (Rm)^ | 6 643 | 5 080 | 31 | 6 183 | 5 599 | 10 | 12 826 | 10 679 | 20 | ||||||||
| EBITDA (Rm)^ | 525 | 583 | (10) | 473 | 143 | 231 | 998 | 726 | 37 | ||||||||
| Operating profit (Rm)^ | 208 | 303 | (31) | 166 | (296) | >100 | 374 | 7 | >100 | ||||||||
| Operating margin (%)^ | 3,1 | 6,0 | 2,7 | (5,3) | 2,9 | 0,1 | |||||||||||
| Contract Logistics | |||||||||||||||||
| Revenue (Rm)^ | 4 071 | 3 675 | 11 | 4 261 | 3 760 | 13 | 8 332 | 7 435 | 12 | ||||||||
| EBITDA (Rm)^ | 554 | 368 | 51 | 438 | 362 | 21 | 992 | 730 | 36 | ||||||||
| Operating profit (Rm)^ | 148 | 44 | 236 | 20 | (64) | >100 | 168 | (20) | >100 | ||||||||
| Operating margin (%)^ | 3,6 | 1,2 | 0,5 | (1,7) | 2,0 | (0,3) |
| Note: Continuing operations | |
| ^ | Excluding businesses held for sale |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021. |
While our Logistics International business was the most impacted by the COVID-19 pandemic in F2020, this business recorded significant improvement in trading activity on the back of the easing COVID-19 restrictions and economic recovery over the past 12 months. All businesses are currently operational and are demonstrating significantly improved performance. As a result, Logistics International achieved strong revenue and operating profit growth in Euros of 10% and in excess of 100% respectively, and, in Rand terms, revenue from Logistics International rose 17% while operating profit increased by over 100% compared to the previous year.
Results were supported by new contract gains, effective cost management and volume recovery in the key industries of operation as production ramped up. Logistics International’s contract renewal rate on existing contracts remains strong at c.87%, with an encouraging pipeline of new opportunities. New business revenue of approximately R2,2 billion was secured on a rolling 12-month basis to the end of June 2021.
Revenue generated from the freight business increased by 20% in Rands, supported by a good performance from our express palletised distribution business due to higher volumes in a COVID-19 environment, and a higher contribution from the air and ocean freight business. Operating profit increased by over 100% due to the growth in revenue supported by the improvement in operating margins.
Contract logistics increased revenue and operating profit in Rands by 12% and over 100% respectively as automotive production started to ramp-up again post COVID-19 lockdowns on the back of a recovery in vehicle sales. This, despite the automotive sector negatively impacted by the shortage of semi-conductors. Volumes in our chemicals-related businesses were less impacted by COVID-19 and further supported by new business gains.
The South American shipping business was disposed of in April 2021. During the year, it was significantly impacted by record low water levels which impacted both volumes and margins. More details are included in the ‘Disposals’ section of this report.
Net capital expenditure from continuing operations excluding businesses held for sale (excluding IFRS 16) of R193 million was incurred during the year mainly for replacement capex for transport fleet. ROIC improved to 5,7% but is lower than WACC.
Outlook
The ongoing impact of the COVID-19 pandemic continues to create uncertainty that will affect our operations and performance in the short term. We will continue to manage the implications of this while ensuring that we continue to deliver on our strategic objectives.
We will continue to enhance our unique offering and deliver on our bold strategy. Our focus continues to be on optimising margins and developing world-class solutions for our clients, principals and customers to deliver our ‘Gateway to Africa’ strategic intent. We will drive integration, deliver business insights and optimise collaboration that is supported by our investments in smart technology and data. This will enable us to deliver ‘One Imperial’ through our incentivised, aligned and empowered people who are highly engaged in delivering this unique opportunity to grow our logistics solutions to its full potential.
