Logistics

The logistics division operates in two key markets – southern Africa and Europe.

SA logistics is the largest third-party logistics and supply chain management provider, offering integrated solutions to a diverse range of customers in 14 African countries through over 55 operating entities.

Imperial Logistics International provides complete logistics solutions including contract logistics, warehousing, inland waterway shipping and related valueadded services across major European markets, but predominantly in Germany.

Key data – Logistics

Marius Swanepoel CEO of SA logistics

Key stats • Employs more than 21 000 people in southern Africa, including over 4 750 truck drivers and 3 500 merchandisers • Manages more than 5 500 vehicles • Employs over 2 000 subcontractor vehicles • Operates from more than 968 locations in 14 countries • Provides product handling and storage in facilities exceeding 750 000 m2, including hazardous-certified warehouses

Highlights

Divisional overview

With extensive operations throughout southern Africa and a growing African footprint, Imperial SA logistics partners with clients to leverage the value inherent in their supply chains, thereby contributing to revenue, bottom-line and return on investment. The company acts as an extension of its clients’ business, collaborating with them on building their brands and unlocking the competitive advantage contained in a complex and dynamic logistics environment.

A combination of pre-eminent supply chain management skills and an extensive resource base of transportation, warehousing and distribution operations help to differentiate the division. It applies best-of-breed integrative processes and technology solutions to manage operational processes across end-to-end value chains, and optimises the benefits of being a large, multi-branded business while retaining agility, customer focus and an entrepreneurial flair.

The division’s strategic focus is in four key areas: enhancing its service offering through strategic acquisitions; winning significant new business in key markets; expanding industry knowledge to better serve these markets; and establishing a powerful footprint in Africa.

It is a multi-branded business with five core divisions, managed on a decentralised basis with exposure to diverse markets, industries, countries and clients.

Strategic acquisitions

Contribution to revenue by industry(%)

Key acquisitions during the period included:

• 70% stake in La Grange Transport, a Tulbagh-based business that provides access to the lucrative Western Cape fruit industry
• 80% in Kings Transport, a load consolidation business, which strengthens the division’s ability to service customers with smaller loads
• 60% of IJ Snyman Transport, an established cross-border transporter that operates in Angola, DRC, Namibia, South Africa and Zambia. This strengthens the group’s African presence and capacity
• 60% of Synchronised Logistics Solution, an automotive logistics and supply chain specialist which boosts our ability to service the time-sensitive and accuracy-focused automotive industry

Winning new business in key markets

During the year the division was awarded new contracts which included some sizeable contracts in the mining and petrochemical industries. Contracts were renewed with companies across a broad spectrum of industries including glass manufacturing, FMCG, petrochemical, steel manufacturing and mining. The division’s current sales pipeline contains significant new business opportunities in a broad spectrum of industry sectors.

Current industry exposure and revenue by activity is illustrated in the opposite graph.

Establishing a footprint in Africa

Imperial Logistics will continue to expand into Africa through selective acquisitions and alignment with its customers’ African expansion strategies. The recent acquisition of IJ Snyman Transport and the increased shareholding in Transport Holdings are good examples of this strategy.

Operating units

SA logistics has five operating divisions:

Market conditions

The manufacturing sector of the South African economy is currently weak and a number of our South African logistics customers are under pressure. Despite volume pressure in our customer base, we continue to benefit from the trend to outsourcing by companies who want a viable and cost-effective option and prefer to focus on their core business. With many of our clients looking for cost reduction and efficiency improvements, we are focused on providing significant additional value-added services to our clients.

Results

The division faced a challenging trading environment but gained and retained a number of significant contracts. Acquisitions also contributed positively. Several of our customers experienced strike action in July 2011 and volumes were under pressure throughout the year. Volumes in the manufacturing sector suffered in the second half. CIC, which is involved in the distribution of FMCG products into many African markets, performed well despite increased competition. It was included for a full year against eight months in the prior period.

Despite challenging trading conditions, the operating margin was in line with the prior year. CIC, which operates at lower margins than the rest of the division, also impacted margins but it generates good returns.

The consumer logistics business was negatively impacted by weak volumes, mainly in our manufacturing client base. This affected all businesses in the supply chain, including our warehousing and distribution operations. The Cold Chain also experienced difficult trading conditions and whilst the operations have been stabilised, it continues to underperform from a trading perspective.

Our transport and warehousing business, which services the manufacturing, mining, commodities and construction industries, performed satisfactorily, despite volumes being under pressure. New contract gains made a positive contribution to results.

The specialised freight business produced good results as volumes grew in the fuel and gas markets due to new contract gains. The cement and sulphuric acid markets were under pressure, whilst volumes in bulk food and chemicals remain stable.

A tipper business which mainly services the mining industry, was established two years ago and is now contributing meaningfully to the division’s results.

In the Africa division, transport volumes were under pressure. We experienced lower volumes being transported from South Africa into the rest of Africa, as other trade corridors become more reliable and cost effective. Certain customers in our Namibia business were also under pressure during the period. CIC, which is involved in the distribution of FMCG products into many African markets, continues to enjoy good growth and performed well on the back of buoyant consumer spending in its markets, although we are experiencing a heightened level of competition.

Integration services produced good results with Volition and E- Logics performing well. The division continues to make a valuable contribution to the intellectual capital of the group, specifically by assisting other divisions to expand and integrate client solutions and offer value added services to their customers. Megafreight performed well but due to a dispute, we are in negotiations with our co-shareholders, who own 40%, to acquire our shareholding.

Gross capital expenditure of R1 287 million was incurred. The net investment in the fleet is higher than the prior year, which is in line with the scheduled replacement cycle.

Sustainability

Our people

Skills development, safety, health and transformation are focus areas in the SA logistics division.

The company invests in ongoing safety training and monitors and reports on all safety-related incidents. During the year, there were 125 road accidents, 66 road-related injuries to employees, nine road-related fatalities to employees and 59 road-related fatalities to third party individuals. Total non-road related injuries and fatalities amounted to 84 and two respectively.

HIV/Aids and other life threatening diseases have a significant impact on the trucking industry. SA logistics makes an annual investment in the Trucking Wellness Programme, which was initiated by the National Bargaining Council for the Road Freight and Logistics Industry. This investment contributes to six of the 22 total Roadside Wellness Centres, which include a training facility with a peer educator and a fully equipped clinic with a registered nursing sister.

Skills development focuses on all employees, from those in entry-level positions up to senior management. Around R87 million was invested in this area during the year.

SA logistics’ B-BBEE status has been steadily improving since 2007 and the company is a verified level 3 contributor.

Our impact on the environment

SA logistics’ key potential environmental impacts arise from fuel emissions, water used for washing of vehicles and the transportation of materials and substances on behalf of clients that may pose a threat to the environment.

There were 170 environmental incidents during the year, including spillages of 115 kilolitres. All spillages, even those of a litre or less, are recorded and reported and none of the spillages during the year was significant. Stringent policies are in place and appropriate steps taken to ensure that spillage of any hazardous substances transported on behalf of clients is dealt with responsibly.

During the year SA logistics won first place in the Best Energy Saving and Transport categories at the Enviropaedia Eco Logics Awards.

Imperial Logistics’ extensive list of initiatives within its ‘green logistics evolution’ won it the Transport Award. The initiatives include world-class driver training and employee engagement, the introduction of South Africa’s first Euro 5 vehicles, ‘extra distance’ studies and network redesign to eliminate logistics inefficiencies, as well as the application of nitrogen powered transport refrigeration.

The SA logistics division’s total carbon emissions were 695 688 tCO₂e during the year, of which 639 016 tCO₂e were scope 1 and 56 673 tCO₂e were scope 2 emissions. It has installed sophisticated fuel management systems that allow it to track the fuel consumption for each vehicle, and expects the system to help us improve our fuel efficiency by between 10% and 15%.

Commitment to our customers

While SA logistics is a large multi-branded business, it has a strong focus on understanding and meeting the unique needs of customers in each of the industries in which it operates and on customising its service offerings accordingly. It acts as a strategic partner to customers’ businesses, providing them with sustainable, resilient supply chains that support their growth, profitability and return on investment.

As a business partner, it engages with customers on an ongoing basis and measures key customer satisfaction indicators, tracking the results of such surveys to facilitate a quick response to any customer issues that may arise.

Outlook and strategic objectives

In the short term, we expect trading conditions to remain challenging. In the medium to long term, the prospects of the logistics market are good as customers outsource more of their activities to logistics specialists and expectations are that the industry will grow faster than GDP growth. Given Imperial’s infrastructure and network, it is ideally positioned to capitalise on theses growth opportunities and win more contracts from existing and new clients.

Expansion into Africa is a key priority and will continue to gain momentum. CIC will also play a key role in our African expansion into the fast-growing FMCG sector. Acquisitions in both South Africa and the rest of Africa will be a further growth driver.

Gerhard Riemann CEO of international logistics

Key stats • Two million m2 of storage capacity • 740 inland vessels (180 owned) • Around 400 trucks • 20 hazardous goods warehouses with 328 000 pallet places • Biggest fleet of subcontracted inland water vessels in Europe • Handles 95 million tonnes of transport and handling volume per year • Employs around 7 000 people

Highlights

Divisional overview

Imperial Logistics International provides holistic and tailor-made logistics solutions in the German and broader European economies. It services clients in the chemical; automotive; steel; energy; pulp and paper; metal; mechanical engineering and plant construction; and food industries. Of these, the chemicals, automotive and steel industries contribute the most significant portion to the company’s revenue.

The company is a leader in many of its niche markets and acts as a strategic partner to clients by providing logistics services along the entire supply chain. Its services play a key role in trade flows in and out of Germany and it makes a significant contribution to the country’s powerful manufacturing and export industries.

The business combines own transport capacities with chartered vehicles for superior service and enhanced returns. It operates through five key divisions: Imperial Shipping Group, Lehnkering Logistics & Services, Neska, Panopa and Brouwer Shipping & Chartering.

Operating units

Market conditions		Footprint in Europe
German industries, and in particular export-oriented sectors where the majority of Imperial Logistics International’s customer base operates, have enjoyed significant growth. A weaker Euro has also contributed to the positive performance of these industries. The European logistics market has a total value of €930 billion, with Germany contributing about 23% of the value. The top 10 logistics service providers in the European market have a combined market share of approximately 12%. The market is therefore highly fragmented and presents significant consolidation opportunities.

EUR/USD exchange rate, German employment, GDP and exports (2002 – 2011)

Results

International logistics (EUR)

International logistics (ZAR)

Imperial Logistics International achieved an outstanding result and the strong performance in the first half continued into the second half of the year, not only as a result of the Lehnkering acquisition but also due to new contract gains and solid trading conditions in Germany. Imperial Logistics International’s key markets, namely steel, automotive manufacturing, chemicals and export industries in Germany, performed well and their growth exceeded our expectations. Revenue growth was experienced across all major business units. Excluding the contribution from Lehnkering, the revenue and operating profit grew 11% and 16%, in Euro terms, respectively.

The group’s shipping activities, and that of Lehnkering, have been integrated into one unit, namely the Imperial Shipping Group. The division had an excellent year in a market where volumes were strong.

The integration of the newly acquired Lehnkering was successful and it performed in line with expectations. Lehnkering will, subsequent to its integration into the group be housing all our chemical industry logistics activities in Europe, except for shipping. This includes warehousing, road transport and chemical manufacturing services.

Panopa, which provides parts distribution and in-plant logistics services to automotive, machinery, and steel manufacturers, performed well. Contract gains and renewals, combined with a solid market especially in the automotive and machinery segment, were the main drivers of growth and improved profitability.

Neska performed satisfactorily and benefited from increased volumes on the back of increased export and import activity. Despite the European economic crisis, transshipment volumes in the bulk segment remained stable. The paper, liquid chemical and food segments experienced growth. Although container volumes were strong, rates remain subdued.

Gross capital expenditure of R344 million was incurred. This is higher than the prior year, but in line with the growth being achieved in this division.

Sustainability

Our people

The availability of skilled staff is crucial for the success of our business. Imperial Logistics International supports skills development on various levels in many areas including language training, logistics and accounting.

In Poland, Panopa has collaborated closely with the University of Poznan and developed a logistics degree at bachelor and master’s levels. To date, numerous Panopa employees have received this qualification. Other businesses within the Imperial Logistics International group sponsor university studies for employees.

The most important skills development initiative involves training school-leavers in line with Germany’s ‘Duales System’ (dual system), which helps young people to gain professional knowledge and experience while studying theory. Roughly 8% of the company’s total staff complement is currently participating in these programmes.

While broad-based black economic empowerment is a model specific to South Africa, the integration of people from different cultures is equally important in Europe where the labour market is open to all people living in countries in the European Union. It is vital to gain access to skilled workforces outside home markets, particularly in Germany which has a large contingent of people approaching retirement. Imperial Logistics International has a diverse workforce of different nationalities and diversity and cultural awareness training programmes play a central role in ensuring the seamless integration of these cultures into a unified workforce.

Quality, environment, health and safety

All divisions meet internationally acknowledged standards including:

• Guidelines on occupational safety and health management: NLF/ILO-OSH 2001
• Specifications for occupational health and safety management: OHSAS 18000
• Standards related to environmental management: ISO 14001
• Standards related to quality management systems: ISO 900
• Guidelines on safety and security for customs procedures: AEO (Authorised Economic Operator).

Certain divisions also meet with customer-specific requirements. Panopa, for example, has VDA (Verband Deutsche Automobilhersteller/Association of Germany Automotive Manufacturer) 6.2. certification, a requirement for service providers in the automotive industry.

Continuous risk analysis processes monitor adherence to occupational health and safety standards and measure performance in this area.

Issues of energy efficiency and green logistics are a key priority in the European market. With a focus on intelligently networking all carriers and by expanding its intermodal division Neska directs commodities to its terminals and many goods are transported by truck only for the final leg of their destination.

The former Lehnkering Shipping Services is registered with the Oil Companies International Marine Forum (OCIMF) and holds Tanker Management Self-Assessment certification for environmental and safety management performance. It is the only inland shipping company to hold a level 2 category in this regard.

The Cologne branch of Neska and the Imperial Shipping Group specialise in the proper storage and handling of animal feed. TÜV Rheinland confirmed the companies’ compliance with the internationally recognised GMP+ standard. It covers all aspects of manufacture, including trade, collection, storage and transshipment of animal feed.

In 2011/12, six tankers and one gas tanker of the Imperial Shipping Group received the Green Award for high ecological standards. An application for further vessels has been submitted.

Outlook and strategic objectives

The strong growth experienced in our international logistics division over the past three years has created a substantial base for further growth. The Lehnkering acquisition and the favourable terms of the financing arrangements will make a positive impact on the results for the coming financial year as it will make a contribution for the full year. Despite the economic crisis in Europe, we are positive about the medium-term prospects of our international logistics business. It is well positioned in attractive niches in the logistics industry in Germany and acquisitions could be a further growth driver. Our management in Germany continues to be vigilant in assessing the situation across Europe in order to be able to react to any significant developments that affect our related business and volumes.