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Africa Logistics (including South Africa) |
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Divisional overviewWith extensive operations throughout Africa, we are uniquely placed to partner companies in leveraging the value inherent in their supply chains. The division’s differentiators lie in a combination of an extensive resource base of transportation, warehousing and distribution operations and best-of-breed integrative process and technology solutions. In applying pre-eminent supply-chain management skills to manage operational processes across clients’ end-to-end value chains, the division recognises that each client’s requirements are unique and customise their service offerings accordingly. With an impressive list of blue-chip customers in almost every industry in South Africa, we are well placed to leverage this powerful presence and extensive experience to pioneer new markets in Africa, and to follow existing clients into new territories as they expand their own African footprint. Expansion into AfricaWith established markets largely saturated, the growth potential of emerging markets remains paramount and the development of a significant footprint in high-growth African economies remained a key strategic imperative during the year, and going forward. Imperial Africa Logistics has over 40 years’ experience in the region and is well positioned to deliver on its strategy of targeting consumer opportunities and following its customer base on the continent. Our market position allows us to partner with customers not only in getting their products to African markets, but also in sales and building customer brands on the continent. During the year, the division established a presence in the growing African pharmaceutical and healthcare industry through the R515 million acquisition of RTT Health Sciences. The business provides logistics, supply chain and distribution solutions to the pharmaceutical and fast-moving consumer health industries. It also entered the logistics sector of the fast-growing Nigerian FMCG, telecommunications and pharmaceutical industries with the acquisition of 49% of MDS Logistics, a leading logistics provider in Nigeria. Contribution to revenue by industryOperating units
African footprint
Market conditionsTrading conditions in the South African market remained tough during the year, with increased competition, rand volatility and labour unrest in a number of industries. The transport sector strike had an unavoidable impact on our business. The manufacturing industry struggled to gain momentum, which impacted on a number of our businesses, and the retail sector also experienced ongoing pressure. In this environment of increased economic and competitive pressure, the division retained almost all transport and warehousing contracts with large industrial manufacturers at satisfactory returns and gained several new contracts in the consumer goods and fuel sectors. The consumer market across many African countries continued to grow with the increase in the size of the emergent middle class. This bodes well for growth in the logistics market, particularly in those sectors in which we have chosen to focus, namely consumer products, tobacco, liquor and pharmaceuticals. Results
The Africa Logistics division had an excellent second half and despite a challenging trading environment which included a transport workers’ strike during the first part of the year, the operating profit was in line with the prior year. The Africa business, including CIC, which is involved in the distribution of FMCG products into many African markets performed well while volumes and rates in our customer base in South Africa, especially those involved in manufacturing, were depressed. If the impact of the strike is eliminated, the division would have been able to improve its operating margin when compared to the prior period. Acquisitions also contributed positively to the performance. During the year the division underwent a strategic consolidation process in South Africa. Similar expertise across various businesses was combined into a number of new units to leverage scale and synergies and drive cost savings and greater efficiency, the benefit of which should be realised in the new financial year. The Transport and Warehousing business, which services the manufacturing, mining, commodities and construction industries, was under pressure as a result of industrial action and lower volumes in tough trading conditions. Volumes in the second half were more stable, although still depressed. The business benefited from management initiatives to right size the business to match market conditions. Although also impacted by the transport workers’ strike and labour unrest in its client base, the Bulk Commodity Services business performed well. A 60% shareholding was also acquired in KWS Carriers during the year, a business focused on the movement of bulk commodities from source to the end users and ports utilising mainly subcontracted vehicles. The Specialised Freight business performed satisfactorily despite volume pressure in certain products, i.e. chemicals and food products. The business achieved significant new contract gains during the period. The LTS Kenzam Bulk Transport acquisition was concluded and the operation was integrated into this division with effect from 1 October 2012. The Consumer Logistics business was negatively impacted by flat but depressed volumes, mainly in the manufacturing client base. This affected all businesses in the supply chain, including our warehousing and distribution operations. As a result, management focused on enhancing efficiencies and reducing costs to drive performance, the benefits of which should be realised in the new financial year. Despite a difficult trading environment, the business was successful in gaining significant new contracts and the integration of the FMCG and South African consumer healthcare components of the new Imperial Health Sciences business was successfully implemented. The Cold Chain continues to impact results negatively as difficult trading conditions persist. This business is being streamlined. In the rest of Africa businesses, CIC continues to grow and perform well. Transport volumes were also better, especially in our Namibian businesses. The new Imperial Health Sciences business performed ahead of expectation and will lead to further opportunities to grow the business across the continent in the pharmaceutical industry. The logistics businesses in the rest of Africa increased turnover and operating profit by 23% and 45% respectively. The acquisition of 49% of MDS Logistics plc in Nigeria was effective from 26 April 2013 and is reported as an associate. This acquisition provides an excellent platform for further growth in the region and is consistent with our strategy of focusing on consumer opportunities in Africa and following our customer base on the continent while creating sustainable partnerships in certain markets. MDS Logistics has a quality customer base across a number of industries with a strong new business pipeline. Within the Integration Services business, the expansion of their distribution management service capabilities delivered benefits both internally and for clients across consumer products and fuel retail distribution. The consolidation of Volition and e-Logis into the Resolve business will strengthen its ability to increase its top line and to create a more sustainable service offering. Megafreight, which was disposed of this year, was only included for two months versus twelve months in the prior year. The net investment in the fleet is lower than the prior year, in line with the scheduled replacement cycle. We incurred gross capital expenditure of R1 043 million for the year. SustainabilityOur people Imperial Africa Logistics continues to invest in training and skills development initiatives and the division was named Corporate Educator of the Year by SAPICS and Graduate Employer of Choice in the Transport and Logistics Sector by the South African Graduate Recruiters Association. Extensive work continues to be done with regard to graduate development, internship and bursary programmes. We are currently in the process of establishing the Imperial Logistics Academy, the focus of which will be to deliver customised training and development programmes aligned to national qualifications. Our impact on the environment Imperial Africa Logistics’ business practice is based on the principles of environmental responsibility and triple bottomline sustainability. With this ethos driven at the highest level, our CEO was presented with the Nedbank Capital Sustainability Leadership Award in recognition for his success in greening African supply chains. During the year the division completed the first phase of its energy-efficiency project, which has delivered significant savings on energy costs at various locations. Phase II of the project is being rolled out to nine additional premises which are collectively expected to deliver an average energy saving of 1 368 400 kWh per annum. This equates to a carbon saving of approximately 580 tonnes GHG per annum. The Specialised Freight Division received accreditation by the International Cyanide Management Institute (ICMI) during the year, making it the only accredited transporter in Southern Africa and one of only 12 accredited companies in Africa. Commitment to our customers Imperial Africa Logistics continues to focus on developing strategies to partner with customers so that they can achieve their strategic objectives. During the year the business underwent a strategic consolidation process. Similar expertise from across various businesses were pulled together into a number of new units to leverage scale and synergies to drive cost savings and greater efficiency. This further positioned the division to deliver a simplified, consolidated end-to-end logistics solutions to customers who can now benefit from the best the company has to offer in all areas. The division continued to develop its intermodal transport strategy in direct response to customers’ need to utilise rail transport to greater effectiveness. This focuses on increasing appropriate product movement on rail infrastructure, and converting existing road freight transport to rail freight transport in southern Africa. The year also saw further development of Imperial Managed Logistics’ integrated approach to supply-chain management which allows customers exceptional visibility along the logistics chain, enabling them to anticipate more exact delivery times and plan effectively and efficiently. Outlook and strategic objectivesIn the short term we expect trading conditions in the logistics industry to remain tough, driven by reduced consumer spending, muted retail sales and pressure on exports amid a fragile global economy. However, the outlook for the industry in the medium to long term remains positive as businesses increasingly follow the trend to outsource logistics functions to expert service providers. In particular, promising growth opportunities exist across Africa as increased consumerism is driven by the emergence of a growing middle class. Strategic objectives
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