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DIVISIONAL STRUCTURE |
LOGISTICS INTERNATIONAL |
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The leading inland
shipping company
in Europe. |
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One of the leading
chemical logistics and
contract manufacturing
companies in Europe. |
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A leading industrial
contract logistics provider
which serves the
automotive, machinery
and steel industry, as
well as FMCG markets. |
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Focuses on intermodal
shipments of diverse
goods and operates bulk
and container terminals
in the main industrial
centres along Germany’s
inland waterways. |
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WHERE WE OPERATE
Shipping
Using Germany as the home base, we are
ideally positioned geographically to reach
and connect to the rest of Europe using the
logistics networks. In Europe, the operations
extend to Western and Eastern Europe,
Scandinavia and the United Kingdom. We are
entering new markets in selected sectors on
the back of existing client relationships and
expertise such as Central and Eastern
European countries along the lower part of
the Danube River.
Americas
Imperial’s entry into inland shipping in South America has been successful. We view South America as a growth market with excellent opportunities. |
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Lehnkering
Lehnkering operates mainly in Central Europe,
Scandinavia and Texas in the United States of
America. As part of the process of geographic
diversification, Lehnkering is looking to follow
its clients into markets where the chemical
industry is growing in significance, such as
Russia, South America, Africa and Asia.
Panopa
Panopa has a strong presence in the German
market and we still see strong potential in
this region. To broaden our business and
make it less dependent on one market, we
started an internationalisation process in
1999. Since then, we have undertaken
contracts in various European countries,
including Poland, the Czech Republic,
Hungary, Switzerland, Portugal, France,
the Netherlands, the United Kingdom and
Scandinavia. |
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Neska
In Germany, we operate predominantly along
the Rhine River, where our conventional and
container terminals provide a wide range of
diversified logistics solutions. We have a
growing presence in the rail sector, where we
transport bulk cargo and containers in an
effort to shift cargo from roads onto barges
and rail. We are also developing capabilities in
the area of intermodal transportation of bulk
material in Europe, building networks between
the major seaports in Western Europe, our
container terminals along the Rhine River and
hubs in Italy, Poland, the Czech Republic and
other areas of Europe. |
MARKET OVERVIEW
In Europe, we experienced challenging market conditions in a region where economic growth remained subdued. Activity levels were still sluggish and freight rates remained under pressure.
In the sectors in which we operate in the European market, demand for our services is driven primarily by industrial and export growth. Economic growth in Europe was moderate and GDP growth in Germany was approximately 0,4% in 2013 compared to 0,7% in 2012. In the last five months of 2013, however, export growth in Germany moved into positive territory. Forecasts for 2014, including for export industries such as automobiles and chemicals, are positive.
In Germany, we participate in export-driven industries such as the steel, automotive and chemical sector. In the second half of calendar year 2013 and the first four months of calendar year 2014, relatively strong growth rates were achieved on a monthly basis compared to the previous year’s figures. The expected growth rate in automobile production of 6% in 2014 is encouraging, as it is above GDP growth expectations.
The steel industry in Germany has been overshadowed by the difficult economic situation. Growth in steel production was stable in 2013 following a decline of 5,3% in 2012. Monthly data from October 2013 to April 2014 shows growth in the industry in comparison to the previous year, underlining the continuous recovery of the steel market. As investment demand is picking up and major steel processors are expecting production increases, the outlook is positive.
The chemical market in Germany was under pressure in 2013, but rebounded during the period between May 2013 and February 2014, before falling back marginally in March and April 2014. Growth in German chemical production was about 0,7% in the calendar year 2013, following on from a decline of 2,4% in the calendar year 2012.
STRATEGY OVERVIEW
In Europe, we provide complete logistics solutions, including contract logistics, warehousing, inland waterway shipping and contract manufacturing in the chemical industry, as well as related value-added services across European markets, predominantly in Germany. In Germany and the rest of Europe, we hold leading positions in inland shipping, terminal operations, bulk logistics, industrial contract logistics and in the chemical sector.
An example of the specialised nature of our logistics business is the service we offer in the automotive industry, where we provide sub-assembly services which feed into the main line of an auto manufacturer on a just-in-sequence basis. In the chemical sector, we provide synthesis, packaging, formulation and mixing of chemicals for multinational chemical producers.
In these areas we maintain the highest standards in safety and environmental issues and customise value-added services to ensure client loyalty and retention. Our large fleet and dedicated vehicles and vessels provide a platform for the development of innovative transportation services. We work with clients to identify business opportunities in their supply chain which are mutually beneficial.
These areas of core expertise, together with our extensive regional footprint in Europe and strong client relationships, create broad growth opportunities and the ability to expand into new markets.
Three key objectives of our growth strategy are geographic expansion in our core areas of expertise, growth in existing business and diversification by entering new sectors and markets. As the outlook for economic growth in Germany is positive, we also intend expanding our business to other European regions and growing organically in various niche markets in which we already have an established presence.
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Euro million |
H1 2014 |
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%
change on
H1 2013 |
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H2 2014 |
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%
change on
H2 2013 |
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2014 |
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2013 |
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%
change on
2013 |
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Revenue |
675 |
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0,9 |
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693 |
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(0,1) |
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1 368 |
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1 363 |
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0,4 |
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Operating profit |
31 |
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6,9 |
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38 |
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2,7 |
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69 |
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66 |
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4,5 |
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Margin (%) |
4,6 |
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5,5 |
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5,0 |
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4,8 |
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R million |
H1 2014 |
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%
change on
H1 2013 |
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H2 2014 |
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%
change on
H2 2013 |
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2014 |
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2013 |
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%
change on
2013 |
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Revenue |
9 110 |
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26,3 |
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10 139 |
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21,2 |
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19 249 |
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15 574 |
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23,6 |
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Operating profit |
412 |
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33,8 |
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559 |
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23,1 |
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971 |
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762 |
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27,4 |
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Margin (%) |
4,5 |
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5,5 |
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5,0 |
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4,9 |
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Return on invested capital (ROIC) (%) |
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7,7 |
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8,9 |
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Weighted average cost of capital (WACC) (%) |
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6,5 |
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7,6 |
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Weighted average invested capital |
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6 475 |
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4 869 |
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REVENUE (Rm) |
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OPERATING PROFIT (Rm) |
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OPERATING MARGIN (%) |
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FINANCIAL AND OPERATING PERFORMANCE
Results overview
The fragile recovery of the European economy depressed activity levels in Germany, where our major operations are located. This was offset to some extent by the growth of German exports to markets outside of Europe, resulting in a satisfactory performance from the division. A weaker Rand exchange rate assisted the division’s growth in Rands.
German inland shipping volumes declined, excess capacity and low barriers to entry also stifled freight rates. The Shipping business performed satisfactorily through optimisation of the fleet, an increase in vessel productivity, the reduction of fuel consumption and increased efficiencies.
Building on our expertise and experience in inland waterway shipping, the division redeployed vessels from our European operations and invested approximately
R300 million to service a Paraguayan-based long term contract, transporting iron ore from Brazil to Argentina along the Rio Parana river. We view this contract, which commenced in February 2014 and is performing to expectation, as a low-risk entry into a sector and region with excellent growth prospects.
Lehnkering, which conducts our land-based chemical logistics activities, including warehousing, road transport and contract chemical manufacturing services, performed well, particularly in the second half when seasonal agricultural demand increases.
Panopa, which provides parts distribution and in-plant contract logistics services to automotive, machinery and steel manufacturers, performed satisfactorily. New contract gains and good growth in the spare parts logistics business contributed positively, although margins were depressed by the start-up costs of new facilities.
Neska, the terminal operator, had a difficult year. Activity levels at terminals, especially in paper and steel, were volatile. The container business performed better in the second half after some lost business was replaced, but the container terminal in Krefeld still remains underutilised and unprofitable.
NET CAPITAL EXPENDITURE OF R1,1
BILLION |
(2013: R400 million) |
WAS INCURRED, WHICH
IS SIGNIFICANTLY HIGHER
THAN THE PRIOR YEAR.
This was due to the investment in a
number of inland and coastal shipping
projects, new warehousing projects in
Lehnkering and Panopa, and a contract
in South America. The significantly
weaker Rand exchange rate also
contributed to the increase. |
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What were the major challenges during the year? |
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During the year under review, we focused on delivering against three priorities:
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Streamlining to contain costs. As part of our proactive approach to reducing
costs, we restructured the business. This had become an important issue given the
growth of the business through acquisitions over the past few years, and
particularly in light of the acquisition of Lehnkering, which saw the inclusion of
2 500 new employees. Shared services were created in functions such as finance,
human resources and marketing. The benefits of this restructuring are already
being felt throughout the business, as well as the resultant cost savings. |
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2 |
Expanding into new markets. Our entry into Paraguay was executed well, which
paves the way for further expansion in South America. Although we have placed
orders for additional barges to service this business, we have so far been able to
service it with assets from our European base which allowed us to further
streamline our European operations and increase asset utilisation and reduce
concentration risk in our existing business. |
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Maintaining existing contracts in a competitive market and securing new
business. During the year, we secured a broad range of new contracts, and are in
the process of expanding our activities in the automotive and chemical industry
with long term contracts with existing clients. |
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We are exploring growth opportunities in
other markets. Inland water infrastructure
exists in other markets and clients benefit
from inland water shipping, as it is a highly
efficient way of transporting cargo. As goods
do not have to be transferred from one form
of transport to another, the risk of damage
to goods and any potential safety and
environmental impact is significantly
reduced.
In Panopa, ongoing tender activity supported organic growth and increased penetration in our main accounts. We are continuously working on the extension of our services to other industries to reduce reliance on current market segments.
The division has pursued a strategy of internationalisation to reduce regional exposure and has launched new businesses in China and the United States to benefit from strong momentum in those regions.
As the market for steel and paper products was volatile, Neska is increasingly focusing on value-added services such as quality control, steel-saws and other dedicated services. We will increasingly offer an extended service chain, and will focus on specialised services such as high-quality liquids or packaging paper, on the back of falling demand for printing paper.
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What did we
achieve during
the year? |
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In terms of capital
expenditure, we have a
good combination
of ‘asset-light’ businesses
like freight forwarding and
capital intensive business
units like shipping.”
GERHARD RIEMANN, CEO: Logistics International |
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During 2014, we undertook growth projects such as the expansion of our coaster fleet,
the modernisation of our gas tanker fleet and the construction of a new warehouse for
hazardous materials for Lehnkering. We also entered the South American inland
shipping market during the year. |
We won a broad range of new contracts during the year and plan to expand our
activities in the automotive and chemical industry, on the basis of long term supply
contracts which can support the additional investment required. An example includes
the gain of a long term contract to transport iron ore from Brazil to Argentina along the
River Rio Parana. |
In the shipping business, where we ensure that our inland water vessels fulfil the
highest standards in safety and environmental issues, we again won the prestigious
green award for one of our gas tankers. As well as entering the South American inland
shipping market, the shipping division was able to extend an existing large-scale
contract with one of its major steel clients for another seven years. |
The Lehnkering Group strengthened its leading market position by winning new business
based on long term contracts. Lehnkering’s Road Logistics business developed its
specialised transportation business further during the year, for example in Sweden, where
it started transporting liquid petroleum gas. Its subsidiary, Schirm, commissioned a new
formulation plant in December 2013 at the existing manufacturing facility. |
Panopa established a warehouse for a key client in Shanghai and an office in New York
to enter the American market with its shop construction logistics activity. We successfully
expanded business in France for an automotive supplier. We also expanded operations
for a major German automobile manufacturer by investing in technical facilities at its
logistics warehouse in Hungary. Tenders were won for new business in Germany,
France, Sweden, the United Kingdom and the Netherlands. |
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Where do we
still need to focus
our attention? |
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We will continue to focus on achieving
further geographic expansion and
diversifying into new markets, capitalising
on our core expertise and experience in
current key markets. |
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FUTURE GROWTH PROSPECTS
This division remains well positioned in attractive niches in the German logistics industry and should benefit
from the expected growth in German manufacturing and export sectors.
Growth in this division will follow a
diversification strategy by targeting
opportunities in new regions and new
sectors, where we can leverage our
core capabilities and expertise. This
strategy will be supported by a
follow-the-client approach and by
acquisitive activity where opportunities
present themselves.
Geographic expansion into South
America remains a key priority, and we
intend to expand further in the region.
“We are targeting growth
to achieve more predictability.
We do not want to be
defined by the cycles of an
industry or the economy.
We want to step out of that
– be more independent
and diversified.”
GERHARD RIEMANN, CEO: Logistics
International |
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