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Logistics International
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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.
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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. |
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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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.
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What were the major challenges during the year? |  |
During the year under review, we focused on delivering against three priorities:
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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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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. |
FUTURE GROWTH PROSPECTS
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