Defining materiality

Imperial Logistics defines material issues as those factors most likely to influence the conclusions of all our stakeholders in assessing our ability to create value over time. In determining if an issue is material, its potential to impact strategy (opportunity and risk), performance (financial and non-financial), prospects (in the short, medium and longer term) and ultimately value creation is considered. Material issues are forward looking and incorporate factors within and beyond leadership's control.

Linking materiality to stakeholders and capital inputs

More specifically, material issues are the factors most likely to influence the decisions of a respective stakeholder in relation to the capital inputs they provide to Imperial Logistics.

Determining material issues

The following inputs informed the determination of the material issues for Imperial Logistics in 2018:

  • Imperial Logistics' vision, strategy and values, and top risks.
  • Facilitated brainstorm process, roundtable discussion and follow-up interviews to elicit the views and concerns of leadership and divisional management.
  • Key issues raised by stakeholders, including clients, business and social partners, the investment community and the media, elicited from the relationship owners in each case.
  • Extensive engagement with shareholders, debt providers, market experts and financiers involved in the unbundling process.
Material issues structure

The diagram below provides an overview of the material issues, grouped into three themes. The strategic context relating to each theme is provided in the CEO's report, and the table that follows shows the leadership priorities for managing the material issues. The material issues, and associated priorities, provided the basis for preparing the Imperial Logistics section of the Imperial Holdings integrated annual report and supplementary sustainable development reports. Given that the direct feedback of stakeholders informed the material issues and they are deemed to represent all legitimate concerns, and the strategic plans to address them over time are explicit in the priorities and the disclosure provided elsewhere in the report. We have therefore not provided a separate stakeholder table with concerns and responses, to avoid duplication.

Our materiality is broken down as follows:

Differentiation

Optimisation

1. Deliver customised solutions that deepen clients' reliance on our services

2. Combine people, partnerships and processes to ensure consistently excellent execution

3. Ensure legitimacy in demanding markets to underpin competitive advantage

1. Drive performance and maintain capital management discipline

2. Achieve strategic maturity across Imperial Logistics

Credibility

1. Demonstrate governance best practice

2. Deepen leadership credibility

3. Become an investment of choice over time

4. Establish corporate citizenship credentials

Differentiation

Sub-issues

Priorities

Reference

1. Deliver customised solutions that deepen clients’ reliance on our services
   
Enhance end-to-end capabilities to enable complex integrated solutions design and delivery.
  • Deliver value-add logistics activities either as point solutions or integrated solutions, depending on client requirements.
  • Develop or acquire specialised capabilities, and address gaps in growing regional markets and selected industries.
  • Develop or acquire international freight management capability to sufficient scale to extend end-to-end solution offering.
  • Deepen client partnerships by optimising supply chains and increasing total value created for clients, to expand the scope and drive the maturity of outsourced services offered.
  • Tailor solutions exactly to client requirements according to identified needs, including bespoke application of specialised process, workforce and infrastructure management systems.
Combine longstanding client relationships, specialised capabilities and geographical reach to strengthen competitive positions in selected industries.
  • Enhance capabilities and develop strategic partnerships in selected industries to extend industry leadership in South Africa.
  • Leverage ability to provide access to end-consumers in challenging markets through unique route-to-market solutions in the African Regions, including growing the proprietary market aggregation model to provide access to smaller markets.
  • Continue to invest in dedicated specialised assets to service longstanding contracts in less cyclical industries in Europe.
  • Analyse growth potential of existing industries based on current capabilities, competitive advantages and legitimacy, and industry prospects, to select and prioritise industry focus.
  • Leverage competitive advantages to establish and extend leadership positions in higher-growth and defensive industries, within and across regions, in healthcare, automotive, consumer packaged goods, and chemicals and energy.
Leverage appropriate regional operating models to deepen competitive advantage.
  • Apply relevant operating models per region, customised to local market dynamics and available expertise, underpinned by in-depth knowledge of fragmented and underdeveloped 3PL markets in the African Regions and advanced markets in Europe.
  • Continue to expand the Managed Solutions business, successfully developed in South Africa, within the African Regions and Europe.
Invest in client-focused R&D priorities.
  • Drive innovation through hubs in Berlin and Cape Town set up for the rapid development, testing and implementation of supply chain solutions tailored to client needs.
  • Leverage partnerships with technology developers and clients to support operational excellence and innovation.

2. Combine people, partnerships and processes to ensure consistently excellent execution
Attract, retain and develop employees with the right skills at every level of the organisation.
  • Continue to support customised solutions through specialised workforce training and management, and health, safety and environment (HSE) training and management.
  • Improve the employee value proposition to compete effectively for skilled and talented employees.
  • Embed integrated talent management and training and development processes to ensure the right skills now and for the future as the business evolves, in support of deepening its exposure to selected industries and enter new markets, and drive digitisation and innovation.
  • Retain and develop management teams of acquired businesses to preserve client-centric agility, entrepreneurial flair and local relevance.
  • Leverage core people data to improve skills development and resource allocation.

Ensure business partners (and specifically sub-contractors) align to operational, transformation and ethical performance requirements.
  • Ensure sub-contractor quality of service and performance through defined KPIs, managed and measured, and made available to suppliers through a supplier portal.
  • In road safety practices, hold transport partners accountable to the same safety standards as our own companies, with compliance ensured through regular audits undertaken by risk teams.
  • Hold workshops and one-on-one information sharing sessions with transport service providers to help them improve their B-BBEE ratings in South Africa.

Drive systematic digitalisation to continually improve service excellence and process leadership.
  • Apply pragmatic and cost-effective approach to continuous improvement and internal efficiencies.
  • Systematically digitise processes to reduce complexity and costs, improve strategic decision making and resource allocation, and increase visibility and transparency in the client supply chain.
  • Continue to implement strategic IT projects:
    • Logistics solution to support business growth, reduce administration and the development of scalable solutions for clients.
    • Transport management system to enable operations, provide visibility across fleets, and facilitate process optimisation.
    • Client relationship tool to improve management of client accounts.
    • Standardised system for real-time, accurate accounting functionality and improved interface with clients and suppliers.
    • People management system providing cutting-edge people and payroll functionality to deliver improved business analytics and reporting capabilities, to underpin talent management and succession planning.

3. Ensure legitimacy in demanding markets to underpin competitive advantage
   
Meet and exceed requirements in selected industries to minimise clients' supply chain risk.
  • Retain contracts with top clients and enhance credibility among multinational clients, supported by an ability to work effectively in different markets and regions.
  • Comply with international best practice requirements, in tandem with local laws, regulations, standards and codes to enhance legitimacy in highly competitive and demanding industries.
  • Ensure responsible product safety and other HSE requirements are maintained.
  • Maintain strong relationships with labour unions.

 

Respond proactively to socioeconomic imperatives to maintain local relevance.
  • Improve B-BBEE credentials by concluding black ownership transaction, enter into partnerships and accelerate employment equity and enterprise and supplier development to underpin competitiveness and extend market leadership in South Africa.
  • Ensure local relevance in view of national imperatives such as job creation through local hiring and partnership
  • Maintain constructive relationships with regulators and governments.

Understand and address the risks and opportunities as the structure of markets change.
  • Leverage current capabilities to move into new markets, for example, business-toconsumer capabilities (Palletways) and specialised micro delivery capabilities (in Africa) to capture e-commerce opportunities.
  • Understand the impact of technological advances and new business models on specific industries as processes are digitalised and the structure of markets change, and adapt accordingly.
  • Assess and mitigate the impact of climate change on capabilities and markets.

Optimisation

Sub-issues

Priorities

Reference

1. Drive performance and maintain capital management discipline
   
Rationalise assets and restructure non-performing operations to enhance returns.
  • Exit unviable contracts, restructure non-performing operations and rationalise properties and assets, to enhance returns.
  • Consider sale or closure of businesses that cannot be rationalised in relation to demand cyclicality.
  • Reduce exposure to cyclical and declining industries in Europe.
Ensure optimal asset mix in line with client requirements and revenue commitments.
  • Protect the asset-right business model by maintaining an optimal asset mix in line with client requirements, targeted operating margins and risk-adjusted returns.
  • Reduce asset exposure risk by aligning asset composition to earnings profile.
Maintain financial flexibility to fund organic and acquisitive growth plans.
  • Maintain optimal gearing level, currently targeted at between 60% and 80%.
  • Maintain disciplined working capital management and focused cost control in day-to-day operations.
Apply strict strategic and returns criteria to assess acquisitions.
  • Acquisitions will be assessed according to strategic potential and returns criteria:
    • To penetrate or protect existing markets and selected industries.
    • To expand the portfolio and leverage existing capabilities by adding capabilities in new regions and selected industries.
    • To achieve targeted ROIC of risk-adjusted WACC plus 3%.
    • To ensure that acquired businesses benefit from strategic direction, financial discipline, the transfer of best practices and capabilities, operational and financial synergies, and the implementation of "step-change" initiatives.
    • Return on effort and ability to integrate the acquired businesses.
2. Achieve strategic maturity across Imperial Logistics
Implement standardised KPIs to drive strategic execution within individual businesses.
  • Prioritise client satisfaction and business development to drive increased competitiveness and sustainable revenue growth in all operations.
  • In addition to financial KPIs, systematically implement relevant and robust KPIs including:
    • Net promoter score.
    • Contract retention and gains.
    • Pipeline quality.
  • Align management scorecards and incentives to selected financial and strategic KPIs.

Simplify organisational structures to ensure client centricity.
  • Define and reorganise structures to support commercial focus and client-centricity.
  • Facilitate collaboration to drive growth in priority industries by cross-selling across regions.
Embed best people management practices across the group to underpin a competitive employee value proposition.
  • Become an employer of preference in all markets.
  • Implement the common framework for managing human capital aligned to international best practice, while allowing for flexible responses to regional imperatives:
    • Implement core human capital data systems that enable strategic decision making and resource allocation.
    • Implement fit-for-purpose systems within specific businesses to support flexible responses to different human capital priorities and risks.
  • Embed effective human capital practices for leadership development, employee engagement, talent management, performance management and succession planning at all levels of the organisation.
  • Improve the (digital and physical) working environment to enable people to perform at their best.
  • Implement structures to consistently collect, evaluate and develop innovative ideas by employees.
  • Monitor and respond appropriately to global and local workforce trends.

Implement the global IT strategy across the group.
  • Focus on achieving the digital objectives related to flawless execution, organisation and people, and innovation.
  • Enhance global IT capacity, supported by an IT quality framework, to deliver the appropriate mix of standardised and customised system solutions focused on:
    • Enabling data-driven decision making.
    • Driving process improvement and increasing automation by removing manual processes.
    • Implementing innovative structures for employee idea generation.
    • Assessing and embracing technology to develop new business models and revenue streams.
  • Create a culture where digitalisation enables people, clients and business partners to innovate and continuously improve to achieve competitiveness and differentiation.

Set group standards (for ethics, social and environmental management) with procedural flexibility at operational level.
  • Establish group-wide standards and oversight of local operating procedures.

Credibility

Sub-issues

Priorities

Reference

1. Demonstrate governance best practice
   
Establish reputation for ethical, effective and independent leadership at board level.
  • Demonstrate independence and ensure effectiveness of the board.
  • Continue to embed and enhance ethical practices and governance standards.
  • Ensure board composition and succession according to relevant skills and experience in relation to strategy, and diversity of race and gender.
Maintain best governance practices (instilled as part of Imperial Holdings).
  • Deepen application of King IV principles and recommendations.
  • Maintain and enhance robust control systems.
  • Embed effective reporting processes for board visibility.
2. Deepen leadership credibility
Identify and continuously develop the leaders required to take the business forward.
  • Manage succession effectively to retain intrinsic entrepreneurial flair (differentiation) and support the need for change (optimisation).
  • Implement succession plan for the board, CEO, direct reports and other levels of management for the immediate and longer term.
  • Develop appropriate succession plans for founder/owner managers in acquired businesses.

Establish strong relationships with key stakeholders (internal and external).
  • Maintain high standards of accountability, transparency and integrity in running the business and reporting to equity and debt investors, regulators and other key stakeholders.
  • Ensure responsiveness to the legitimate concerns of all stakeholders through accurate and transparent reporting.
Model and instil the required culture shift required within the organisation.
  • Instil a mindset of delivery, particularly in view of the additional scrutiny from stakeholders and direct accountability to the market as a listed entity.
  • Encourage sensitivity to and drive diversity, according to local requirements.
  • Improve employee engagement through management communication and modelling the desired culture shift.

3. Become an investment of choice over time
   
Retain current investors both locally and internationally.
  • Position Imperial Logistics as a credible investment with a compelling growth story, based on transparent, reliable, material and timeous disclosure.
  • Deliver sustainable revenue growth, enhanced returns and improved competitiveness, according to strategy and guidance.
Attract a new pool of investors supportive of long-term strategic direction.
  • Consistently deliver on the investment proposition:
    • Sustainable revenue growth, enhanced profitability, cash flow and a stable dividend (in line with guidance of 45% of HEPS).
  • Sustain financial headroom and flexibility for acquisitive growth and a strong cash conversion rate.
  • Deliver targeted returns and maintain a defensible dividend policy.

 

4. Establish corporate citizenship credentials
 
Comply with laws and regulations across multiple jurisdictions, and demonstrate consistently ethical business conduct.
  • Manage the complexity and cost impact of regulations and fiscal policy,
  • Monitor and engage with regulators on implementation of upcoming legislation.
  • Embed an ethical culture, supported by the anti-bribery and corruption policy and related training initiatives.

Demonstrate defensible safety practices, socioeconomic value creation and environmental stewardship.
  • Embed safety practices and mindset in the right areas (driver safety, product responsibility).
  • Support relevant socioeconomic development and environmental imperatives within each country of operation.