Imperial: Leaders in Mobility

Performance highlights*

Revenue R million		EBITDA R million		Net capex1 R million and cash conversion2 %		Asset mix R million
* Based on continuing operations. 1 Net capital expenditure (capex) excludes proceeds from property disposals. 2 Cash conversion calculated as (EBITDA-capex)/EBITDA. 3 EBITDA margin decline in line with lower tangible owned asset intensity utilising third party assets and no depreciation associated with operating leases.

Profit and loss (extracts)

	% change		2018 Rm		2017   Rm		Medium-term outlook
Revenue (Rm) (Total)	3		51 399		49 715*		SA and International: Double GDP growth + inflation African Regions: Low double digit growth
Operating profit (Rm)	3		2 853		2 764
Operating margin (%)			5,6		5,6
Cash conversion (%)			78		76		Target between 70% and 75% Target ROIC: Imperial Logistics (total): WACC + 3%
Return on invested capital (%)			12,2		11,5		South Africa: WACC + 3% African Regions: WACC + 3% International: WACC + 2%
Weighted average cost of capital (%)			8,5		7,1
Net debt/equity ratio (%)			50		122		Target range 60% to 80%

Note: ROIC and WACC are calculated on a rolling 12-month basis. The above table includes businesses held for sale and eliminations.
* Restated.

Operational highlights		Net promoter score (NPS) introduced as a measure of client loyalty, and highlighted areas for improvement.		Formulated detailed plans to optimise regional business portfolios and strengthen their competitive positions, through capability development or geographic expansion.
Continued to acquire strategically aligned and dispose of non-core underperforming businesses and to expand, optimise and rationalise capabilities.		Ongoing development of prioritised client-focused innovation projects and systematic digitisation of processe		Satisfactory financial performance in difficult trading conditions supported by diversification across capabilities and regions.

Driving client-centricity

Our long-term relationships with our clients are based on service excellence and a partnership approach underpinned by our reach, capabilities, assets, innovation and legitimacy in selected industries. Client satisfaction, which enables us to retain, extend and win contracts is the primary driver of sustainable organic revenue growth. Our top clients by revenue for F2018 indicates the quality and relatively low concentration risk within our contract portfolio, and our ability to secure contract renewals.

• Only 25% of our revenue contribution is generated by our top 10 clients.
• Revenue contribution of our top 50 clients is approximately 50%.
• No client contributes >5% of revenue.
• Average length of contract is six years.
• Client relationships are on average a length of 33 years.

In F2018, we implemented NPS as a measure of client loyalty and our ability to differentiate ourselves through our client-centric approach. NPS is calculated by subtracting the percentage of clients who are detractors from those who are promoters and can range from -100 (all detractors) to +100 (all promoters).

A structured web-based survey was conducted with key clients focusing on one core question ("How likely are you to recommend Imperial Logistics to a colleague or business partner?") with seven supporting questions. A good score range was recorded for the core NPS question. Responses indicated that clients place a high value on our strong brand and partnership across multiple contact points, and the critical role we play in their relevance and competitiveness. The survey highlighted areas that require further investigation and focused effort to improve. The survey will be repeated annually and continually refined to improve the response rate and track the effectiveness of remedial action. The customised solutions that underpin our partnerships with clients, and the outcomes we seek to achieve to make them more relevant and competitive in their industries, are illustrated in the following examples, below.

Client	Client 1		Client 2		Client 3		Client 4
Capabilities	Route-to-market solutions		Synchronisation management		Transportation management		Transportation management
Industry	Healthcare		Automotive		Chemicals and energy		CPG
Client challenge	Inadequate patient access. Low on-shelf availability. Poor market data visibility. Long order delivery lead times.		Time critical processes. Exacting quality and accuracy requirements. Continuous cost pressure. Complex procedures.		Escalating spillages. Increased contaminations. Driver inexperience. Lack of product and equipment knowledge.		Change in production location. 30% decrease in road transport, especially during peak season (February to May). Required fleet size in peak season to remain the same, but less than half of this required off-season.
Our solution	Agile, rapid response supply model to the real point of client engagement. 300-strong sales force visiting 45 000 outlets bi-weekly. Digital Sales Force Automation to monitor sales rep activity, customer level inventory and sales outcomes. High speed, small volume delivery service.		Best-in-class process accuracy. Specialised employee training. Integrated quality management systems. Lean management and other operational excellence tools. Fully automated system design. Customised infrastructure. Fail safe measures.		Root cause analysis. Extensive driver training. Numerous HSE initiatives. Appointment of HSE officers at every operation. Compensation for safe load delivery. Route risk assessments, including the identification of high risk zones.		Utilise established network into Namibia to address seasonality. Selling portion of client fleet to Imperial Logistics subsidiary, shifting to asset-light, to dilute effect of lower volumes.
The impact	Highly differentiated level of availability and visibility at point of sale. Increased sales volumes by >20% in six months. Productivity of reps increased >30% in one year. Basket size per customer doubled in one year.		Picking productivity significantly increased to 50 parts per minute while picking accuracy improved, reducing the risk of incorrect supply to the assembly plant, translating into a 92% audit achievement. Cost reduction. Improved productivity levels. Superior risk management.		Significant reduction in spillages – 1,76 per thousand drops to 0,20. Significant reduction in contaminations – 1,15 per thousand drops to 0,59. World-class HSE in practice. Process optimisation. Improved driver efficiency.		Client's peak season requirements met in full. Seasonal volumes up by 74% over a 12 month cycle. 97% service levels met consistently over a three-year period. On-time and in-full measures consistently met.

Developing our capabilities

The ongoing development of our capabilities within our regional businesses aims to strengthen our ability to provide integrated and customised solutions to our clients, and are specifically focused on developing expertise and experience to enable integrated value-add logistics, supply chain management and route-tomarket solutions in the industries we have prioritised for growth. As the maturity of the client relationship develops, so does our ability to move from point-to-point services to integrated solutions that add more value and are therefore more profitable over time. This highlights the strategic importance of retaining clients.

We continue to assess the potential for regional expansion and capabilities transfer to other regions; specifically, South African and African Regions capabilities will be leveraged to expand into new markets in Africa, and our specialised capabilities in specific market sectors in Europe will provide the platform for further international expansion. An analysis of the growth potential of the industries in which we participate based on our capabilities, competitive advantages and legitimacy, has informed our priorities for medium-term capability development, illustrated below.

Service offering and operating model tailored to client requirements and market maturity

	Capabilities percentage of revenues		Regions		Industries
					Consumer packaged goods		Manufacturing and mining		Chemicals and energy		Healthcare		Automotive		Other industries
					23%		14%		13%		13%		10%		27%
	Transportation management		South Africa
			African Regions
			Europe		—
			Other regions		—										—
	Warehousing and distribution management		South Africa
			African Regions
			Europe		—
			Other regions		—		—		—						—
	Value-add logistics solutions		South Africa
			African Regions
			Europe		—
			Other regions		—		—		—						—
	Supply chain management solutions		South Africa										>
			African Regions
			Europe		—		—								—
			Other regions		—		—		–						—
	Route-to-market solutions		South Africa				—		—				—		—
			African Regions				—		—				—		—
			Europe		—		—		—				—		—
			Other regions				—		—				—		—

Existing capability

Growth opportunity

Growth priority

Expansion area

—

Not applicable

Notable recent expansion, optimisation and rationalisation of capabilities included:

Region		Acquisitions to expand capabilities		Initiatives to optimise capabilities		Initiatives to rationalise capabilities
South Africa		Entered passenger transport in South Africa in F2017 to widen our service offering to existing clients.		Ongoing rationalisation of the CPG business, to achieve defined KPIs. Ongoing consolidation of ambient road transportation management capabilities.		Closure/sale of express parcel distribution business, due to lack of scale and specialisation. Sale of various smaller transport businesses where sufficient scale could not be achieved.
African Regions		Expanded healthcare distributor footprint in East Africa by acquiring Surgipharm in F2018.		Ongoing focus on growing the scale of the Zambian and Malawian CPG businesses to be sustainable.		Completed the conversion of transport operations to Managed Solutions (asset-light) operating model to reduce asset exposure risk and avoid sub-par returns.
International		Ongoing European expansion of express pallet distribution, through Palletways, to enhance assetright organic growth and expand international capabilities and diversification.		Ongoing rationalisation and integration of road transport operations. Applying synchronisation in store fixtures to multiple industries, with a focus on growing International Freight Management, to arrest declining demand and profitability. Ongoing evaluation and possible exit if planned interventions do not achieve the defined KPIs: Industrial steel, due to declining demand. International shipping, due to cyclical and seasonal demand.

Acquisitions and disposals in F2018

Acquisition of strategically-aligned businesses:		Disposal of non-core, strategically misaligned, underperforming or low return on effort assets:
We acquired 70% of Surgipharm Limited in Kenya for US$35 million (R485 million) in July 2017. Surgipharm is strategically aligned to accelerate our industry presence and relationships with pharmaceutical principals on the African continent and provides an excellent platform for further growth in other East African markets.		Our interest in and claims against Schirm GmbH, our International contract manufacturing service, and related property transactions for a total cash price of €134 million (R2,0 billion) in January 2018; Six non-strategic properties for R367 million; Transport Holdings in Botswana, which released capital of R200 million; Laabs GmbH, a €16 million revenue liquid food transporter specialising in liquid chocolate products and raw materials in Europe, for €2 million (R32 million) in October 2017; and Interests in smaller entities amounting to approximately R55 million.

Optimising our regional growth platforms

We continue to optimise our regional business portfolios and strengthen their competitive positions, through capability development or geographic expansion either organically or via selective acquisitions.

Logistics South Africa

Market position	Leading 3PL provider with end-to-end capabilities.		Generates more than double the revenue of its nearest competitor, with growth potential.		Integrated solutions offered in all significant industries, with the potential for leadership in additional industries.		Low risk exposure to cyclical and declining industries.
	Contributes 33% of revenue at 5,8% margin with a cash conversion rate of 66%; realising returns of c.3% above weighted average cost of capital.

Imperial Logistics' competitive position in South Africa rests on the scale, scope and depth of our capabilities and proven ability to integrate these into customised solutions. We have unique value- and risk-based commercial engagements in place focused on eliminating supply chain inefficiencies for clients, and a strong focus on continuous improvement and transformation.

This provides the platform to grow our integrated solutions offering across major industries as the market matures. In the large and fragmented insourced logistics market, outsourcing to 3PLs is expected to grow from the current 1,1% of GDP, at least maintaining the addressable market of more than R200 billion per annum in real terms despite the low-growth environment.

Specific strategic priorities include:

• Enhancing capabilities in selected industries to extend industry leadership in CPG, chemicals and energy, healthcare, and mining and manufacturing; and to grow market share in International Freight Management (across industries).
• In our CPG business, focus is on optimising operations and driving volumes; given the scale of this business, this provides considerable opportunity for improved profitability.
• The growth potential in the region will be underpinned by:
  • Retaining and expanding contracts with existing clients through customisation, innovation and service excellence.
  • Exiting unprofitable contracts and operations, consolidating property and rationalising assets in line with contract commitments, to support higher profitability and returns.
• Plans to improve B-BBEE credentials (to achieve a minimum Level 4 B-BBEE contribution in terms of the generic codes) to protect our market leadership are underway. A comprehensive black ownership transaction to dispose 30% of Imperial Logistics South Africa to a B-BBEE partner to be implemented in F2019.

For comprehensive information on our B-BBEE plans and progress, see Improving our transformation credentials in South Africa.

Logistics African Regions

Market position	Unrivalled reach and track record in delivering unique route-to-market solutions focused on the resilient and growing healthcare and CPG industries.		Managed solutions operating model (asset light) leverages South African expertise to penetrate under-developed and fragmented 3PL markets.
	Contributes 20% of revenue at 7,0% margin with a cash conversion rate of 93%; realising returns of >6% above weighted average cost of capital.

Imperial Logistics has over 40 years of experience in the African Regions and is well positioned to deliver on our strategy of targeting consumer opportunities and supporting our clients on the continent. Our unique route-to-market and managed solutions offerings in the challenging, but defensive and fast-growing healthcare and CPG industries in sub-Saharan Africa, provide excellent opportunities for growth in the medium term. Our growth in the region will be underpinned by our proven legitimacy in our selected industries, good operational governance controls and strong brand recognition among multinational principals.

Both these industries have shown increasing consumer demand despite slower GDP growth, and the expected improvement in economic conditions in key markets across the region supports a positive outlook. The African consumer market is estimated to triple to a billion people over the next two decades, with a disproportional percentage of household and government income to be spent on healthcare. As societies become more affluent, the demand for other consumer products, specifically foodstuffs will grow significantly.

Specific opportunities in the region include:

• Growth potential will be realised by leveraging our unique ability to provide multinational brand owners with access to fragmented markets through integrated solutions, unrivalled scale and multi-regional distribution, underpinned by long-term contracts and exclusive partnerships.
• All businesses in the region are assetright, with good opportunities to expand the managed solutions operating model in high opportunity markets, by leveraging South African capabilities to secure sustainable competitive advantage.
• In healthcare, appropriate product groupings, ranging from innovator to generic pharmaceuticals and consumer health products, are applied in serving the main commercial healthcare markets of sub-Saharan Africa, according to their value potential and degrees of fragmentation; major opportunities exist to source, store and supply animal health products and surgicals, consumables and devices, and vitamins and supplements.
• Increasing product volumes, and the concurrent need for outsourced 3PL services, is expected to support demand and drive revenue in the public health business, with reduced spending from USA donors offset by the increased spending of other donors (such as Europe and China), decreasing product cost (from Indian generics) and higher local government spending on healthcare.
• Further growth is expected from the proprietary market aggregation model, which enables us to be the single strategic partner to multinational clients in accessing small- to mid-sized markets in the region; in this regard, the initial product focus will be on innovator pharmaceuticals and moving to generics and consumer products.
• Our focus on achieving the same level of maturity as our healthcare business in the CPG route-to-market offering in the region, with a specific focus on food, is informed by the strong growth projections for consumer market growth in the region; we are investigating acquisition opportunities in CPG businesses in Nigeria and Ghana, and we expect the CPG route-to-market business to equal that of the healthcare business within a five-year timeframe.

End-to-end value chain in healthcare

Imperial Logistics provides managed solutions (Warehousing and Transportation Management), product sourcing and supply chain systems (control towers) to governments and donors through its unique route-to-market solution.

Logistics International

Market position	Established international contract logistics platform in Germany, with specialised capabilities in automotive and chemicals.		Market leader in express palletised distribution services in UK, Italy and Iberia.		Leading market share in inland waterways.
	Contributes 47% of revenue at 4,7% margin with a cash conversion rate of 82%; realising returns of >3% above weighted average cost of capital.

Imperial Logistics offers holistic, industry-wide logistics solutions for its European clients; from transport, storage and distribution to outsourced production services. It is a leading player in many of its niche markets and makes a significant contribution to Germany's powerful manufacturing and export industries.

With low market shares, our differentiation in our European operations is based on leveraging specialised capabilities in specific market sectors, which allow customised solutions that compete effectively with competitors' standardised services and strengthen client relationships. The new management team is focused on strengthening commercial focus and business development to drive revenue growth and rationalising contracts and assets to achieve targeted returns.

Specific opportunities in the region include:

• Leverage specialised capabilities to strengthen client relationships in specific market sectors, underpinned by client-focused innovation and systematic digitalisation of processes.
• Growth opportunities exist to expand specialist warehousing and synchronisation management capabilities into developing markets in Europe and Asia, to drive revenue growth and improve returns.
• Based on our strong competitive positions, plans in place to grow industry specialisation include:
  • Focus on new opportunities in the automotive industry, based on specialised capabilities (including ability to source, train and manage foreign workers to required standards) and relationships with multinational clients.
  • In chemical product manufacturing, focus on identifying alternatives to ease constrained warehousing, vehicle and barge capacity, and further reductions in asset intensity.
• Palletways aims to leverage its UK market leadership in express palletised distribution services to expand its footprint in Europe, to drive revenue and profitability growth, through:
  • Acquisition of additional scale in new markets.
  • Development of e-commerce solutions that add volume to the network.
  • Introducing managed solutions to leverage the partnership network with members.
  • International Freight Management to offer integrated multi-country solutions.
• Ongoing organisational initiatives to improve profitability in the region include:
  • Focusing the regional portfolio to reduce exposure to cyclical, seasonal and declining industries.
  • Aligning capabilities to improve integrated solutions design.
  • Achieving improvements in asset mix through fleet optimisation, contract rationalisation and working capital management.

Leveraging digitalisation and innovation

Technology-related change is affecting industry requirements as industrial processes are digitised and the structure of markets change. We monitor technology trends and prioritise our IT projects based on their ability to achieve operational excellence and provide customised solutions to our clients. Our innovation hubs in Germany and South Africa are enabling cost-effective responses to client-focused R&D through collaboration with multiple stakeholders. We continue to formulate appropriate responses to potentially disruptive threats, for example e-commerce, by developing our capabilities. Although e-commerce is still relatively immature in our regions and geographies, we have developed B2C fulfilment capabilities in Palletways and specialised micro delivery capabilities in some of our African Regions markets, which could be leveraged in capturing e-commerce opportunities in Africa as this trend takes hold.

The systematic digitisation of our processes is gaining traction, supporting our ability to provide integrated solutions and reducing complexity to improve efficiencies, with a focus on quality, speed, security, scalability, reliability and visibility. Specific objectives include improved client engagement and debtor management, and procurement cost savings through better visibility and spend control. Our approach to digitisation and innovation, shown below, aligns to our business strategy and aims to build a global IT capability that serves all our businesses through an appropriate mix of standardised and customised system solutions.

Highly differentiated strategy to digitisation and innovation underpins competitive advantage

Digital vision: To create a culture where digitalisation enables people, clients and partners to innovate and continuously improve to achieve competitiveness and differentiation

Flawless execution		Organisation and people		Innovation
Pragmatic approach to digitalisation and innovation Competitive differentiation through customised client-focused innovation and systematic digitalisation Understanding and applying appropriate digitisation trends to compete effectively with technology-enabled entrants to the logistics industry and large global competitors		Increase attractiveness as an employer to be on the winning side of the war for talent Educate employees to develop and maintain a competitive and innovative workforce Improve the (digital and physical) working environment to enable people to perform at their best		Improve the image of Imperial Logistics as an innovative and dynamic logistics company Implement structures to consistently collect, evaluate and develop ideas by employees Screen and embrace new and disruptive digital technologies to generate new business models and additional revenue

Idea	Deliver specific high potential supply control tower opportunities on existing ONE Network SCCT Platform		Provides a platform for logistics services to enable fast, secure and highly automated logistics processes without human interaction		Implement an end to end chain of custody for serialised items, integrated into various other systems on the supply chain		"Airbnb for warehousing space" Platform to connect providers and customers of available warehouse space and standardised value-added services		Provide mobile solution for transport management (activity execution, ePOD and digital administration process) that will improve visibility and speed up order to cash cycles
Value contribution	Improving visibility, execution and planning across multi-stakeholder supply chains and creating a disruptive differentiator global		The blockchain based open source "Freightchain" is organised as +dCentral consortium and accelerates in dedicated legal structure		Enable detail track and trace ability on high-value items up and down the supply chain Combat counterfeiting, diversion and other illicit activity		Assert position as a "logistics disrupter" Create transparency in the market, increasing utilisation of warehouses Acceleration is happening as corporate start-up and separate legal entity		Improved visibility of transport execution and speed/accuracy of proof of delivery Improved service, reduction in debtors time and improved cash flow
	Implementation in progress		First proof of concept completed		Expected early in 2019		Commercialisation in progress		Expected early in 2019

For detailed information, see Driving digitisation and innovation online.

Performance in a challenging operating environment

Imperial Logistics' activities on the African continent produced 53% and 60%, respectively of revenues and operating profits during the 12 months to June 2018, with the remainder generated mainly in Europe and the United Kingdom. Trading conditions in our markets remain mixed, as reflected in the table below.

South Africa		African Regions		International
Despite improved sentiment, the economy contracted sharply in the second half of the year. Consumer spending remained under pressure due to high unemployment, high fuel prices, tax hikes and static personal incomes, despite monetary easing. Operations directly impacted by lack-lustre consumer spending, high fuel prices and social unrest. Challenging market conditions and competitive trading environment resulted in contract renewals at lower margins. Tough trading conditions expected to persist in the short term.		Recovery in commodity prices, gradually improving domestic demand and some policy reforms improved economic prospects in most countries in sub-Saharan Africa. Political instability in Kenya, low economic recovery in Nigeria and persisting recessionary conditions in Namibia. Increasingly competitive donor aid market resulted in lower than expected volumes and margins. Tough trading conditions in key markets expected to persist in the short term.		Economic expansion in Europe resulted in lower unemployment. Certain sectors remain under pressure, specifically steel, with US trade tariffs expected to divert steel from China to Europe putting prices under further pressure. New EU regulation with lower emission thresholds introduced, which could lead to OEMs reducing vehicle production volumes. Low water levels on the River Rhine impacted shipping operations, with low water levels persisting since July. Tough economic conditions in the UK due to Brexit uncertainty.

Within this context, Imperial Logistics recorded growth in revenue and operating profit of 3%. Excluding businesses held for sale (mainly the disposal of Schirm) revenue and operating profit grew 8% and 5%, respectively.

These results were supported by:

• Solid performance from our West African healthcare businesses (mainly Eco Health) and CPG business in Mozambique (CIC).
• Disposal and closure of some smaller, strategically misaligned businesses in South Africa and the African Regions.
• Inclusion of Surgipharm for the full 12-month period.
• Excellent results from the automotive and international shipping segments (mainly South America) in Logistics International.

Results were partially offset by lower volumes, margin pressures and renewal of contracts at lower margins in South Africa and the loss of a large public healthcare contract in African Regions, lower operating profit performance from the sourcing and procurement business (Imres) in African Regions and disappointing performances in the European inland shipping, retail and industrial businesses. Excluding current and prior year acquisitions and disposals, revenue increased by 5% and operating profit declined by 1%. Profit before tax improved by 26% as foreign exchange losses, mainly in African Regions, were contained to R70 million compared to R216 million in the prior year. Net finance costs reduced 8% due to a significantly improved and strengthened balance sheet, and amortisation of intangibles reduced by 17% mainly due to the sale of Schirm.

The net debt to equity ratio improved significantly from 122% in the prior year to 50% following the sale of non-core or underperforming businesses and nonstrategic properties, reduced capital expenditure requirements and the recapitalisation of the African Regions. The ROIC of 12,2% compares to 11,5% in the prior year and is above the target hurdle rate of WACC + 3%.

Net capital expenditure increased to R578 million from R492 million in the prior year. Capital expenditure in the current year comprised mainly the replacement of transport fleet in South Africa, reduced by proceeds from asset disposals of R730 million, including property disposals of R367 million. Property disposals were lower when compared to the prior period.

Logistics South Africa

	% change		2018		2017
Revenue (Rm)	(1)		16 310		16 498
Operating profit (Rm)	4		952		919
Operating margin (%)			5,8		5,6
Return on invested capital (%)			13,7		12,3
Weighted average cost of capital (%)			11,0		10,6
Net debt/equity ratio (%)			64		40

Note: ROIC and WACC are calculated on a rolling 12-month basis. The above table includes businesses held for sale and eliminations.

Logistics South Africa performed satisfactorily in difficult market conditions, decreasing revenue by 1% and increasing operating profit by 4%. Excluding businesses held for sale revenue increased by 1% and operating profit reduced by 1%.

Performance was enhanced by a positive contribution from the Itumele Bus Lines, and the disposal and closures of some smaller, strategically misaligned businesses in the current and prior years. The second-half performance was negatively impacted by reduced volumes and depressed margins. ROIC improved to 13,7% from 12,3% mainly due to improved capital management and the sale of strategically misaligned and underperforming businesses.

Logistics African Regions

	% change		2018		2017
Revenue (Rm)	9		10 823		9 947
Operating profit (Rm)	3		759		740
Operating margin (%)			7,0		7,4
Return on invested capital (%)			17,5		23,8
Weighted average cost of capital (%)			11,1		6,7
Net debt/equity ratio (%)			23		>150

Note: ROIC and WACC are calculated on a rolling 12-month basis. The above table includes businesses held for sale and eliminations.

Imperial Logistics African Regions performed below expectation with revenue and operating profit increasing by 9% and 3%, respectively with a mixed performance across the portfolio. Revenue and operating profit, excluding businesses held for sale, increased by 19% and 1%, respectively. Results were supported by a good performance from our West African healthcare businesses (mainly Eco Health), the leading distributors of pharmaceuticals in Nigeria and Ghana, which had record sales. The acquisition of Surgipharm contributed positively and the CPG route-to-market business were enhanced by strong growth in the cross-border trade from South Africa into SADC markets. Our sourcing and procurement business (Imres) delivered a lower operating profit performance compared to the prior year due to increased competition, change in the product mix, uncertainty in aid and relief markets, and longer lead times in executing orders which resulted in lower margins. However, this business continues to generate good cash flow and delivers ROIC in line with the target hurdle rate. The sub-Saharan healthcare logistics business was negatively impacted by the loss of a large, public healthcare contract.

The average strengthening of the Rand by 5% against the US Dollar also negatively influenced the Rand performance during the period. The business was recapitalised during the year, resulting in a significantly lower net debt to equity ratio. ROIC at 17,5% declined from 23,8% mainly due to the underperformance of the sub-Saharan and Kenyan healthcare logistics businesses and the sourcing and procurement business, an increase in our investment in Eco Health, from 68% to 87% and normalised working capital.

Logistics International

	% change		2018		2017
Revenue (Rm)	4		24 266		23 270*
Operating profit (Rm)	3		1 142		1 105
Operating margin (%)			4,7		4,7
Return on invested capital (%)			9,6		8,2
Weighted average cost of capital (%)			6,3		5,4
Net debt/equity ratio (%)			56		128
Revenue (Euro million)			1 581		1 574*
Operating profit (Euro million)	(1)		74,6		75,3
Operating margin (%			4,7		4,8

Note: ROIC and WACC are calculated on a rolling 12-month basis. The above table includes businesses held for sale and eliminations.
* Restated.

Logistics International's revenue was flat and operating profit decreased by 1% in Euros, while revenue and operating profit increased by 4% and 3%, respectively in Rands, which weakened by 4% on average against the Euro during the year. Revenue and operating profit, excluding businesses held for sale (Schirm), increased by 8% and 12%, respectively in Rand terms and increased by 4% and 6%, respectively in Euros. The significant driver of growth was the automotive contract logistics business, which grew both new and existing business during the year. Results were also supported by a good performance from the international shipping operations in South America. The European inland shipping business underperformed due to low water levels on the River Rhine. The retail, steel and industrial sub-divisions delivered unsatisfactory results resulting from lower volumes. Palletways performed below expectations due to toughening economic conditions, and continued competitive pressure in sub-scale operations. ROIC improved to 9,6% from 8,2% and is above the targeted WACC+2%.

Outlook

In South Africa, the new financial year commenced with persistently low economic growth conditions, low consumer spending (exacerbated by rising fuel prices), subdued volumes and relentless pressure on margins from clients. It is anticipated that the tough business conditions will continue for the short term.

In the African Regions, we expect trading conditions to remain challenging, especially in key markets (Nigeria, Namibia, Mozambique and Kenya) due to volatility. These conditions are expected to ease in the medium to longer term. We continue to focus on adding new principals, maintaining margins and managing our costs and working capital. Growth in Africa's consumer environment is expected to maintain a positive trend and we remain positive about growth prospects, due to our positioning in the market, ability to add new business and managing the risks in the region.

Internationally, we have a strong base for growth within specific industries in which we have strong competitive positions. The commercial and business development focus of the new management team will support our ability to grow revenues in these industries, with the potential to expand into Eastern Europe and strengthen our International Freight Management capability. The low water situation is already impacting operations and the duration of this low water period will depend on weather conditions, which are forecast to remain unfavourable. We will continue to explore partnerships with global providers to expand the Palletways model in the UK into other European territories.

We anticipate solid operating and financial results in the financial year to June 2019, subject to stable currencies in the economies in which we operate. We expect to record growth in revenues and operating profit and have the appropriate capital structures in place to fund our strategic aspirations while continuing to pay a stable dividend.