Our market access business – where close to 100% of revenue is generated in African Regions – is integral to our 'Gateway to Africa' strategy. Our market access solutions see us taking ownership of inventory and responsibility for the full order to cash function. We build complex route-to-market solutions that provide our principals' access to consumers through comprehensive channel strategies that integrate sourcing, sales, distribution and marketing. Our solutions also create opportunities to leverage our freight and contract logistics capabilities.
Through our operations mainly in East, West and Southern Africa, we are able to provide market access and logistics services in more than 20 countries on the African continent. Our activities currently focus on two key and defensive industries – healthcare and consumer.
The Market Access business delivered a resilient performance in challenging circumstances, growing revenue by 18% and decreasing operating profit marginally by 1%. Despite the negative impact of Covid-19 on trading and volumes, results benefitted from significant new contract gains of c.R1,7 billion annualised revenue and the inclusion of new acquisitions concluded in the second half of F2020.
Operating margin, however, declined from 6,8% in the prior year to 5,7% mainly due to lower volumes resulting from the impact of Covid-19 restrictions in countries of operation.
Pro forma Market Access segment results
| Half year 1 unaudited | Half year 2* | Full year unaudited | ||||||||||||
| Market Access | 2020 | 2019 | % change | 2020 | 2019 | % change | F2020 | F2019^ | % change | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (Rm) | 5 769 | 5 402 | 7 | 6 674 | 5 103 | 31 | 12 443 | 10 505 | 18 | |||||
| EBITDA (Rm) | 561 | 475 | 18 | 339 | 380 | (11) | 900 | 855 | 5 | |||||
| Operating profit (Rm) | 485 | 407 | 19 | 225 | 311 | (28) | 710 | 718 | (1) | |||||
| Operating margin (%) | 8,4 | 7,5 | 3,4 | 6,1 | 5,7 | 6,8 | ||||||||
| Return on invested capital (%) | 15,5 | 15,9 | 12,1 | 14,2 | ||||||||||
| Weighted average cost of capital (%) | 13,1 | 13,3 | 12,7 | 14,1 | ||||||||||
| Net debt including IFRS 16 – Lease liability (Rm) | 1 764 | 1 534 | 15 | 1 924 | 1 274 | 51 | ||||||||
| Net debt excluding IFRS 16 – Lease liability (Rm) | 1 342 | 1 111 | 21 | 1 360 | 813 | 67 | ||||||||
| Working capital (Rm) | 1 584 | 1 459 | 9 | 1 810 | 1 169 | 55 | ||||||||
| ^ | Prior year numbers have been restated for the impact of IFRS 16 – Leases where applicable. |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2020. |
Note: Continuing operations, excluding businesses held for sale (mainly Pharmed), head office costs and eliminations.
Our strong position as a leading healthcare market access player in Africa stood us in good stead, particularly during the pandemic. The healthcare segment delivered resilient results, supported by a good performance from our business in West Africa – where we continue to operate as the leading distributor of pharmaceuticals in Nigeria and recorded market share gains in Ghana. We have in excess of c.120 days' paid-up stock in Nigeria, which positions us well to deal with the currency risks in the country. Our healthcare operations in East Africa (Surgipharm) also contributed positively, growing revenue and operating profit during the year in a market that showed no growth.
Our healthcare medical supplies and kitting business (Imres) continues to benefit from a strong order book, although the supply and delivery of products from India and the lack of air freight capacity impacted performance negatively.
While we are still able to service various channels in most markets in our consumer business, lower activity was recorded mainly in markets where sales of liquor and tobacco were negatively impacted due to Covid-19-related trading restrictions. As a result of reduced volumes, revenue and operating profit from our consumer businesses in Namibia and Mozambique declined during the year, with margins generally under pressure. Our newly acquired consumer business in Ghana contributed positively to results and is performing in line with expectations.
Our South African wholesaling business Pharmed – with its high-cost base and limited scale – has become increasingly uncompetitive and continues to underperform. Despite numerous management efforts and initiatives undertaken over the past months to turn the business to profitability again, it is evident that the business would be better placed to grow in the hands of another owner. As such, management has decided to dispose of this business and it is consequently classified as "assets held for sale". More details are included in the disposals section of this report.
Net capital expenditure of R161 million was incurred during the year largely on additions to fleet, warehouse equipment and some warehouse leasehold improvements.
Return on invested capital (ROIC) decreased from 14,2% to 12,1% and is marginally lower than the weighted average cost of capital (WACC) mainly due to lower profits as a result of Covid-19.
The pro forma regional performance results for African Regions is included below for noting:
| Half year 1 unaudited | Half year 2* | Full year unaudited | ||||||||||||
| Logistics African Regions | 2020 | 2019 | % change | 2020 | 2019 | % change | F2020 | F2019^ | % change | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (Rm) | 6 359 | 6 339 | 7 037 | 5 766 | 22 | 13 396 | 12 105 | 11 | ||||||
| EBITDA (Rm) | 606 | 569 | 7 | 370 | 433 | (15) | 976 | 1 002 | (3) | |||||
| Operating profit (Rm) | 511 | 479 | 7 | 240 | 338 | (29) | 751 | 817 | (8) | |||||
| Operating margin (%) | 8,0 | 7,6 | 3,4 | 5,9 | 5,6 | 6,7 | ||||||||
| Return on invested capital (%) | 15,9 | 16,4 | 12,1 | 15,1 | ||||||||||
| Weighted average cost of capital (%) | 13,4 | 13,2 | 12,7 | 14,3 | ||||||||||
| Net debt including IFRS 16 – Lease liability (Rm) | 1 724 | 1 608 | 7 | 1 914 | 1 239 | 54 | ||||||||
| Net debt excluding IFRS 16 – Lease liability (Rm) | 1 288 | 1 161 | 11 | 1 325 | 836 | 59 | ||||||||
| Working capital (Rm) | 1 584 | 1 561 | 1 | 1 822 | 1 182 | 54 | ||||||||
| ^ | Prior year numbers have been restated for the impact of IFRS 16 – Leases where applicable. |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2020. |
Note: Continuing operations, excluding head office costs and eliminations.