Logistics Africa encompasses logistics activities throughout the African continent i.e. road freight, contract logistics and lead logistics provider (LLP). Logistics will continue to play an integral role in achieving our 'Gateway to Africa' and 'One Imperial' strategic imperatives – leveraging and expanding freight, contract logistics and supply chain support, and leveraging cross-selling and upselling opportunities with our Market Access business.
Operating context
Prevailing weak economic conditions, high unemployment and low consumer spending were exacerbated by COVID-19 and continue to impact volumes and margins across many of our sectors, particularly in South Africa. While a recovery across key sectors was recorded in the last quarter of F2021 particularly in commodities, fuel and gas, a third wave of COVID-19 infections in South Africa and restrictions on alcohol sales in the latter part of F2021 resulted in further weakening of the economy and the fast-moving consumer goods (FMCG) sector, which remains under pressure. We therefore anticipate trading activities in certain businesses in Logistics Africa to be impacted until COVID-19 infections reduce and restrictions ease. There is also continued pressure in the South African market for growth as transport rates remain competitive due to competitors imposing margin cuts to win new or retain contracts.
During the year, we invested in additional capacity in FMCG and healthcare clients as the pandemic drove heightened demand and consumption of related products.
Two provinces in South Africa, KwaZulu-Natal and Gauteng, were significantly impacted by over a week of unrest in July 2021. Unfortunately, some of our fleet were impacted in KwaZulu-Natal and there were attempts by the rioters to enter and vandalise certain warehouses. To ensure the safety of our drivers and employees, as well as reduce the risk of any further harm to our people and assets, we grounded our fleet and operations in high-risk areas for six days during the peak of the unrest. In addition, we increased security measures at warehouses in high-risk areas. We subsequently resumed operations when it was safe to do so. As Imperial, we also continue to support our employees and communities during this time of need. We provided over 2 500 food parcels to our employees and their families in KwaZulu-Natal, we made a cash donation of R1 million to the Gift of the Givers Humanitarian organisation, and we are contributing R3 million to the Solidarity Fund's Humanitarian Crisis Relief in South Africa.
Half year 1 | Half year 2* | Full year | |||||||||
LOGISTICS AFRICA | 2021 | 2020 | % change |
2021 | 2020 | % change |
F2021 | F2020 | %change | ||
Revenue (Rm) | 8 077 | 8 261 | (2) | 7 727 | 7 306 | 6 | 15 804 | 15 567 | 2 | ||
---|---|---|---|---|---|---|---|---|---|---|---|
EBITDA (Rm) | 982 | 1 058 | (7) | 1 015 | 652 | 56 | 1 997 | 1 710 | 17 | ||
Operating profit (Rm) | 473 | 627 | (25) | 514 | 129 | 298 | 987 | 756 | 31 | ||
Operating margin (%) | 5,9 | 7,6 | 6,7 | 1,8 | 6,2 | 4,9 | |||||
Return on invested capital (%) | 6,4 | 11,8 | 10,9 | 8,1 | |||||||
Weighted average cost of capital (%) | 7,9 | 8,9 | 7,7 | 8,4 | |||||||
Net debt including lease obligations (Rm) | 4 115 | 4 498 | (9) | 3 524 | 4 665 | (24) | |||||
Lease obligations included above (Rm) | 1 638 | 1 817 | (10) | 1 365 | 1 981 | (31) | |||||
Net debt (Rm) | 2 477 | 2 681 | (8) | 2 159 | 2 684 | (20) | |||||
Net working capital (Rm) | 11 | (224) | >100 | (267) | (537) | (50) |
* | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021. |
Note: Continuing operations.
Half year 1 | Half year 2* | Full year | |||||||||
LOGISTICS AFRICA | 2021 | 2020 | % change |
2021 | 2020 | % change |
F2021 | F2020 | %change | ||
Freight | |||||||||||
Revenue (Rm) | 5 762 | 6 261 | (8) | 5 544 | 4 952 | 12 | 11 306 | 11 213 | 1 | ||
EBITDA (Rm) | 786 | 832 | (6) | 771 | 482 | 60 | 1 557 | 1 314 | 18 | ||
Operating profit (Rm) | 412 | 533 | (23) | 397 | 138 | 188 | 809 | 671 | 21 | ||
Operating margin (%) | 7,2 | 8,5 | 7,2 | 2,8 | 7,2 | 6,0 | |||||
Contract Logistics | |||||||||||
Revenue (Rm) | 2 315 | 2 000 | 16 | 2 183 | 2 354 | (7) | 4 498 | 4 354 | 3 | ||
EBITDA (Rm) | 196 | 226 | (13) | 244 | 170 | 44 | 440 | 396 | 11 | ||
Operating profit (Rm) | 61 | 94 | (35) | 117 | (9) | >100 | 178 | 85 | 109 | ||
Operating margin (%) | 2,6 | 4,7 | 5,4 | (0,4) | 4,0 | 2,0 |
* | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021. |
Note: Continuing operations.
Logistics Africa recorded a recovery in volumes and profitability compared to the prior year, increasing revenue and operating profit by 2% and 31% respectively, despite the first half's performance being significantly impacted by COVID-19 lockdown restrictions, which resulted in the ban of alcohol and tobacco sales (c.12% of revenue). Operating margin improved to 6,2% from 4,9% in F2020. Results were positively supported by solid contract renewal rates, contract gains and cost saving initiatives. Logistics Africa achieved full-year cost savings of c.R200 million (p.a). The benefits of these cost savings will assist in maintaining our competitive market positioning.
New business revenue of c.R2 billion (p.a.) was secured on a rolling 12-month basis to the end of June 2021. Logistics Africa's contract renewal rate remains strong at c.79%.
The lockdown restrictions resulted in a decline in volumes across most sectors – particularly in alcohol, tobacco and fuel.
The consolidated road freight businesses are benefitting from improved efficiencies. Revenue from the road freight business increased by 1%, supported by good volumes in the commodities businesses. Volumes were negatively impacted by the ban on alcohol sales and cross-border travel restrictions due to COVID-19 during the year. Operating profit increased by 21% supported by new business gains, improved fleet utilisation and efficient cost management.
Contract Logistics increased revenue and operating profit by 3% and 109% respectively due to new business gains despite volumes being negatively impacted by the ban of alcohol and tobacco sales due to COVID-19 lockdown restrictions.
Net capital expenditure from continuing operations (excluding IFRS 16) of R151 million was incurred during the year mainly due to the replacement cycle of fleet and investment in additional capacity for new contract gains. ROIC increased from 8,1% to 10,9% and is above our hurdle rate of WACC + 3%.