08 Jul - 10 min read

Business update and trading statement for the year ended 30 June 2021

Business update and trading statement for the year ended 30 June 2021

Imperial Logistics Limited
Incorporated in the Republic of South Africa
Registration number: 1946/021048/06
Share code: IPL ISIN: ZAE000067211
(‘Imperial’ or ‘Company’ or ‘Group’)

BUSINESS UPDATE AND TRADING STATEMENT FOR THE YEAR ENDED 30 JUNE
2021

OPERATING CONTEXT AND PERFORMANCE

Imperial is finalising its results for the 12 months ended 30 June
2021. Performance and strategic progress in the 2021 financial year
(F2021) have been better than expected, despite a significant overhang
of COVID-19 in many of our key markets. We delivered a strong recovery
in volumes and profitability compared to the 2020 financial year
(F2020), although the business is not fully operating at pre-COVID-19
levels. The key financial metrics of the business remain healthy as
we continued to generate strong free cash flow in F2021, as well as
stringently managed costs despite the challenging trading environment.
Imperial’s balance sheet remains strong, further supported by the
receipt of the proceeds of c.R4.7 billion from the sale of the European
and South American shipping businesses during the period. The Group
expects to end the financial year 2021 with a net debt:EBITDA ratio
below 1.5x (F2020: 2.8x), well below our internal guideline of 2.5x
and well within our banking covenants of 3.25x.

Imperial’s contract renewal rate across its operations on existing
contracts remains strong and increased to c.86% at the end of May 2021
(June 2020: 80%). The Group has an encouraging pipeline of new
opportunities and new business revenue of approximately R5.6 billion
(p.a.) was secured on a rolling 12-month basis to the end of May 2021.

Imperial continues to record significant strides in its strategic
journey to transform from a portfolio of regional businesses to an
integrated end-to-end market access and logistics business - with the
strategic intent of becoming ‘One Imperial’ and a ‘Gateway to Africa’,
with committed and well-skilled executive management teams. Top of
mind is to ensure that Imperial remains a business of scale, despite
significant asset disposals, and that both organic and acquisitive
growth are prioritised. We continue to navigate the macro-economic
challenges well, with investment in growth and driving digital and
innovation being key focus areas. Digital and IT is a key driver in
ensuring that our businesses not only remain relevant but also
enhances our competitive advantages. In addition, we have recorded
significant progress in positioning Imperial as a purpose-driven
organisation, strongly demonstrating our commitment to achieving our
purpose as a business – which is connecting Africa and the world and
improving people’s lives through access to quality products and
services. Time and resources are being invested across businesses in
advancing our People and Culture practices. We are also pleased to
have recently compiled and approved Imperial’s first, comprehensive
ESG strategy, including aspirations and targets.

Market Access

The operating environment over the past two quarters showed signs of
slow recovery as COVID-19 lockdown restrictions were eased in most of
our key markets. However, a possible third wave of infections could
weigh again on many countries in Africa, where the roll-out of vaccines
has been slower-than-expected. Economic activity in the Sub-Saharan
African region is, however, expected to strengthen if countries act
quickly to contain new waves of the pandemic and speed up vaccine
rollouts. Notwithstanding a third wave of COVID-19 infections,
economic growth rates in the region are expected to rise, depending
on the policy measures adopted by countries in the region and the
international community. Sub-Saharan Africa’s recovery is expected to
vary significantly across countries.

Our strong position as a leading healthcare and consumer market access
player in Africa continues to stand us in good stead, particularly
during the COVID-19 pandemic. This is evident as Market Access
recorded strong revenue and operating profit growth compared to the
prior year supported by the successful integration of acquisitions, a
strong recovery in most businesses, and good contract gains. Our
healthcare medical supplies and kitting business (Imres) continues to
benefit from a strong order book but performance was negatively
impacted by constraints on the supply and delivery of products
resulting from COVID-19. The Consumer business in Mozambique was
severely impacted by lower alcohol sales due to COVID-19 trading
restrictions. Both businesses are expected to improve performance from
F2022.

The commercial effort to drive integrated solutions across our
Consumer and Healthcare businesses are gaining traction and is
positively contributing to performance due to new contract gains.

The investment in the new Market Access structure is proving its
success with new business being converted and a healthy pipeline of
new opportunities being built. New business revenue of approximately
R1.8 billion (p.a.) was secured on a rolling 12-month basis to the
end of May 2021 with a contract renewal rate of c.100%.

During F2021, the following noteworthy strategic actions were
undertaken:

  •   Implemented focused consumer and healthcare structures.
  •   Recent acquisitions are performing well and contributing
      positively.
  •   Secured a material Proctor & Gamble consumer contract in Nigeria
      through a joint venture with the Chanrai Summit Group, which is
      performing well.
  •   Onboarded 5 new clients onto our Simplified Solutions in
      Healthcare (SSIH) offering since January 2021. This model now
      extends its reach to subscale markets for both healthcare and
      consumer principals.
  •   Developed   Integrated   Commercial  Solutions   capability   in
      Healthcare business (demand generation and medical/regulatory
      services) and are incorporated into a new offering for our
      principals.
  •   Expansion of Market Access services in South Africa through a
      49% shareholding in Kiara Health since August 2020, which
      supports our backward integration strategy and formed the basis
      for our Market Access Healthcare business in South Africa.
  •   Acquisition of 100% of Deep Catch Namibia Holdings announced,
      subject to regulatory and other approvals.
  •   Successfully concluded the disposal of the loss-making business,
      Pharmed, in November 2020.

Despite the challenging macro environment, we remain optimistic about
the future of our Market Access business. Recent acquisitions are
being successfully integrated and provide very good cross-selling
opportunities. In Africa, the trend continues in rising consumerism,
urbanisation, population growth and the strengthening of healthcare
systems by governments, which are all good indicators and will have a
positive impact on our Market Access business.

As demonstrated through our recent acquisitions and organic growth
initiatives, we continue to build on our capability to offer
integrated commercial solutions across multiple markets in Africa.

Logistics Africa

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 past
quarter particularly in commodities, fuel and gas, a third wave of
COVID-19 infections could result in further weakening of the economy
and the FMCG sector which remains under pressure in South Africa.
There is also continued pressure in the market for growth as transport
rates remain lower due to competitors imposing margin cuts to retain
contracts.

Notwithstanding the challenging environment and subdued revenue
growth, Logistics Africa recorded a strong recovery in operating
profit and margins, compared to the prior year, 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.20% of revenue). Results were positively supported by solid
contract renewal rates, contract gains and cost cutting initiatives.

New business revenue of approximately R1.7 billion (p.a.) was secured
on a rolling 12-month basis to the end of May 2021. Logistics Africa’s
contract renewal rate remains strong at c.80%.

With further lockdown restrictions imposed in South Africa, which has
now moved to an adjusted level 4 and include restrictions on the sale
of alcohol, we anticipate trading activities to be impacted until
COVID-19 infections reduce and restrictions ease.

During F2021, the following noteworthy strategic actions were
undertaken:

  •   Achieved full-year cost savings of c.R200 million (p.a). The
      benefits of these cost savings will be fully realised from F2022
      and will assist in maintaining our competitive market
      positioning.
  •   Significantly improved diversity of the leadership team: 6 out
      of 11 Logistics Africa Exco members are now female and 6 out of
      11 Exco members are non-white.
  •   Consolidated road freight businesses benefitting from improved
      efficiencies.
  •   A Broad-Based Black Economic Empowerment (B-BBEE) transaction at
      Imperial Logistics South Africa level was announced to the market
      on 23 April 2021. The deal is subject to shareholder approval
      with the general meeting scheduled to take place in July 2021.
  •   Project Blue Fleet is recording good progress, with the
      renegotiation of supply agreements for our largest cost items
      in Logistics Africa (fuel, vehicle and tyres) close to being
      concluded. The full cost and efficiency benefits will be realised
      over the next 12 months.
  •   Acquired 60% of e-Commerce logistics business, ParcelNinja in
      February 2021, which offers an outsourced warehousing and
      fulfilment business to South African online shops using its
      custom-developed best-of-breed warehouse system and fulfilment
      network   to  ensure   that   clients   benefit   from   scalable
      infrastructure and an innovative costing model.

Serving as an integrated logistics and market access provider will
also require Imperial to invest in logistics businesses outside South
Africa, particularly those that will give the Group access to freight
management and contract logistics capabilities and in other key growth
industries to facilitate trade flows into, out of and across Africa.

Logistics International

Despite the significant overhang of COVID-19, economic activity,
growth forecasts and employment rates in Europe and the United Kingdom
(UK) are steadily improving due to additional fiscal support in
certain countries and swift progress in the roll-out of COVID-19
vaccines. Most of the European countries eased their lockdown measures
due to decreasing numbers of infected people. In Germany, certain
lockdown restrictions remain in place but are gradually easing.
However, the automotive sector continues to be negatively impacted by
the shortage of semi-conductors due to the impact of COVID-19.

While our Logistics International business was the most impacted by
the COVID-19 pandemic in F2020, the business recorded significant
improvement in trading activity on the back of the easing COVID-19
restrictions and economic recovery over the past 12 months. All
businesses   are   currently   operational   and are   demonstrating
significantly   improved   performance.   As   a result,   Logistics
International achieved strong revenue and operating profit growth in
Euros but a significantly stronger average ZAR/EUR rate for the year
hampered the performance in Rands. Results were supported by new
contract gains, effective cost management and volume recovery in the
key industries of operation as production ramped up. Palletways in
the UK also recorded strong volume growth over the period on the back
of higher demand due to increased home deliveries and demand for
smaller, more frequent deliveries by the market. The chemicals
business is performing in line with expectations. New vehicle
production remains subdued due to the shortage of semi-conductors,
which is negatively impacting the automotive contract logistics
business.

The sale of the South American shipping business was concluded in
April 2021. The proceeds from this sale of c.R1,305 million were
received and will be used to support our growth and expansion on the
continent, in line with our ‘Gateway to Africa’ strategy.

Logistics International’s contract renewal rate on existing contracts
remains strong at c.85%, with an encouraging pipeline of new
opportunities. New business revenue of approximately R2.1 billion was
secured on a rolling 12-month basis to the end of May 2021.

TRADING STATEMENT FOR THE 12 MONTHS ENDED 30 JUNE 2021

The F2021 financial results include reporting the disposal of European
Shipping as a discontinued operation. The sale of Pharmed was
concluded during the period and South American Shipping, reported as
held-for-sale, was disposed of on 16 April 2021. The results of Pharmed
and South American Shipping are included in continuing operations for
reporting purposes.

TOTAL OPERATIONS INCLUDING DISCONTINUED OPERATIONS

Imperial’s shareholders are advised that there is a reasonable degree
of certainty that the Group’s total basic earnings per share (EPS)and
headline earnings per share (HEPS) including discontinued operations
(European Shipping), for the 12 months ended 30 June 2021 (current
period) is expected to increase by more than 20% compared to that
reported for the 12 months ended 30 June 2020 (prior period).

The expected ranges are provided below:

                            30 June 2020                30 June 2021
                             As reported              Expected range
Total EPS (cents)            Loss of 161                     505-568
                                                   Up more than 414%
Total HEPS (cents)                   105                     305-339
                                                   Up more than 190%
CONTINUING OPERATIONS

Continuing operations includes South American Shipping and Pharmed,
which were disposed in April 2021 and November 2020 respectively. EPS,
HEPS and Core EPS (CEPS) for continuing operations for the current
period compared to that reported for the prior period are expected to
increase by more than 20%.

Core EPS is a measurement of pure trading performance and is calculated
as headline earnings plus amortisation of intangible assets arising
from business combinations, acquisition costs, re-measurement of put
option and contingent consideration liabilities. All adjustments are
net of tax and non-controlling interest. Core EPS is not an IFRS
measurement and is consistent with how the Group's performance is
measured and reported internally to assist in providing meaningful
analyses.

The expected ranges are provided below:

                             30 June 2020               30 June 2021
                              As reported             Expected range
Continuing EPS                         22                    181-244
(cents)
                                                   Up more than 723%
Continuing HEPS                       156                    300-335
(cents)
                                             (Up between 92% - 115%)
                                   Actual             Expected range
Continuing CEPS                       137                    417-448
                                                   Up more than 204%

Trading volumes and profitability recovered strongly during the
current period compared to the prior period. The expected ranges for
Revenue and Operating Profit are provided below.

                             30 June 2020               30 June 2021
                              As reported             Expected range
Revenue (Rm)                     R46 380m        R51 018m – R53 337m
                                              (Up between 10% - 15%)
Operating Profit                  R1 459m          R2 222m – R2 388m
(Rm)
                                              (Up between 52% - 64%)

Once the Group finalises its financial results and reasonable
certainty has been obtained to provide the expected ranges for the
current period, as contemplated by the JSE Listings Requirements, a
further trading statement will be issued.

Imperial will release its results for the 12 months ended 30 June 2021
on Tuesday, 24 August 2021.

We thank our shareholders for their continued support.

The forecast financial information contained in this announcement is
the responsibility of the Group’s directors and has not been reviewed
or reported on by the Company’s auditors.

08 July 2021
Bedfordview

Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Date: 08-07-2021 07:05:00
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