Half Year 2021 Imperial Logistics Ltd Earnings Call Bedfordview Feb 23, 2021 (Thomson StreetEvents) — Edited Transcript of Imperial Logistics Ltd earnings conference call or presentation Tuesday, February 23, 2021 at 8:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Esha Mansingh Imperial Logistics Limited – EVP of Corporate Affairs & IR * J. George De Beer Imperial Logistics Limited – Group CFO & Executive Director * Mohammed Akoojee Imperial Logistics Limited – Group CEO & Executive Director ================================================================================ Presentation ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Hi. Good morning, everybody, and welcome to our interim results presentation for the 6 months ended 31 December 2020. That’s the agenda for today. I’ll go through an overview and go through some of the impacts of COVID-19, go through the operating context and the performance of the business by division. And then I’ll hand over to George for the financial review, and then I’ll finish up with the strategy and looking ahead. So we get into the overview, but before we get there, I think, very importantly, we’ve refined our purpose as an organization. And our purpose now is about connecting Africa and the world and improving people’s lives with access to quality products and services. And let’s get then into the key features. So obviously, these results on this page and as we go through, it is comparing the 6 months to the previous 6 months. And we are really comparing to very different periods. What is pleasing for me is the recovery from the second half of last year going into this financial year. So while there is obviously red on that slide — we have been faced with really challenging trading conditions, as you’re aware of, in terms of COVID-19 that has continued into this financial year. But pleasingly, if you look at the recovery of the business from the second half, I’m quite pleased with the way the business has performed. But let’s just go through a few of the key dials quickly. George will cover this in a lot more detail later on. If you look at revenue, up 15%. A big part of that is the currency benefit that we got out of our European operations. If you take that out, we were probably still growing but probably in the mid-single digits. Our EBITDA was down only 2%, but our operating profit went down 18%, and that’s largely due to increase in depreciation. And then from a below the line perspective, there were a number of items, which I’ll leave George to go through, that obviously impacted our EPS and continuing headline earnings per share performance. Very importantly, with so much noise below the line and also with our strategy in terms of continuing and discontinued, one can get lost in the income statement. But if you look at the cash flow performance, that was really very good. We generated very strong free cash flow. Our conversion rate was 90%. And our balance sheet was really strong, and we finished up the 6 months with a net debt-to-EBITDA of 1.8x, well below our covenants. That has resulted us — resulted in us declaring an interim dividend of ZAR 0.83 per share, which is in line with our cash flow performance and a strong balance sheet, and I guess also how we’re feeling about the business post the period of recovery. If you look at some of the other important information on the slide, look at our contract renewal rate and our new business revenue, that continues to be very good at 80%, and we added new business of ZAR 6.2 billion. We’ve got a good pipeline of new opportunities, and that’s about ZAR 16 billion. So for me, that tells me our clients want to use us, our principals want to use us. And we’re converting our opportunities into new business, which is very encouraging. And I think that’s demonstrated in our top line. Our liquidity and cash position is very good, and George will cover a bit more detail on that later on. We’ve got enough facilities and cash at about ZAR 14 billion available. Returns look very low. But just remember, this includes a second half where we had a loss from a returns perspective, and that obviously impacts this number. So I think I’ve covered most of these key points earlier on. I think the only one that I’d like to probably talk about is the costs. We did, at our August results, say that we are going to take out costs in these 6 months. The retrenchment costs of that, we took in the — in our previous financial year. But just to give an update on that, we have now implemented this cost-cutting in these set of results, and we’ve taken out costs of about ZAR 200 million. We won’t see the full benefit of that, obviously, in this financial year, but certainly something that we can look forward to in terms of our 2022 financial year. If you look at the performance, as I said, comparing it to last year is a bit of a nonsense considering the various levels of lockdown that we’ve been faced with, and it impacted all our markets. In South Africa, for example, for 2 months of the year, we couldn’t do any activity in the tobacco and the alcohol industry where we lost revenue there. In Europe, the second wave hit Europe a lot earlier on than South Africa, for example, and that obviously impacted our operations. So it was really a difficult half in terms of the continuation of the COVID-19 lockdown. We also had once-off costs mainly resulting in sick leave. We’ve seen that coming through our business. And because of that, we had to put in capacity into the business to still continue delivering service to our clients and principals. We’ve also made investment in people, processes, structure and systems to support our strategy of Gateway to Africa and One Imperial. And I’ll cover a lot of that later in terms of where we are with that and where we’re going. Not surprisingly, based on what I’ve said now, our margins were down from last year from 6.4% to 4.6%. I’ll give more color on that as we go through the divisions. Our estimate of what COVID-19 in terms of its impact was in the 6 months was ZAR 1.6 billion from a revenue perspective and ZAR 220 million from an operating profit perspective. That’s just a bit of a highlight in terms of what we faced in the 6 months and our performance. But from a strategic perspective, we’ve made significant progress in terms of our Gateway to Africa and One Imperial strategy. We didn’t do a lot of acquisitions in the 6 months. And although they’re small, they’re very important for our strategy in terms of the direction in which we’re taking Imperial. And I’ll cover a bit about that later. We did conclude the sale of the European shipping business, which you’re all aware of, and the cash came in, in July. We concluded the sale of Pharmed, and we are progressing well on the sale of our South American shipping business, and we hope to close that transaction in the next few months. I think, for me, the — from a strategic point of view, the big news is that we’ve obviously made a decision around our International business. At the last results, we said we are considering what to do with our International business as part of our Gateway to Africa strategy, and we’re considering all options. Through this process, we have made the decision that it is noncore to our Gateway to Africa strategy, and we’re now exploring an appropriate exit plan for our International business. From the innovation fund side, very good activity. We’ve got now 5 actively managed portfolio companies. And as I said, we have also invested in organizational structures and systems to operate as One Imperial. ESG becoming a big focus of the group in terms of us not only making profit but doing it with a purpose and obviously doing it considering the environment and doing it socially responsibly. So I think we, as an organization, if you look at where we were 12, 18 months ago in terms of defining our strategy, I’ll get into the detail more of the progress we’ve made, but in summary, I’m quite pleased with where we’re at and where — and the decisions we’ve made in terms of the future. Just in terms of COVID-19, yes, it impacted our business negatively as you can hear in terms of the challenges we had to face. But in that, Imperial has also played an important role in terms of providing essential services and products to our people as well as the countries and communities we serve. We are very well positioned to provide logistics and distribution capabilities for COVID-19 vaccines. In South Africa and other African markets, we’ve got fantastic infrastructure in Southern, East and West Africa to be able to do that. We’ve got the expertise and track record. We work in both the public and private health care sector. So we’re well positioned for that. And naturally, we are participating in the RFQ process in South Africa. And just to be clear, we have the capability to do the distribution of 2 to 8 degrees from a vaccine perspective, minus 20 degrees as well as minus 70 degrees. We’ve got that ability to do that. So I’m looking forward to when those vaccines become available so that we can play our part in that. We continue supporting our employees, very importantly, during this period and made sure that the financial burden through COVID-19 was limited on them. As you see now, our financial position is strong. And I think the strategic progress we’ve made has really set up well, in my view, in terms of further resilience in this uncertain period but then picking up from there as our markets recover. So just a context, yes, a lot of it was about COVID-19 and the impact that, that had. And just in Market Access, for example, which is now 34% of the group profit, the business that — the businesses that felt it the most were probably our health care businesses because we couldn’t get stock in certain countries because of supply chain challenges. And then also our sourcing and procurement business in Imres, because of the lack of freight capacity, we couldn’t execute on a very good order book there. So I think in terms of the impact, we felt it the most on our health care businesses, and that comes through in the margin, which I’ll cover later, as well as our consumer business. We are play over — what we do distribute things like liquor and tobacco as well in Southern Africa. And with the liquor bans, et cetera, and social distancing, we got impacted in those markets. We have invested in structures and resources for the future there. You’ll see now in terms of our new structure, we’ve got now a Market Access business that has got a clear focus on consumer and health care. And to put that in place, we had to invest in some people from a vertical perspective. Our Logistics Africa business was also impacted with the lockdown, particularly in South Africa, in the liquor and tobacco industry. We lost 2 months of sales in those industries, and that represents about 20% of our revenue. So quite significant in terms of the impact of the restrictions of those 2 sectors. Things have picked up nicely in this period. Normal trading has resumed, and we hope to obviously be very busy as we now fill the supply chains around, particularly, the liquor market that went again into lockdown towards the end of calendar 2020. Our Logistics International business recovered very well from the second half. And there were 2 main reasons for this. There was a positive uptick in our automotive business due to the demand coming out of China, and that drove European exports and automotive, and our industry exposures in those markets talk to that, and we were able to increase our volumes on the back of that. But also Palletways, because of the increase in online home and smaller, more frequent deliveries, we saw a very nice uptick in terms of volume there. Towards the latter end of this — of the period, we saw the impact of Brexit regulations impacting imports and exports out of the U.K., but that didn’t certainly impact us massively in these 6 months. But that clarity hasn’t yet been established yet, and we start — we’re still seeing some of those impacts in the second half of this financial year. Just to give one a sense of our industries in terms of how our industries performed during the 3-month period when we had seriously hard lockdowns and then during the 9 months when things started opening up a bit, but then for the 12 months, you can see the picture. So for the 3 months, you can see — sorry, that’s the 3 months without COVID. You can see we started off the year very well in terms of automotive, consumer, health care, industrial and commodities, good growth for the first 3 months. And then the 9 months thereafter were impacted, and you can see the decline in our revenue performance on that. And overall, not too bad in terms of the revenue performance over the 12 months period. But this includes, obviously, new business that we have gained and contracts we have renewed, et cetera. So that didn’t come from the market itself because also us getting market share and winning new contracts to be able to achieve that. You know this slide well in terms of our industry exposures across the group. Our Market Access business is 50-50 in terms of its exposure to consumer and health care and is very well positioned for those fast-growing markets where we see good, long-term potential. Our Logistics Africa business diversified in terms of its industry exposure and diversified certainly from a client perspective, and that gives us the resilience in terms of performing in a low-growth environment. As I said earlier on, our Logistics International business, we’ve now identified as noncore to our strategy, and we’ll explore an appropriate exit plan. But you can see, as you know, the profile, they’re very different to our African businesses where we’ve got a much more consumer and health care focus. So if we can then get into the operating performance of the divisions. This is just an overview in terms of the revenue, operating profit and margin development. I’ll cover this in a bit more detail in the next slides. So just from a group perspective, you can see from 2019’s financial year, and we got here the first half of that financial year, first half of 2020, very good positive revenue trend, which continued in these 6 months. We showed growth in December ’19. And then obviously, in the second half, we got heavily impacted by COVID-19. But you can see how nicely the business has recovered. We’re not back to where we were in December ’19, but if you add back the impact of COVID, we get quite close to those 2019 levels. And certainly, we’re expecting this momentum to continue into the second half based on where we are trading, certainly, in January and the early parts of February. You can see our margins ticked up and then went down in the second half, and they’re recovering nicely, and I believe that will continue in terms of a trend, certainly going into ’21 and ’22 financial year. If we come to the Market Access business, and I’ll spend a bit more time here in terms of what were some of the positives and negatives in this business. Certainly a big positive was the new contracts we’ve gained, ZAR 2.2 billion per annum of annualized new revenue, strong contract renewal rate. And we had very good growth from a top line perspective in our health care business in East and West Africa. Our simplified solutions in health care in terms of where we offer a multi-market aggregation model to our clients is really getting good traction. We’ve added 5 new contracts. We’ve got a good order book in Imres, if we could only execute quickly on that. But with the supply challenges there, we are being hampered. The negatives were, as I mentioned, our costs to get product into and out of markets were a lot higher, and that impacted our margin. We had a further normalization of our margins in West Africa. Over time, that business has evolved from an import business to becoming more local. And with that, our margins have declined, but we’ve gained good top line growth through that. And that we’ve told the market, we will normalize our margins in West Africa over a period of time but still good growth in the business. And then we obviously were impacted, as I said, with the alcohol trading, particularly in markets like Namibia and Mozambique. The newly acquired Axis Group was severely impacted by COVID-19. That business, obviously, with large procurement projects being delayed, was impacted negatively. So you can see that from December ’18 to ’19, we had a good uptick in terms of our margins and our revenue and profit development, COVID-19 hit us, and then we recovered nicely in this first half. But as I said, hopefully, as those supply chain issues start easing, this business’ margin should get back to the 6%, 6.5%, where it should be. If you look at our Logistics Africa performance, again, a feature of the performance was the new contracts we’ve gained and our contract renewal rate was also very good. We had good volumes in certain sectors like the food industry, the chemical industry, health care was obviously up, and our dedicated road business had a good performance. We obviously got impacted by the fact that we couldn’t provide our services in alcohol and tobacco, and we also saw fuel volumes being impacted with less activity in this first half period of our financial results. We were also — our cross-border business was impacted with the excessive border times. And the market is competitive, as I’ve said before. Now if you look at why our profits went backwards from December ’19. So if you look at the revenue, we’re down about ZAR 200 million on revenue, and about 50% of this business’ cost base is fixed. And if you take that impact of revenue down to profit, you can see we lost about ZAR 100 million just because of our revenue decline. And then our cost base does go up. We’ve got inflation in our labor costs, et cetera, et cetera. So that’s why despite only revenue being down ZAR 200 million, our profits were down, from percentage terms, a lot more because of that operating leverage in the business. But if you add ZAR 200 million of revenue to that and you apply what I’ve said, you can see how the margins will get back where they should be. So obviously, as the economy will recover, subject to no further lockdowns and no third waves, et cetera, we certainly expect our margins to get back to where they were in certainly ’18 and ’19 at around the 7% level. If you look at our International business, taking out the effect of the currency, a very credible performance in terms of revenue to be up 1%. Despite the challenges we had to face, there was a very good performance. We’ve also there had very good new contract gains, which helped us get through a difficult period and also high contract renewal. And I think that, for me, is a feature in our business. Our business model and our clients certainly need us in terms of our services we provide, and that comes through strongly, as you can see through the 3 businesses. Very good volume growth in Palletways. As I said, we were in the sweet spot in terms of the 1 to 4 pallet market consolidation. And we played a big role in terms of getting those products into home deliveries, et cetera. So again, one will say, yes, but then the profit dropped. But then we had the cost overhang of exiting our European shipping business. And if you add that back, we would have been flat in terms of our operating profit performance. So I’m very pleased with how this business has recovered. And you can see, we made a loss of EUR 19 million in the second half and to have recovered so nicely to EUR 18 million. And if you adjust for this overhead cost we’re still sitting with through the exit of our shipping business, we would have been flat on last year. So one feature we did see, though, in our business is that there was an increase in sick leave, particularly our International business, and we had to replace our permanent people with temporary labor, and that increased our costs. The industrial sector was a lot tougher than the automotive market and the Palletways business. And then in South America, which is a business now that’s reported as held for sale, we had very low water levels, which impacted us there. That’s the performance in rand. So you can see with the weaker exchange rate, clearly, the results are a lot better. The average rate of exchange was ZAR 19.19 versus ZAR 16.29. So that certainly helped us in terms of year-on-year performance. George, I’ll hand over to you to take us through more of the detail of the numbers. ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– Thank you, Mohammed, and good morning, everyone. I think a key priority for management during this period was to maintain a sound financial position, safeguarding and preserving our balance sheet, careful capital allocation, managing our debt levels to remain well within our bank covenants, ensuring that we maintain our liquidity and conserve our cash flows. But also having some proactive measures to reduce fixed overhead costs, most notably in Logistics Africa where we have removed ZAR 200 million of annualized costs. We have reduced our total CapEx spend for this period by ZAR 514 million compared to the prior period. Continuous excellent working capital management for all the teams, and the generating of operating and free cash flows despite the negative impact of COVID-19. To also confirm, the proceeds from European shipping disposal was used to reduce our existing debt levels. And that will provide us with capacity to pursue our strategic objectives of investing in Market Access and Logistics Africa and enhance our African growth vision. To confirm, sufficient headroom against our maximum net debt-to-EBITDA, covenants of 3.25 and currently at 1.8x for this reporting period. That resulted to resilient balance sheet in a tough trading environment, including COVID-19. I also think it’s important to mention that in line with our strategy, effective July 2020, the management of the group has been reorganized from a regional focus to a solutional capacity focus that we offer with the major reporting segments as Logistics Africa, Logistics International and Market Access. The Logistics business has further segmented into freight and contract logistics. This is in line with the secondary segmentation on which we reported on previously. If you look at the impact of COVID on our business, based on our best estimates during this period, estimated loss of revenue of ZAR 1.6 billion, impact on operating profit of ZAR 220 million and a 50 basis points impact on our margin, most notably, the impact in Logistics Africa due to the continuous alcohol and tobacco ban for the first 8 weeks of this financial period; and then Logistics International, which had a slower recovery rate post June but still a much reduced impact for the 2 half years. If you move over to the P&L, as Mohammed has mentioned, year-on-year, our revenue declined on a total continuous basis by 15%, EBITDA down 2% and operating profit down 18% to the reasons Mohammed mentioned as per above. Also to note on the depreciation line, the international depreciation also converted at a higher exchange rate than the prior period. Excluding the held-for-sale businesses, which includes the South American shipping business and Pharmed, revenue was up 16% and operating profit down 16%. The amortization of intangibles, up 12% year-on-year. That is a result of the acquisitions that was concluded in January 2020. An important item to note is on a foreign exchange guidance of ZAR 263 million. That does include a gain of ZAR 364 million resulting from a capital reduction in foreign subsidiaries post the disposal of the European shipping business, thereby the losses — the ForEx losses on monetary items, mainly in Africa, for this period was about ZAR 101 million compared to a gain in the prior period of ZAR 18 million. Our net finance costs increased by 27%. Big impact there is the residual CPG debt that is now being reported as part of continuing operations in Logistics Africa; the higher lease IFRS 16 interest due to foreign exchange conversion in our International business, and this was partly offset by the interest benefit on the European shipping disposal proceeds. This is quite an important slide to understand other nonoperating items. That includes ZAR 415 million for the impairment of the South American shipping business. But I think to put this into context, the way that the accounting treatment works is that we unfortunately had to have a split sale on the total shipping business, whereby the European shipping business was as a discontinued operation by the end of June 2020. The net gain out of that disposal in the discontinuing operations slide is ZAR 582 million. And the loss on the disposal of the South American business, which has now been classified as held for sale, is ZAR 415 million. Thereby, if we look at the total asset disposal, we had a net gain of ZAR 167 million, and that is in line with management’s expectations. The other items on the nonoperating expenses, there was some immaterial impairment of goodwill of ZAR 11 million. We had a loss on disposal of subsidiaries of ZAR 54 million, which is most notably Pharmed; a little bit of business acquisition costs. And then there was some net gains on the remeasurement of put options and contingent liabilities of ZAR 46 million, and we had some net gains on certain lease terminations and other impairments of ZAR 15 million. If we look at the main items between the earnings and headline earnings, I think the main items impacting there is the loss on disposal of subsidiaries, ZAR 54 million; the impairment of business held for sale and the South American shipping business of ZAR 415 million. But it also does exclude the foreign exchange gain on the reclassification to profit or loss in terms of IAS 21 of ZAR 364 million. That then does result in a headline earnings reduction of 4% on a total basis and 44% on continuing operations. Then management has decided to reintroduce a core EPS into our results, which we believe is a much more accurate reflection of our true trading performance. This excludes capital items. The most notable item, which I think is important for the investment community, is the amortization of intangible assets because as you recognize, even if you acquire 51% of the business, you have to recognize 100% intangible asset, but then there’s also tax consequences as well as noncontrolling interest consequences. This is highlighted in this step. But then also adding back other capital items, the remeasurement of put options, the contingent consideration liabilities as well as business acquisition costs. So looking at a core earnings performance for this period compared to prior period and from a trading perspective, down 39%. We’ve also included the 6 months of December 2018 as well as the 2 financial years for June 2020 and 2019 for comparative purposes. Moving over to our balance sheet. It remains strong. I’ll just touch on some of the key highlights. The big reduction in the transport fleet relates to ZAR 1.5 billion of transport fleet related to the South American shipping business, which has been reclassified through net assets held for sale and part of the disposal group, as well as goodwill, which was impacted by a currency adjustment of ZAR 665 million, the [money] impairments of ZAR 11 million as well as the amortization of intangibles of ZAR 195 million. A very good performance in terms of net working capital, which we do normalize seasonally during this period from a very low level that we had at June 30. But if you compare to the prior year, it’s materially down year-on-year. Just to note, I think, importantly, the net assets of the disposal groups for this reporting period is the South American shipping business. And at June 2020, it included the European shipping business and Pharmed, both of which has been concluded. There are also, I think, an excellent performance in terms of our net debt, reducing by 34% post year-end, most notably impacted by the cash inflows from operations before working capital of ZAR 2.6 billion as well as the cash flow on the net disposal of subsidiaries and business of ZAR 3.4 billion, of which the European shipping business contributed ZAR 3.44 billion. The cash utilized by operations in working capital of ZAR 1 billion, paying our finance costs and taxes, net CapEx of ZAR 301 million for this period. We did also repurchase some ordinary shares to [HC] schemes of ZAR 100 million. Dividends paid to noncontrolling interest shareholders of ZAR 52 million. We also acquired some noncontrolling interest of ZAR 118 million. That was in CB Enterprises, which we now own 100%, [equal] the further 1.2%, so that’s at 90% for ZAR 46 million and Palletways of ZAR 41 million. And also lease payments during a period of ZAR 913 million. And then also, the currency adjustment contributed decrease in debt of ZAR 225 million. Our cash flow from operating activities. As I said, well, got a good cash flow generated during a period which still had some COVID impacts in it compared to prior period. As I mentioned, ZAR 220 million on operating profit line. So that’s quite flat year-on-year. Net working capital movement quite in line with the prior period, even though the net working capital balances is roundabout 50% down year-on-year. And also, the cash inflow from operating activities include cash outflow from CPG of ZAR 347 million and cash outflows from discontinued European shipping business of ZAR 368 million. As I mentioned, net capital expenditure, extremely well managed at ZAR 301 million for the period. And this does not mean that we starve the business of CapEx. This is largely a result of Project Blue Fleet, where — especially in the South African market, where we’re optimizing our fleet, as well as the fact that in the prior year, we did invest quite significantly into new assets for new contract gains and replacements. And it does give us a good result for this period. Our net movement in associates, loans and other financial instruments of ZAR 143 million is mainly the result of the acquisition of Kiara Health in Market Access of ZAR 76 million and some settlement of noncontrolling interest loans. The buyouts of minorities, as mentioned before, relates to Eco Health, Palletways and CB Enterprises. The reduction in our lease obligation is largely a result of CPG, which reduced year-on-year, as well as European shipping business that ceased trading at the 31st of July 2020. Looking at leverage, we’re in a very strong position at this stage. Our liquidity remains extremely strong. We have ZAR 13.7 billion of unutilized banking facilities, 71% of our debt on a long-term nature, 65% of debt at fixed rates. But I think it is important to note, the fixed rate debt does not include leases. If we exclude leases, our fixed rate debt is at 40%. To note, all our debt requirements are accumulated in the banking market. Our net debt-to-EBITDA of 1.8x compared favorably against the 2x in the prior period, giving us sufficient headroom in terms of banking covenants of 3.25. But also our interest cover at 5.5x is well in line with the covenants at 3x. So how did the group perform against our medium-term guidance? In terms of our revenue growth, we achieved the guidance but unfortunately not on operating profit line as a result of COVID and other factors, as mentioned. Our cash conversion ratio, extremely positive at 90%, well above our target conversion rate of 70% to 75%. Debt capacity remains at ZAR 3 billion to ZAR 5 billion. Net debt-to-EBITDA at 1.8x, well below our 2.5x as guided to the market. Unfortunately, ROIC at 4.1% at this stage is quite a negative gap to our WACC. The impact of COVID for these 12 months negatively impacted our returns. And we expect in terms of our guidance that this negative gap should be much reduced for coming year-end. And pleasingly, we also declared an interim dividend of ZAR 0.83 per share. We have previously guided to 45% of HEPS as a medium-term guidance, but I think the uncertainty on the outlook, we’ve decided our dividend payout ratio will be assessed at each reporting period, and that’s subject to the prevailing circumstances. Net working capital of 4.1% of revenue, well within our guidance of 4% to 5% on revenue, and it’s below 10 days on a net basis. Then I’d also just like to use the opportunity to thank my finance team, [Ronklef] and his team, for the effort in getting these results done in time. But also the divisional CFOs, Rochelle, Renier and Thomas, in navigating very difficult circumstances with the impacts of COVID in our business, getting the results out in time, managing the balance sheets. It took a tremendous effort and needs some recognition. Thank you very much. And with that, I’ll hand back to Mohammed. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Thanks, George. So I think it’s quite important that we just spend a bit of time on our strategic positioning and recap what we said when we came up with a strategy to transform Imperial from a regional portfolio of businesses to an integrated, end-to-end market access and logistics business focusing on Africa. That’s what we want to be. Our competitive advantage lies in what we do in Africa. We’ve got 2 great businesses in Logistics Africa and Market Access that can provide an end-to-end service for any company looking to provide transport services, warehousing services, even sales, marketing and demand generation. So we’ve got a very strong positioning in the African market. We’ve got a very, very strong value proposition from a client and principal perspective. And that’s where we want to focus. So we also want to become One Imperial. And I think it’s important that we explain this properly again as well. One thing is to change the portfolio to focus it on Gateway to Africa in terms of expanding our network, investing more in both our Logistics and Market Access business. But for the 2 to work together doesn’t just happen. You require investment in appropriate and effective systems, processes, resources and structure. And that for me is what we have at Imperial have missed out on in terms of our African business. The Market Access business with Logistics business together is a very powerful combination. And we want to extract that benefit. And in order to do that, we’ve had to realign our management structures. We’ve had to invest in that. We virtually have got a new management team in our Logistics Africa business under the leadership of Edwin. As I said earlier on, we’ve set up a separate commercial structure under Johan in terms of consumer and health care to give you the focus. And then to bring it all together in terms of how we talk to the client as one. It is a major change for the organization in terms of how we were operating before. So if you look at just the progress, and I’ll get there, but we have made significant progress in terms of positioning the business for sustainable growth, in terms of putting in the structures, putting in systems. For example, we spent about ZAR 100 million, as we say there, in terms of providing the platform to be able to offer an integrated market access and logistics service into Africa. We have a big focus on digital and data, and we want to put capital into that area because I believe that is what will differentiate us further from our competition. We’re investing in our people, and it’s a key part of our strategy. We’re putting in common platforms in terms of our human capital processes and how we’re thinking about our talent. And we never did these things as Imperial of the past. And we are now putting those disciplines in place to be able to operate as one. And then as you’ve heard, we are a business with a clear purpose. We make a difference in terms of getting product to people, getting products to important areas in the economy, et cetera. And we want to use that purpose to play an even bigger role in terms of our social responsibility. So it’s not just about profit. It’s about profit, it’s about planet, and it’s also about our people. And I believe, with this strategy, with this focus, we will unlock value for all stakeholders. Positioning Imperial like this will be a benefit for clients, principals, shareholders and our people. So that’s just a recap of our strategic intent in what we want to become. There’s the map of Africa. And today, Imperial touches about 20 markets through its various networks across Southern, East and West Africa. Now that’s a powerful position to have. And we want to build on that, and we want to focus on that. I think it’s very important that we as an organization focus on where we have a competitive advantage, allocate capital to those areas and generate the growth in returns. That’s what it’s about. And that’s a big part of why we decided to exit our International business. We do not need that business in its current form to be able to expand into the continent, as I described. It does — it cannot be integrated. The client base, the focus, the type of logistics, it is very different to what we want to be in terms of Africa. And those areas in dark blue is quite important because we’re now able to provide market access and logistics services in those surrounding markets through a hub-and-spoke model, which we called simplified solutions in health care or in consumer or multi-market aggregation. And now that we’ve established a footprint in those key markets in Kenya, in Nigeria and Ghana, we’re now seeing the next phase of our African expansion. We would still like to get our footprint into some of the other markets that are in dark blue because they’re big markets, for example, Ethiopia, French-speaking Africa on the health care side. So the strategy is to expand our network further, either through a multi-market aggregation model or by us expanding our network in that market. So this is the 6 pillars that we call it of our strategy. And this is very important, in my mind, to understand what are we trying to achieve here. So firstly, operating as One Imperial is critical and it’s a competitive advantage. To be able to take a client’s product from a port right into an end market in the fastest — one of the fastest-growing economies in the world and biggest population is a massive advantage. But how you integrate that and how you put that to a client is very important. So we spent a lot of time in our commercial function, in our business, to get our market access and logistics business to cross-sell as well as within the verticals. So within consumer and health care, there’s a lot of opportunity to be able to leverage that network across that. And that’s a big part of our strategy is to be able to do that cross-selling and become a one-stop shop. People are our greatest asset. We want to create an environment where people want to work for Imperial, and we’re spending a lot of time and effort on this and transforming our leadership diversity and mindset around this. People in Imperial never felt part of being part of each other and working towards one common goal, and now we’re doing that. We’ve expanded our network over many years into the African continent. When I started in Imperial in 2009, we virtually had no network outside South Africa. Today, we have over $1 billion business on the African continent that’s making good returns, good margins, and we want to build on that. And that’s why we are focusing the business on becoming the leading market access and logistics business on the continent. So we want to expand our footprint, as I said. We want to ensure local relevance, and we want to focus on the main industries where there’s opportunity in our industry. So consumer and health care, 2 great industries, they’re going to have good long-term growth. But then there’s other ones like commodities, agriculture, et cetera, where we’re now starting to see how we as Imperial can play a role in the trade flow of those other industries where we have expertise in if you look at our South African business. The exit of our International business does not mean that we only focus in terms of doing work in Africa, in terms of the last mile or in terms of local transportation or distribution. Repositioning ourselves such that we can leverage our footprint and network to be able to connect trade flows into and out of Africa and create cross-selling and upselling opportunities. Currently, we can’t do that with our current setup that we have in Europe. But certainly, with the setup we have in Africa and if we cleverly exploit that opportunity in terms of how we connect it with the rest of the world, we can exploit or get further growth and benefit from that. Go digital, be digital, enable digital. That’s a heart of whatever we do at the moment. And you can see how the organization is acting on this. We — George said we saved a lot of CapEx. A big reason why we saved a lot of CapEx is because we’ve got a project where we are now managing our fleet using technology. And we’re able to redeploy our fleet across the business so that we don’t have to spend CapEx every time we win a new contract. So becoming more digital, we’re already starting to see some of the benefits in terms of CapEx. We will see it in cost and margin as we go into — get more involved in that. But at the same time, we’re also expanding into new areas of logistics we don’t play in: e-commerce fulfillment, digital freight exchanges, et cetera. And I think that is very important. Although these are small revenue generators in our economies in Africa today, with the scale and networks we have, we add this layer, we can certainly be a market leader in terms of providing those services as well in the countries we operate in. And then I think ESG is, again, very important for us. I said we are a purpose-driven organization. That was proven through the COVID-19 period where we were able to operate and provide a very critical service to the countries we operate in. And I think even with the vaccine rollout, we’re going to play a massive role as an organization in terms of helping, in whatever shape or form that is, across the continent. So there’s a lot of detail, but the purpose of the slides is to actually show you guys how we’re making progress against some of what I’ve mentioned earlier on. And for me, the biggest part of the strategy and objective of it is to achieve sustainable growth but with focus. We don’t want to get into businesses just because they make money. We want to acquire businesses that achieve the strategic objective of Gateway to Africa. We can get strong organic growth. We can add value to that business, either in terms of technology or in terms of know-how or in terms of client and principal relationships. And it’s not only an M&A strategy, as I said earlier on. I think the building blocks that we’ve put in place for One Imperial is going to achieve massive organic growth. Because how do you get to those kind of order books in terms of opportunities? How do you get to those numbers in terms of new business as well as renewal rates? It is changing the way we’re thinking about our business. And then very importantly, I believe with the approach we’re taking on One Imperial, we’re going to take out costs, complexity and building more efficiency into our business, which will make us more cost competitive and help our margin. So that’s some of the progress we’ve made against our growth. I covered a lot of that. We’ve got a very good position now in Nigeria with a contract we’ve landed there with our partners in West Africa, the Chanrai family, where we’ve now secured Procter & Gamble to do their full distribution, transport, warehousing right into last mile. And that is, in my mind, the platform we’re going to use to expand our consumer business in Nigeria, which is 200 million people. We’ve got a fantastic health care footprint in that business. And that’s where we want to put capital and growing those kind of opportunities. I spoke about the 5 new clients we added on the SSiH. And that’s very important. So what we’re starting to see now and one of the things we often get asked is when you buy a business, how do you add value to this Imperial because, historically, we’ve been running it as a portfolio. That initiative has added significant value to our health care businesses in-country. So when we get an opportunity to be able to provide a multi-market aggregation model to a client, we’re able to secure exclusivity in certain markets. And that’s the way we can add value to some of the acquisitions we acquire. I think the big question will be, so if you exit ILI and you get the capital you want for that business, what are you going to do with that? There’s enough opportunity in both the logistics and market access and near-term opportunities that we can use that capital to replace those earnings we lose, but it will be in areas that talk to our strategy, give us the right margins, give us the right returns on capital in terms of our targets. So there isn’t a shortage of opportunity is the point I’m making in terms of us redeploying that capital into our focused areas of Africa. And a big part of what follows on these slides is how we’re going to get to that growth. So one of the big things we’re looking at is our asset intensity. And we’ve made a lot of progress as a group over time. If you look at our asset turnover, it’s improved massively over the last 3 years in terms of how much revenue we’re going to generate with the asset base we’ve had, and that has increased. We don’t want to become completely asset-light, as I always say, but you have to be smart about how you leverage technology with your asset base. And that is what we are doing around areas like digital fleet management, an example I gave earlier on. So where we need to own an asset, we will own the asset because it will give us the right margin and returns. And we see that in our businesses in terms of owning the asset because it does give you a competitive advantage. But adding technology and a layer of digital expertise on top of how you manage your fleet, for example, gives you that extra edge. So I believe with this challenge and the things we are doing here, we will be able to become less asset intense and be able to show the benefits of that. Through One Imperial, we’re simplifying the business, from a complex regional portfolio, as I described earlier on, into an integrated model. And market access and logistics, we want to integrate it, as I said. Commoditized businesses. I’ve said this before. There are some businesses of ours that are being challenged in terms of new technologies, et cetera. And we have to be at the forefront of that in terms of either investing in that or exiting them. Where we can’t transform these, we have to be focused and clear about it. They’re not key businesses if we can’t transform them into growing businesses with Imperial. And I think over the last 2 years, we certainly have shown how we’ve made those decisions and have exited businesses like Pharmed, like our shipping business, selling our South American business and also identifying now our international portfolio. So we’ve been very clear and focused not only around the acquisitions but also what not to have in the portfolio to achieve our ambition. In the investment in digital space, we’ve got now 5 companies that we’ve got an investment in around the strategy, a digital pharmaceutical distributor, digital freight forwarder. And all of these investments, they might be small now, but with the scale we have and with the expertise we have, we combine it with some of the clear ideas that these entrepreneurs have, we can certainly take Imperial into a new space. We’ve just announced the acquisition of a business called Parcel Ninja. It’s a small acquisition, but it will give us the capability to be able to do warehousing and distribution management in e-commerce, which is a very important area that we want to focus on as a logistics and market access business. And then just from an organization point of view, we had to invest in technology or to get into a data lake situation where we could be able to analyze our businesses based on information rather than gut. And that has been set up now, where we are now starting to use data to make decisions in our business. So just a bit of color on what are we trying to achieve with our digital and IT strategy. On the left-hand side, we’re trying to improve Imperial in terms of becoming more efficient, in terms of taking out too many systems, moving to one finance system, moving to common platforms, et cetera. And that, for me, will drive efficiency in the business on the left. And then what we’re doing on the right is repositioning Imperial, where we want to become a digital distributor and take our route to market and add mobile commerce and add point-of-sale integration to that. Because if we do that and you add that layer to 50,000 points of sale in Nigeria, for example, you just go further, further ahead of your competitors. And we’re looking at that in the same way in terms of how we can become more digital along our key capabilities of freight management, LLP and contract logistics. So this is a big focus area. We need capital for this, and we will invest in this because I certainly believe that getting the efficiency right on the left and repositioning Imperial on the right will create value on our strategic path. Yes, just to make a point here, we have transitioned now to becoming One Imperial in terms of organizational structure. That wasn’t there 12 months ago, and it took a lot of time and effort and money to get there. So the structure now is set up. We’ve got new management teams in big parts of that structure, and we set up now in terms of us being to operate as one, we now have to execute. But as I say, it’s not a 1-day game. We have to think about our investment in terms of our systems. We have to think about our One Imperial finance strategy, and that requires a lot of capital, but we will see the benefits of that. But we first needed to put the structure in place, we needed to get the right people in place. And now that is in place, we can now execute on that path in terms of moving from a decentralized business to more centralized business. And again, ESG, as we mentioned there, is a big focus. So sorry, I took a bit more time on that, but I thought it was just important to recap our strategic positioning and what we’re doing and how the ILI decision fits into our thinking going forward. This is our guidance for financial year 2021. Certainly, this is subject to stable currencies, the steady recovery continuing and no further lockdowns. And it is uncertain. So this is based on our best information we have. And with the low base, as you all know, we have in the second half and this first half performance, we certainly believe we can achieve double-digit revenue growth, double-digit operating profit growth as well as double-digit growth in continuing headline earnings per share and continuing EPS. Our cash flow generation was excellent in the first half, as George said. And we expect that to continue in the second half as we manage the balance sheet and cash flows very well. We’ve got a strong balance sheet. And with some of the strategic decisions we’ve made around the exit of our international shipping business and our international business in Europe, we certainly have got enough capacity and liquidity to redeploy that into our strategic growth path. I spoke about the strong pipeline of new business, and we’re focusing on how we can convert those, as I said, into new contract gains. And also big focus on integration of acquisitions. And I can give you various examples of how we’re doing that. And I think the structure change, for example, in market access where we’ve created now a consumer and health care vertical, that will allow us to position Imperial as a Pan-African market access business, Pan-African Logistics Africa business. And the conversations we’re having with our clients and principals are not now about one market, it’s about multiple markets. And I certainly hope we build on the successes we’ve had in this set of results as we go forward. So from my side, I’d also like to thank my team as George thanked his team. It has been a difficult 6 months because we’ve had to focus the business on achieving results, maintaining a strong balance sheet and cash flow, and we’ve achieved that. But at the same time, we are transforming this organization to something very different to what it was. And those 2 things are not easy to do, especially in a difficult environment. And I’d like to just thank all of you on the line for your efforts in achieving the progress we have made. So thank you very much, and we’ll take questions. ================================================================================ Questions and Answers ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Thank you, Mohammed and George, and good morning, everyone. There are quite a few questions on the webcast. So we’re going to try to get through as many of those as possible. So just starting off on the International business. A few questions from Zaid Paruk from Aeon Investment Management. Why was the decision made to divest of the International business? Does the management team not expect the same growth when the businesses were purchased a few years ago? Also, certain businesses appear to be doing well, please take us through management thinking. Mohammed? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. So just to be clear, it’s not about the fact that they are not good businesses. They are very good businesses. And as you rightfully say, they are performing well even in a very difficult environment. So it’s purely about us focusing on our strategy and saying, can we get a better return on capital and can we achieve better growth by utilizing that capital focused on where I believe our competitive advantage is. So it’s not about that we’re not happy with the performance of the business or that it’s got good capability. Just that we, with our strategy now, have decided that we have a more focused strategy — rather than being an international logistics business, we want to be a focused Africa business. So that’s the reasoning, not about the performance. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Another question from Zaid is a follow-up to that. And I think you did touch on it, Mohammed, in the presentation. Please, could you provide us with an indication of what the proceeds of the Logistics International business would be used for? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– So yes. So as I said, you can see over the years, we’ve built a fantastic footprint in Market Access across Southern, East and West Africa. We want to build on that. So Nigeria, we’re a strong health care player, for example. We want to expand into consumer there. Same on the eastern side of the continent, we are a strong health care player. We want to look at expanding into consumer. So that’s where we will spend money in the Market Access side. On the Logistics Africa side, we haven’t really exploited, in my mind, opportunities around our capabilities in the key industries like agriculture, commodities, industrial products that we move in South Africa and Southern Africa and exploit that capability into other markets in Africa. Because we are a very strong player in Southern Africa in terms of moving product within and cross-border into SADC, but trade flows east and west. There’s a lot of opportunity in that. And if we can expand our capability in Logistics Africa in terms of freight management outside of those geographies, Imperial can play a key role in terms of moving trade flows in and out of Africa, not only north, south, east, west, but also into other key trade lanes. So that’s where we want to put more capital. We’re also investing, as I said, a lot of capital and time in our existing business. So some of the digital things I mentioned around point-of-sale integration, around our digital fleet management, will also need money. And it’s not just about using the capital in terms of expanding through acquisition but using that capital to take our Logistics Africa and Market Access businesses to the next level. Yes. So I think that’s how we want to use that money. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Just a few more questions on International. So another question from [Eisengruber], [Fosten.] When the strategy Gateway to Africa was established, wasn’t it already clear at that time that the International business could not be integrated into the strategy? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– No, it was not clear because we had to clearly think that just by virtue of the fact that it’s in a different jurisdiction, it doesn’t mean it can be integrated. So we had to go through a thorough review to see which parts of that business can be fitted in and which parts not. And through that process, we identified quickly the inland waterway shipping activities cannot be integrated. And we didn’t want to make a quick decision and just say, no, let’s just exit the whole thing, but follow a methodical process. But the one that we knew didn’t fit in was barges or inland waterway shipping. We will not do that in Africa. And we will not expand inland waterway shipping into any other markets that we were clear about. So let’s exit that. But that gave us time to understand is the opportunity with our contract logistics business and Palletways business in terms of integrating that. And we came to the conclusion there isn’t and there’s a better use of capital in line with our strategy. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– A few questions from Ross Krige at JPMorgan, just on the International business again. How far along are you with the planned exits? And has communication with any potential buyers begun? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. So as we say, the objective here is to maximize shareholder value, Ross. Obviously, with this announcement, we are going to be inundated, I guess, with approaches. And we will assess them on a case-by-case basis. But we’re certainly not running a sales auction process as we speak in terms of exiting that business because also the one who — like I said, we want to take our time about maximizing value. So yes, I mean, I’m sure we will get approaches, and we will deal with that as part of the process. Timing-wise, it’s so difficult. M&A, anyway, is difficult to predict. But certainly, in this environment, it’s a lot harder. So yes, I’ll give more color on that. We’ve just announced this now, and it’s — it is something that we had to make a decision on. But now we will follow the process to find the right path. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Second question from Ross for George, how much more cost is expected in relation to the CPG business? ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– No, that’s now largely been done. There’s very little left. There’s 1 or 2 assets that still needs to be disposed. So from a net cash flow position, this is now largely done. I think there’s around about a potential ZAR 50 million or ZAR 60 million left for this second half, but then it’s done. There’s no more post that. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Final question from Ross for Mohammed. Could you expand a bit on the acquisition pipeline? What are the best opportunities? Maybe just to add from where you started with the presentation. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. So I did cover this. For me, the best opportunities are expanding our Market Access business. It’s a great model. We’ve got the scale now. We are the #1 market access business in sub-Saharan Africa, along consumer and health care. And there are gaps, like I said, that we can fill. And we’ve got a pipeline of opportunities to fill that. So we’ll execute on that in the next 6 to 12 months. We are looking at transactions there. And then like I said, for the last 10 years or 11 years, the focus has been on expanding Market Access on the continent in terms of getting a footprint. But like we’ve seen in South Africa, there’s a place for the 2 to live together. We are exploiting logistics and market access opportunities in South Africa very effectively today. And we want to take our logistics capabilities across the industries, we have capability in South Africa into the other markets. We never did that. And for me, that’s a big opportunity. If you look at our expertise in moving fuel, chemicals, commodities, agricultural products, we know how to do it, and we know have to do it very well. So I think we rather — but we want to also look at that because the last 10 years has been all about market access, market access, market access. And I think the time has come now with a clear direction of Gateway to Africa. And moving trade flows across the continent, in and out of the continent, you need logistics to back that up. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Mohammed, you spoke about market access in South Africa. So the next question is from Shaun Bruyns from Mazi Asset Management. Can you provide some insight into your market access opportunity in South Africa? At the last investor interaction, you mentioned that you were looking at brownfields or acquisitions in South Africa to create a platform similar to what diplomats have on the ground in South Africa. In this presentation, you seem to have downplayed it. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Not at all. We’ve got a — we landed a major client in our Market Access business in South Africa without doing an acquisition. So I may have said that at the time, we would look at acquisitions as an option, but we don’t need to. And the reason why we don’t need to is we have a logistics business that does consumer goods and pharma distribution in a very deep and wide network in South Africa. So just to give you an example of that, in our Logistics business, we go to thousands of points of sale in terms of providing dedicated distribution solutions for their client. In fact, it goes into the informal market and formal retail market, wholesale market. So we’ve got the network. It’s now about going to those clients and saying to them, in addition to providing your logistics services into these channels, let us also do your sales and marketing activities that we do for you in Africa. So there’s a massive cross-selling opportunity within our client base in South Africa because the same clients, we do market access for them in markets like Mozambique, Namibia, Botswana, Kenya, et cetera. So for me, we don’t need to buy anything. We can organically become a significant market access player, just leveraging on our logistics platform in South Africa. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– So some questions now on air and ocean from [Morney Higgs] at RMB. Will you look at partnerships with air freight companies to expand your freight strategy? Don’t think you will own the assets again. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes, absolutely. As I said, we’ll consider all options now in terms of how we play a role in terms of getting product into and out of Africa. And you’re quite right. You don’t need to own the asset to be able to do that because you can become an African partner for some of the major air and ocean players. And with the distribution platforms and networks we have in-country, that’s a very attractive proposition for them because they don’t have that. None of the big multinational logistics players have got the freight contract logistics, market access, in-country distribution networks we have. And we can certainly use that in a partnership-type discussion. So yes, we’re certainly looking at all of those options because I do think that, yes, we play a critical role in terms of moving a product when it gets into a port or when it’s landed or within a country. But moving it between continents is a big opportunity. We do that to some degree with a business like Imres on the health care side and certainly with Axis, the recent acquisition we made. But a lot of that freight volume, we just give to our competitors to do. We’re actually the decision-makers in a lot of these purchases. We buy stock from these principals that come from anywhere in the world. And connecting that as part of our service offering is definitely something we’re looking at. But we don’t have the capability, and we need to exploit that. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– So Kgosi from Citi also wanted an update on air, ocean. So we’ve covered that. Second question from Kgosi, how much capital will be required for your digital and IT initiatives and over what period? And what sort of returns would be anticipated from these initiatives? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. So we are looking at this on a case-by-case basis. Obviously, we’re looking at where are the low-hanging fruits. And for me, the initial spend on that will be largely on projects like our digital fleet management, projects like our One Finance. So I’m not going to give a number. I do have the number, but I’d rather us give that as we are rolling out these projects — because it’s not all going to happen in 1 year. This is a staged process. And it also depends on how much the organization can handle in terms of that. So yes, it will be significant, but we are breaking it up in a way that we can handle it from a capital perspective and a resource perspective. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Question for George from Lebo Mathibeli, also from Citi. Are you able to provide CapEx guidance for financial year ’21? ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– Yes, we can definitely do so. Our normal guidance is in line with our depreciation, excluding IFRS 16. That’s around about ZAR 1 billion. My estimation at this stage is that we would be right about 90% of that number for full year. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Thanks, George. Questions from Roy Campbell at RMB Morgan Stanley. The lower margins from acquisitions in Ghana, is that the true underlying margins and sustainable? Or can these improve over the medium term? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. Just remember, and I didn’t say it and I should have, there is also a mix change in Market Access in that consumer is lower margin than health care. So yes, it is a lower-margin business than our health care business. But for FMCG business, it’s a great margin because of the velocity. So if you look at the working capital cycle of our consumer business, it’s virtually double in terms of its velocity on the balance sheet, as George rightfully says. So the margin will be less, but we get very good returns. So no, we’re very happy with that margin for consumer business. It is the benchmark. And we obviously want to get all our other consumer businesses to that kind of level. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Some questions from Munira Kharva now at UBS. Thank you for the presentation. On the Market Access business, can you talk to us about some of the pressures your clients in those regions are facing, both from a supply chain and financial perspective, as well as the consumer and access to dollars? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. So remember, in Market Access, our principals are largely multinationals that want to get their product into markets like Nigeria, Ghana, Kenya, et cetera. So we work for massive multinational. So there’s no financial pressures certainly on them. But what we are seeing is that multinationals want to work with a trusted partner in Africa. So Africa, in many of these multinationals’ lives, is not a massive part of their business, but they can’t afford not to be in Africa. And they need then a certain setup in a market to be able to get their products sold in that market. And that’s where Imperial plays a perfect spot because we are — we’ve got a network across so many markets. We’ve got a strong balance sheet. They know, with us, their credit risk is safe. And we use that opportunity then to provide those outsourced services they would not normally outsource to. So I think we’re certainly seeing that trend that multinationals, I think, and this ambition in Africa that they want to say, have their own setup here and invest seriously in infrastructure and people, and they’ve worked out that Africa is so different and each market is so different from each other. It’s probably more optimal to do an outsourced model. And I think that’s where we are really well positioned for that. In terms of currency, George, maybe you want to talk about our liquidity. ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– Yes. So we do source sufficient dollars in all the markets for importation of products. As we previously stated, Nigeria is round about 25%. We source the round about $3 million as per our requirements on a monthly basis. So that’s an issue. The other main market where we import to is Kenya, and we do saw sufficient card currency in those markets to settle the obligations. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Thanks, George. And just the final question from Munira. What is the value range of the prospective acquisitions you are considering as available? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Well, I mean, you got to look at your capacity in terms of how much acquisitions can you do based on your current balance sheet. And where we are at now, we certainly have got significant firepower to do acquisitions and not to go to 3.25x. I mean we always said that we would go to about 2.5x and give our sales headroom between 2.5 and 3.25 and not push the balance sheet to that degree. Plus, we generate strong cash flow. So we generate anywhere between ZAR 500 million and ZAR 1 billion of fleet cash flow a year. So within the current capacity we have and the cash generation we have, we can fund all the opportunities we have in the pipeline. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Two questions from Nipho at 36ONE Asset Management. So he’s basically said that we’ve mentioned in both the press release and during the presentation around the potential size and opportunities of the vaccine distributions in Africa. Please, can you just expand or talk a bit more about this, Mohammed? Would there be a need to invest in extra capacity? Or is it existing capacity and infrastructure currently sufficient? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. No, I mean, if you take a market like South Africa, we certainly have enough capacity in our health care network to handle the vaccine. So we wouldn’t have to put up significant capacity for that. Even storing the very cold vaccine or the minus 70 degrees, you can store it in a fridge, but by using dry ice, you can maintain the temperature. So no, based on how we have positioned ourselves, we’ve got sufficient capacity. We really have sufficient capacity, I would think, in Kenya and Nigeria. We do actually do vaccine distribution in some of these markets already. So we have the setup. No, we will need significant CapEx. Maybe we’d need more vehicles and… ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– Some working capital. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– some working capital and maybe a few more boxes, ice boxes, but not significant, not massive infrastructure. We’ve got that. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Nipho’s second question for George. Please, can you unpack the divergence between EBITDA, which was down 2% year-on-year, and operating profit, which was down 18%? Was it only exchange rate that led to such an increase in depreciation? ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– Yes, that’s 100% correct. The International business, part of the depreciation is material. And the conversion of that depreciation charge year-on-year is at a much higher exchange rate. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes, because you straightline it as well. ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– Yes. You don’t need a straight line. And that’s both obviously owned assets as well as leased assets. And there’s also, as I said, one portion of the interest [board], the finance charge went up, is also part of the leases is the interest portion, and that’s also converting at higher rates. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Thanks, George. Just in the interest of time, I’ll take the final set of questions from the webcast before we move to the conference call, which is from Rowan Goeller from Conax. Rowan’s first questions, have you identified a set of peer group companies you would like to emulate with your current strategy? And in logistics, is diversity or focus more important if you look at successful companies in the sector? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Yes. So certainly, what we’re trying to do with our strategy for Africa, there are companies in Asia that do a similar thing where they combine logistics, sourcing, procurement, market access. The company that comes to mind, Rowan, is DKSH. They have a similar model in the Far East region. I would say that’s probably the best comparison of what we’re trying to achieve with logistics and market access. On the logistics side, yes, I don’t think there is a company with the capabilities we have certainly in freight and contract logistics in Africa. Lots of our competitors in the South African market don’t have market access or they don’t have business outside of South Africa. So I think from a South African context, it’s easy and you know who our peer group is. But from an African context, I would say, DKSH is probably the best. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– And then just a final question from Rowan. Are there competitive issues you are considering in being a third-party logistics provider and an importer distributor agent if you’re looking at logistics and market access in the same country? ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Is there a competitive issue? ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Competitive issues, correct. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– No, because that service is required as part of the value chain because where we’re not a logistics provider, we still have to arrange the transport. And at the end of the day, it has to make sense to the principal because the landed cost of the product and the cost that goes into the market at is critical for their sales. So it doesn’t mean you can price what you want because they will test your pricing in terms of offering logistics and market access together. So no, at the end of the day, we’re not seeing that as a pricing thing but more us becoming more integrated with our clients. But it’s definitely — they know what the logistics costs are in terms of road and warehousing, et cetera. So you — it’s more for us to create an integrated model and provide an end-to-end service rather than a margin opportunity. ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Thanks, Mohammed. Just checking, are there any questions from the conference call? None. ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) ——————————————————————————– Esha Mansingh, Imperial Logistics Limited – EVP of Corporate Affairs & IR  ——————————————————————————– Well, I think let’s leave it there. And if there are any follow-up questions, we’ll revert directly. So that’s the end of Q&As. Thank you. ——————————————————————————– Mohammed Akoojee, Imperial Logistics Limited – Group CEO & Executive Director  ——————————————————————————– Thank you. ——————————————————————————– J. George De Beer, Imperial Logistics Limited – Group CFO & Executive Director  ——————————————————————————– Thanks very much.