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Edited Transcript of IPL.J earnings conference call or presentation 27-Aug-19 8:00am GMT

Full Year 2019 Imperial Holdings Ltd Earnings Call

Johannesburg Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Imperial Logistics Ltd earnings conference call or presentation Tuesday, August 27, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Esha Mansingh

Imperial Logistics Limited - IR & Communications Executive

* George De Beer

Imperial Logistics Limited - CFO & Executive Director

* Johan A. Truter

Imperial Logistics Limited - CEO of African Regions

* Mohammed Akoojee

Imperial Logistics Limited - CEO & Executive Director

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Conference Call Participants

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* Ian Cruickshanks;Institute of Race Relations;Analyst

* Nick Webster

HSBC, Research Division - Head of Equity Research, SA and Analyst

* Mike Brown;The Investment Analysts Society

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Presentation

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Mike Brown;The Investment Analysts Society, [1]

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Right. So good morning, ladies and gentlemen. I'm Mike Brown from The Investment Analysts Society. I think that all of the other doors are closed, so let's get going. We're being hosted this morning by Imperial Logistics Limited. The -- I think, as we all know, late last year, there was the unbundling from Imperial Holdings of Motus, the motor investments and CPG, the consumer packaging, separate listing of those and now Imperial Holdings changed their name Imperial Logistics. So we're now talking about a logistics company, freight forwarding, transportation, warehousing, et cetera. It says on the website, it's one of the top 25 logistics companies in the world. And this is the first time we'll hear from the company in its changed form.

So I'm sure there's going to be lots of financial stuff to talk about, discontinued operations and IFRS and whatever have you. But I think also about the structure and strategies of the company going forward. So without any further ado, I'd just like to thank Imperial Logistics for hosting us this morning on behalf of the Society and also the chance to meet with the management and to network afterwards.

So over to you, Mohammed. Thanks very much.

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [2]

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Thank you, Mike, and good morning, everybody, and everybody on the webcast. Our ExCo is here this morning as well in the front row, all looking very smart for a bunch of transport guys. So you're looking good.

If you go through the agenda for today, I'll go through the overview and just a bit about the markets in terms of what we experienced in the environment. I'll go through some detail on the different regions, and George will cover the detailed financial stuff. There's quite a lot of once-offs and IFRS impacts on our numbers. So I'll leave that to George to deal with. And then I'll come back and do the strategy and look at the prospects, which is obviously very important.

So if you look at the results in terms of the key features, it's clearly not a great set of numbers. And we're not satisfied naturally with the performance when you show your revenue up, which is pleasing, but then you show the operating profit down. But we did have quite a few once-offs in our numbers, and I'll elaborate on that later. But if you exclude the once-offs, then we weren't down 9%, we were largely in line with last year and down about 1%.

Our continuing HEPS, which excludes Motus and CPG, which are 2 businesses that are discontinued now in Imperial's results, we were down 7%. But very pleasing: our cash flow generation and balance sheet management in very difficult circumstances was very good. So while we didn't deliver on profits, we certainly, whatever profits we made, we converted it into strong cash flows. And our cash was actually up from last year, which is a feature of Imperial Logistics going forward and a change from the past, which I'll touch on later when we get to the strategy. And we've paid ZAR 1.09 per share final dividend, bringing the total dividend for the year to ZAR 2.44 per share, which is in line with our 45% guidance that we've stuck to. As I said, our cash conversion was great, and that was at 72%. Our balance sheet remains in excellent shape at net debt-to-EBITDA of 1.6x. Returns, not as good and there's a bit of work to be done there, and I'll cover that a bit later.

And then, despite a very difficult environment and volumes being under pressure, particularly in Europe and South Africa, we were still able to maintain the contracts we have and renew them at a rate of in excess of 90%, which tells me that whatever we're doing in the market is relevant for our clients and we need it, which is important. And we've added new business revenue of ZAR 5.6 billion. To put that into context, we make about ZAR 50 billion of revenue. So obviously, the ZAR 5.6 billion can't come all in at once, but over the year, that's the new business we generated, which is good.

As I said, it is not a result that we're satisfied on. We obviously, despite tough conditions, would still like to achieve growth for our shareholders. But in the circumstances, as I said, if you look at the trading conditions and then the significant once-offs we had to deal with, it's not that bad. And when you look at the cash flow, certainly, there's some very good elements that come through the numbers.

Our African Regions business had a very good year and showed good growth year-on-year. We were up about 8% in that business. And it's mainly because of the sectors we're involved in. We're a big player in the health care sector and the consumer sector, which are defensive industries to be in, and we act as a distributor there, where we take product into many points of sale in markets like Nigeria and Kenya, et cetera, but I'll cover that in more detail, but that business had a good year.

I'm not going to belabor how tough South Africa was this year. I mean, I think you guys all have read all the negative effects that the economy is going under and we certainly were impacted by that where our volumes, particularly on the consumer side, were low. We did have good volume on the commodity side and on the fuel and gas side, which countered it a bit. And then we also had a very strong performance from our Resolve business, which is where we act as more of a 4PL player in terms of consulting solutions, et cetera. So that was quite strong.

But I think also that's a function of the environment. I think in this kind of market, lots of companies are looking at the supply chains and looking where they can extract efficiencies, take out costs, and that's where Resolve plays a massive role in terms of supply chain consulting, supply chain management, et cetera. And that's a big business now in Imperial. It's about a ZAR 1 billion revenue that we make out of those services.

Our International business also had difficult conditions. The German economy is under huge pressure. German industrial production, automotive, manufacturing, chemicals, all the sectors we are in had just a massive decline year-on-year. And that's a function of the global economy at the moment. And with all the fears of trade wars, et cetera, we are starting to see that impacting our export markets in Germany. We also had to deal with the one-off effect of the WLTP, which we reported on at the interim results, and that had an impact, and I'll cover that later as well, just to show you that.

But we, as a management team, did not sit still. We -- as I said, when we got to interims, we were going to take costs out. We were going to restructure the business and really use this difficult time to look at the business from a portfolio point of view, in terms of which businesses do we want to be in and also look at the businesses we're in and how much cost we can take out. And to take out around ZAR 400 million of annualized costs, which was largely in our International business and South Africa business, is work we had to do internally. You won't see that benefit in this year's number, but you'll certainly see that going forward into 2020.

But it's not just about taking out costs and improving your profits. There's a longer-term benefit to this. It makes us more competitive in our markets. So in our International business, in our South African business, by taking out these costs, we're able to grow the top line because we just become so much more competitive. And as I said, if you take out the once-off effects of the restructuring, which cost us around ZAR 170 million, and the impact of WLTP, which was about EUR 4 million, our year-on-year performance was down 1%.

So one of the big tough decisions we had to make in the last 6 months was to -- as I said, to decide what do we do with CPG, and I'll show you later. If you look at our South African business, excluding CPG, it's a fantastic business in terms of performance, margins, returns and cash flow. And CPG has been something that has been pulling us down for a number of years. So we made the decision to exit the business, but exiting a business of that size comes with pain. And we've obviously had to make provisions for closure costs. We had to impair goodwill in that business, and we've classified it as a discontinued operation.

A lot of the revenue in CPG, we aim to retain, and we're making good progress in that, in terms of taking the clients, particularly in our ambient business, taking them from a multi-distribution model into a dedicated model. And we will retain a lot of our clients through that process because the clients see the value of the service, but we had to just turn the model around and integrate them into our dedicated contracts business.

So through that process, we will not lose all ZAR 3 billion of revenue from the discontinued operation. We will exit those contracts in CPG, but then enter into new contracts with clients on a more dedicated basis. And that is also on the health care side because we had some good consumer health clients.

And I also just want to make clear, we're not exiting consumer in South Africa. The consumer is a massive part of Imperial's business in South Africa and in the rest of Africa. And even without CPG, we will make around ZAR 4 billion of revenue out of the consumer health and consumer side of our business after CPG, where we will lose the ZAR 3 billion.

On the cold side, we are busy looking at exiting that business through selling it, and we proceed with that process. So I think in getting to closure, retaining the clients and also not retrenching everybody by retaining the clients and the people and exiting it eloquently, I think we're well on our way to finalize that, and we're targeting to complete this in the last quarter of this calendar year.

Then we also impaired goodwill to the value of ZAR 1.1 billion. But I would like to pause here at the risk of getting into too much detail, I'd just like to explain to you guys how complex goodwill is on your balance sheet. Because it's important you understand it, because I sometimes think when you guys see an impairment of goodwill, you necessarily think it's a bad business and it's loss-making and it's a CPG situation.

Yes, CPG and impairment of the goodwill was because that was a bad business. We are required -- so goodwill is a complex thing to have on your balance sheet because it's an asset that you can't depreciate. So it's not an asset like a vehicle or a truck or warehouse or whatever it is. So you can't depreciate it. You -- there's no market value for it. So it's not like a car or a truck where there is a market for those things. But yet we're required from an accounting point of view to fair value it. But here's the problem then, you can only fair value it down, you can never fair value it up. So what I'm saying is that -- and then what goes in determining the calculation of goodwill is a number of macro factors. For example, growth rates. So you've got to predict growth rates of a business at a point in time in the market. Now who can get that right in the current climate? So obviously, the outlook for global growth and South African growth and Africa growth is negative. So that has a negative impact when you're valuing a business that has got goodwill. Then WACC rates. Those have all gone up because there's more uncertainty in the market, et cetera, et cetera. So those are factors at a point in time you have to take into account in valuing CGU. And those things change. So yes, so these are -- it's like a marking to market every year that you've got to do based on these factors. But say next year comes and the global growth outlook looks better and the WACC rates look better, we are not allowed to then write it back.

So what I'm saying to you here is that don't think that this write-off is a CPG, where we've got massive amounts of other underperforming businesses and that are loss makers. There's many businesses in that number that we've written off that are profit-generating and they're making cash and they're producing the results, and there's a cash flow, you can see it. So all I'm saying is just be careful that we don't pay goodwill impairments for bad business versus the goodwill charge we had to take into account because it's a complicated thing.

So George will cover that in more detail, and we'll take more questions, but we had to take this impairment because of the deteriorating macroeconomic conditions, depressed growth outlook, uncertainty, increasing WACC rates. Now if you had done this sum 3 years ago, you would go to a different sum. And when I do the sum next year, I probably will get to a different number. But say I get to a higher number now, the accounting doesn't allow you to write it back. And that's the problem with these things. Anyway, our balance sheet management was very good. As I said, we've got significant headroom in terms of our liquidity and the ZAR 12 billion of unutilized facilities. Our net working capital was very well managed. We only went up by 3%, but we had good revenue growth of 6%.

And this is a key number. Net CapEx of ZAR 1.1 billion. Now I have said many times and even in my previous roles at Imperial that the asset mix in this business has changed dramatically. So 5 years ago, we were spending probably double that on CapEx. We're now spending as much as depreciation on our CapEx. And that includes expansion CapEx.

Now what that means is that your free cash flow generation is phenomenal. And that's a major change in this logistics business. So let me unbundle the first question everybody asked us, you're getting out of Motus. That's your cash cow. How confident are you that you can still generate cash, you can grow your business, you can buy businesses and you can pay dividends? And when George takes you through the cash flow, he will show you that even after paying a dividend, we would still be left with some money. So I think that is a key feature in the numbers that don't get lost in all the income statement things, really look at the cash flow, because that's also a sign of the future cash-generating ability of the business.

Okay. So if we go to the operating context, I'm not going to spend too much time on this. You guys know more than me probably about what's going on around the world in terms of the economy. In a nutshell, it's very difficult. And I think that's consistent probably with many of our peer group you'll talk to and other companies that are exposed to due to the markets we exposed to.

So South Africa, we still see volumes not recovering. We're also under continuous margin pressure from our clients. And this is important because -- and that's why we had to do the restructuring and the cost cutting, because we in South Africa have been in a prolonged low growth environment. And our clients have also seen massive volume pressures. So what happens is that pressure gets passed on to us. And if we're not conscious about our cost base, we will just either lose the client or we will not make enough margin.

Fortunately, in South Africa, we've got scale, we've got diversity, we've got 4PL services, we've got 3PL services, and we're able to ride the storm. And I'll show you how we've done that in a slide that demonstrates the resilience of the South African business, excluding CPG.

In Africa, we're in very particular markets in Africa in that we are in health care and consumer, 50% of this business makes it money in the health care industry. But we're not a logistics provider. And this is a big difference between Imperial and any other company that's in logistics. We take stock ownership in the distributor model. So we act as a market access point for multinationals like GSK, Pfizer, AstraZeneca, Heineken and you name it. And we actually sell the product into the market. So the route to market is what we go into, and that is a key differentiator because if you've got the route to market and if you've got points -- if you've got access to the points of sale, you are very valuable to a principal like GSK.

And that's the difference between our South Africa and Africa business. In Africa, we are a logistics provider. So we are cost to somebody's income statement. In the Africa business, we're not a cost, we are a sales organization. So the difference is a major difference. When you're selling for somebody, you're a partner, and it's all about how can we grow your sales, how can we help you grow. But when I have a discussion in South Africa, how do you take out cost off my supply chain. So just to give you a bit of a difference in terms of what the businesses do.

So there, we also had difficult conditions in Nigeria -- sorry, Namibia and Zimbabwe. Obviously, we do a lot of cross-border work through our managed solutions business and with all the issues around currency in Zimbabwe, we hardly moved any product cross-border in the second half, and that did impact the performance. But despite that, our Nigerian, Ghana, Kenya and Mozambique business did well. And even Namibia had a good year.

Europe and the U.K., again, it was very difficult in terms of the sectors we're involved in. There's a risk of recession in Germany. We also had cost pressures there because our employment costs went up. There's a scarcity of drivers. Can you believe that in Europe? You can't get enough drivers, so you've got to get in temps sometimes. And that increases your cost base. And that's not easy just to pass that on to your clients in a low inflationary environment.

We also had to deal with low water levels, which impact was largely mitigated through the support we got from our customers, but we also obviously benefited from increased freight rates, particularly in our chemical and gas fleet. And then we had the WLTP issue, as I said and we reported on that.

And then the U.K., Palletways is not a cross-border transport business, where Brexit will impact its volumes in terms of moving product from the U.K. into Europe, but it will be subject to, obviously, the negativity around the economy and the political uncertainty that Brexit creates. But Palletways had growth this year. And from a performance point of view, is still performing, as I said, at the interim results ahead of the pre-acquisition operating profit, and we've fixed a lot of it, which I'll talk to and Hakan is here as well to take any questions you guys have around the turnaround plan in Palletways.

So that's the business geographically. That's only one way to look at our business, and it's an important way to look at it, because only -- okay, in these results, if you take out the once-offs of ILI, only about 1/3 of the business is actually in South Africa because if you add back the restructuring costs and the impacts of WLTP, the 38% in South Africa actually drops to around 33%, 34%. So 2/3 of this business is outside South Africa. It's not -- so we actually make more money outside South Africa than in South Africa, and that's a big change, post the unbundling. Prior to unbundling, we were 60% in South Africa, 70% with the Motus business.

So the South African business, you guys know well, it's really a market-leading business. There isn't anything in the supply chain across the industries we operate it we cannot offer a client a service, we've got scale. I showed you the -- and I'll show you later, the new businesses business is generated in the margins and returns on capital. So that was down on last year, but still, in a very difficult environment to make a return on capital of 13%, considering the headwinds we faced, I believe is a very credible performance, excluding CPG.

And then if you move to the right, pharma. And there, we have really over time, so 10 years ago, we didn't have this middle region. We made 0 revenue from the rest of the continent 10 years ago. Today, it's almost the size of the South African business. It's generating returns on capital of 16% in fast-growing economies, in defensive sectors, generating cash. This is an asset-light, cash-generative business. As I said, we buy and sell product here. Obviously, these logistics services that support that. But our biggest function is we create market access for clients into countries like Nigeria and Kenya.

Our International business is very different to the South Africa and African business. And that's the business that we've obviously spoken about before where we're looking at the portfolio. And there will be some movement there in terms of disposals or potential disposals and obviously, using that capital there to invest in areas that strategically align with our Africa footprint. Because if you take our South Africa positioning and our African positioning, we operate in 11 markets, 12 markets in Africa, generating ZAR 25 billion and over ZAR 2 billion -- close to ZAR 2 billion of operating profit.

Now how do we leverage our International business to make that even more powerful? And that is the plan with Europe, and I'll talk about that later. So it had a really difficult year, but as I said, we had low water levels, we had the WLTP issue, we've had the once-off restructuring costs, so a lot of noise in these numbers, and clearly, this is a very low base going forward. But those are the profit numbers and return on capital, and it makes -- it contributed about 31% to the group.

So this is the point that I was making earlier on. When I say the South African business is really a good business, and it's really resilient. So there's the revenue and operating profit performance of the business over a 4-year period without CPG in it. So yes, it looks mediocre. But what has our economy done in those 4 years considering the size of the business in South Africa and considering the market conditions?

Now if you can hold your profit and your cash flow because this business also is very cash flow generative. It's no longer as asset-heavy as it used to be because we've converted a lot of our asset business into non-asset businesses through using subcontractors, growing Resolve and demand. So over time, it's become a lot more asset-light, but it's been able to also hold its own in a very difficult environment. Now remember, where do we play here? We play in consumer, we play in industrial, we play in the construction industry. We are a very broad barometer, or obviously -- a broad indicator of what's going on in the economy from a growth point of view. And there are certain sectors that were there 4 years ago that's not there anymore. Take the construction sector. It's been decimated over the last 4 years. Now that was a big profit generator for Imperial, where we moved a lot of cement, et cetera, et cetera. But -- so what I'm saying is that if you take the business, excluding CPG, it has grown 5% per annum over the last 3 years. It has generated returns on capital of 16%. That one bad business that was pulling us down is no more. So that's the kind of pace you should start looking at in terms of the future of the South African business.

So I think I've covered most of this previously, but you can see that even in this business, we've got new contract gains of over ZAR 2 billion. And I always say to people that in tough times, yes, you can get very negative and you can get very consumed by all the negative news, but there's also an opportunity for us as an outsourced provider to get business because in difficult times, people want to outsource more. They want to look at their supply chain. They want to look at their cost base. And that's why as a logistics company with the capabilities we have, we can play a key role in that. And I believe that's why our pipeline and new contract gains are that good. Because if we didn't do that, if we didn't take out costs, if we didn't have the new contract gains and we just said, let the market -- let's just make money out of the existing market, this business would have gone backwards, seriously. Because our volumes, if you take it by sector, has been down even double digits in certain industries. And as I said, construction, you can just understand what is going on in that sector, which is -- used to be a big sector.

The African Regions business. Again, here, we've also exited businesses here over time. We had a very asset-intensive cross-border transport business that we started when we still first looked at entering into Africa. We exited that business. So again here, the portfolio effect of what we've taken out and what we added, it looks like we stood still for a period of 4 years, but we haven't because we've changed the shape of this business from being into transport asset-heavy to being an asset-light distributor of pharmaceutical products in health care products. And that business had strong revenue growth of 16%.

Margins are a bit under pressure in the health care sector, but that's largely due to the mix. We're selling a lot more products in the generic side. So our portfolio in Nigeria is shifting from innovative drugs more into generics, which is higher volume, lower margin, but still very profitable. And then our Imres business did sourcing and procurement had an excellent year with a fantastic strong order book. Now these businesses are sourcing and procurement on behalf of aid organizations and then wholesales it mainly into Africa, but all over the world. And we've obviously seen a lot of volume going into markets like the Middle East, et cetera, where a lot of aid is needed in terms of the pharmaceutical products and the kits we put together. So a very strong order book also going into 2020.

Our consumer business had a fantastic year. We also bolted on some new product -- new areas of products in Namibia. So we've gone more into consumer health, not only in FMCG. And Mozambique also recovered nicely after all the currency headwinds we had there last year. The one business that did disappoint was the Managed Solutions business. And that was largely because of Zimbabwe, where we were impacted by the currency because nobody wanted to take product out of the country. And we've got to -- we don't have trucks doing it. We subcontract that, but obviously, year-on-year was an impact.

And then the U.S. aid work, that was a big part of this business when we did an acquisition called RTT many years ago. The party that we were subcontracted to lost the contract 3 years ago? Three? Yes. Over that period of time, our volumes have steadily declined. But now it's gone. So we've reported on this lost contract before, and it obviously made a positive contribution last year. But in the last 6 months, it's completely gone. So we still managed to grow, as I said, 8% despite that. And the returns on capital 16% asset-light business, strong cash flow generator and a very good working capital management by the team.

So Europe is also not a pretty story if you look at the performance over a period of 4 years. But that, I believe, is now the challenge for us. We need to reshape this business. We're in industries and in areas of logistics that used to be good. And that's why we are, as I announced in June, looking at the portfolio here. And we have now formally announced the consideration of disposing our shipping business, which is a good business, but we can't grow shipping in Africa. I'm not going to go in putting capital and run barges in any market in Africa or South Africa. But if you look at the core competitive advantage of Imperial, it's in Africa, and we have to build in International or reshape the International business that talks to that.

And as we've seen the performance of this business being exposed to industries that have declined gradually, steel is a good example of how German manufacturing and the steel industry has dropped off because those products are now made in emerging markets. A lot of those things are not manufactured anymore in Germany. Chemicals, all the great manufacturing export industries we used to be in have been on a gradual decline. And we haven't -- we didn't change the portfolio over that time. But I still believe we've got great capabilities in automotive, chemicals, industrial sectors. And we need to expand this business into new markets.

Now our clients are growing into Eastern Europe, into Asia, into other emerging markets where their consumers are. And we need to move with them. So that's part of the whole portfolio change that we're undergoing. And then, obviously, the margins look very depressed, but with the once-offs out and with the benefits of the restructuring, we should get the margins back to around 4.5%, 5%, which is where it should be.

That's just the performance in rand, it's -- I think I've covered most of this in my previous comments around the business. I think just on Palletways, we have made great progress there in terms of sorting out the network problems we had that I reported on in the first half. We've appointed additional members. We've changed the pricing model, and I'm glad to report that we started the year off much, much -- in much better shape than we started last year. So despite the difficult economy there, I think we'll start seeing those once-off costs that we had to incur to keep the network going diminishing.

So we will not get market growth out of Palletways. And while we're positive about Palletways, it's not because of the market, it's because in last year, we had to incur lot of costs that required us to keep the network going because of loss of members, et cetera, et cetera. But I'm confident the team have done a lot of work here, and we have a good space in Palletways going into this financial year.

And then here, we target to make a return on capital of WACC plus 2%, and we've, for the reasons I've mentioned, not achieved that. But with the cost cutting and what I've mentioned, I'm confident we'll get there.

So this is obviously a slide I don't like. And -- but you also have to put up these slides when things are not going too well. But we're going to -- with what I believe we have done to the business and what we've done strategically, we should start seeing these key dials starting to turn because that's what it's all about. It's about -- obviously, the free cash flow is not on the slide, but it's about how you're growing your revenue, what's your margin, what return are you getting on your capital and how you're generating cash. And we've seen a decline in operating margin, return on capital. And our WACC has gone up, but that's because we obviously have got a very strong balance sheet. But the margins and return on capital need to start turning the other way. And those are our target hurdle rates. In South Africa, we target -- and African Regions WACC plus 3%; and in our International business, we want to get to WACC plus 2%. So that's an overview of the results in terms of the markets we operated in, and some of the issues we have faced in our business.

And I'll hand over to George to take you guys through the details of the income statement, balance sheet, IFRS and all the good things.

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George De Beer, Imperial Logistics Limited - CFO & Executive Director [3]

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Thanks, Mohammed. Good morning, everyone. I think just before we start, for me just to mention, this was a year in which we kept the accounting teams, the accountants, the external auditors extremely busy. We had to deal with the unbundling. We had to deal with the implementation of IFRS 9, IFRS 15. We shouldn't have a significant impact on the group. We had to deal with the preparation for IFRS 16, which I will cover in a later slide. And we had to deal with the CPG discontinuance as well as the goodwill impairments, which I'll touch on.

So looking at our profit and loss statement, including the held-for-sale businesses in the base, we grew our revenue by 2% and a drop in operating profit of 13%. Mohammed has touched on most of those items, mainly the weaker trading performances in all the territories, the once-off costs related to the rationalization, the restructuring. And the once-off costs of WLTP, International business in H1.

Looking at the amortization of our intangible assets, it's flat year-on-year, in line with expectations. That number will drop off over the coming years bar any additional acquisitions.

The big-ticket item sitting on the face of the income statement, obviously, is the impairment of goodwill. Now Mohammed did touch on this. This is mainly the deterioration in the macroeconomic environment in which we operate across all territories, which, obviously, leads to reduced cash flows in those individual CP -- cash-generating units. And that, together with increased WACC rates, reduced [single] growth rates that lead to this impairment. This is a mechanical exercise that we do annually. So post our budget processes, we revise our outlooks in the certain CGUs, that goes into a model. We have independent WACC rates calculated by PwC, which plug into the model, and that, every year, gives an indication of yes, there's headroom, or no, there will be certain impairments on the goodwill. I'll touch on these individual items and the areas in which we written-off a little bit later.

Then also, just on the other income note, those were mainly relating to certain put options that we revalued through the P&L of ZAR 51 million, in the prior year it was ZAR 71 million; some business acquisition costs of ZAR 15 million; and in the prior year, we also had a reversal of a contingent consideration to the P&L.

Looking at our net finance costs for the year, reduced by 27% year-on-year, mainly that's the impact of the capital that was injected into logistics, prior to unbundling as well as there was a once-off impact on the settlement of pref shares of ZAR 63 million, which will not be repeated in the upcoming year.

Our income from associates decreased by 18%, mainly as a result of the disposal of a large associate, in our International business, called Gruber, but that was partially offset by increased operating profits in our MDS Logistics associates in Nigeria.

Looking at our tax note, reduced 24% year-on-year. Maybe most significant items that was included in there was the nontaxable gains on the settlement of the pref shares of ZAR 63 million; but we also had the favorable put option revaluation of ZAR 51 million; and then in the prior year, there were certain deferred tax assets impaired and some under provisions that we had to deal with.

Most notably, the profits from discontinued operations, that relates largely to the Motus unbundling profit of ZAR 5.4 billion, and a loss from CPG of ZAR 1.9 billion pretax, which is broken down in 2 areas: the results for the operating losses was ZAR 461 million; and the provision for closure costs and asset impairments was ZAR 1.4 billion that we processed through the P&L.

Looking at our balance sheet. Most notable increase in our transport fleet of 5% relating to certain contract gains, replacement of CapEx, set off partially by depreciation. On the goodwill and intangible assets, as normal, we have the amortization of intangibles for around about ZAR 400 million. And then we had the impairments of ZAR 1.1 billion.

Now just to give you a bit of color of where those impairments happened: so firstly, on the CIC business, we've impaired ZAR 328 million, largely relating to the weaker outlook and the continuing depressed economic climate in Namibia and the increased risk profile in Mozambique. In Imperial Health Sciences business, in both South Africa and Africa Regions, is that Africa, the weakening outlook, together with the loss -- contract loss we had in Africa Regions accounted for ZAR 119 million. In our International road business, we impaired ZAR 384 million, of which ZAR 65 million related to the disposal of Gruber, the associate. And the remainder was a result of the weakening outlook and certain contracts which are much less profitable than it was a year ago. That was ZAR 384 million. In our industrial business, which is largely depending on the steel industry in Germany, we impaired ZAR 57 million. And in our retail business unit, International, we impaired ZAR 91 million, mainly as a result of major contract that's in that business, which had a much lower growth rate than expected a year ago.

Just looking at investments in associates, reduced by 27%. Obviously, the disposal of Gruber was ZAR 254 million, but also, we impaired and written-off our investment in our Zimbabwean associate, where the economic climate in that country, again, is leading up to worsening situation, and that was another ZAR 150 million.

And then a very good result: I think the way the working capital was managed by all the teams in all the countries is exceptional. Excluding the CPG ZAR 1 billion (sic) [ZAR 1.1 billion] provision, we reduced our working capital by 3%. If you think about to grow our revenue at 2%, I think that is a phenomenal result, and it does flow through to our cash flow performance.

Just reviewing our interest borrowings, just one slide, which is our net interest bearing borrowings, flat year-on-year, about ZAR 45 million with lots of moving parts. We had to pay a dividend of ZAR 792 million. We have generated cash flows of ZAR 3.3 billion. We had the proceeds from the B-BBEE transaction of ZAR 200 million. The disposal of Gruber. We paid hedge premiums of ZAR 161 million and retail capital of ZAR 1 billion that increased our debt for the year.

On the equity side, decreased by 63%, main result there is the ZAR 17 billion dividend distribution of Motus. We paid total dividends, including Motus' share of ZAR 1.2 billion. We repurchased shares of Imperial Logistics to the value of ZAR 262 million, which is offset by comprehensive income of ZAR 3.9 billion for the year and a ZAR 200 million equity check from the B-BBEE transaction.

If we look at our cash generated for the division, Mohammed also alluded to this. Very solid cash generation of ZAR 3.2 billion, and the ZAR 3.2 billion includes ZAR 464 million losses of CPG that we had to take for this -- in this year. Net working capital, again, that ZAR 16 million that we moved on our cash position, ZAR 342 million of that were improvement in the CPG working capital also year-on-year. And our net interest and tax paid, in line with expectations, ZAR 1.1 billion. That gives a net cash inflow from operating activities of ZAR 2.1 billion.

And where did we invest it? So we spent CapEx of ZAR 1.1 billion. Now that is really in line with the depreciation and with our guidance to the market because that resulted in a free cash flow conversion of 72%.

We also had the proceeds of Gruber offset by the Surgipharm noncontrolling interest that we had to replace the financing in country of around about ZAR 150 million. And then ZAR 200 million was raised on the back of the B-BBEE transaction, and we spent ZAR 80 million on buyout of certain noncontrolling interest in a business called KWS and in Eco Health business. And 2 other significant cash flow items that we had during the year was the settlement of the preference shares for ZAR 378 million, replaced for ordinary bank debt and ordinary share buybacks of ZAR 262 million.

This is a very healthy slide looking at the leverage for the group. You can see obviously from H1 in 2018, very heavy capitalization at a debt-to-EBITDA of 2.6x. End of H2 2018, sitting at 1.5x. Ending of this financial year with all the negative impacts in our EBITDA at 1.6x. And that's all in line with our covenants at 3.25x. That does give us debt capacity for acquisitions of ZAR 3 billion to ZAR 5 billion, maintaining interest cover of 8x, interest to EBIT is in relation to a covenant of 3x. The group liquidity position remains extremely strong. We have ZAR 11.8 billion of unutilized banking facility. 89% of the group debt is long term, of which 55% is at fixed rates.

So how did we perform against our medium-term guidance? I think this is, for me, also a very important slide. So yes, we did not achieve our revenue and operating profit targets as Mohammed's comments, the impacts that we had, once-off items, cost restructuring throughout our businesses. So we didn't achieve that.

Cash conversion, 72%, right in our target conversion range of 70% to 75%, which is maintained; debt capacity of ZAR 3 billion to get us to the EBITDA -- debt-to-EBITDA level of 2.5x, in line with targets; net debt-to-EBITDA of 1.6x, in line with targets; yes, the ROIC, a result of the weak trading performance, didn't achieve that hurdle; but also we continued to pay a dividend of 45% of continuing HEPS, in line with our medium-term guidance.

Lastly, I just want to touch on IFRS 16. A lot of work has gone into this because, obviously, we have close to 4,000 leases across all territories, very different WACC rates, very different exchange rates and we had to go through a very long process to land to an answer. We have decided as management to adopt the fully retrospective methodology of implementation. In certain leases, we had to go back 20, 30 years to the real genesis of those leases.

So if we look at the impact that we will have on our June 2018 results, which we have to restate. Impact of EBITDA of ZAR 1.6 billion; operating profit, ZAR 258 million. And I think what's most notable is the impact on headline earnings is minimal. So I think adopting this methodology does bring the right optics to the income statement. But yes, we will raise an asset in our base of ZAR 5.3 billion. I just want to note that ZAR 5.3 billion includes CPG of around about ZAR 900 million. So at ZAR 1 billion, where we come now to the commercials, that number should most probably, by 2019, reduce to ZAR 4.5 billion.

Thank you very much.

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [4]

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Thanks, George. Okay, strategy. So I just thought we'd just take one step back, and let's just connect the dots from unbundling. So from an -- what did we say when we unbundle? What did we want to achieve as Imperial Logistics post unbundling? We wanted to achieve a focused business. And I really believe that we did see some of the benefit of a focused business in these set of results because things like CPG, things like looking at our portfolio in our International business become more urgent because we do not have the prediction of a motor business that makes ZAR 80 billion of revenue. So when you're running a smaller business of ZAR 50 billion, it focuses your efforts much more on businesses that are -- that require work. And that is definitely one of the benefits of unbundling; you get more focus through a process like it. And you take out costs and you're more on top of it.

Now I'm not saying that if you're in a holding company that we are, you're not going to do these things, but I just think that in a portfolio of businesses, which we were before the unbundling, it is less urgent when something is 5% versus something that's 20% in your business. It's just the return on effort of doing those things. And I believe that we have seen some of the benefit of that. I believe we now have a clear, coherent strategy using our Africa business as our, call it, flagship or gateway to Africa, we call it, in terms of building an International business that support that. And I'll talk a bit more about that later.

I mean the balance sheet and cash flow performance speaks to itself in terms of whether we've effectively capitalized the business to deliver on its growth in a very difficult year with profits going backwards, with all the issues we have faced in this 6 months. We had a net debt-to-EBITDA of 1.6x, with debt capacity of ZAR 12 billion. So I believe we've lifted that block.

Unlock of value for shareholders. That certainly was an objective, work in progress. Now why I say work in progress? When we unbundled, we said we will not get the value unlock of splitting the multigroup in Imperial Logistics on day 1. I was very clear about that. Because the logistics business, particularly our International business, was managed separately prior to unbundling for long periods of time. Only until very close to the unbundling did we integrate it with our Africa business. So it needed some work. But we said, let us unbundle because that will be the next phase of the unlock. So the first step was the unbundling, and now we're going through that phase. So that is not a one-day game. You can't unlock value just by splitting 2 things. You've got to have a clear path of where you want to take the business and the market will only reward us once we start showing progress to that and we start showing performance.

And then since the unbundling, we've also had to deal with challenges. The economies in which we operate have become worse. And when we made the decision to unbundle, the economies were not as bad as they are now. So we had to restructure. We had to take out costs. We had to look at the business differently, not just look at the portfolio and think about how do we unlock value because we did unbundling in a very difficult macro environment. And then we have to say "Oh, hold off, let us sort out our cost base, let us sort out CPG, which is a problem." And we did that within that period. So by looking at the GDP numbers post unbundling and you'll attest to what I'm saying.

Look, the Africa Regions business continues to show growth. And I think since the unbundling, that momentum is there still. And like I say, although we put this as a negative, when you're in a difficult market, you see which are your great businesses and which are your average businesses. And that for me was a benefit of this difficult market for us at Imperial, because I think we've really understood our businesses in terms of which are the ones that are going to face market pressures going forward and which are not. In a difficult market, you get to see how a great business performs and how an average business performs. And it allows us to then make more -- the attention, the urgency in fixing that becomes more clearer.

And then obviously, we're changing this business. It was run as a portfolio of businesses. Africa was run separately to International. I want to run it as an integrated business. And through that process, it requires a whole change management around people, around processes, around practices. You can't run a strategically coherent business if you're running it as a portfolio. And we can't run our business anymore as a portfolio because there's parts of it that just don't fit in. And shipping is a good example of that.

So what are our core strategic focuses? So I believe what we have in South Africa and Africa is a competitive advantage versus any of our peers. Nobody has the footprint we have in pharma, health care and the size and scale business we have in South Africa and Africa. And we have to strategically align our International portfolio to leverage that even further. Because we have capabilities in Europe in automotive, in industrial, in chemicals, that are all going to be great growth markets for Africa. We get inquiries from clients all the time in Europe, "What can you do for me in Africa?" But we've never looked at that before.

And now with the changes we are making, and I'll talk about the commercial organization changes we've made, we are now looking at the business more from a vertical approach rather than a regional approach. Because now we say in pharma, in consumer, in industrial, in all the industries Imperial has got capability in, how do we now make money? Whereas before, it was, okay, if you're in South Africa or you're in Africa, you only focus on consumer. You only focus on that because that's what we're good at there. We never leveraged capabilities across regions. And if you take an industry like pharmaceutical and you take an industry like chemicals, we do a lot in that supply chain. And there's a lot of detail in the annexures. Time doesn't allow one in results presentations to go through that detail. But have a look at what we're saying about the industry verticals at the back. There's an annexure to show you how much money we make out of pharma, how much money we make out of automotive as a group. So we're saying let's take all those industries as one. Let's not tackle as regions anymore.

And then I really believe that we are in prime position to position Imperial as a gateway to Africa for any multinational looking to access these fast-growing markets because we give them access to 50,000 points of sale in Nigeria. We give them access to over 1,000 in Kenya. And that is what people want in Africa. They want access to the fast-growing markets, not just warehousing and transport, which we subcontract. So if we position our International portfolio appropriately by getting out of stuff that don't add to our Africa business, and any stuff that does, we will get that status. And that is ultimately where we want to get to.

And then, obviously, we are a distributor that now makes -- so distributorships, which is where we buy and sell, is ZAR 10.5 billion out of ZAR 50 billion. It's over 20% of our revenue is where we're not a typical logistics player. And it's in pharmaceutical and FMCG. And what I'm saying is why only have that capability in Africa? So obviously, that's more of a medium-term thing. But if you talk to our clients in Africa, where we are distributors, and Johan can talk about this, they ask us, "Why don't you come and work with us in other emerging markets? You do our job so well in the toughest markets like Nigeria, Kenya and Ghana. We would like you to become a second distributor in another market." Now why must we say no to that? Why only stick to being a distributor of pharma in Africa when you've got the credibility, when you've got the client relationships, when you've got the expertise?

And I'm giving you the numbers. You never knew that number before because it was hidden. So we've also given a disclosure now around our capability. So if you look at our capabilities in terms of freight management, contract logistics and distributorships, we make more money out of distributorships and contract logistics. And that's why people think we are walls in a wheels business. We're not. We're more than that. And I think we will be missing out on opportunities if we don't expand that.

So in the short term, we will continue to grow Africa as we have done. We would like to add new capabilities to that, things like sourcing and procurement in other industries. We want to exploit the other industry verticals where we've got strong capabilities in auto and chemicals because those services are needed in those markets. And we want to expand regionally. We're very strong in Sub-Saharan Africa. But there's a lot of opportunity in French West Africa, and we've got the -- we've got now the credibility and we've got the networks within East and West Africa to now take it to other regions. And then obviously, an immediate priority is to get the International portfolio right. And as I said, we started by looking at disposing our shipping operation, which is in the early stages of the sales process.

And then maybe things that will come in time, is to get an air/ocean capability. So if you look at Imperial Logistics today, we're the 24th largest logistics business, but we don't have an air/ocean capability. Now if you take out air and ocean from the top 25, we get to the top 13 -- top 15. We get to the top 15. Now if you take what we have in Africa in terms of our distribution network and platform, and you plug-and-play an IFM model into that, you can virtually offer an end-to-end service to a customer right from source into an end market. And nobody has got that network in Africa.

Yes, there are massive global freight forwarding companies. So I'm not saying it can't happen, but we're leaving that margin on the table and we're leaving it for others to make. We should grab it, because we do the hard stuff. Taking freight from China into Africa is not very complex, but you need scale and you need competency in that. And we would like to add that because it just adds to our whole story and our whole business case for Africa expansion.

And then I really believe we can't remain in Germany, in the industries we're in, because those industries are declining. Steel is declining. Automotive is declining. Chemicals is declining because a lot of those products are now being manufactured in other emerging markets. And we have clients that want us to go with them. And Hakan, you can ask him, if time allows, to expand on that. And then, like I said, we would like to expand our distributor capability geographically.

So what have we done? This is just sort of a scorecard to say in terms of the progress against some of the challenges on our strategy, what have we done? We've exited CPG. We've rationalized the business. We've addressed the underperformance in certain businesses, I believe, in South Africa and International through what we've done in terms of exiting. CPG was a big thing, but it doesn't mean we haven't consolidated and taken out cost and done other things in the smaller businesses. And then we've made good progress on Palletways, as I mentioned earlier on.

And this is the point I made earlier on about looking at the business more from an industry point of view rather than from a regional point of view. And we now got chief commercial officers in South Africa and in our International business that have got industry leads that look at now opportunities within verticals, so within an industry, within the capabilities that we have.

And then obviously, Imperial has always been acquisitive. And that is part of our DNA. That is how we built our business in Africa successfully through M&A. And that strategy of continuously adding new capabilities, new areas of growth will not only come from organic growth, it will also come from acquisitive growth as we've demonstrated, sometimes better than others, but that is part of our strategy going forward, and we've got the balance sheet to do some of that stuff.

So obviously, a very important part of the presentation that is always last, but maybe it should be first. But this is our outlook for 2020, because 2019 is done. And it was done for me a few months ago already. But obviously, there's a major lead-up in terms of getting to the growth season in this presentation. But we need to now see where does Imperial go to from here in terms of 2019.

And I'm feeling confident about where the business is going in the next 12 months despite the difficult economy because we haven't sat still in the last 6 months. We have taken out costs. We have added new business. We have done acquisitions. We've done 2 acquisitions, small ones, but they all add. And we've exited noncore and unprofitable businesses. And all of those actions will result in growth.

So obviously, it's subject to the economies and macro factors that this outlook would be subject to. But with the actions we have taken in the business from the -- from what I've mentioned, we should start seeing that to converting those things into tangible bottom line profits in terms of getting low double-digit operating profit growth, getting low double-digit continuing HEPS performance.

And then our cash flow, I am confident we'll continue generating the cash because of the asset mix in the business going forward. And our balance sheet, as I said, remains strong. We've got great headroom in capacity, and we've got a very disciplined capital allocation approach. You know our hurdle rates, and that's how we make capital allocation decisions. It's around return on capital.

And historically, we were very asset-intensive. We've changed our investment approach to be more capital-light. And that's how the goodwill ends up on your balance sheet, because once you buy a business like a Palletways or Eco Health or Surgipharm or Imres, the acquisition price is your capital investment. You don't need to put new CapEx in it. And that's what I like about those businesses; that even in a year that Palletways had, which wasn't great, it still generated great cash. So we didn't have to put new money into it to make these profits, it generated good cash. And that's starting to show now very strongly in the results.

So I'll leave it at there -- at that and take questions. I know we're running a bit over, but we do have time. Esha? Okay. So let's take questions.

Thank you very much.

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Questions and Answers

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Unidentified Analyst, [1]

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Mohammed, could you just give us an idea in terms of the impact of currency like hyperinflation in Nigeria, Angola and stuff? Could you quantify what that actually means in terms of your actual numbers? Do you think the worse is over or we're going to see a continuation of this drag on operating profits for some time to come?

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [2]

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So we're not in Angola; we don't have any business in Angola. We've seen the naira go to NGN 500 at points in times in the last 3 years, but we've been able to withstand it because of the pharmaceutical positioning we have. So we priced up our product because you -- in the pharmaceutical industry, and you would price up your product. We actually were able to, at the expense of not much volume, being able to price up because that's what everybody does.

So what has happened then is the currency came back, and it's now at around NGN 350, NGN 360. So we obviously had to then now drop pricing in line with that because you can't price there. So that's why you will have seen our margins come slightly down in our health care because we're getting now normalization of the margin. So we made good margins when the currency weakened because we were able to price up. And then we had paid stock of 6 months in the system. So what happened was before the major devaluation, we had 6 months stock as paid up stock. So we were able to price up.

So we managed to ride that currency storm in Nigeria because of the product we are selling in that market, number one. And number two, it's an asset-light business. So it doesn't need new capital to grow. So we were able to then generate the cash and pay out the dividends.

So the currency effect is big in Imperial, okay? So obviously, if you look at the rand, if the rand weakens, our -- most of our business in Africa is dollar-denominated. And obviously, our European business is in euros. So with a weakening rand, our rand profits in Africa and Europe, which is 2/3, should be a lot better. So I hope I've answered your question. Yes, [Neela]?

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Unidentified Analyst, [3]

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So just on Africa, I noticed in the second half, the momentum has slowed quite a bit. So what is the guidance for next year? I mean are you expecting growth in that region?

And then just want to reconcile the outlook. So in terms of this low double-digit HEPS growth, if I take back one-off costs and those type of things, it implies your underlying operations you're guiding for still going back. Is that correct?

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [4]

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It depends what you believe by low double digit. No, so I mean, it's difficult, okay? So obviously, there's once-off effects and there's costs that we've taken out. So if you take all the once-off effects of the restructuring and you take out the once-off effects of the WLTP, we should still have low double-digit growth. So the once-off effects, as we see in the numbers, are the EUR 9 million and the EUR 4 million that we had on WLTP. And if you add that back, we will still have double-digit growth. Obviously, if you add back the benefit of the cost cutting then the double-digit growth becomes less -- or the low double-digit growth becomes less.

But we also have to be wary of the environment that we're operating in. It's tough out there. So while we had once-off effects, you can't predict that there will not be. You could have a slowdown in some markets, et cetera. So we're giving you a realistic picture based on what we see as once-offs in the current economic environment.

Coming to your question on Africa. The first half -- the second half last year still had the benefit of the USAID contract, and that was out completely in H2. So while it looks like it's flat, if you take that out of the base, we actually had growth in Africa. And then Zimbabwe was a big impact in H2. So those 2 effects, looks like it's a flat result. But if you take that out of the base, we had growth in our pharma business and consumer business in Africa.

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Ian Cruickshanks;Institute of Race Relations;Analyst, [5]

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Ian Cruickshanks, Institute of Race Relations. Just looking at your strategy going ahead, you've, first of all, taken out a huge amount of cost. Congratulations on doing that so thoroughly. But then you're left with the core. This core doesn't seem to have the potential -- growth potential as outside of South Africa seems to have. Have you had any thoughts on moving your operational center away from South Africa? See, that smile says quite a lot you know; it means you have considered it.

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [6]

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Of course, I wouldn't -- I mean, you can't not. I mean, 2/3 of the business is outside and the growth is outside. But we're not there yet. So I believe we have a lot more work to do just to get the business back to where I would like, and we've just unbundled. And while that's an obvious question and it's something obviously that would go through one's mind, we're not there. I'd like to still settle things down a bit and get the portfolio more settled before we start considering those kind of things.

But it's a good question. And it is something that does cross the mind. Because based on the strategy over the next 3 to 5 years, not because we're negative only on South Africa, it's just that in South Africa, we've become a major player. The growth -- the ability to grow in South Africa, not because of the economy only, but because we're such a major player in logistics, limits your potentials. And we've got these platforms in Africa, and we've got a very good base in Europe to grow from. So it's obvious, that's where you should put more capital because there's more growth there. And that implies South Africa, even if South Africa grows, will be lower because there's more focus on putting more capital there. But yes, we'll see as we go along how that pans out.

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Ian Cruickshanks;Institute of Race Relations;Analyst, [7]

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Now another point, you just said that's where you should put more capital. Any thoughts on needing and raising more capital or do you feel yourselves sufficiently capital at the moment -- intensive at the moment?

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [8]

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No, as I said, we've got enough balance sheet capacity. We're at 1.5x, 1.6x net debt-to-EBITDA, so no. We've got enough firepower in cash flow generation to fund our growth and also look at acquisitions in the areas we're looking at. So I'm comfortable we don't need capital from the -- from equity markets.

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Nick Webster, HSBC, Research Division - Head of Equity Research, SA and Analyst [9]

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It's Nick Webster from HSBC.

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [10]

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Yes, Nick, if you don't ask a question, it won't be an Imperial result. So I was waiting for this one.

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Nick Webster, HSBC, Research Division - Head of Equity Research, SA and Analyst [11]

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It won't be just one either. Let's start with CPG. It looks like you've obviously kind of discontinued the whole thing, but are talking about these other contracts, so that makes it pretty difficult for us to model going forward. So is this like a sort of sneaky bit you're keeping in your back pocket? Or can you give us a best guess of what we should think about next year because it could be a meaningful number, clearly?

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [12]

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See, fortunately, I don't run my business on a spreadsheet. But yes, I know it's difficult to give you that. I mean what happened was these contracts were unprofitable in CPG. So we had to exit them in CPG, but enter into new contracts with the clients. So no, I'm not going to give you a number. We're still busy with a lot of these clients in terms of dotting the Is and crossing the Ts. But I can safely say that we will retain a material number in terms of the new contracts, the contracts we will keep in our dedicated contract business in IHS. But I'll give you more guidance on that as things unfold because we're not 100% sure on that number yet. But I will give you a number or sense of it when we meet each other next in 6 months' time.

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Nick Webster, HSBC, Research Division - Head of Equity Research, SA and Analyst [13]

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Okay. On your balance sheet headroom and some of the strategic initiatives you're talking about, there's clearly a lot focus on acquisitions and potentially building things out yourselves. I suppose there's the scope for bolt-on deals, which is fine, whether those are Africa-based. I'm not sure what you can do in IFM at that sort of level that's meaningful. Does any of this -- I guess, the wider question, do you need to sell, say, shipping, for instance, first, before you have grander ambitions?

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [14]

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Well, that is one of the reasons why we want to sell shipping is to get capital to do what you've just mentioned. And shipping is a big business. It's a significant amount of capital we've got in shipping. So it -- yes, I mean, I can't exactly tell you the timing of when/what will happen. But that is the thinking is that we'll free up capital in Europe, use that capital to redeploy that into an IFM.

But I think we must be clear here, there's not only one way to get into IFM. It doesn't mean we have to win by a massive business. We do have a good freight management base in Palletways that we could use as a way to get into IFM. We could start a partnership with somebody in IFM. We could -- we could partner, we could do a JV with somebody. So there's many ways to skin a cat. So I don't think you should see our ambitions in IFM purely as a one size fits all, that we're going to pay a massive multiple to get into it, et cetera, et cetera. We'll be obviously conscious of what the risk of that is, but we do have a base of freight management already or what we've got, and we want to build on that. And how that can look can be not an acquisition. It could be a merger. It could be a partnership. It could be a JV.

But our acquisitions in Africa will be much of the same. It will be the bolt-on ZAR 500 million to ZAR 1 billion acquisitions that we could fund off our current cash flow. And we do have debt capacity. And if we -- when we sell shipping, we will have more capacity. So yes, I think we'll be in good shape to pursue some of those opportunities.

Okay. We'll talk later. I'm just conscious of the time. Is there anything on the webcast?

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Esha Mansingh, Imperial Logistics Limited - IR & Communications Executive [15]

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Yes, there's a few questions, but I think we've covered most of them already. I think just the one on the Managed Solutions business in African Regions. Has the poor performance continued into the months post year-end? And what impacts do you expect us to have on F 2020, given that the situation in Zimbabwe is not improving?

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [16]

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Johan?

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Johan A. Truter, Imperial Logistics Limited - CEO of African Regions [17]

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Yes. Thanks for the question. So we budgeted for a partial recovery of Zimbabwe, but largely from the second half. And the fact that we've exited and rationalized the health care businesses, where we did the USAID contract, definitely made the first 6 months better and the first 2 months better as well. But the performance of Zimbabwe for the first 2 months was lower than expected, but like I said, we only budgeted for a partial recovery from the second half.

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [18]

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Okay. Is that it? One more? Last one.

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Esha Mansingh, Imperial Logistics Limited - IR & Communications Executive [19]

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Okay. Last one. So shipping has not been disclosed as a held for sale. However, can we please ask for the net assets revenue and EBIT attributed to the business to give us a sense of scale?

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Mohammed Akoojee, Imperial Logistics Limited - CEO & Executive Director [20]

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I think we can give revenue. It is in the financials, George? So our shipping business makes about EUR 400 million of revenue. And I can't give you the profit numbers. And I know the capital number. But we'll disclose that in the initial process of doing it. So obviously, as the next 3 months unfold, we'll disclose those numbers, but it is a significant part. Just to put it into context, we make EUR 1.5 billion of revenue in -- it's a very profitable business, and it is a good return on capital business. But we're the wrong owner now for it. And we're not going to invest ships in Africa, certainly not in my lifetime.

Okay. Is that it? Thank you very much, guys. Thanks for the questions, and see you in February.