Contractual Logistics

OPERATIONAL REVIEW
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A diversified supply chain company
serving the needs of selected sub-
Saharan African markets

Unitrans’s highly successful business model
incorporates the design, implementation and ongoing
provision of supply chain solutions for its customers.

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Business environment

The division remains focused on medium- to long-term contractual logistics services, diversified across the areas of petroleum, chemicals, food, agriculture, cement, mining, warehousing and general freight. These are generally non-discretionary products and services. The diversified nature of the division in terms of sector and the medium- to long-term contractual nature of the business provides some protection through the economic cycles.

The division’s operations in various non-South African territories provide further geographic diversification in terms of exposure to economic cycles. Currency volatility is closely managed by the group’s treasury team in order to minimise foreign exchange losses and to optimise the repatriation of cash into the group’s South African cash management system.

The division generally operates from its clients’ premises, which provides the ability to rapidly up or down-scale operations to optimise cost structures in instances where contracts are awarded or lost. This flexibility provides additional support to the sustainability of the business model.

Commentary

The Contractual Logistics division produced a disappointing result. Revenue increased by 4% to R6 743 million from R6 496 million in the prior year, despite a slight reduction in activity, primarily as a result of fuel and cost escalations contractually passed through to customers. After a good first half of the financial year, the division found economic conditions particularly challenging during the second half with reduced volumes and pricing pressure across its main areas of operations. Meeting customer requirements, specifically in terms of the preferential procurement elements of their respective B-BBEE sector codes, created challenges in terms of contract renewals and associated revenue growth during the year. The division, however, successfully concluded a B-BBEE transaction during the year, which became effective after year-end on 3 September 2018, and will provide the division with greater than 51% black ownership and greater than 30% black-women ownership going forward, a critical element for future growth.

The division was particularly affected during the year by changes in the petroleum sector, which had a material impact on the road haulage of fuel and, as a result, a negative impact on the division. Activity levels and resulting performance in the other major areas of operation remained stable and efforts toward operational efficiencies and cost control continued. Certain major contracts were successfully renewed and implemented during the year, mainly in the food business.

The recent acquisitions, Xinergistix and Lucerne, both performed ahead of expectation for the year and were fully integrated in the division. On 1 December 2017, Southern Star Logistics Proprietary Limited (a 50%-owned subsidiary) was formed in order to facilitate growth in the Swaziland territory, which also performed operationally ahead of expectation. Operating profit of the division declined by 9%.

Outlook

Industrial activity in South Africa remains subdued as a result of a challenging economic and political period for the country. In spite of this, the division remains well placed in terms of its recent B-BBEE transaction, its recent acquisitions, and its efforts toward improved operational efficiency and cost control to grow its activity levels through market share gains during 2019.

As political and economic stability returns to South Africa, the Contractual Logistics division will benefit directly from the resultant increase in industrial activity.

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B-BBEE transaction provides greater than 51% black ownership and greater than 30% black-women ownership to its South African logistics operations.

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