JOHANNESBURG – Imperial Logistics shed nearly 11percent on the JSE yesterday on news that it would write down R1.4 billion of its South African Consumer Packaged Goods (CPG) subsidiary.
The stock during morning trade slid to a low of R63.84, closing at R57.10, after the management said that despite implementing numerous turnaround and cost-cutting initiatives, the CPG business had continued to be loss-making.
The CPG business was created in August 2017 by merging Imperial Retail Logistics, Imperial Cold Logistics and Imperial Retail Solutions into an industry vertical.
The group said it had been hurt by the poor local economic outlook and the ongoing economic uncertainty negatively impacted Imperial Logistics’ performance, which would generate 30 percent of group revenue in the current financial year.
“Given the increasingly competitive and challenging economic conditions in South Africa, we intensified our efforts to restructure and rationalise our operations in the 2019 financial year through exiting unprofitable contracts, consolidating operations and properties, and reducing fleet and overheads.
"We have, therefore, decided to further rationalise this business by exiting and selling assets, while aiming to retain key contracts and accommodate these in other business units under a different commercial model,” the management said.
The Bedfordview-headquartered company also said through a significant rationalisation and cost reduction process, its international division extracted an annual 15 million (R243.68m) of fixed overhead costs, which had resulted in a once-off cost impact of 7m in the 2019 financial year.
“The far-reaching benefits of the portfolio rationalisation and organisational restructure that we undertook more than four years ago and continue in the 2019 financial year, new contract gains, removing and reducing complexities and costs significantly in all businesses, and enhanced strategic focus will be realised in the 2020 financial year,” it said.
The company said its international division delivered a disappointing performance hampered by reduced volumes, once-off costs associated with the material business restructuring, the once-off impact of the implementation of Worldwide Harmonised Light Vehicle Test Procedure that had resulted in significantly lower vehicle production volumes in the automotive business and depressed profitability in Palletways.
Imperial Mobility International, a wholly-owned subsidiary of listed Imperial Holdings, acquired UK-based Palletways Group and its subsidiaries for £162.9m (R2.99 billion) in 2016.
Palletways provides an express delivery solution for small consignments of palletised freight through more than 400 depots and 14 hubs.
The group said operations outside the African continent would generate 47 percent of group revenue, adding that economic activity in Europe, especially Germany, continued to slow in the second half of the 2019 financial year with volumes in the automotive, chemicals and steel sector under pressure.
“The low unemployment rate has compounded the difficulty of finding and retaining skilled people, which has increased our cost base and impacted margins,” the company said. In the UK, the ongoing Brexit uncertainties were depressing consumer demand and activity. “We are, however, making good progress in appointing additional members and changing our pricing model,” it said.