Imperial Logistics expects to wind up its loss-making consumer packaged-goods (CPG) business in South Africa by the end of September and is also considering disposing of its shipping unit in Europe as it overhauls its operations.
The ground freight firm is battling weak economic conditions in South Africa, fuel price volatility and rolling power cuts. Earlier on Tuesday it reported a 7% fall in earnings and incurred writedown costs from exiting the CPG business.
Chief Executive Mohammed Akoojee has drawn up a further restructuring and rationalisation plan for the group that includes exiting unprofitable contracts, consolidating operations and properties and reducing fleet and overheads.
Imperial decided at the end of May to exit the CPG business and sell assets and said on Tuesday that the model had become uncompetitive and unsustainable as retailers centralise their distribution networks.
Akoojee told Reuters in a telephone interview that Imperial aimed to retain key contracts which it would accommodate in other business units under a different commercial model.
“That business model of playing the middle man between a retailer and a fast-moving consumer goods company is no longer relevant,” he said.
The revamp would lead to an impairment of R1.44 billion ($94.51 million), including provisions for closure costs.
The rest of the consumer business, which caters for the likes of food and fashion retailer Woolworths and British American Tobacco South Africa will remain, he added.
The South African division, excluding the CPG unit, saved about R140 million ($9.19 million) of fixed overhead costs per annum, the firm said.
The international business also saved about R245 million of fixed overhead costs, mainly from consolidating head offices and support functions.
Imperial, which traces its roots to a single car showroom in Johannesburg in the 1940s, is also considering disposing off its shipping firm in Europe.
“It cannot be scaled further in our target markets and the significant capital expenditure it requires to participate in the growth opportunities would be better deployed elsewhere to facilitate our strategic growth plans,” the firm said.
Imperial is also considering further disposals of non-core and low-return businesses under its international division in the short to medium term, such as the road liquid logistics business, Akoojee said.
In the rest of Africa, Imperial wants to expand into French speaking West Africa in the pharmaceutical sector and in the consumer sector in existing West African markets, Akoojee said.
It expects to reap the benefits of the overhaul and cost cuts, the exit of unprofitable businesses and new contract gains and acquisitions from the 2020 financial year.
As a result, it sees low double-digit operating profit and headline earnings per share (Heps) growth and high single-digit revenue rise in the year ended June 2020.
Heps is the most-watched profit figure in South Africa and excludes one-off items.
Besides the 7% decline in Heps for the year ended 30 June 2019, operating profit also fell 9% due to exceptionally low volumes, depressed consumer demand and one-off costs.