CAPE TOWN – The current global economic climate has been hard on logistics companies. This is clearly evident when one looks at the numbers reported by giants of the industry like UPS and DHL.
Both of these companies reported lower net profits and earnings per share in their last financial years. Perhaps most concerning for them, however, is that both showed significantly lower free cash flows.
Local integrated logistics solutions provider Santova can therefore feel very pleased that it continues to buck this trend. Over the last five years the company has reported consistently higher earnings alongside healthy expansion in operating margins and cash flows.
Much of this has been on the back of strategic ventures and acquisitions that have grown the business substantially outside of South Africa. For the six months to the end of August 2015, 44.1% of the group’s revenue accrued from offshore operations.
In April this year, Santova finalised the establishment of a new freight office in Hamburg, Germany under its wholly-owned German subsidiary, Master-Freight Internationale Spedition. In August it opened a new branch office in Accra, Ghana, and in September it completed the acquisition of 100% of Mauritian freight forwarding business Jet-Freight Services.
“It’s not just about being offshore,” Santova’s CEO Glen Gerber told Moneyweb, “but having multiple businesses in multiple geographies and multiple currencies. That diversification has certainly worked in our favour”.
Even in the depressed local environment, however, Santova enjoyed strong bottom-line growth in its South African operations. Despite a decrease of 3.5% in revenue, Santova Logistics South Africa grew profits by 60.4% through focusing on operational efficiencies.
“We hedged ourselves by doing the job better than we have in the past,” Gerber explained. “The operational margin has held on and even expanded due to smarter work flow processes, streamlining of functions and centralising those activities we can. The engine room is a lot smaller and a lot more efficient.”
Overall, group revenue was up 8.0% over the comparable six month period, from R116.5 million to R125.8 million. Profit jumped 31.6% to R23.0 million, while operating margins grew from 23.6% to 26.9%.
Santova reported diluted headline earnings per share 5.2% higher at 16.06 cents. However, if one strips out the effects of fair value gains reported in previous periods, normalised headline earnings per share came in at 15.63 cents, compared to 10.58 cents in the previous reporting period. That is an increase of 47.7%.
Net cash generated from operating activities was 158.9% higher at R24.6 million. The group’s cash and cash equivalents at the end of the period sat at R61.7 million, up from R35.9 million at the end of August 2014.
“We are very pleased with the results,” Gerber said. “It has been a very tough six months, and if you look at the industry at large, it’s a difficult environment.”
Gerber said that conditions are particularly challenging in South Africa, where the weak economy is having a material impact. However, he believes that the company’s size has helped it in meeting these challenges.
“We are small enough to be niche, and nimble enough and brave enough to make changes,” Gerber said. “That has kept us ahead of the game.”
In an industry where larger players have found it difficult to keep up with technological developments, this has been a significant advantage.
“Our business model is extremely focused on being variable in every respect,” he said. “We don’t own vehicles, we don’t own warehouses. We effectively deliver value through our intellectual capital.”
Gerber is clear that he expects Santova to maintain this spirit in meeting further challenges going forward.
“I believe that if you are pretty entrepreneurial and have the right people on board, your culture will pull you through,” he said.