Performance review Solution: Market Access
Our Market Access business – in which close to 100% of revenue is generated in Africa – is integral to our ‘Gateway to Africa’ strategy. Our market access solutions see us taking ownership of inventory and responsibility for the full order-to-cash function.
We build complex route-to-market solutions that provide our principals with access to patients and consumers through comprehensive channel strategies that integrate sourcing, sales, demand generation, distribution, marketing and promotions. Our solutions also create opportunities to leverage our freight and contract logistics capabilities.
Through our extensive ‘One Imperial’ network, mainly in sub-Saharan Africa, we are able to provide market access and logistics services in more than 20 countries on the African continent. We continue to focus on strengthening our capabilities, extending our reach and deepening our relevance in two key, defensive and growing industries – healthcare and consumer.
Our core offerings
Integrated market access services.
Healthcare and consumer route-tomarket solutions.
Multi-market aggregation (to access sub-scale smaller markets).
Sourcing and procurement.
Emergency relief and kitting.
Picking and packaging.
Marketing, demand generation and promotion services.
Contract manufacturing.
- Our extensive network in sub-Saharan Africa – coupled with our experience in all channels of the healthcare supply chain – means that we can offer our principals, clients and customers the trust and confidence that is key in the healthcare sector.
- A significant portion of the total delivered cost of medicines in Africa – up to 40% – is made up of supply chain, distribution and other non-core costs. As the costs associated with importing products into Africa continues to rise, we leverage our relationships, network, experience and skills to ensure our pharmaceuticals remain affordable.
- Our unique market knowledge and proven processes, methodologies and tools help manage the ever-increasing complexity, risk and speed of modern-day distribution.
- Our simplified solutions for healthcare reduce the risk, complexity and management responsibilities of the principal – freeing up valuable time and resources without compromising growth, service quality or the customer experience.
- As strategic partners to our multinational principals and clients, we identify and develop new market segments for consumer products – targeting non-buying customers in existing markets, as well as customers in new markets.
- Our unique market knowledge and proven processes, methodologies and tools help manage the everincreasing complexity, risk and speed of today’s supply chains.
- Our experience helps global clients mitigate and manage the effects of global competition, rapid price fluctuations, short product lifecycles, expanded specialisation, near/ far- and off-shoring, and talent scarcity.
- Our proven solutions rapidly deliver results with the agility to quickly manage change for continuous flexibility and value to our clients, principals, customers, and the African consumer.
Key market trends informing our strategy
- Key drivers of healthcare spending include:
- Evolving population demographics.
- Increased urbanisation in Africa.
- Increasing demand for care.
- Clinical and technological advances.
- Higher demand for generic pharmaceuticals (promoted mainly by governments).
- Escalating patient expectations.
- Expanding public healthcare systems.
- Growing customer demand for increased convenience.
- Increased need for:
- Warehousing services due to growth in e-commerce.
- Visibility and resilience of supply chains.
- Shortening and diversification of supply chains.
Our strategy
Our strategic intent is to leverage our unique proposition as the ‘Gateway to Africa’ and value-added services to grow our multinational client franchise and, as ‘One Imperial’, become the preferred market access partner in Africa. Our strategic initiatives are designed to drive growth, consolidate our competitiveness and relevance, and retain our legitimacy in our markets and industries.
Strategic objectives:
Geographical expansion
Increase our relevance in the healthcare and consumer industries.
Provide people with more affordable and better-quality healthcare and consumer products, thereby increasing sales and market share for our clients, principals and customers.
Build a future-proof organisation and differentiate through technology, digitalisation and innovation.
Expand our capabilities to capture more of the value chain.
Strengthen our leading market position in the geographies in which we operate.
Expand our market access offering to other industries in select markets.
Expand geographically through targeted acquisitions in select emerging markets.
- Expand multi-market aggregation model that delivers simplified solutions in healthcare in Africa.
- Diversify integrated healthcare services by establishing centralised capability in sales, marketing, medical and regulatory affairs, and client, principal and customer relationship management.
- Backward integrate (contract manufacturing and value-added services) and forward integrate (wholesale, retail, e-commerce solutions).
- Extend footprint in South Africa, Francophone and North Africa and evaluate clustering opportunities for expansion into other selected emerging markets on the African continent.
- Leverage our world-class source and procure capabilities; and create a portfolio of generic pharmaceuticals and medical consumables, equipment and devices to distribute into our markets by leveraging the Imperial network.
- Focused client, principal and customer engagement to become the best-in-class distributor and strategic partner, supported by investment in enabling technology and deepening market intelligence.
- Expand sources of growth through category optimisation and expansion to ensure a balanced portfolio.
- Expand capabilities to include contract packaging, brand activation and promotion, sourcing and procurement, and brand partnerships.
- Extend footprint into key emerging markets with focus on Ghana, Nigeria, South Africa and Botswana.
- Integrate our marketing, sales and distribution business, ensuring standardisation across businesses and territories, and operate under ‘One Imperial’ brand.
Supported by our key enablers:
How we support the Imperial strategy
- Positioning Imperial as unique in its ‘Gateway to Africa’ offering.
- Servicing a number of lead clients, principals and customers in the defensive healthcare and consumer industries, with plans to expand into other strategically aligned industries, including automotive and chemical.
- Driving demand for inbound logistics thereby expanding opportunities to cross-sell and upsell our other services.
- Leveraging digital and data to offer value-added services to clients, principals and customers.
- Unlocking operational efficiencies and new revenue streams across the value chain.
Strategic performance
We measure our performance against defined strategic key performance areas (KPAs):
Strategic performance measures
Progress made in F2021
- Recorded revenue and operating profit growth of 30% and 13% respectively for the 2021 financial year.
- New business revenue of approximately R1,7 billion (p.a.) was secured on a rolling 12-month basis to the end of June 2021.
- Gained a material consumer contract for P&Gs route-to-market of consumer goods in Nigeria.
- Contract renewal rate on existing contracts remains strong at c.100%.
- Invested c.R24 million in appropriate structures and resources to create focused consumer and healthcare teams to achieve future strategic ambitions and growth in these key industries.
- Disposed of the Pharmed business in South Africa to exit from non-core healthcare wholesale activities.
- Developing a stakeholder platform that provides access to key data on our local and global competitors.
- Holding regular business development sessions across healthcare and consumer industries to align on business development strategies and targets.
- Acquired a 49% shareholding in Pharmafrique (trading as Kiara Health), a pharmaceutical contract manufacturing and healthcare services company, supporting backward integration into contract manufacturing in South African market access services.
- Deployed a sales team focused on driving demand in the healthcare industry in South Africa, promoting Kiara Health and relevant healthcare products.
- Acquired Eden Pharma, a South African company licensed to import and distribute pharmaceuticals in South Africa.
- Announced the acquisition of Deep Catch Namibia Holdings, a diversified and vertically integrated business engaged in wholesale, distribution, and cold storage of perishable foods in Namibia and the SADC region. Imperial will be positioned to enter and build its cold chain capability and product category expansion and provide access to defensive, value-added FMCG capabilities, in line with the group’s ‘Gateway to Africa’ strategy.
- Conducted a ‘voice of the customer’ survey in our Healthcare operations to deepen our client insights.
Market Access pipeline
contracts gained
(2020: 93%)
by top five clients to contracts
gained
(new business)
by top five clients to contracts
renewed
contribution to open pipeline.
Our operating context and performance in F2021
Pro forma Market Access segment results
| Half year 1 | Half year 2* | Full year | |||||||||||||||
| Market Access | 2021 | 2020 | % change |
2021 | 2020 | %change | 2021 | 2020 | % change |
||||||||
| Revenue (Rm)^ | 7 415 | 5 480 | 35 | 7 712 | 6 181 | 25 | 15 127 | 11 661 | 30 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EBITDA (Rm)^ | 500 | 566 | (12) | 456 | 286 | 59 | 956 | 852 | 12 | ||||||||
| Operating profit (Rm)^ | 422 | 506 | (17) | 384 | 205 | 87 | 806 | 711 | 13 | ||||||||
| Operating margin (%)^ | 5,7 | 9,2 | 5,0 | 3,3 | 5,3 | 6,1 | |||||||||||
| Return on invested capital (%)^ | 11,4 | 19,2 | 14,1 | 14,5 | |||||||||||||
| Weighted average cost of capital (%)^ | 12,2 | 14,1 | 11,5 | 13,1 | |||||||||||||
| Net debt (Rm) | 1 830 | 1 416 | 29 | 1 500 | 1 650 | (9) | |||||||||||
| Lease obligations included above (Rm) | 334 | 262 | 27 | 304 | 348 | (13) | |||||||||||
| Net debt excluding lease obligations (Rm) | 1 496 | 1 154 | 30 | 1 196 | 1 302 | (8) | |||||||||||
| Net working capital (Rm) | 1 803 | 1 724 | 5 | 1 726 | 1 689 | 2 |
| Note: Continuing operations | |
| ^ | Excluding businesses held for sale |
| * | Half year 2 numbers are unaudited and derived from deducting the half year 1 results from the full year published results of 30 June 2021 |
The operating environment is showing signs of slow recovery as COVID-19 lockdown restrictions were eased in most of our key markets. However, a third wave of infections are weighing again on many countries in Africa, where vaccination rates are currently very low. In addition, certain of our markets were negatively impacted by restrictions relating to the sale of alcohol. Economic activity in the sub-Saharan African region is, however, expected to strengthen if countries act quickly to contain new waves of the pandemic and speed up vaccine roll-outs. Sub-Saharan Africa’s recovery is expected to vary significantly from country to country.
Our strong position as a leading healthcare and consumer market access player in sub-Saharan Africa continues to stand us in good stead, particularly during the COVID-19 pandemic. Market Access delivered excellent results in F2021, growing revenue and operating profit by 30% and 13% respectively, supported by the successful integration of acquisitions, a strong recovery in most businesses, particularly in Consumer, and good contract gains.
Operating margin continued to be under pressure mainly in the healthcare business in Nigeria, the consumer business in Mozambique, and the healthcare medical supplies and kitting business (Imres), declining from 6,1% in F2020 to 5,3% in F2021. COVID-19 resulted in supply chain disruptions with the procurement cost of certain product categories increasing significantly during the year.
The investment in the new Market Access organisational structure is proving successful, with new business wins and a healthy pipeline of new opportunities. New business revenue of approximately R1,7 billion p.a. was secured on a rolling 12-month basis to the end of June 2021. The contract renewal rate on existing contracts remains strong at c.100%. Commercial efforts to drive integrated solutions across our healthcare and consumer businesses are gaining traction and are positively contributing to our performance.
The healthcare business continued to benefit positively from the integration of acquisitions, organic growth in the multi market aggregation business, as well as excellent growth in revenue and operating profit in the healthcare businesses in Kenya and Nigeria. Our healthcare medical supplies and kitting business continues to benefit from a strong order book but performance was negatively affected by COVID-19.
In the consumer business, Imperial gained a material consumer contract for P&G's route-to-market of consumer goods in Nigeria which became effective on 1 January 2021. The consumer business contributed strongly to results mainly due to the inclusion of this contract and the integration benefits gained post the acquisition of the consumer business in Ghana. Our consumer business in Namibia delivered a resilient performance in a tough economic environment. Lower activity was recorded in Mozambique, with margins under pressure, mainly resulting from restrictions on alcohol trading due to COVID-19. Our newly formed Market Access consumer business in South Africa is contributing positively.
Excellent net working capital management resulted in an increase of 2% in working capital to R1 726 million as at June 2021 compared to a growth in revenue for the year of 30%. ROIC decreased from 14,5% to 14,1% and is higher than WACC of 11,5%, slightly below the targeted hurdle rate of WACC +3%.
Outlook
Despite the challenging macro environment, we remain optimistic about the future of Market Access. In Africa, rising consumerism, urbanisation, population growth and the strengthening of healthcare systems by governments, will continue to positively impact Market Access.
The successful creation of our Market Access consumer and healthcare businesses in South Africa during the 2021 financial year represents an important strategic milestone, and we will continue to build on this. New business development, attracting new clients, principals and customers across all markets and businesses, and our continued effort to incorporate and integrate our acquisitions to unlock value, will remain a critical factor in driving organic revenue growth.
We will continue to focus on expanding our network in Africa, innovative solutions design, excellent operational execution and accelerating the shift to greater technological and digital enablement. These focus areas will position us even more strongly to meet the needs of multinational corporations seeking operationally and financially secure partners to assist them in navigating the complex operating environment and realising the compelling opportunities that Africa presents.
Our priorities for the coming financial year remain:
- Further progress the implementation of the various strategic initiatives in Market Access consumer and healthcare.
- Continuing to build strong relationships with existing and new clients, principals and customers.
- Gaining new business by converting existing opportunities and building our pipeline of new opportunities.
- Continuing to integrate our acquisitions to unlock value, ie Deep Catch.
- Continuing to expand our multi-market distribution partner model and networks in key industries.
- Adopting a more client-centric approach, selling more effectively as 'One Imperial'.
- Continuing to implement financial controls to manage our operating expenses, working capital, cashflows, debtors and forex risk.
