South Africas Imperial Group tames FX volatility

The group treasurer of South Africas Imperial Group describes the generic and specific challenges of its treasury environment, and how an integrated team works together to achieve best practice treasury and risk management results. Imperial Group is a South African multinational corporation, with annual sales of 110.5bn rand (ZAR) (US$7.7bn). Its core businesses are consumer and industrial logistics, and vehicle import, distribution, dealerships, retail, rental and aftermarket part supply, plus vehicle-related financial products and services. Imperials headquarters are located in Bedfordview, near Johannesburg and the group has around 51,000 employees, working from more than 1,200 locations in 31 countries across five continents. The global scale of Imperials business operations exposes the group to complex foreign exchange (FX) risk, relating to its overseas earnings, investments and expenses, and its import costs. Imperial is an integrated logistics and market access solutions provider with a presence across 25 countries, including a significant footprint in the high growth Africa market. The Group focuses on fast-growing industries including healthcare, consumer, automotive, chemicals, industrial and commodities. Imperials business has been built on long-term partnerships with cargo owners, in addition to serving as a trusted partner to many multinational clients, principals and customers. Coupled with this, its base currency the rand has experienced a sustained and continuing period of extreme volatility, due to various global and local economic and political reasons. Last December, the ZAR suffered a particularly steep depreciation following the so-called Nenegate scandal, which saw the then minister of finance Nhlanhla Nene fired by president Jacob Zuma. In response, Imperial has established a sophisticated treasury operation, whose role is to protect the value of the groups revenue and assets and fund the growth of the group and secure appropriate liquidity. Imperials group treasury implements the policies and directives for liquidity, interest rate and exchange rate risk as determined by the asset and liability committee (ALCO), a board sub-committee. The ALCO also oversees banking facilities and the provision of services across all group operations. Foreign exchange (FX) risk relating to vehicle imports is managed under the auspices of group treasury, which is responsible for worldwide cash and financial risk management, and access to national and international debt capital markets as well as bank funding to finance the groups operations. Some treasury activities are delegated: European treasury matters are dealt with by a Netherlands and Germany-based team, and African treasury activities are managed through a multidisciplinary team, and coordinated through monthly treasury committee meetings chaired by the group treasurer.

Imperial imports a range of vehicle brands into South Africa, so is faced with currency fluctuations that need to be hedged and managed. The group provides logistics and distribution services to many large principles in the fast-moving consumer goods (FMCG) segment as well as pharma distribution across African countries that include Nigeria, Ghana, Kenya, Malawi, Tanzania, Zambia, Mozambique, Zimbabwe, Botswana, Namibia, Swaziland and Lesotho. Each country presents specific regulatory and risk exposure characteristics. In addition, certain vehicles are imported and distributed into four African counties. This high level of diversity provides many challenges for group treasury relating to funding and FX risk management. Imperial also operates in Europe, the UK and Australia, where it requires sophisticated treasury services. The diverse services provided by the European operations include inland waterway shipping just-in-sequence logistics transport and warehousing and chemical manufacturing, necessitating the use of a treasury management system (TMS) for effective management. Expansion of the shipping business into South America has added US dollar (USD) exposure management to the largely euro-based business, which requires the use of powerful technology and process support to achieve an effective hedging solution. Imperial addresses its complex FX risk management demand by deploying its treasury services in several ways, with an outsourced foreign exchange execution capability in South Africa, together with centralised and regional interfaces to the various markets. Imperial selected local treasury services company Treasury-one to provide outsourced treasury services and have established a close working partnership with the company. Together, we operate a closely integrated treasury team, in which our providers expert professional resources complement Imperials team with FX risk management, deal execution and treasury back-office administration.

Answer ALL the questions in this section

QUESTION 1 (20 Marks)

Analyse and discuss the infrastructure challenges associated with Imperial Group's efforts to enhance transportation security on consolidated routes within the South African transport system?

QUESTION 2 (20 Marks)

Examine the role of automated warehouses and machine learning in helping Imperial Group realise its sustainable logistics vision, with a specific focus on achieving functional benchmarks within the automotive sector?