CEO's
report
Dear shareholders,
I am pleased to report that during the year, Velogic pursued its growth momentum, delivering double-digit growth in profitability and further consolidating its footprint in East Africa. After a very eventful couple of years, the road to normalcy was fraught with new challenges, which we managed to overcome successfully.
Meeting our strategic objectives
This performance comes on the back of persisting volatility in the macro environment. In a battle against high inflation, interest rates worldwide were increased significantly to curb demand. In parallel, cargo capacity shortages eased. This created an overcapacity on the freight market, resulting in a massive drop in rates and gross profits in the Freight Forwarding industry. The invasion of Ukraine caused fuel costs to skyrocket at the beginning of the financial year, which massively impacted the cost of operations, putting pressure on our bottom line.While Mauritius’ recovery has been largely boosted by the rebound in tourism and infrastructure projects, the looming threat of a recession led to reduced orders from key export markets, such as Europe and the USA, but also, reduced consumption in Kenya. Export volumes from India predominantly, and to some extent Mauritius and Madagascar, were impacted during the second half of the financial year.
Velogic’s ability to increase Profit after Tax by 16%, even under these testing circumstances, can be attributed to our many years of organic and acquisitive growth, as well as the agility of our teams to adapt to the rapidly changing environment. In addition, the acquisition of Rongai Workshop & Transport in November 2022 also allowed the company to extract value through synergies and economies of scale in our transport business in Kenya.
This integration has grown our fleet in Kenya almost threefold to more than 160 vehicles, surpassing that of Mauritius, and bridged our capability gaps in the haulage business. It has also enabled us to significantly expand both our customer base and distribution network across the country. With road transport poised to remain a major means of delivering goods in East Africa in the coming years, Velogic is now better positioned to leverage its deeper market knowledge and Kenya’s strong links to other major regional hubs. Together with our diversification across logistics services and geographies, which naturally hedge us against risks, we are in good stead to seize the opportunities presented by the buoyant East African region.
A strong performance across our served markets
With a 60-year strong presence in Mauritius, Velogic enjoys a leading position in the local market as one of the rare logistics players to offer the full spectrum of logistics services, from origin to destination. Our home market is relatively limited in size and scope, and relies heavily on local consumption trends. The 15% growth in profitability was mainly driven by improved warehousing and haulage activities as a result of increased imports in the country following the economic recovery.
With the limited scope of growth in Mauritius, Velogic has sought to bolster its expansion over time. We have gradually diversified our activities and continued to push back geographic boundaries, with increasing contributions coming from our international markets. In 2023, overseas activities contributed over 50% of total Group performance, the biggest share stemming from Madagascar and Kenya.
In Madagascar, operational profitability grew by about around 40%, fuelled by increased import volumes from key customers and improved business from the mining sector. The export sector remained relatively resilient.
Results in Reunion Island improved likewise but from a relatively lower base. Freight Forwarding activities experienced a higher growth in profitability than courier activities, as ocean freight volumes increased at the back of enhanced available capacity.
In Kenya, profitability was comparable to the previous year despite a drop in local consumption, and therefore, lower imports. This was achieved as a result of synergies derived, during the second half of the financial year, from the acquisition of Rongai Workshop & Transport.
Activities in India were impeded by economic contractions and reduced consumption in Europe and in the US, two of India’s large export markets. Falling export volumes from India led to a 70% decrease in profitability compared to an exceptional previous financial year, due to as much as tenfold increases in freight rates.It must also be noted that India is an intensely competitive and highly fragmented market, with a multitude of different-sized players. To further its growth, Velogic India opened two new offices in 2023 and expanded its well-oiled network of agents, whose reliability and trustworthiness have proven to be strong drivers of customer satisfaction and differentiation. Looking ahead, Velogic India stands to benefit from enabling policies and investments as the country sets its eyes on making the logistics industry a crucial driver of trade competitiveness and economic growth.
Our investment in France through our associated company where we hold 30% broke even in a continuing difficult market.
Our expanding presence in East Africa, India and the Indian Ocean will serve as a springboard for further opportunities in the coming years, especially as Mauritius endeavours to become the key regional logistics hub due to its ideal location on the maritime route between Asia and Africa.
Customer centricity meets operational efficiency
Much of our performance can be credited to our mindset and ways of working. I firmly believe that it is our agility, operational efficiency and endeavour for surpassing customers’ expectations that have enabled us to remain a preferred partner to our clients and transform into the fully-integrated business we are today.
As a service provider, we cannot exist without our customers. This philosophy is deeply embedded in how we interact with them.We are in an interesting time for our industry, where customers are increasingly viewing logistics as a matter of strategic importance for their business. This became even more evident during the pandemic, when essential goods such as medical supplies and food products, among others, continued to flow to millions of people around the world. At the same time, customers have never had more choice. Providing value-for-money tailored customer service is how Velogic distinguishes itself. Our conversations with our customers are partnership-based, where we work closely together to address their specific needs. We help them navigate the complexities of different jurisdictions, stringent regulations, and any special handling or delivery requirements; and we implement solutions that not only cater to their most unique requests, but that are also designed to drive their business forward. This attentive and personalised approach has earned us a high customer retention rate in Mauritius, which stood at 86% for the year.
This is not a one-off initiative, but a process of continuous improvement and adaptation.
Our teams undergo continuous training to develop the agility and skills required to deliver the service levels that are expected of us, always applying their learnings from each experience to refine and improve the process. We keep communication channels open and transparent to gather relevant feedback and identify areas of improvement.
Technology is another way we try to pave the way for more responsive and personalised service, not only with customers, but also with our extensive network of offices, agents and partners. Our digital platform offers a cohesive and centralised medium to manage our cross-border deliveries efficiently, gives us visibility into the supply chain, facilitates the flow of information between our global teams and has driven important productivity gains since its implementation.
Digitalisation is also helping us build a leaner, more agile business that is more resilient to industry dynamics. In fact, we are working on transforming our Mauritian subsidiary into a business process hub that will drive cost efficiencies across our overseas operations. The centralisation of this Business Process Outsourcing (BPO) platform in Mauritius to service higher-cost countries, has provided us with major cost benefits, while aligning customer-facing procedures.
In parallel, we pursued the development of TrackRight in Kenya, our last-mile logistics app that is helping customers simplify and automate their supply chains with real-time tracking, data analytics and integration capabilities. There is also a feature that calculates the carbon footprint of each vehicle after every trip, enabling companies to track their CO2 emissions and take remedial actions to decarbonise their operations.
Towards more sustainable supply chains
As we work towards making our operations more resilient, we aim to do so without sacrificing sustainability. We are aware that the logistics industry is, by its nature, a large contributor to carbon emissions, and Velogic is strongly committed to doing its part to reduce its carbon footprint. Since we do not own airlines or shipping lines, whose emissions we cannot control, we have developed a clear sustainable road haulage management strategy, which aims to lower carbon emissions through reduced fuel consumption from our trucks.
Drivers are trained to drive ‘fuel efficiently’ and the best achievers are rewarded. Work-from-home practices, which started during the pandemic, are still well encouraged where possible in an attempt to reduce employee commuting to work. We also continue to carry out initiatives in the areas of climate, biodiversity, inclusive development and the circular economy, as explained in the Natural Capital section of this report (page 52). To ensure our actions are delivering the desired positive impact, we strengthened our governance of environmental and social matters by forming a specialised committee in September 2022.
Alongside this, we are currently undertaking the feasibility of a PV project in Mauritius. It entails the consumption of electricity which we will produce ourselves, under the Carbon Neutral Industrial Sector (CNIS) Scheme, which I hope to share with you in next year’s report.
Outlook and opportunities ahead
Looking back at the milestones achieved over the past year, and the opportunities that lay before us, I am filled with prudent optimism for 2024 despite challenges that will crop up, as growth is dampened due to high interest rates. We expect our momentum to pursue its trajectory, especially as we move past the transition phase of our acquisition in Kenya and reap a full year of synergistic benefits of this integration.
Exercising prudence is a natural course of action, given that the global economy is still highly volatile and uncertain, and that our performance is closely tied to consumption and investments in infrastructure projects. As we enter a new year, we are strongly positioned to continue meeting our customers’ current needs, as well as their future needs for more transparent, resilient and sustainable logistics solutions.
Since our beginnings as a freight forwarding company in the 1960s, we have invested heavily in growing our core business, thoughtfully vertically integrated activities, and ventured on a progressive geographic expansion. Today, the outcome is visible. We have a well-diversified revenue base and portfolio of logistics services with good scope for growth, and a distribution network spanning more than 300 agents globally.
Appreciation
Financial results aside, what truly stands out when looking at FY 2023 is the strong leadership of our Group’s executive and management team, as well as the hard work of our team members all over the world. I am wholeheartedly thankful to all my colleagues for their support and especially, for their dedication to the Company.
I am grateful for the stewardship of the Chairman and Board of Directors during another unusual year, as well as the continued support of all our customers and partners who have expressed their desire to do more business with us.
The financial year 2023 was a year ofmajor developments by many standards, whether from a geopolitical perspectivefor the markets in which velogic operates, or in terms of the considerable progressmade in executing our strategy. I ampleased to share that velogic sustainedthe upswing experienced in fy 2022and achieved commendable resultsacross most markets, further anchoringits presence in mauritius, and overseas.
Global supply chains have been testedby unique scenarios over the past fewyears. While port congestion, capacityissues and record-high freight rateswere the major challenges plaguingthe industry between 2020 and 2022, market conditions made a sharp reversalin early 2023, with global freight ratesdeclining quickly. What began as aproblem of scarcity has transformed intoa problem of plenty. This comes largely asa result of demand-supply imbalances: a surge in energy prices has contributedto inflation across europe and the usa, leading to shrinking demand for goods onthe back of a high stock level.
At the sametime, vessel and container capacities areon the rise, creating an oversupply andovercapacity of equipment. Yet, velogic ended the financial yearwith a strong performance and much tobe proud of. I see this as a confirmationof three things: first, of the agility ofvelogics teams, who have proventheir ability to go beyond formulaicapproaches to design new supply chainstrategies and solutions for customers; second, that strong relationships withour trusted network agents and servicepartners are paramount in maintainingorganisational flexibility and responding.
Quickly to new circumstances; andthird, that the companys diversifiedportfolio across service lines, economicsectors and geographies has providedvelogic with diversified exposure anda solid foundation to capture growthopportunities in all its markets.
Now in its second year of trading on thedem, velogic is well-capitalised and onstrong financial footing. This confirmsour conviction, and the confidenceof our shareholders, in the uniquevalue proposition and capabilities thecompany has to offer. This milestoneis strengthening our profile towardsinvestors and accelerating the executionof our growth strategy, which as you knowis driven by international expansion. In this context, i am pleased to announcethat the quality of our results hasenabled us to deliver on our promiseto shareholders.
Once again, velogicsperformance exceeded the forecastsannounced in the admission document, enabling us to uphold our tradition ofconsistently distributing dividends. Wedeclared total dividends of rs 1.20 pershare (up from rs 0.72 per share in2022), generating a commendable 5.2%yield on the closing share price. Adhering to sound financial principles, prudent risk management and a targetedgrowth strategy has served velogicwell and should continue to generateinteresting shareholder returns.
Velogics regional expansion plans areprogressing well, with our overseas operationscontributing over 50% to our bottom line. Two years ago, this contribution was onlyaround 40%. We integrated the acquisitionof rongai workshop and transport limited, a well-reputed road transport company with75 years of presence in kenya and expertisein tea transportation. In addition to generatingsignificant economies of scale, this integrationis set to deliver further synergies in fy 2024 asvelogic widens its client base and deepens itspresence in the region.
Likewise, madagascar delivered a very strongperformance. Velogic madagascar has set upits ninth office there to support its diversificationinto sectors beyond the textile industry. Velogic india was impacted by reducedexports and the decline in freight rates, whichopened the door to even more competition. However, our coverage and network arecontinuing to expand. We opened a new officein gujarat in a strategic location near mundra, home to indias largest commercial port anda major economic getaway catering to majorcities in the north of the country.
With state-of-the-art and all-weather infrastructure, mundraoffers faster cargo evacuation and minimalturnaround times, with a capacity to movemore than 8.5 million teu and accommodatethe largest container ships in the world. Thismilestone marks velogics 13th office in indiaalone, extending our own network to 42 officesworldwide.
Sound governance practices are thecornerstone of our business. Guided by itsboard charter and constitution, velogic iscommitted to leading with ethics, transparency, and integrity and promoting these values to allvelogic employees and collaborators along itsvalue chain. Several changes were made during the yearto strengthen the boards stewardship role.
Mr damien mamet (chief finance executiveof rogers & co. Ltd. ) was appointed as anon-executive director, adding to the overallbalance of background and knowledge of ouralready diverse board. We have also set up ourown risk management and audit committee(rmac) to ensure that velogics governancestructure supports its development and thatrisks are managed in an effective and agile way.