|In This Report|
|2020 Annual Report|||||Sustainability and this Report|||||Our People|||||Sustainability|||||Financials|
As thousands of CEO's will write in their annual letter - 2020 has been a year like no other. For Aramex, it was a year that tested our operational agility, the will of our people, the strength of our diversified business model, our financial robustness, our service levels to customers and our commitment to sustainability. I can confidently say that on all fronts we performed exceptionally.
As the COVID-19 snowballed into a pandemic and set off a chain reaction on our business and operations, safeguarding the health and safety of our people and ensuring our facilities and fleets were routinely sanitized was a matter of urgency. While we worked internally to respond to the crisis, I had full trust we would continue servicing our clients with no compromise to our service level, despite the obstacles from border closures in multiple countries, to fast changing curfews and lockdown measures in hundreds of cities. The problem-solving mindset of our teams, the readiness of our now more efficient operations and extensive global network underpinned by a digital infrastructure, strong business partnership relationships and solid financial standing afforded us the speed, agility, and resilience. In a nutshell we continued performing at our best despite some of the worst operating conditions.
Moreover, we knew from early on that staying close to our customers was essential as now, more than ever, they were depending on our innovative solutions and capabilities as an enabler of their businesses and we had to continue providing them with reassurance that we would do whatever it takes to help move their shipments across borders and to the doorsteps of end recipients safely and quickly. I am incredibly proud to say that we ended the year with the highest level of service satisfaction from our customers.
HR's role was unequivocally central and business critical in 2020. The safety of our people, especially our couriers and warehouse operators who were at high risk of exposure to COVID-19, was our top priority. In the early days of the pandemic, HR teamed up with the Risk and Compliance departments to create a Crisis Management Team that was mandated to manage and oversee all the necessary health and safety measures to ensure employee wellbeing and safety. They were also responsible for the scheduling and planning of employee shifts, all while factoring in the constantly changing curfew hours, lockdown measures and mobility permits in the 650+ cities where we operate. We not only focused on the physical health of our 15,000+ employees around the world, but on their mental health as well. We fast-tracked the launch of the global Flexible Working Policy giving our teams greater flexibility to balance work, life, and the impact of the pandemic. The policy is designed to help team members focus on outcomes, deliver quality work and business goals, be productive, and stay motivated while physically apart from their teams.
But I must pause here and say how incredibly proud - just as a father would be of his children - of all the truly gallant and selfless efforts of our people, especially those that are considered the “front-liners” of this pandemic. The Aramex teams' willpower was not shaken, on the contrary all members of the team doubled down on their determination to get the job done despite the multiple challenges from COVID-19 to social unrest in the US and other parts of the world, to the devastating explosion in Beirut. In the end, the value the Aramex people delivered was truly priceless. Thanks to their heroic efforts, businesses stayed in business, patients received their medicine, governments were able to move critical shipments, and it gave people all over the world, confined to their homes during lockdown, a reason to be happy opening the door to see an Aramex courier delivering their new puzzle, or toys to keep their children entertained. From the bottom of my heart, I extend a BIG THANK YOU to everyone at Aramex - together they made the pandemic a little more tolerable for businesses, people, and governments.
Going into 2020 we had already made incredible progress in our digital transformation journey, positioning us favorably to handle the unexpected surge in Express volumes in 2020 driven by a sudden spike in e-commerce activities. Some of those initiatives include our migration to the cloud, investment in asset-light technology-driven solutions such as Aramex Spot and Fleet, and operation-enhancing AI technologies. The pandemic proved that our investment in building a strong digital backbone was necessary, reaffirming our need to continue our aggressive companywide digital transformation to address the disruptions caused by the pandemic on our industry and future proof our business. To that end, in 2020 we accelerated our investments in technology including frictionless and contactless delivery to ensure we are adhering to social distancing requirements while ensuring a smooth delivery process. We updated our AI model to factor in new transit times to increase our transparency with customers and we boosted our digital touchpoints to enhance scheduling deliveries and location capturing to optimize delivery routes and shorten delivery times.
One of our several last mile enhancements was launching a completely revamped consumer app to further improve our responsiveness and engagement with end recipients. We also introduced Aramex SMART, a full stack payment option which fits perfectly in the contactless environment and expect it to be a powerful payment and delivery solution for e-tailers, which will support our commercial ambitions. Another important milestone in our digital transformation journey was the rollout of an integrated logistics execution platform, CargoWise. This powerful platform provides customization, automation and real-time visibility across our global freight operations, the results have already been tangible and immense for our freight forwarding operations and customers.
As lockdown measures and curfews forced more and more people to turn to e-commerce to purchase all types of goods, this created a massive disruption to the international and GCC e-commerce business, significantly changing its growth trajectory. We witnessed an extraordinary 74% year-on-year growth in e-commerce Domestic Express volumes in our core markets. While International Express declined in the first half of the year, volumes quickly bounced back, notably from US, Asia and Europe origins into GCC markets. Of note Shop & Ship had a terrific year, a vote of confidence from GCC consumers in our service specifically and in e-commerce as a primary retail channel more generally. For the twelve-month period, Express volumes grew 21%.
Other parts of the business were mixed. Freight-Forwarding reported revenue of AED 1,085 million down 5% year on year. This B2B business line was impacted by the several factors related to supply chain disruptions, lockdowns, shortage of airfreight and sea freight capacity supply and general slowdown of activities in certain industries such as oil and gas and traditional retail. Optimistically, the growth from other segments, especially healthcare and FMCG, helped offset some of the weakness from the Company's more established business verticals. Logistics & Supply Chain Solutions business increased 6% year-on-year to AED 375 million, due to solid growth from very promising and strategic sectors including healthcare and FMCG
However, scaling our operations in a short period of time to service the spike in Express volumes meant we had to swiftly ramp up our on the ground operations. Therefore, in 2020 we expanded our last mile operations including hiring more couriers, increased our fleet, expanded our infrastructure including warehouse capacity, and upgraded our clearance gateway capabilities. Additionally, since we run an asset light operating model, we also had to upgrade our line haul capabilities, to come up with optimal solutions at the lowest possible costs.
I am incredibly proud to report that we ended the year with record Revenue of AED 5,510 million, up 9% year-on-year. Not surprisingly, the Express business - International and Domestic - made up 71% of our revenue, up 3 percentage points from FY 2019.
However, our EBITDA margin fell to 13.5% from 18.2% in 2019. The decline is mainly owed to costs associated with COVID-19, from higher long-haul costs to costs associated with scaling last mile operations to accommodate the surge in express volumes from escalating e-commerce activities. Some of those costs will abate and normalize over time, while others may remain elevated compared to pre-COVID-19 levels, specifically line haul costs. In addition to the higher cost base, EBITDA margins were also weighed by non-core and one-off provisions of AED 36.7 million, a provision that was booked in Q4 2020 in relation to the Morocco warehouse fire incident incurred in Q3 2020 and AED 21.3 million in estimated credit loss on the Company's bank deposits in Lebanon, a prudent provision in light of the deteriorating liquidity and banking conditions in that country.
However, outside of COVID-19 related costs and provisions, as I remarked in last year's letter, prices are becoming increasingly competitive. This is why one of our strategic priorities is doubling down on our digital transformation efforts, because we strongly believe the long-term benefits of our investment in technology is greater efficiencies which will in turn help sustain healthy margins.
For FY 2020, Net Income was AED 267 million, down by 46.4% from AED 497.4 million from the year ago period, and normalized Net Income for the period was AED 377.6 million, down 24.1% year-on-year.
Despite the increase in costs and after accounting for provisions, Aramex remains in a very strong cash position thanks to our prudent financial management. At the end of 2020, Aramex's total cash stood at AED 1,255 million and free cash flow of AED 441 million. Moreover, the agreement to sell InfoFort (announced in January 2021) will strengthen Aramex's balance sheet and result in a more focused group, consistent with the Company's long-term strategy to focus its operations on the core logistics solutions services.
We were relentless in our commitment to executing on our sustainability strategy, continuing to demonstrate our leadership position on that front.
One of the main pillars of our sustainability strategy is to increase our reliance on renewable energy sources to power our operations. In 2020, we commissioned the second solar farm in Dubai, and this project is expected to produce energy that will cover more than 60% of the facility's needs. We also continued successfully testing electric vehicles in Saudi Arabia as part of our “Green Mobility” initiative
This year was particularly challenging for SMEs and start-ups, and we ensured to continue to provide the 4,000+ small businesses with the necessary support - both financial and advisory - to stay afloat and to deliver value to their respective stakeholders. As a result, we indirectly helped save over 5,000 jobs.
Thanks to our dedicated Sustainability team's efforts, we are incredibly happy to report we have reduced our scope 1,2,3 carbon emissions by 6% and we also increased the number of beneficiaries of our sustainability initiatives to more than 360,000 persons around the world, in line with our goal to increase the number of beneficiaries by 5% every year.
Looking ahead, we are renewing our commitments to sustainability and deepening the integration of our sustainability strategy with our business strategy, to ensure that we are delivering value to all our stakeholders and protecting our planet. Also, as one of the first regional companies to become signatories of the United Nations Global Compact, and in line with the organization's new strategy, we are reaffirming our efforts to align our practices to a sustainable and inclusive future.
With e-commerce leapfrogging three to five years into the future, we expect that over the next several years for Express volumes growth to continue, albeit at a more moderate pace than 2020. To defend our market leadership position in our core markets, we will continue to invest our last mile infrastructure to accommodate for larger volumes.
2020 has also disrupted the industry landscape and tested the durability and preparedness of many companies within our industry and those that are heavily reliant on it. This change will inform our expansion strategy and forces us to look at reconfiguring some of our existing operations.
On the expansion front, we are seeing immense opportunity in servicing certain defensive industry verticals such as healthcare, and FMCG and we will seek to expand our market share in those verticals by further enhancing our capabilities and expertise through talent, technology and forging strategic partnerships. We have already joined forces with other regional organization and global industry players to be part of The Hope Consortium for global vaccine distribution, a testament to our strong capabilities in the very intricate and no margin for error supply chain management of critical pharmaceutical products.
As for reconfiguring some of our operations, we have already started to further enhance our operations in markets considered strategic logistics hub, such as Abu Dhabi, where we now have a major hub in Abu Dhabi Airports equipped with a dedicated 1,200 sqm area for airside operations, the facility will operate dedicated international and regional charter flights out of Abu Dhabi that will ensure next day deliveries within the GCC.
On a final note, I want to say thank you for the unwavering trust you have placed in Aramex, and we will continue to seek ways to cement that trust and deliver to you, and all our stakeholders, greater value.
Chief Executive Officer