|In This Report|
|Aramex 2019 Annual Report|||||Sustainability and this Report|||||Our People|||||Sustainability|||||Financials|
Dear valued shareholders,
2019 marked another year of continuous growth for Aramex. We stayed on course executing on our business transformation strategy and focusing efforts on rolling out innovative solutions, streamlining our operations and restructuring our commercial strategy. Our ardent commitment enabled us to enhance efficiency levels across the network, handle strong growth in shipment volumes in our core markets, translating to ending the year with consistent financial performance and business growth despite several macroeconomic and industry specific headwinds.
Resilient financial performance and robust volume growth
For FY 2019 our net profit edged up 1% to AED 497.4 million, compared to AED 492.6 million we made last year. Our full year revenue increased by 3% to AED 5,246 million, compared to AED 5,086 million in FY 2018, however our operating margins have been impacted by the pressure on e-commerce pricing.
Also, we remain in a very strong cash position thanks to our prudent financial management; at the end of 2019 our total cash stood at AED 1 billion and free cash flow of AED 294 million.
In terms of our core business lines, International Express grew by 3% to AED 2,349 million in 2019, compared to AED 2,273 million in 2018, with strong contribution from USA, UK, Singapore and Saudi Arabia. Domestic Express grew by 5% to AED 1,108 million, compared to AED 1,051 million in 2018, driven by the rise in domestic e-commerce across GCC and Australia. Performance was negatively impacted by the strategic restructuring of our operations in India and foreign currency fluctuations; excluding these two factors, Domestic Express would have grown by 13% in 2019. Key driver of that growth was the very encouraging growth in shipment volumes which jumped 27% compared to 2018, namely driven by strong growth in Saudi Arabia and Egypt – and we expect growth momentum to be sustained in 2020.
As for our B2B segment, our star performer was our Logistics and Supply Chain Management operations which enjoyed an 18% increase to AED 355 million, compared to AED 302 million in 2018, due to the strong demand from traditional retailers for Aramex’s warehousing and other value-added services across key markets. Our Freight-Forwarding business declined by 2% to AED 1,138 million, compared to AED 1,164 million in 2018 due to continued regional economic uncertainty, although the Oil and Gas segment continues to be a key focus for us.
Growing in a shifting operating environment
On an industry level and within the region, especially the GCC and Egypt, there are opportunities for further market share expansion as we anticipate e-commerce to continue to fuel healthy growth in shipment volumes. While competition amongst last mile delivery players remains stiff, who we are competing against is changing. Initially encouraged by the potential to benefit from the boom in the regional e-commerce market, we have seen the number and types of market players grow. Aramex, however, is at a competitive advantage given we have the scale, the network and the resources to protect and expand our market share in our core markets, while remaining competitive with our prices.
Also, pertinent pressure is mounting on logistics and last mile service providers to offer faster, more reliable delivery solutions at more competitive prices, and those demands are more pronounced in the last mile delivery segment. As a result, the cost of doing business is rising and profit margins are being squeezed. That trend will not abate; we will continue to be faced with an evolving operating environment that requires us to handle higher volumes at lower prices.
In such a shifting landscape, profitability will increasingly depend on three major factors: 1) optimizing productivity through operational efficiency measures; 2) scaling both organically and inorganically; 3) diversifying revenue mix. Therefore, to continue to extract more value from our business lines we will intensify our efforts to become more digital at our core. We will further invest in productivity enhancing technologies that will simplify our processes, reduce inefficiencies and help us realize cost synergies.
Digitally fit, operationally lean
At the core of our business transformation strategy is our digital roadmap. Over the course of the year we strategically focused our efforts on reshaping Aramex’s digital identity and building a technology infrastructure that enabled a higher service level to customers, more efficient processes to handle strong growth in shipment volumes and partial mitigation of impacts from pricing pressure, especially in our express business.
More specifically, in 2019 we expanded our cloud footprint through a partnership with Amazon Web Services (AWS). We built a data lake hosting big data infrastructure that leverages machine learning and artificial intelligence capabilities allowing us to digitize the end-to-end customer experience and solve some of the industry challenges. We also upgraded our technologies in our key sorting facilities in order to enhance efficiency and reduce transit times, thus enabling us to live up to our customers’ expectations. We are also working on improving our customer digital touchpoints to ensure that instant customer interaction, real-time tracking and other key features are accurate and available 24/7.
Our innovation was not only about finding smarter technologies but also smarter solutions. For example, we introduced Aramex Fleet and Spot, which are zero-asset tech-driven models supporting our scalability efforts especially around peak demand periods, with plans to roll those out into more market in 2020.
Our efforts are paying off nicely. Today we are more digitally fit than we have ever been before which is enabling us to become more operationally agile and lean and drive efficiencies across all our business lines. I am proud to say that we are the dominant player in last mile delivery in the region, one of the most crucial and competitive legs of the delivery journey. Thanks to our investments in technology, expanding our operations in key core markets and other operational initiatives, we improved our last mile delivery infrastructure and operations, ultimately resulting in an enhanced service level on the ground and enabled us to handle the double-digit growth in Express shipment volumes.
Our commercial transformation goals are focused on sustaining our healthy top line growth and diversifying our revenue mix. We integrate with our customers, stay close to the market and listen carefully to their evolving needs to remain agile and proactive in offering innovative solutions.
In 2019, we realigned our go-to-market strategy to emphasize diversification goals by doubling down on our primary revenue generating verticals: e-commerce, consumer retail and Oil & Gas. We strengthened our focus on customers to protect and further expand our market share in these verticals in which we are market leaders. We also targeted new verticals, such as Healthcare, Telecommunication, Automotive aftermarket & Aerospace.
Going forward we will continue to emphasize customer centricity as a core strategic lever that guides our commercial strategy with primary focus on markets in which we can create highest value.
Innovation is unlocked through creativity and collaboration
At Aramex, our employees are not only defined by their job titles, but they are recognized by their creative and flexible approach to problem solving, critical thinking, and ability to execute with focus, precision and passion. I want to thank my awesome team for helping Aramex truly transform. I am incredibly proud of everyone for believing in our ability to innovate and adapt to change and I encourage them to continue driving our transformation and reach key milestones.
For innovation to be at the core of our business transformation, it must be enabled by a culture that encourages creativity, entrepreneurial thinking and collaboration. This is Aramex’s priority because each of us knows something that helps to create the whole and contribute to our collective achievements.
Leading the sustainability charge
While sustainability and green initiatives have recently become buzz words in the media and risen to board room level concerns, Aramex has been actively taking serious steps to protect our planet and support our communities for over a decade. We have been a valued partner of the United Nations Global Compact since 2007 and in 2019 we continue to lead by example in the region, with the aim of maintaining that leadership position by seeking out renewable energy so called “natural capital” in our operations to combat the degradation of the environment, especially in coordination with United Nations Sustainable Development Goal 13: Climate Action, and continuing to support our local communities through youth empowerment programs and offering mentorship and training to entrepreneurs.
Our target was to cut down our emissions per shipment by 20% in 2020 versus emission in 2016, and I am very happy that we have managed to reach this target by end 2019 through the adoption of the sustainable transport and renewable energy usage. This resulted in a total reduction of our emissions from our 20% baseline in 2016 by an additional 20% at the end of 2019. Also, our electricity consumption per shipment fell by almost a third and our fuel consumption per shipment dropped by almost a quarter.
Expanding on our wider sustainability strategy and emphasis on utilizing renewable energy, we are operating two recently completed solar farms in Jordan and the United Arab Emirates. The 1.2MW solar farm in Amman powers 90% of the needs of Aramex Jordan while the 3.2MW facility in Dubai has reduced the consumption of the targeted warehouse by 60%. Both facilities have greatly reduced negative impacts on scope 1 and scope 2 emissions. In 2019, we started the building of another 3.2 MW solar farm on the rooftop of our second warehouses in Dubai, and this project is expected to produce energy that will cover more than 60% of the warehouse needs. We expanded our waste management and recycling systems in our stations to cover over most of our global stations.
On the Green Mobility front and in line with our strategy to transform to electric fleet where applicable, we have been running a fleet of 10 fully electric vans as part of our last mile operations in Amman, Jordan. We also started similar testing in Saudi Arabia, and soon we will be piloting these vehicles in the UAE.
To date, Aramex has supported over 3,600 entrepreneurs, startups and SMEs and we have supported hundreds of youth through scholarships, training ,internships and specific skills enhancement programs within select industries.
Over the mid to long term we have set sustainability goals, including: