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Distributorships

Manny de Canha   Daan van der Linde
Manny de Canha
CEO of Associated Motor Holdings
  Daan van der Linde
CEO of Imperial parts division

Highlights

Exceptional performance with operating profit up 33%
Car parc of imported brands continues to grow with well-established brands like Hyundai and Kia
Hyundai Elantra – voted SA car of the year 2011; Kia Picanto was voted number two
Goscor acquired 51% of Hi-Reach Manlift distributing Genie aerial work platforms (cherry pickers)
Acquisition of 70% of Datadot, a business that installs microdots as a security identification system used in the detection of theft
Acquisition of 67,5% of Bobcat – leading distributor of compact equipment for the mining and construction industries. Their offering includes the sale, rental and after-market support for their products
The autoparts businesses continue to perform solidly and generate healthy returns

Divisional overview

The distributorships division comprises a number of individual businesses that import and distribute a range of passenger and light commercial vehicles, automotive products and parts, industrial equipment and motorcycles on behalf of local and international principals. NAC, which offers a comprehensive range of general aviation services to the fixed wing and helicopter market, is also housed in this division.

A number of individual brands are housed within the division and many of them compete against each other. While they are reported together under the division, they are managed under separate dedicated management teams.

The division comprises six operating units: vehicle import, distribution, retail and allied services; autoparts distribution; industrial distribution; aircraft distribution; joint ventures; and Australian dealerships.

Distributorships

Distributorships

Key indicators

  Growth
%
  2012
Rm
  2011
Rm
 
Revenue 29   28 318   21 947  
Profit from operations 33   2 456   1 844  
Operating margin (%)     8,7   8,4  
Net operating assets 46   7 933   5 447  
Revenue to net operating assets (times)     3,6   4,0  
Revenue relating to sales of goods to inventory (times)     4,4   4,4  
Weighted average invested capital 29   7 708   5 961  
Return on invested capital (%)     21,9   22,2  
Return on invested capital (based on core earnings) (%)     22,0   22,2  
Weighted average cost of capital (%)     9,9   10,0  
Net capital expenditure 12   383   342  
Number of new vehicles sold     72 745   65 428  
Number of used vehicles sold     36 204   31 455  
Number of aircraft sold     57   45  
Number of employees 9   8 669   7 931  
Number of dealerships     112   85  

Operating units

Vehicle import, distribution, retail and allied services   Autoparts distribution   Industrial distribution   Aircraft distribution (NAC)   Joint ventures   Australian dealerships
                     
This unit imports and distributes a number of motor vehicle and motorcycle brands to a dealer network through approximately 112 owned and a number of independent dealers across South Africa. Motor vehicle brands include Hyundai, Kia, Daihatsu, Mitsubishi, Tata, Lamborghini, Bentley, Lotus and Proton. A well-established retail network facilitates a comprehensive after-sales service that includes financial services, vehicle services, parts supply and accessories. The division also imports Kawasaki, Aprilla and Triumph motorcycles and related accessories.

The division expanded its activities into the importation and distribution of electric personal transporters through the acquisition of 60% of Segway and in security identification of vehicles through the acquisition of 70% of Datadot. Datadot installs micro dots used in the detection of motor vehicle theft and are also used to identify and protect motorcycles, trailers, marine craft, home, business and personal assets.

Outdoor media company, Graffiti, specialises in vehicle and truck branding and a range of wrapping solutions for the advertising industry.

 
Autoparts distribution is involved in wholesaling and distributing vehicle parts and accessories for motor vehicles that are generally outside manufacturer warranty and service plans. The division includes Midas, which sells parts and accessories through more than 500 owned or franchised retail outlets, workshops, fitment centres, distribution centres and warehouses. Alert Engine Parts is one of the largest distributors of engine components. Its range spans top-quality house brands and those from original equipment manufacturers, and services the southern African automotive after-sales market. Turbo Exchange is a highly specialised and leading distributor and refurbisher of turbochargers.
 
This division is aligned to Imperial’s strategy of growing its business in other industries that complement its existing distribution expertise. It includes the Goscor Group, which imports, distributes and rents forklifts, cherry pickers and cleaning equipment and specialised welding, tooling, and powered products, and provides after-sales parts and services for a range of represented brands. Its brands include Crown, Bendi, Doosan, Tenant and now Genie.

Goscor recently acquired 51% of Hi-Reach Manlift, which is the sole distributor in South Africa of the Genie range of mobile elevating work platforms, cherry pickers and other related equipment. It also acquired 80% of Goscor Access Rental, through which products in Goscor Hi-Reach are rented.

The newly acquired Bobcat, a leading supplier of compact equipment into the construction, mining and agricultural sectors. There are inherent synergies between Goscor and Bobcat including cross-selling opportunities.

E-Z-GO, a distributor of golf carts. Its market includes golf courses and estates, as well as the healthcare and hospitality industries.

  Through NAC Imperial offers a full range of aviation services that include new and used aircraft sales, maintenance, flight operations, pilot training and chartering to the fixed wing and helicopter markets. It is an authorised dealer and distributor for Bell and Robinson Helicopters, Piper, Diamond, Tecnam, Pacific Aerospace, Daher-Socata, Dassault Falcon, Embraer, Kodiac Quest, Nextant 400XT and Netjets. It is also an authorised service centre for Hawker and Beechcraft.   Through joint venture agreements with Renault SAS France, Tata Motors India and the Bidvest Group, Imperial distributes Renault and Chery/Foton motor vehicles.   Through the Australian dealerships division, Imperial has six Ford dealerships in Sydney, Australia, a Ford parts distribution centre and a Mitsubishi dealership.
                     

Market conditions

Strong growth continued in the motor vehicle market throughout the financial year to June 2012. The market benefited from improving bank approval rates, low interest rates, real growth in disposable income and low vehicle inflation. In total, the South African vehicle market has improved for the 12 months to June 2012 by 13%. An increase in the number of affordable, quality entry-level brands contributed to the growth in new vehicle sales.

The average age of vehicles in southern Africa’s eight million car parc is 12 years. This benefits the autoparts business which captures the market of vehicles older than five years and those outside warranty or service plans. Some pressure on discretionary products, like camping equipment and accessories, was experienced.

Trading conditions within the industrial distribution market were positive, and the division benefited from the strong order book and growth in market share of Goscor’s products.

Aircraft sales have improved on the back of improved demand and increasing bank availability for finance of this asset class.

Results

R million 2012   2011   Change
%
  H2 2012   H2 2011   Change
% on
H2 2011
  H1 2012   Change
% on
H2 2012
 
Revenue 28 318   21 947   29,0   14 728   10 904   35,1   13 590   8,4  
Operating profit 2 456   1 844   33,2   1 294   1 028   25,9   1 162   11,4  
Operating margin (%) 8,7   8,4       8,8   9,4       8,6      

This division had an exceptional year with operating profit up 33%. In South Africa, new vehicle registrations as reported to NAAMSA by Associated Motor Holdings (AMH) and Amalgamated Automobile Distributors (AAD) were 20% higher, compared to a market increase of 13%. The improved stock availability of key models has allowed this division to gain market share in the second half. Unit sales were up 34% in the second half versus the prior year. As a result, our imported brands have strengthened their market positions significantly. The growing vehicle parc of our imported brands will secure good future levels of after-market activity for our dealerships, which are performing better.

Margins improved due to positive operating leverage and the growing after-market parts and service business. Our strategy of hedging our imports assisted in dealing with a weakening currency.

The Australian dealerships performed well with new retail unit sales increasing by 2% while used vehicle sales were 21% up.

In the autoparts division, Midas continues to perform satisfactorily, although some pressure on discretionary products like camping equipment and accessories was experienced. The engine parts businesses performed well and Turbo Exchange made a full year contribution versus four months in the prior year.

The Goscor Group performed very well, trading ahead of expectations. Crown and Doosan continue to increase their market share whilst maintaining a strong order book. Graffiti and E-Z-GO performed satisfactorily, whilst businesses like Carfind, KMSA, Segway and Datadot continue to grow.

The newly acquired Bobcat, a leading supplier of compact equipment into the construction, mining and agricultural sectors, complements our existing offering of quality products and aftersales service. There are inherent synergies between Goscor and Bobcat as well as cross-selling opportunities and it is a valuable addition to this division.

NAC performed better with aircraft sales increasing on the back of higher demand and increasing availability of bank funding for this asset class. The group has entered into negotiations for the possible sale of NAC as our aviation interest in the context of the group is very small.

Risks and opportunities
   
Risks
 
Opportunities
Interest rate increases
 
Expand value-added product sales (financial services, parts and service)
Sustained Rand weakness
 
Increase industry diversification
Availability of consumer credit
 
Optimise positioning in motor value chain
Increased competition
 
Expansion of parts business into Africa including Malawi, Zimbabwe, Zambia, Botswana and Mozambique
Reliance on key distribution relationships
 
Untapped growth potential in truck parts industry

Sustainability

Our people

Skills development and transformation are focus areas for the division.

Associated Motor Holdings has extensive training programmes covering HERSETA accredited technical training, management programmes through business schools and customised middle management training programmes leading to NQF level 5 qualification.

The autoparts industry struggles to attract an influx of young people, and this presents potential succession and skills pipeline challenges. The division mitigates these risks by investing heavily in learnership, apprenticeship and other intake programmes.

During the year 96 learners completed their training, while 139 apprentices were trained. Product training continues to be implemented on an ongoing basis, through the division’s importers.

The division continued to focus on improving its B-BBEE scorecard during the year, and good inroads were made in improving the diversity of lower and middle management. Across the division’s companies, B-BBEE levels continue to improve. Midas is currently a level 3 B-BBEE contributor and our other distribution businesses are making steady progress in improving their ratings as well.

Our impact on the environment

Businesses in the division are involved in various initiatives to manage and reduce their environmental impact. For example, Midas has a partnership with the Rose Foundation to collect used oil and oil filters. Other businesses have implemented projects to install low-energy lighting in various premises and new planned premises will be underpinned by green building techniques and principles.

Commitment to our customers

The distributorships division services a broad range of customers, and each business manages customer relationships individually. Customer satisfaction indices are run on a regular basis by each company.

Key macro and performance drivers
Macro drivers   Performance drivers
Economic growth
 
Vehicle sales
Bank credit extension
 
Market share
Interest rates
 
Brand awareness
Emerging middle class
 
Cost containment and overhead absorption
Ageing car parc
 
Sales of value-added products
Regulatory landscape
 
Capital management
Exchange rates
   
Employment growth
   
     

Outlook and strategic objectives

Strategic objectives
Increase market share in the SA vehicle market
Grow annuity-type income from parts, service and aftersales activity
Expand product range in auto parts and industrial distribution businesses
Add more industrial brands to current distribution network
Identify acquisition opportunities in new areas of distribution and services related to existing activities and new areas like mining and engineering

The growth rate of new vehicle sales in South Africa is expected to slow as the base is now substantially higher; however the recent reduction in interest rates will support demand. Despite the recent weakening of the currency, cars remain affordable as vehicle price increases lag inflation. The growth in the car parc of our brands will enable us to earn increasing annuity income streams from parts and service activities. Businesses that augment and are allied to our motor-related activities should also continue to grow.

The autoparts business is not affected directly by new vehicle sales and should continue to perform solidly as initiatives to expand its product range and geographic footprint bear fruit. Goscor will continue performing well as it capitalises on a strong order book, growth in its rental business and after-sales maintenance opportunities.

 

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