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Automotive retail

Philip Michaux
Philip Michaux
CEO of automotive retail

Highlights

Very good performance – operating profit up 15%
Level 3 or 4 B-BBEE rating for major brands, including Mercedes-Benz, Volkswagen, Toyota, Jurgens Ci and Beekman Canopies
Beekman Canopies performed well and increased market share
Imperial Toyota gained significant brand exposure through sponsorship of South Africa’s Toyota Motorsport Hilux team in the 2012 Dakar Rally

Divisional overview

The automotive retail division comprises commercial, passenger and light commercial dealerships in South Africa, commercial and van dealerships in the United Kingdom, and non-OEM products which include Beekman, Jurgens Ci and Safari Centre.

Key indicators

  Growth
%
  2012
Rm
  2011
Rm
 
Revenue 14   19 560   17 150  
Profit from operations 15   573   497  
Operating margin (%)     2,9   2,9  
Net operating assets 5   2 755   2 631  
Revenue to net operating assets (times)     7,1   6,5  
Revenue relating to sales of goods to inventory (times)     7,5   7,4  
Weighted average invested capital     3 174   2 924  
Return on invested capital (%)     12,0   12,2  
Weighted average cost of capital (%)     9,8   9,7  
Net capital expenditure 192   228   78  
Number of new and used vehicles sold     55 427   49 143  
Number of new vehicles sold     36 196   30 563  
Number of used vehicles sold     19 231   18 580  
Number of employees 4   6 590   6 364  
Number of dealerships     110   113  

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Operating units

South African dealerships   UK dealerships   Non-OEM produ
         
The South African dealerships unit is involved in the sale of new and used motor vehicles in the commercial, passenger and light commercial vehicle markets. It also includes the sale of related financial services (which is reported under the financial services division), parts and vehicle servicing. Franchised dealerships represent virtually every major OEM brand, including Audi, BMW, Chevrolet, Chrysler, Dodge, Ford, Freightliner, FUSO, Hino, Honda, Hyundai, Isuzu, Jaguar, Jeep, Land Rover, Lexus, MAN, Mazda, Mercedes- Benz, Mini, Mitsubishi, Nissan, Opel, Renault, Toyota, UD Trucks, Volkswagen and Volvo. There are also 14 standalone commercial vehicle dealerships.
 
In the United Kingdom the automotive retail division is involved exclusively in the commercial vehicle market, from light commercial to medium, heavy and extra-heavy commercial vehicles. It sells new and used vehicles and vans as well as related financial services, parts and servicing. There are 28 franchised dealerships representing major brands that include Volkswagen, Isuzu, Nissan, Fiat, Ford, DAF, Hino and MAN
 
Through Beekman Canopies and Jurgens Ci, Imperial manufactures and sells caravans, canopies and related products.

Beekman Canopies is one of two major canopies manufacturers in South Africa. Two facilities, located in the Western Cape and North West provinces, manufacture over 100 models of fibreglass canopies and related accessories.

Jurgens Ci is a major caravan manufacturer in South Africa. A parts and accessories business imports campingrelated products which are distributed through a Campworld dealer network of 36 branches.

Jurgens Ci houses major brands including Jurgens, Jurgens Safari, Sprite Gypsey, Howling Moon, WJ Motor Homes and Campworld. During the year the company acquired Prestige Safari Centre, offering a one-stop shop for 4x4 accessories and outdoor equipment.

         

Market conditions

Conditions remained good in the South African motor industry during the year under review. Recovery in the commercial vehicle market and the growth in new vehicle sales have been driven by improving bank approval rates, low interest rates, real growth in disposable income and low vehicle inflation. The luxury vehicle market was, however, less buoyant and the used car market was sluggish.

Market conditions in the United Kingdom were very competitive but the division’s specialised focus on commercial vehicles, introduction of vans into its dealerships and the leading brands it represents stood it in good stead.

Reduced consumer spending on leisure activities affected sales in the caravan and outdoor equipment market.

Results

R million 2012   2011   Change
%
  H2 2012   H2 2011   Change
% on
H2 2011
  H1 2012   Change
% on
H2 2012
 
Revenue 19 560   17 150   14,1   9 683   8 628   12,2   9 877   (2,0)  
Operating profit 573   497   15,3   312   280   11,4   261   19,5  
Operating margin (%) 2,9   2,9       3,2   3,2       2,6      

The division performed well and produced good growth in operating profit for the year. The operating margin was also maintained at a healthy 2,9%. New passenger car and LCV sales of the division rose 17%, ahead of growth in this segment of the vehicle market, which was up 13%. There was a notable shift in the mix to entry-level vehicles. As a result, the mid-priced and luxury vehicle markets were less buoyant.

The narrowing gap between new and used vehicle prices affected used vehicle sales, with volume growth subdued in a generally sluggish market.

The commercial vehicle market in SA, which tends to lag the growth in the passenger car market also improved during the period, with a 13% rise in unit sales across all brands.

Growth in after-sales parts and service revenue was slow but the strong growth in new car sales over the last few years bodes well for the future.

In the UK, the truck dealerships performed well despite a market that remained depressed. The strategy to add an LCV business to our existing footprint is very successful and contributed positively.

Beekman Canopies performed well, with sales up on last year. Sales volumes at Jurgens Ci were however lower due to a caravan market that is suffering from lower consumer spending on leisure activities.

Risks and opportunities
   
Risks
 
Opportunities
Interest rate increases
 
Growing middle class in South Africa
Sustained currency weakness
 
Group business and improved inter-group synergies
Low economic growth
 
Expand camping-related product sales in SA
Declining consumer spend and credit appetite
 
Growth of Jurgens in Australian market
Key OEM relationships
 
Growth in supply of vehicles to full maintenance lease business
   
Leverage off streamlined network of dealerships and well-balanced portfolio
   
Growing parts and service revenues contributed from increase in motor vehicle car parc

Sustainability

Our people

Skills development, transformation and safety are the key driving human resource-related issues for businesses operating in the automotive retail division.

In line with its skills development strategy, the business continues to invest in ongoing apprenticeship programmes to secure a steady pipeline of technical skills. During the year, it opened two new apprentice schools. Both the Wadeville and Cape Town facilities have training capacity in both diesel and petrol, and will complement the existing petrol training centre in Germiston. These new centres have tripled the company’s training capacity, from 500 to 1 500 apprentices.

The division continues to drive the transformation agenda. While progress was made in the area of employment equity, this area requires ongoing focus, both from an attraction and a retention point of view. The majority of franchises operating in the division are either level 3 or 4 B-BBEE contributors.

Our impact on the environment

In line with Imperial Holdings’ increased focus on environmental sustainability, businesses within the automotive retail division measure and report on carbon emissions, water usage, biodiversity and waste management.

The brands and businesses within the automotive retail division are involved in a variety of initiatives to support environmental awareness and sustainability.

Commitment to our customers

Businesses within the automotive retail division service a wide range of customers, from the vehicle manufacturers to corporates and the end-consumer. Customer service to each of these groups is of paramount importance to retaining market share and fostering mutually beneficial relationships.

Businesses within the division conduct independent customer satisfaction surveys on an ongoing basis, and franchises assessed externally by manufacturers to ensure they meet the customer service standards and sales expectations of the brand. Businesses also track and respond to customer service complaints posted through various social media channels.

Key macro and performance drivers
Macro drivers   Performance drivers
GDP and employment growth
 
New business gains – fleet and full maintenance leasing
Availability of bank finance
 
Sale of value-added products
Interest rates
 
Customer service index
New vehicle supply and pricing
 
Cost control and efficiencies
Pending legislation and toll roads
 
Capital management
Fuel price
   

Outlook and strategic objectives

Although the motor vehicle market enjoyed good growth, the rate of growth is expected to slow. The recent reduction in interest rates will however support demand for new cars. Despite the recent weakening of the currency, cars remain affordable as vehicle price increases lag inflation.

With a streamlined network of dealerships and a well-balanced portfolio, the focus will be on organic growth and optimising synergies between the key components of vehicle sales, related financial services and parts and service.

In the non-OEM businesses, the division will continue to focus on growth in the steel body market, expand its manufacturing activities into new market segments in order to counter the stagnant caravan sales market, and increase the penetration of sales of parts and accessories.

Strategic objectives
Target best in industry returns and operating margins
Focus on organic growth and optimising synergies between vehicle sales, related financial services and parts and service
Increase parts and accessory sales in Jurgens
Jurgens is actively expanding its manufacturing activities in order to counter the stagnant caravan sales market. It is now also active in the manufacture of canvas products, road and off-road trailers, canopies and truck bodies

 

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