Performance highlights

Turnover growth
R million
Operating profit
R million
Cash conversion1
%
Return on invested capital
%
       
  Operating margin (%)  
     
1 Cash conversion is calculated as (EBITDA – capex)/EBITDA), capex denotes PPE capex excluding disposals.
Profit and loss (extracts)
% change   2018   2017 Medium-term outlook
Revenue (Rm) 17   77 659   66 540 Expected turnover growth of inflation + 2xGDP
Operating profit (Rm) 9   3 593   3 310
Operating margin (%) 4,6   5,0
Return on invested capital (%) 13,0   11,8 WACC + 3%
Weighted average cost of capital (%) 10,4   10,1
Net debt/equity ratio (%) 50   46 Target range 55% to 75%

Note: ROIC and WACC are calculated on a rolling 12-month basis. The above table includes businesses held for sale and eliminations.

Market leadership

Key strategic actions
Grow competitive market share by strengthening the core business, optimising each business segment and driving further integration across the value chain.
Achieve economies of scale in selected international markets through acquisitions that complement the group's existing networks.
Leverage data from financial services segment to increase revenue and customer loyalty.
Expand annuity income streams through financial services and aftermarket parts.

* Based on numbers previously reported by Imperial Holdings.

In the last three years, we have demonstrated a consistent ability to defend and grow our leading market share in South Africa, maintain best-in-class earnings and margins, and generate high free cash flows and returns on invested capital, despite a low growth environment and currency volatility.

Proven ability to maintain earnings and margins through the cycle %
  
Motus’ operating income margins remain stable despite Rand volatility
 
     
Motus’ share of total NAAMSA vehicle sales and GDP growth

Note: Graph as published in Imperial Holdings F2018 results.

Motus’ market share versus OEMs
Market share* %

* Graph is presented on a 12-month basis from July 2017 to June 2018 for South Africa only. Numbers include passenger, LCV, MCV & HCV

Our market leadership is underpinned by strong competitive positions within each of our business segments, which encompass the entire automotive value chain except manufacturing. With unrivalled scale and synergy across the value chain, we can unlock and maximise all possible revenue and profit streams for every vehicle sold.

We maintain our market leadership in South Africa by optimising each business segment and driving further integration across the value chain, while remaining relevant through innovation and strategic partnerships. We aim to drive transformation in our operations through JVs with BEE partners to maintain our competitiveness in certain market segments.

We have integrated the VAPS operations from Regent, newly branded as M-Sure, in the Motor-Related Financial Services segment. We have developed a longer-term strategy to grow the VAPS business, including expanding our suite of white labelled VAPS with strategic partners.

Key objectives to optimise our segmental businesses are:

Import and Distribution
Retail and Rental
Motor-Related Financial Services
Aftermarket Parts
  • Provide offers and promotions to drive volume and annuity income in service parts, panel parts, workshop servicing and financial services.
  • Roll out pre-owned brands.
  • Revise dealership commission structures to increase sales productivity and improve customer service.
  • Align the learnership model to support these objectives.
  • Unlock efficiencies and customer potential within existing and new channels by expanding offerings in the owned and independent dealership networks.
  • Grow the VAPS business through joint ventures with companies able to provide significant channels to market.
  • Increase efficiency through an integrated regional hub distribution system supported by an off-shore centralised distribution centre.
  • Improve the availability of products at the point of sale, and enhance premium, value and entry brand offerings.

We will continue to grow our competitive market share and achieve economies of scale in selected international markets through acquisitions that complement our existing networks and benefit from the transfer of South African expertise to our international operations. Our growth strategies in each market are focused on:

  • In the UK, growing in commercial and passenger retail, with organic growth focused on fleet customers and pre-owned vehicles, and seeking acquisitive opportunities to expand our current dealership network.
  • In Australia, growing acquisitively in a highly fragmented market, introducing volume brands to the existing dealership network, and growing in the pre-owned market.
  • In Aftermarket Parts, growing significantly through acquisitions in selected markets in sub-Saharan Africa and partnerships with local players, and acquiring additional suppliers to achieve vertical integration, eliminating intermediaries in the wholesale supply chain to capture full channel margin.

We continually enhance our asset portfolio by disposing of or rationalising underperforming businesses, dealerships and brands, and by acquiring and rapidly integrating business and assets that can be enhanced by our capabilities and resources.

Key acquisitions and disposals in F2018
Acquisition of strategically aligned businesses:
Disposal or exit of non-core, strategically misaligned, underperforming or low return on effort assets:
  • We acquired 100% of Pentagon Motor Holdings, which operates 38 passenger and light commercial vehicle franchises from 21 prime retail dealerships in the UK for £26 million (R479 million), effective 1 September 2017. Pentagon supports Motus' strategy to deploy capital and its vehicle retail expertise in pursuit of growth beyond South Africa, and it complements our existing commercial vehicle business in the UK.
  • We acquired 75% of Australian-based SWT Group Proprietary Limited, which operates 16 dealerships, for AU$24,2 million (R261 million), effective 1 October 2017.
  • We acquired 60% of Arco Motor Industry Co Limited, a distributor of motor vehicle engine parts based in Taiwan for R185 million. The acquisition is in line with our strategy to shorten the supply chain in sourcing products for our route to market network in Africa, thereby eliminating costs and improving efficiency in the supply chain.
  • Non-strategic properties for R1,3 billion, in South Africa and Australia were disposed of.
  • Nine underperforming dealerships were closed.

Improve operational excellence

Key strategic actions
Continue to drive operational alignment and collaboration across the vehicle chain, to reduce complexity, duplication, expenses and capital employed.
Provide exceptional customer service at each stage of the value chain to remain the partner of choice for OEMs and business partners.
Improve technology solutions to realise efficiencies, drive new growth opportunities and strengthen competitive advantage.

The desirability of our brands, the delivery of innovative VAPS and mobility service offerings, and our ability to consistently meet customer expectations are key factors in defending market share, deepening customer loyalty and growing our sales and customer base.

We are improving our technology solutions by driving a philosophy of "best-fit" systems per division, while sharing common infrastructure and access across Motus. Our growth through acquisition has resulted in a number of legacy and decentralised IT systems and infrastructure. In order to reduce complexity, duplication and cost, we are rationalising our systems, while ensuring cybersecurity and IT system stability is not compromised. The proposed unbundling from Imperial Holdings has also required that we move certain IT services, including risk, group reporting and governance systems, onto a new common network and server infrastructure layer.

During the year we strengthened our IT governance framework and created a new commercial and governance IT position to oversee vendor management and day-to-day IT processes. All divisions reviewed and aligned their IT strategies to support their strategic business objectives and we are expanding our strategic IT capability to support business insight, reporting and innovation in our sales platforms, social media interactions and data gathering and analytics capabilities.

Drive innovation

Key strategic actions
Align continuously with digital, mobility and automation trends and changing customer needs by working with OEMs to deliver innovative solutions to customers.
Leverage IT solutions effectively to drive innovation across product range and services.
Maintain overall business agility to respond effectively to disruptive change.

The motor industry is increasingly being impacted by technology-driven disruption which requires us to embrace digital capabilities in order to remain competitive and provide exceptional customer service at each stage of the automotive value chain. Strong digital capabilities will also ensure that we remain the partner of choice for OEMs and business partners. Our operations in the UK and Australia give us first-hand exposure to the impact of these disruptive trends in advanced markets, enabling us to assess the rate at which these trends are likely to gain traction in South Africa.

Our ability to understand customer mobility needs through data analysis, and to develop personalised services and engender loyalty, will be supported by the project underway to further consolidate our data and enhance our view of our customers across all Motus touchpoints, giving us a consolidated understanding of their behaviour and preferences. We expect to complete this in the medium term. In our importer and retailer businesses our focus is to differentiate customer experience and provide convenient and compelling access to our offerings using digital platforms. In addition, we showcase the evolving mobility experience, in partnership with OEMs, through virtual showrooms and showrooms in shopping malls. In Motor-Related Financial Services, we continue to monitor the shift from traditional VAPS and finance offerings towards innovative mobility solutions that respond to changing customer needs and behaviour.

Innovation is a strategic focus across our business with Motor-Related Financial Services operating as our innovation hub, based on its proven expertise, proprietary data, partnerships with technology developers and ability to predict and respond to mobility-related tends.

We follow an open innovation approach and focus on developing the right technology partnerships to access the latest thinking and highly specialised skills required to change the way we do things. This includes collaborating with fintechs and software start-ups on artificial intelligence, virtual reality and big data projects. During the year, 11 executives were sent to Silicon Valley to learn about new technologies and a team will attend an innovation laboratory in Germany to prototype solutions to disruptive change identified in Motus' industry.

Invest in human capital and change management

Key strategic actions
Develop and empower leaders to provide sustainable performance through the cycle.
Improve recruitment processes, training, mentoring and use the investment in IT to leverage HR practices.
Ensure a strong focus on transformation and continuously assess succession planning by aligning individual capabilities, development and aspirations with business requirements.
Accelerate transformation at all levels.

Our people are vital to the achievement of our goals and objectives and our human capital management strategy has been aligned to the Motus vision, business strategy and performance aspirations. This strategy provides a guiding direction for the Motus-wide human capital programmes and initiatives, taking into consideration global workforce trends and social drivers in the wider context in which we operate, to develop a single Motus identity for our people.

Our people strategy aims to ensure that we are building the capabilities to drive our competitiveness, and that we have employees who are agile, futuristic and diverse with the ability to interpret and translate the needs of various stakeholders achieve business targets and objectives and drive productivity, customer satisfaction and retention. Our people strategy has the following priorities:

  • Attract, develop, retain and reward high-potential individuals committed to building a career in the automotive industry, with the mindset, skillsets, flexibility and responsiveness for significant change.
  • Provide effective performance management to align employee capabilities and expectations with business objectives and career opportunities.
  • Incentivise management to ensure sustainable performance through the cycle; with management incentives focused on financial and non-financial targets (specifically for employment equity).
  • Ensure a strong focus on transformation and succession at management level.
  • Simplify reporting structures for effective delegation and accountability, and drive the ongoing implementation of reliable core data and leading practices to optimise recruitment, training and mentoring, transfers across divisions and employee engagement.

During the year, we implemented the first phase of a three-year programme for a new payroll and human capital management system, which will support all operating businesses and provide one view of the employee base. This system will ultimately support better workforce planning and management of performance, learning and development and onboarding of new employees.

We are developing a leadership development framework to support our leaders in driving the desired culture and achieving their business objectives, which will be used as a foundation for all future leadership development programmes. A learning and development forum has been established to create learning and development policies, programmes and standards to be applied across Motus.

We are committed to accelerating the transformation of our workforce to reflect our domestic markets. During the year, we increased our employee engagement efforts to understand the barriers that have hindered the pace at which we have been able to transform.

A mobile application platform was developed during the year to improve employee engagement and is being used to deliver consistent messaging on employment equity. It provides employees with an engaging platform across multiple mediums, including cellphones, the internet and email. The application is also used to facilitate training evaluations and employee focus group surveys, and drive feedback to employees.

Performance in a challenging operating environment

South Africa
United Kingdom
Australia
  • Despite improved sentiment, the economy contracted sharply in the second half of the year.
  • Consumer spending remained under pressure due to high unemployment, high fuel prices, tax hikes and static personal incomes, despite monetary easing.
  • National vehicle unit sales as reported by NAAMSA increased by 2%.
  • Luxury brands remained under pressure as buying down continued.
  • Toughening economic conditions due to the uncertainty around Brexit.
  • Consumers moving from diesel vehicles to petrol vehicles.
  • Anticipated overall decline in the UK vehicle market for the 2018 calendar year.
  • Australian new vehicle market grew at a compounded annual growth rate of 2,6% in the last decade.
  • Rising consumer confidence, population growth and low unemployment is having a positive impact on growth.
  • The automotive market remains competitive and fragmented, placing pressure on margins.

Notwithstanding challenging economic and trading conditions, as reflected in the table above, Motus increased revenue and operating profit by 17% and 9% respectively, with all four divisions recording revenue and operating profit growth. This was mainly due to competitive vehicle pricing and a strong improvement in entry level and small SUV vehicle sales in South Africa as consumers continued to trade down. As a result, luxury brand sales declined by 20% during the year. The acquisitions of Pentagon in the UK and SWT in Australia contributed positively to revenue, but at lower margins. Excluding current and prior year acquisitions and disposals, revenue and operating profit increased by 4%. Profit before tax improved by 64% resulting from a significant reduction in foreign exchange losses of R43 million compared to R425 million in 2017, mainly relating to the unwinding of excessive and uneconomical forward cover in Renault in the prior year. The profit on sale of R617 million relating to a property in Australia and the 13% reduction in finance costs also boosted the performance.

During the period, in South Africa, Motus grew unit vehicle sales by 7% compared to national unit vehicle sales growth of 2% as reported by NAAMSA. The Motus passenger and commercial vehicle businesses, including the UK and Australia, retailed 146 455 (2017: 113 074) new and 81 123 (2017: 70 158) pre-owned vehicles during the 12 months.

Property disposals and consistent levels of investment in vehicles for hire resulted in net capital expenditure declining by 85% from R2,2 billion in June 2017 to R322 million.

Motus' debt to equity ratio at 30 June 2018 increased marginally to 50% mainly due to capital reallocations and acquisitions, partly enhanced by disciplined working capital management and proceeds received from the disposal of non-strategic properties.

Vehicle Import and Distribution
% change   2018   2017  
Revenue (Rm) 11   20 128   18 157  
Operating profit (Rm) 8   788   728  
Operating margin (%) 3,9   4,0  
Return on invested capital (%) 12,7   6,4  
Weighted average cost of capital (%) 11,3   10,1  
Net debt/equity ratio (%) 37   109  

Note: ROIC and WACC are calculated on a rolling 12-month basis.

Revenue and operating profit increased by 11% and 8% respectively, as sales volumes increased by 11% (Hyundai up 4%, Kia up 22% and Renault up 22% per NAAMSA) with our vehicle mix aligned to market demand resulting from pressure on consumer affordability. The importer segment market share increased from 14% in the prior year to 15%.

At the end of July 2018, Hyundai and Kia forward cover on the US Dollar and Euro imports extends to February 2019 at average rates of R12,89 to the US Dollar and R15,61 to the Euro. New trading arrangements with Renault since October 2017 have rendered forward cover redundant. With the exception of Renault, Motus' current guideline is to cover a minimum of seven months forward and up to 75% of annual forecast orders, as stipulated by the South African Reserve Bank.

The African distributorship business improved its performance from the prior period but is still performing below expectations due to weak consumer demand mainly in the aftermath of political elections in Kenya. The capital deployed in these operations has been reduced and the viability of these operations is under review.

During the period ROIC increased to 12,7% from 6,4%, resulting from increased profitability, a significant reduction in working capital, lower investment in vehicles for hire and the sale of non-strategic properties.

Vehicle Retail and Rental
% change   2018   2017  
Revenue (Rm) 18   62 759   53 362  
Operating profit (Rm) 14   1 687   1 478  
Operating margin (%) 2,7   2,8  
Return on invested capital (%) 9,4   10,7  
Weighted average cost of capital (%) 9,9   10,0  
Net debt/equity ratio (%) 62   46  

Note: ROIC and WACC are calculated on a rolling 12-month basis.

Vehicle Retail and Rental recorded a strong performance, increasing revenue and operating profit by 18% and 14%, respectively, supported by an increase in overall vehicle sales volumes, despite subdued trading conditions in South Africa and challenging trading conditions in the UK. New and pre-owned retail sales volumes increased by 33% and 15%, respectively, assisted by the inclusion of the UK (Pentagon) and Australian (SWT) acquisitions which enhanced revenue but reduced margins. In South Africa, margins were enhanced by a realignment of the importer dealership operating model to unlock value.

In South Africa, passenger and light commercial vehicles increased new vehicle sales units by 2% from 51 374 in 2017 to 52 180. Importer brand dealerships performed well due to increased sales volumes in Hyundai, Kia and Renault. Total pre-owned retail unit sales declined marginally as consumer preference shifted to new entry level vehicles. The parts and aftersales segments continue to perform well.

Revenue and operating profit of the UK operations increased by 70% and 25% respectively, supported by the Pentagon acquisition, which improved its performance in the second half. Despite this, the newly acquired passenger segment of our business performed below expectation and remains under pressure due to Brexit-related consumer concerns, a reduction in sales of diesel vehicles and Vauxhall changing ownership from General Motors to the French PSA group. The latter resulted in substantially reduced OEM assistance, which improved in the second half as PSA implemented its new trading policies. The UK commercial operations performed to expectation and grew revenue and operating profit by 5% and 1% respectively.

The Australian vehicle market recorded growth but margins on new vehicles remain under pressure. The Australian operations increased revenue by 26% but operating profit decreased as margins in the Ford franchise normalised from a high base in the prior year. This was partially offset by the inclusion of the SWT acquisition which is performing in line with expectations.

Car rental increased its revenue and operating profit by 11% and 15% respectively due to increased vehicle rental volumes from the inbound and leisure segments, and higher post rental vehicle sales through Auto Pedigree. The vehicle rental utilisation was maintained at 71%, while accident costs were lower than the prior year.

ROIC reduced to 9,4% from 10,7% due to increased working capital and the acquisitions of Pentagon and SWT auto dealer groups.

Aftermarket Parts
% change   2018   2017  
Revenue (Rm) 8   6 632   6 153  
Operating profit (Rm) 10   447   406  
Operating margin (%) 6,7   6,6  
Return on invested capital (%) 18,3   20,7  
Weighted average cost of capital (%) 11,2   10,8  
Net debt/equity ratio (%) 91   53  

Note: ROIC and WACC are calculated on a rolling 12-month basis.

Revenue and operating profit grew by 8% and 10% respectively, supported by tighter cost control and good performances from Alert Engine Parts and Beekmans. However, performance was negatively impacted by market contraction, increased pricing pressure and consumers trading down. The acquisition of 60% of ARCO contributed positively to the performance in the second half.

ROIC decreased to 18,3% from 20,7% due to increased working capital and an investment in a warehouse facility which was included in invested capital.

Motor-Related Financial Services
% change   2018        2017  
Revenue (Rm) 6   2 166        2 036  
Operating profit (Rm) 7   889        833  
Operating margin (%)* 41,0        40,9  
Return on invested capital (%) 69,5        65,7  
Weighted average cost of capital (%) 13,6        13,8  
Net debt/equity ratio (%) (136)**   (166)  

Note: ROIC and WACC are calculated on a rolling 12-month basis.

*Operating margin reflects various business ventures that yield operating profits without any associated revenues.

**Includes net cash of R1 426 million.

Motor-Related Financial Services grew revenue and operating profit by 6% and 7% respectively, supported by higher profitability in demo vehicle sales and maintenance funds, and growth in the newly branded M-Sure VAPS operations. Increased sales of monthly versus longer- term service and maintenance plans impacted on the growth of maintenance and warranty contracts on the balance sheet. Arising from the Regent transaction, the prior year includes once-off income of R46 million included in the VAPS business, which is not included in the current year.

We continue to focus on growing the fleet management business, building synergies within the retail motor sub-divisions and improving the sales penetration of our products into other channels.

ROIC increased from 65,7% to 69,5% due to higher profitability during the rolling 12-month period.

Outlook

In South Africa, the new financial year commenced with persistently low economic growth conditions and low consumer spending exacerbated by rising fuel prices and it is anticipated that these conditions will continue for the short term.

Motus is well positioned to respond to shorter-term structural trends in the market and to deal with disruption over the longer term. We anticipate solid operating and financial results in the financial year to June 2019, subject to stable currencies.

We expect to record growth in revenues and operating profit and have the appropriate capital structures in place to fund our strategic objectives while continuing to pay a stable dividend.