Commentary
The weakened global economy continues to weigh heavily on emerging markets. The battle between the COVID-19 crisis and the country’s efforts to implement economic remedial initiatives continues. The recovery path is likely to prove uneven and varied across industries and countries, even with the vaccine programmes being rolled out gradually.
Environment
The South African operations contributed 64% to revenue and 83% to operating profit for the period (2019: 67% and 93% respectively), with the remainder being contributed by the UK, Australia and South East Asia.
Despite the financial and economic damage created by the COVID-19 crisis, there are also a number of structural impediments to economic growth in South Africa, namely corruption, state capture, policy uncertainty, wasteful public expenditure, insufficient infrastructural investment and high unemployment. There is a welcoming drive for structural reform with a focus on bringing perpetrators of corruption and crime to be held accountable. The government also intends to restructure state-owned enterprises, with equity partners providing additional finance that will assist in running these organisations more efficiently.
The South African 2021 Gross Domestic Product (GDP) is forecast to increase between 2,8% to 3,6%1, with inflation expected to revert close to 4,5%1 by the middle of 2021.
The South African new vehicle market continues to be affected by the weak macro-economic environment, reduced disposable income and depressed consumer confidence. According to NAAMSA2, South Africa retailed 217 879 units for the six months to 31 December 2020 (22% down from the prior period). At December 2020, our retail market share was ~20,2% (December 2019:20,1%). New vehicle sales for the 2020 calendar year were 380 449 units, with growth from this base projected between 425 000 to 450 000 vehicles for the calendar year 2021. Margins will remain under pressure as consumers postpone purchases and trade down with the shift to cheaper and pre-owned vehicles.
The UK new vehicle market declined by 4,2%3 for the six months to December 2020, with the passenger market decreasing by 6,2%3 and heavy commercial vehicles decreasing by 6,7%3, offset by the light commercial vehicle market increasing by 7,9%3. Motus was well positioned and maintained their retail market share. The outlook for the economy remains uncertain as a result of the high COVID-19 infections, a weak economy, projected delayed job cuts and final impacts of Brexit. The trade deal between the UK and the European Union (EU) came into force on 1 January 2021. The new trade deal allows for tariff free trade on goods between the UK and EU, provided the goods are primarily of UK or EU origin.
The Australian automotive industry remains a highly competitive environment. The market declined by 4,5%4 for the six months to December 2020, with sports utility vehicle (SUV) models continuing to dominate the market. The Australian new vehicle sales surged in the last two months of 2020 as the country came out of the lockdowns. The automotive industry is now struggling with inventory shortages as the OEM’s reduced vehicle production during the various lockdowns.
The 2021 trading conditions are expected to remain challenging due to reduced demand compared with the pre-COVID-19 levels, coupled with exchange rate volatility and reduced disposable income as a result of high unemployment, fuel and electricity price increases in South Africa. However, low interest rates and low inflation will support vehicle buying.
Motus remains focused and committed to creating value for our customers and building market share through relevant, innovative products and exceptional service at competitive prices. We will continue to deliver returns to shareholders through operational alignment, collaboration across the supply chain, and the reduction of complexity, duplication and capital deployment, while mitigating currency risk.
Our operational focus has shifted to one of resilience, agility and recovery, and we have developed strategies to align, adapt and deliver on the adjusted business model. Our integrated business model has provided a solid platform to continue to build a resilient and sustainable business.
| 1 | Latest Econometrix forecast (January 2021) and the International Monetary Fund (IMF). |
| 2 | National Association of Automobile Manufacturers of South Africa (NAAMSA). |
| 3 | The Society of Motor Manufacturers and Traders. |
| 4 | Federal Chamber of Automotive Industries – Australia. |
Performance
The results for the period reflect strong strategic and operational achievements, based on the resilient financial performance in a challenging and continuously evolving environment. We are encouraged by the solid performance our diversified offering provides, given the uncertainties in the markets in which we operate.
The Group’s passenger and commercial vehicle businesses, including the UK and Australia, retailed 57 503 new units (2019: 68 779 new units), a 16% decline, and 48 318 pre-owned units (2019: 43 160 pre-owned units), a 12% increase, during the six-month period. The reduced sales are attributable to the global crisis, which resulted in severe vehicle market contraction.
Revenue improved by 6% mainly due to improved performance in the retail businesses, especially the pre-owned vehicle category in South Africa and both the new and pre-owned vehicle categories in the international operations, as well as improved performance from the Aftermarket Parts segment. Partly offset by the reduced revenue in the car rental business and lower workshop activity levels.
The reduced operating profit is as a result of margin pressure across certain business segments. Operating profit decreased, mainly due to reduced car rental income in the Retail and Rental and Financial Services segments, and lower margins resulting from the shift to pre-owned and entry-level vehicles, and more affordable parts in the Aftermarket Parts business. This was partially offset by the decrease in net operating expenses of 4% (excluding cost of sales, depreciation and amortisation). The decline in net operating expenses is mainly as a result of the COVID-19 cost containment initiatives initiated in the latter part of the 2020 financial year.
Net finance costs decreased by 33%. The decrease is mainly as a result of the decline in core debt and floorplan debt as we aggressively reduced the car rental fleet and inventory. There was a gain on the fair value of the interest rate swaps and this was partially offset by the increase in the finance costs on lease liabilities.
Profit before tax increased by 4% to R1 287 million.
A full reconciliation of earnings to headline earnings is provided in the financial performance section.
An interim dividend of 160 cents (2019: nil cents paid) per ordinary share has been declared, which amounts to ~30% of headline earnings per share.
Net working capital is a cash inflow of R3 014 million primarily due to lower inventory as a result of improved sales, the sale of excess inventory and lower inventory returns from car rental companies.
Net debt to equity is 24% (2019: 74%). Core debt (excluding floorplan and IFRS 16 debt) reduced by R3,7 billion primarily due to the lower levels of working capital and vehicles for hire.
Net debt to EBITDA is 1,0 times (2019: 1,8 times) and EBITDA to net interest is 3,7 times (2019: 5,8 times). Both ratios have been calculated by applying the funders covenant methodology and we remain well within the levels as set by debt providers of below 3,0 times and above 3,0 times respectively. The funders had provided a relaxation of covenants of below 4,5 times and above 2,5 times respectively during the period, however, this covenant relaxation was not required.
Return on invested capital increased to 12,8% (2019: 11,2%) mainly due to lower levels of working capital and vehicles for hire. Weighted average cost of capital increased to 9,3% (2019: 8,4%) primarily due to the decrease in debt and a higher weighting of equity which carries a higher cost of capital.
Net asset value per share increased by 4% to 6 526 cents per share (2019: 6 258 cents per share).
The statement of financial position is detailed in the financial overview section.
We generated significant free cash flow of R4 759 million (2019: R1 121 million) from operating activities before capital expenditure for vehicles for hire. The free cash flow was primarily generated by solid operating profits, coupled with reduced working capital.
Segment overview
A diversified business in the automotive industry
Import and Distribution
20%
of Group
revenue
22%
of Group
operating profit
- Exclusive South African importer of Hyundai, Kia, Renault and Mitsubishi
- Operates in South Africa and neighbouring countries
- Exclusive distribution rights for Nissan in four East African countries
- ~16,0% controllable market share* in South Africa
- Car parc >1 million vehicles
Retail and Rental
71%
of Group
revenue
39%
of Group
operating profit
- South Africa
- Represents 23 OEMs ~310 dealerships
- ~20,2% retail market share
- Car rental (Europcar and Tempest): 96 outlets in Southern Africa
- ~25% rental market share
- United Kingdom
- 84 commercial dealerships
- 31 passenger dealerships
- Australia
- 36 passenger dealerships
Financial Services
- Developer and administrator of innovative vehicle related financial products and services to >800 000 vehicles including third-party products under administration
- Manager and administrator of service, maintenance and warranty plans
- Provider of fleet management services
- Provider of business process outsourcing through sophisticated technology and call centre capabilities
- Innovation hub
2%
of Group
revenue
25%
of Group
operating profit
Aftermarket Parts
- Distributor, wholesaler and retailer of accessories and parts for out-of-warranty vehicles
- Operates in Southern Africa and South East Asia
- 569 retail stores (101 owned stores)
- Supported by distribution centres in South Africa, Taiwan and China
- Franchise base comprises:
- Resellers (namely Midas and Alert Engine Parts)
- Specialised workshops
7%
of Group
revenue
14%
of Group
operating profit
* Percentage of passenger and LCV market.
Above financial measures exclude head office and eliminations.
Segment performance
Import and Distribution
Overview
The Import and Distribution segment provides a differentiated value proposition to the dealership network enhancing the revenue and profits of the entire automotive value chain. We distribute and supply vehicles and parts to the Group and independent dealership networks, government, Europcar and Tempest (Motus rental brands) and other independent car rental companies. A total of between 60% to 70% of vehicle volume sales are generated through Motus-owned dealerships, with the remaining 30% to 40% being generated by independently owned dealerships.
Our controllable market share (passenger and light commercial vehicles (LCVs)) in South Africa at December 2020 is 16,0% (December 2019: 16,1%) with the overall vehicle market contracting by 22%. Hyundai achieved 7,8% market share (2019: 6,6%), Kia achieved 3,5% market share (2019: 3,4%), Renault achieved 4,3% market share (2019: 5,8%) and Mitsubishi achieved 0,4% (2019: 0,3%).
Financial performance
| HY1 2021* |
HY1 2020* |
% change on HY1 2020* |
HY2 2020 pro forma^ |
FY 2020 audited |
|
| Revenue (Rm) | 9 687 | 10 158 | (5) | 7 253 | 17 411 |
|---|---|---|---|---|---|
| Operating profit (Rm) | 421 | 430 | (2) | 397 | 827 |
| Operating margin (%) | 4,3 | 4,2 | 5,5 | 4,7 | |
| * | Derived from unaudited management accounts. The Group is satisfied with the quality of these management accounts |
| ^ | HY2 numbers are derived from deducting the HY1 results from the full year published results of 30 June 2020. |
Revenue declined by 5% in line with the decline in retail sales volumes for vehicles, panel and parts and the change in the mix of vehicles sold. Declining revenues were partly offset by selling price increases. Car Rental sales are excluded, due to buy-back arrangements.
Operating profit declined by 2% for the period, mainly due to lower volumes of vehicle and parts sales and reduced margins as a result of the change in mix of vehicles, higher costing rates due to the weaker Rand and increased freight costs. This was partly offset by competitive pricing and cost containment.
Hyundai, Kia and Renault have forward cover for the Euro and US Dollar to September and August 2021 respectively, at average rates of R18,80 to the Euro and R15,90 to the US Dollar, including forward cover costs. As agreed between the shareholders, Renault previously did not take forward cover but has now hedged future shipments. All outstanding Mitsubishi commitments are covered. The current Group guideline is to cover between seven and nine months of forecast vehicle import orders.
Retail and Rental
Overview
We retail vehicles through dealerships based primarily in South Africa, with a selected presence in the UK and Australia. Car rental operates through the Europcar and Tempest brands. The Retail and Rental segment's unrivalled scale and footprint in South Africa of strategically located dealerships, largely in growing urban areas, underpins its leading market share.
We supply a consistent superior route-to-market through quality marketing, high levels of customer satisfaction and strategically located dealerships, with a geographical spread in the economic hubs of South Africa.
South Africa
We represent 23 OEMs through ~310 dealerships. The retail market share for our South African operation is ~20,2% compared to ~20,1% in December 2019.
United Kingdom (UK)
We operate through 115 dealerships (84 commercial and 31 passenger dealerships) which are based mainly in provincial areas. Continued organic expansion in both commercial and passenger retail sectors will be considered in the UK. Further selective expansion in the UK will be driven by the introduction of additional brands in areas close to existing dealerships via bolt-on acquisitions.
Australia
We operate through 36 passenger dealerships, which are based mainly in provincial areas located in New South Wales and Victoria. Further selective expansion in the Australian market will be driven by the introduction of additional brands in areas close to existing dealerships via bolt-on acquisitions. We remain focused on growing our provincial town footprint outside of large metropolitan areas.
Financial performance
| HY1 2021* |
HY1 2020* |
% change on HY1 2020* |
HY2 2020 pro forma^ |
FY 2020 audited |
|
| Revenue (Rm) | 35 965 | 34 265 | 5 | 25 633 | 59 898 |
|---|---|---|---|---|---|
| Operating profit (Rm) | 740 | 801 | (8) | (469) | 332 |
| Operating margin (%) | 2,1 | 2,3 | (1,8) | 0,6 | |
| * | Derived from unaudited management accounts. The Group is satisfied with the quality of these management accounts. |
| ^ | HY2 numbers are derived from deducting the HY1 results from the full year published results of 30 June 2020. |
Revenue increased by 5% mainly as a result of increased revenue attributable to Importer dealers, Auto Pedigree (positively impacted by accelerated de-fleeting of car rental vehicles), the UK (mainly due to an improved September 2020 registration month) and Australia (mainly due to the inclusion of the Australian acquisition). This was offset by reduced revenue from SA Retail and the car rental divisions.
The Retail and Rental segment retailed 41 106 new units (2019: 46 076 new units) and 45 302 pre-owned units (2019: 42 977 pre-owned units) for the six months. In South Africa we sold 24 557 new units and 35 491 pre-owned units (2019: 27 310 new units and 34 019 pre-owned units) and internationally we sold 16 549 new units and 9 811 pre-owned units (2019: 18 766 new units and 8 958 pre-owned units).
The decline in new vehicle sales volumes and reduced rental utilisation (dropping to 59% from 72% in 2019 after de-fleeting ~8 000 vehicles) is attributable to the current crisis, which resulted in severe vehicle market contraction, limited local travel and reduced international tourism.
Operating profit declined by 8%, mainly due to vehicle market contraction, reduced utilisation of rental vehicles, increased pressure on consumer affordability and lower margins realised on entry-level vehicles. This was partly offset by improved performance in the Importer dealers, Auto Pedigree, the UK and Australia.
South Africa
The retail operating profit decreased 13% from the prior period mainly due to the decline in new sales volumes of 10% and the change in the mix of vehicles sold. The decline in volumes is attributable to the current crisis which resulted in severe vehicle market contraction.
Car rental revenue decreased by 55% mainly as a result of limited local travel and reduced international tourism with utilisation levels dropping to 59% after the de-fleeting of ~8 000 vehicles (2019: 72%). Operating profit decreased by 105% mainly attributable to reduced utilisation levels and price competitiveness.
United Kingdom
The revenue and operating profit increased by 13% and 87% respectively from a low base in December 2019. Operating profit benefitted from the improved performance of both passenger and commercial dealerships. The UK retailed 11 931 new units (2019: 14 537 new units) and 7 926 pre-owned units (2019: 6 984 pre-owned units) for the six months.
Australia
Revenue and operating profit increased by 26% and 640% respectively, mainly as a result of improved performance in Sydney and the Ballarat acquisition. Australia retailed 4 618 new units (2019: 4 229 new units) and 1 885 pre-owned units (2019: 1 974 pre-owned units) for the six months.
Financial Services
Overview
Financial Services develops and distributes innovative vehicle-related financial products and services through importers, dealers, finance houses, insurers, call centres and digital channels. The segment is also a provider of fleet management services to corporate customers including fleet maintenance, fines management, licensing and registration services.
Innovation and unlocking customer potential within existing and new channels represent a growth and profit opportunity for the business. We have invested in technology to leverage consumer data, enabling us to offer personalised services aimed at enhancing the customer experience and improving customer retention.
This segment complements and leverages the automotive value chain, providing annuity earnings and strong cash flows. Our ability to analyse proprietary data enables accurate pricing of our offerings, vehicle profiling for the fleet business and management of claims.
Through our leading service, maintenance and warranty plans, we unlock revenue for the Import and Distribution, and Retail businesses by retaining customers within the Group throughout their vehicle ownership lifecycle.
Financial performance
| HY1 2021* |
HY1 2020* |
% change on HY1 2020* |
HY2 2020 pro forma^ |
FY 2020 audited |
|
| Revenue (Rm) | 1 054 | 1 126 | (6) | 1 047 | 2 173 |
|---|---|---|---|---|---|
| Operating profit (Rm) | 467 | 483 | (3) | 448 | 931 |
| Operating margin (%)# | 44,3 | 42,9 | 42,8 | 42,8 | |
| * | Derived from unaudited management accounts. The Group is satisfied with the quality of these management accounts. |
| ^ | HY2 numbers are derived from deducting the HY1 results from the full year published results of 30 June 2020. |
| # | Operating margin includes profit streams without associated revenue. |
Revenue and operating profit decreased by 6% and 3% respectively mainly due to lower average mileages travelled by service and maintenance plan customers, coupled with reduced fleet rental income due to early termination and low replacement of vehicle units with external rental companies.
Due to the banks providing conservatively for outstanding debtors on the retail customer book, we have received no profit share from the banks for the six-month period and do not expect income in the near term.
Aftermarket Parts
Overview
The Aftermarket Parts business's large national and growing footprint enables us to leverage our buying power to distribute and sell competitively priced products to a continually growing car parc of out-of-warranty vehicles.
Our international distribution centres in Taiwan and China, allow for procurement at competitive prices to distribute to South Africa and other developing markets.
Expanding into other markets provides an opportunity for this business. Increased participation in this segment will include vertical integration in order to eliminate intermediaries in the wholesale supply chain.
Financial performance
| HY1 2021* |
HY1 2020* |
% change on HY1 2020* |
HY2 2020 pro forma^ |
FY 2020 audited |
|
| Revenue (Rm) | 3 773 | 3 433 | 10 | 2 617 | 6 050 |
|---|---|---|---|---|---|
| Operating profit (Rm) | 266 | 247 | 8 | 75 | 322 |
| Operating margin (%) | 7,1 | 7,2 | 2,9 | 5,3 | |
| * | Derived from unaudited management accounts. The Group is satisfied with the quality of these management accounts |
| ^ | HY2 numbers are derived from deducting the HY1 results from the full year published results of 30 June 2020. |
Revenue and operating profit increased by 10% and 8% respectively. The increase is due to servicing pent-up demand from the COVID-19 lockdown, which resulted in higher volumes, increasing the customer base and growing market share. Inventory availability assisted performance and we have been able to reduce the fixed cost base and synergies are being achieved through the use of the distribution centre in China.
The shift from higher-priced premium products to more affordable products continued, and increased supplier and competitor activities in a tighter market prevailed.
Financial overview
Group profit or loss (extract)
| for the six months ended 31 December 2020 | HY1 2021 Rm |
HY1 2020 Rm |
% change |
||
| Revenue | 44 343 | 41 954 | 6 | ||
|---|---|---|---|---|---|
| Operating profit | 1 724 | 1 831 | (6) | ||
| Impairment of properties, net of profit/(loss) on sale | (25) | – | |||
| Net foreign exchange losses | (82) | (46) | |||
| Net finance costs | (332) | (497) | |||
| Other non-operating items | 2 | (45) | |||
| Profit before tax | 1 287 | 1 243 | 4 | ||
| Income tax expense | (359) | (344) | |||
| Attributable profit for the period | 928 | 899 | 3 | ||
| Attributable to non-controlling interests | – | (4) | |||
| Attributable to shareholders of Motus Holdings | 928 | 895 | 4 | ||
| Operating profit (%) | 3,9 | 4,4 | |||
| Effective tax rate (%) | 28,5 | 28,0 |
Revenue improved by 6% mainly due to improved performance in the retail businesses, especially the pre-owned vehicle category in South Africa and both the new and pre-owned vehicle categories in the international operations, as well as improved performance from the Aftermarket Parts segment and partly offset by the reduced revenue in the car rental business and lower workshop activity levels due to reduced travelling during the lockdowns.
Operating profit declined by 6% as a result of margin pressure across certain business segments. Operating profit decreased mainly due to reduced car rental income in the Retail and Rental division, as well as Financial Services division and lower margin realisation resulting from the shift to pre-owned and entry level vehicles and more affordable parts. This was partially offset by the decrease in operating expenses.
Net operating expenses excluding cost of sales, depreciation and amortisation decreased by 4% mainly as a result of the COVID-19 cost containment initiatives. Depreciation and amortisation decreased by 27% primarily due to the decline in the vehicles for hire, which was partially offset by the increase in depreciation in the right-of-use assets and property, plant and equipment.
Net finance costs decreased by 33%. The decrease is mainly as a result of the decline in core debt and floorplan debt as we aggressively reduced the car rental fleet and inventory. There was a gain on the fair value of the interest rate swaps and this was partially offset by the increase in the finance costs on lease liabilities.
Foreign currency loss increased by 78%. Foreign exchange losses relate only to items that do not qualify for hedge accounting. The current period losses are mainly as a result of Renault foreign currency losses on shipments where hedge accounting was not applied and the uncorrelated movement between the fair value of the creditors and the corresponding hedges.
Reconciliation of earnings to headline earnings
| for the six months ended 31 December 2020 | HY1 2021 Rm |
HY1 2020 Rm |
% change |
||
| Earnings | 928 | 895 | 4 | ||
|---|---|---|---|---|---|
| Profit on disposal of assets | (8) | (15) | (47) | ||
| Impairment of goodwill and other assets | 56 | 80 | (30) | ||
| Profit on sale of businesses | (9) | – | 100 | ||
| Adjustments included in the result of associates and joint ventures | – | 6 | (100) | ||
| Tax and non-controlling interests | (4) | 1 | (<100) | ||
| Headline earnings | 963 | 967 | – | ||
| Weighted average number of ordinary shares | 183 | 187 | (2) | ||
| Earnings and headline earnings per share | |||||
| Basic EPS (cents) | 507 | 479 | 6 | ||
| Headline EPS (cents) | 526 | 517 | 2 |
The Group repurchased and cancelled 1 419 797 shares for R61 million and repurchased 950 000 shares as treasury shares for R40 million to hedge share schemes during the six-month period. This resulted in lower shares in issue which positively impacted both EPS and HEPS.
Financial position
| as at 31 December 2020 | 31 December 2020 Rm |
31 December 2019 Restated1 Rm |
30 June 2020 Rm |
December vs December % change |
December vs June % change |
||
| Goodwill and intangible assets | 1 589 | 1 370 | 1 671 | 16 | (5) | ||
|---|---|---|---|---|---|---|---|
| Investments in associates and joint ventures | 250 | 251 | 232 | – | 8 | ||
| Property, plant and equipment | 7 589 | 7 498 | 7 784 | 1 | (3) | ||
| Right-of-use assets1 | 2 248 | 2 051 | 2 279 | 10 | (1) | ||
| Investments and other financial assets | 411 | 570 | 445 | (28) | (8) | ||
| Vehicles for hire | 2 640 | 4 763 | 3 167 | (45) | (17) | ||
| Net working capital1,2 | 4 173 | 8 451 | 8 515 | (51) | (51) | ||
| Tax assets1 | 1 541 | 1 325 | 1 355 | 16 | 14 | ||
| Assets held-for-sale | 126 | 161 | 146 | (22) | (14) | ||
| Contract liabilities | (2 767) | (2 876) | (2 797) | (4) | (1) | ||
| Lease liabilities1 | (2 587) | (2 405) | (2 658) | 8 | (3) | ||
| Core interest-bearing debt | (2 079) | (6 860) | (5 794) | (70) | (64) | ||
| Floorplans from financial institutions | (807) | (1 939) | (1 648) | (58) | (51) | ||
| Other liabilities | (274) | (331) | (224) | (17) | 22 | ||
| Liabilities held-for-sale | – | (18) | (21) | (100) | (100) | ||
| Total shareholders' equity1 | 12 053 | 12 011 | 12 452 | – | (3) | ||
| Total assets | 38 834 | 42 500 | 43 678 | (9) | (11) | ||
| Total liabilities | (26 781) | (30 489) | (31 226) | (12) | (14) |
| 1 | Certain prior period comparatives have been adjusted due to the reassessment of the application of IFRS 16 – Leases. June 2020 remains unchanged as presented in the consolidated annual financial statements for the year ended 30 June 2020. |
| 2 | Working capital includes R5 037 million (December 2019: R5 202 million, June 2020: R6 511 million) floorplan creditors. |
Factors impacting the financial position at 31 December 2020 compared to 30 June 2020
Goodwill and intangible assets
Decreased mainly due to currency adjustments and the impairment of goodwill, offset by minor acquisitions. The impairment of goodwill is in line with the Group policy where any business acquisitions which results in goodwill below R10 million is impaired on acquisition.
Property, plant and equipment
Declined mainly due to depreciation, impairments and currency adjustments, this was partially offset by additions and acquisitions.
Right-of-use assets
Decreased by 1% mainly due to depreciation, currency adjustments and derecognition of leases. This was offset by new leases entered into and acquisitions.
Vehicles for hire
The decrease in the six-month period is primarily due to lower demand for vehicles by the car rental companies in our Import and Distribution segment.
The significant decrease of R2 123 million from December 2019 to December 2020 is mainly as a result of the car rental fleet reducing from 22 949 vehicles in December 2019 to 12 670 vehicles in December 2020. The majority of the car rental de-fleet was completed prior to June 2020.
Net working capital reduced by R4,3 billion (51%)
The Import and Distribution segment's overall working capital declined by 125% mainly due to reduced inventory levels as a result of improved sales, coupled with OEM production constraints. This was offset by the increase in trade receivables due to improved sales and the reduction in creditors as payments were made to OEMs.
The Retail and Rental segment's working capital decreased by 27%. Inventory declined mainly due to improved sales, including the sale of de-fleeted vehicle rental inventory and OEM production constraints. This was partially offset by an increase in trade receivables in relation to improved revenue and the reduction in floorplan creditors due to settlements and reduced purchases.
The Financial Services segment's working capital decreased mainly due to the decline in trade receivables relating to de-fleets outstanding at year-end which were received post-year-end, and an increase in trade payables due to additional fleet deals to external car rental companies by the Importers.
The Aftermarket Parts segment's working capital reduced by 9%. The inventory decline is in line with improved sales and improved inventory management, trade creditors increased mainly due to a larger portion of inventory being covered by credit terms with suppliers. Trade receivables increased to a lesser extent, due to improved revenue.
Assets classified as held-for-sale
The current period assets held-for-sale relate to the non-strategic properties identified for sale, mainly retail properties in South Africa and Australia.
Contract liabilities
The reduction of 1% relates mainly to service and maintenance plans which were negatively impacted by reduced levels of new business, representative of the current economic conditions.
Core debt (excluding floorplan and IFRS 16 debt)
Decreased primarily due to the lower working capital, vehicles for hire levels and profitability.
Floorplans from financial institutions
Floorplan debt declined mainly due to increased utilisation of group bank funding facilities, coupled with operational inventory shortages from OEMs.
Lease liabilities
Decreased by 3% mainly due to lease payments, currency adjustments and derecognition of leases. This was partially offset by new leases entered into, finance costs and acquisitions.
Shareholders' equity
Shareholders' equity was enhanced mainly by retained income of R928 million and reduced mainly by hedging reserve adjustments amounting to R1 039 million (foreign currency movements against the Rand impacted forward cover since the favourable 30 June 2020 position), translation reserve adjustments as a result of the strengthening of the Rand amounting to R228 million, the repurchase and cancellation of shares amounting to R61 million and the purchase of shares for share scheme hedges resulting in treasury shares amounting to R40 million.
Cash flow movements
| for the six months ended 31 December 2020 | HY1 2021 Rm |
HY1 2020 Rm |
||
| Cash generated from operations before movements in net working capital | 2 407 | 2 712 | ||
|---|---|---|---|---|
| Movements in net working capital | 3 014 | (1 011) | ||
| Cash generated by operations before interest, tax paid and capital expenditure on vehicles for hire | 5 421 | 1 701 | ||
| Finance costs paid | (450) | (532) | ||
| Finance income received | 32 | 25 | ||
| Dividends received | 57 | 263 | ||
| Tax paid | (301) | (336) | ||
| Free cash flow generated from operations | 4 759 | 1 121 | ||
| Net proceeds from/(replacement of) vehicles for hire | 301 | (1 922) | ||
| Cash generated by/(utilised in) operations | 5 060 | (801) | ||
| Net cash outflow on the acquisitions and disposals of businesses | (94) | (259) | ||
| Net capital expenditure (excluding vehicles for hire) | (125) | (170) | ||
| Net movements in investments in associates | 5 | 5 | ||
| Net movements in investments | 2 | (105) | ||
| Cash received on net investment in lease receivables | 29 | 23 | ||
| Cash generated from/(utilised in) operating and investing activities | 4 877 | (1 307) | ||
| Shares repurchased (cancelled and treasury) | (101) | (71) | ||
| Dividends paid | – | (477) | ||
| Other | 10 | – | ||
| Decrease/(increase) in debt | 4 786 | (1 855) |
The free cash flow was primarily generated by solid operating profits and reduced working capital.
Net working capital is an inflow of R3 014 million primarily due to lower inventory as a result of improved sales, the sale of excess inventory and lower inventory returns on car rental units.
Cash inflow from vehicles for hire of R301 million due to reduced car rental activity.
The net cash outflow on acquisition of businesses of R94 million mainly relates to the acquisition in the Aftermarket Parts business segment, five passenger dealerships in South Africa, one UK commercial service operation and an additional payment for two passenger dealerships (BMW and Isuzu) in Australia.
As a result of the above, Motus generated R4 877 million cash from operating and investing activities.
Repayment of debt amounted to R4 786 million, with debt decreasing by R4 627 million in the statement of financial position. The difference relates primarily due to non-cash movements as a result of new leases entered into, offset by currency adjustments on debt.
Liquidity
The liquidity position is strong and we have R14,9 billion unutilised banking facilities. A total of 54% of the Group debt is long-term in nature and 52% of the debt is at fixed interest rates. Excluding floorplan debt, which can be seen as part of the working capital cycle, 61% of the debt is at fixed interest rates.
Dividend
An interim dividend of 160 cents per ordinary share has been declared.
Subsequent events
SWT Group Proprietary Limited (Australia)
Motus acquired an additional 10% shareholding from the minority shareholder, during January 2021, increasing the Motus effective ownership to 90%. The purchase price was R38 million.
Renault SA
Motus is in the final stages of concluding the buy-out of the remaining 40% minority interest shareholding in Renault South Africa Proprietary Limited. The Competition Commission approval is still outstanding. The purchase consideration is R250 million.
The buy-out will enhance operational and business decisions to unlock value within the Motus business model.
Board changes
Mr MJN Njeke was appointed as a member of the Remuneration Committee and the Nominations Committee with effect from 15 September 2020.
Ms P Langeni tendered her resignation as an independent non-executive director and served on the board until 10 November 2020.
Mr PJS Crouse and Ms B Radebe joined the board as independent non-executive directors with effect from 10 November 2020. Mr PJS Crouse was appointed as a member of the Asset and Liability Committee and Ms B Radebe was appointed as a member of the Audit and Risk Committee.
Company Secretary change
Ms JK Jefferies tendered her resignation as Company Secretary effective 28 February 2021.
Mr N Simelane was appointed as Company Secretary with effect from 1 April 2021.
Strategy
We are well positioned to maintain our leading position in South Africa and grow in selected international markets. Our strategic focus remains on deepening our competitiveness and relevance across the automotive value chain, by driving organic growth through optimisation, innovation and with selective bolt-on acquisitions.
Our short-term focus is to ensure the resilience of Motus in the volatile and uncertain environment resulting from the impact of the COVID-19 crisis.
Our long-term strategic priorities remain unchanged and are focused on ensuring we are the leading automotive group in South Africa, with a selected presence in the UK, Australia, South East Asia and Southern and East Africa.
Our strategic initiatives underpin the delivery of our aspirations
- Enhance customer experience throughout the vehicle ownership cycle.
- Improve our share of entry-level vehicles, and small and medium SUVs.
- Expand aftersales product offerings.
- Grow parts and service business.
- Manage costs and forward cover in line with the Group policy.
- Extend the range of vehicle models.
- Grow our pre-owned vehicle market share.
- Rationalise the dealership footprint aligned to OEM strategies, and refine the multi-franchise model.
- Enhance the retail strategy and customer experience throughout the vehicle ownership cycle.
- Invest in technology to drive digitisation and support customer service and experience.
- Selective bolt-on acquisitions to improve brand representation.
- Optimise passenger dealership model (UK and Australia).
- Optimise rental business to adapt to new market realities.
- Develop an IT platform that will expedite the valuation of pre-owned vehicles to support a quicker and more efficient trade-in process.
- Electric vehicles and Hybrid vehicles are sold in markets where charging infrastructure and government support is available, namely the UK and Australia. In South African these vehicles will be sold once the infrastructure and government support become available.
- Expand offerings and drive further integration into dealer networks.
- Develop new and innovative channels to market.
- Continuously align with digital, automation trends and changing customer needs.
- Continue to focus on fintech developments and leverage relationships with financial institutions and joint ventures.
- Innovation hub:
- Develop innovative products and services.
- Drive Group-wide innovation.
- Foster a culture of innovation.
- Grow retail footprint and optimise operating structure, supported by franchisees.
- Drive optimisation of the supply chain via Chinese operations.
- Strengthen the core business through improved efficiency and volume buying.
- Grow membership of buying groups.
- Invest in IT to drive digitisation and e-commerce expansion.
- Rationalise distribution centers in South Africa and China.
Our main strategic achievements during the past six months:
- Launch of motus.cars
Motus is enhancing the new and pre-owned vehicle buying experience with the launch of the all new website, motus.cars. This website will allow customers to shop for new vehicle models from 23 OEMs and pre-owned vehicles all on one IT platform.
Once a vehicle purchasing decision has been made, customers can complete the process by applying for finance and having the vehicle delivered at their nearest dealership or home, all from their computer or smartphone.
The world is changing and so is the way that people buy vehicles. This interactive platform will provide customers a safe and convenient way to buy their next new or pre-owned vehicle.
- Launch of Motus Select
The most recent development, is the launch of Motus Select, which replaces the long-standing Imperial Select as an ideal and trusted place to buy a pre-owned vehicle.
Motus Select will be the brand utilised in the Motus Retail division to sell all brands of pre-owned vehicles.
There are already more than 20 dealerships in the Motus Select network and this number will grow in the future. These dealers have access to more than 1 500 pre-owned vehicles, making it easy for buyers to find the right make and model to meet their requirements.
Right to Repair
The new Right to Repair guidelines are effective 1 July 2021. In anticipation of the implementation thereof, management has created a separate workstream to investigate the impact that the guidelines will have across our business, identify opportunities that will present themselves and cater for changes to the business model for any perceived risks. Motus is well positioned to implement the guidelines as we have vast expertise in both the servicing of vehicles and the procurement of parts, and are supported by our integrated business model.
The health and safety of our people
The health and safety of our people is always top of mind, by ensuring that we prevent and minimise the potential spread of the COVID-19 virus. Our facilities remain conducive to social distancing and we have continued with the standard practices expected from a responsible employer and supplier (including the wearing of masks, provision of sanitisers, social distancing and additional sanitising processes).
Where applicable and practical, we have adjusted employee conditions of service to allow for working from home and rotational working arrangements to reduce the number of people concentrated in one facility.
Additional measures have been taken to address the possible impact of COVID-19 on the employees mental and physical wellbeing:
- All our offices have oximeters which are made available to COVID-19-positive staff who are in isolation.
- Implementation of health risk awareness programmes to ensure staff are aware of any possible undiagnosed comorbidities.
- Access to employee counselling assistance especially for instances relating to stress and anxiety.
Our heartfelt condolences to the families and friends of our 20 employees who have sadly lost their lives (19 due to COVID-19).
Prospects
In the last six months, we have scaled our business activities to adapt to the new economic circumstances in a sustainable and responsible manner and have planned and prepared well for the implementation of new legislation effective in the short term. The integrated and diverse business model, supported by an agile and entrepreneurial management team, will continue to buffer us against the impact of the declining trading conditions and assist in delivering on the espoused strategies.
HY2 2021 trading has commenced positively. We also have sufficient cash available and a strong balance sheet to invest in strategic growth initiatives and consider share buy-backs.
We remain committed to delivering stable operating and financial results for the year to June 2021 provided there are no further stringent lockdowns and vehicle inventory shortages from the local OEM's are limited to two or three months.
Due to the strong cash position, an interim dividend has been declared and a final dividend will be reviewed at year end.
For the long-term we are confident that the integrated business model and balance sheet will provide a strong platform to build and grow a sustainable business into the future.
We would like to extend our appreciation to Ms Janine Jefferies for her commitment and service to the Group as Company Secretary and legal counsel.
We would like to thank all staff members, customers, suppliers, funders, shareholders and the board members for their support during these challenging times.
| OS Arbee Chief Executive Officer |
OJ Janse van Rensburg Chief Financial Officer |
22 February 2021
The interim, forecast and prospects information herein has not been reviewed or reported on by Motus' auditors.
Declaration of interim ordinary dividends
for the six months ended 31 December 2020
Notice is hereby given that a gross interim ordinary dividend in the amount of 160.00 cents per ordinary share has been declared by the board of Motus, payable to the holders of the 191 202 392 ordinary shares. The dividend will be paid out of reserves.
The ordinary dividend will be subject to a local dividend tax rate of 20%. The net ordinary dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 128.00 cents per ordinary share.
The company has determined the following salient dates for the payment of the ordinary dividend:
| 2021 | |
| Last day for ordinary shares to trade cum ordinary dividend | Tuesday, 23 March |
| Ordinary shares commence trading ex-ordinary dividend | Wednesday, 24 March |
| Record date | Friday, 26 March |
| Payment date | Monday, 29 March |
The company's income tax number is 983 671 2167.
Share certificates may not be dematerialised/rematerialised between Wednesday, 24 March 2021 and Friday, 26 March 2021, both days inclusive.
On Monday, 29 March 2021, amounts due in respect of the ordinary dividend will be electronically transferred to the bank accounts of certificated shareholders. Shareholders who have dematerialised their shares will also have their accounts, held at their Central Securities Depository Participant (CSDP) or broker, credited on Monday, 29 March 2021.
On behalf of the board
JK Jefferies
Company Secretary
22 February 2021