Automotive Automotive

Medium-term strategy: Optimise and grow

REACH FULL POTENTIAL AND EXCEED GROUP RETURN ON INVESTED CAPITAL OF 13% BY 2020
Actions in managing for value   Highlights  
  • Review and optimise portfolio
  • Address underperforming business units and segments as a key focus
  • Align with OEM footprint strategy and optimise returns for our OEMs and principals
  • Investigating alternative funding solutions
  • Drive intergroup synergies and provide integrated solutions offering
  • Digital platforms and toolsets to optimise solutions
  • Identify and pursue growth opportunities
 

Cash flow of
R690 million

(2017: R794 million)
 

Return on invested capital at
12.4%

(2017: 13.1%)
 

Economic profit at
(R5 million)

(2017: R81 million)
 

Operating profit at
R1 701 million

(2017: R1 747 million)
 

Operating margin at
5.7%

(2017: 5.5%)
CORPORATE ACTIVITY
Minority buy-out in Salvage Management and Disposal (SMD), effective on 19 February 2018
Closed down N4 Witbank Jaguar Land Rover effective 31 July 2018

WE REGRETTABLY HAD ONE WORK-RELATED FATALITY
Concerted efforts have been made to continue strengthening and
propagating a safety culture throughout the organisation

In managing for value and ensuring ongoing value creation for all our stakeholders, our focus in the reporting year has been on executing on the group’s medium-term strategy to optimise each of our businesses to reach their full potential. In achieving this all business units across the division have implemented turnaround strategies to address underperforming segments, re-aligned and restructured cost bases for current activity levels and position themselves for future growth.

Segmental performance


Operating profit (Rm)

Segmental performance
102-15

2018 performance

The Automotive division generated operating profit of R1 701 million against revenue of R29.8 billion and yielded an operating margin of 5.7% (2017: 5.5%). A satisfactory result in a difficult trading environment influenced by subdued industry performance, currency volatility and inflation, negative socio-economic conditions, continued decline in business confidence and depressed consumer sentiment.

Car Rental grew revenue by 1.3% to R6.5 billion but operating profit declined by 4.6% to R536 million. Despite the car rental industry being down 0.7%, Avis Budget grew rental days and increased rate per day. Returns were negatively impacted as the used vehicle market for one-year-old vehicles came under pressure and margins declined as a result of lower new vehicle inflation. The business focused on costs and efficiencies, containing fleet costs below inflation, decreased vehicle damage expenses and maintained fleet utilisation at 76%.

Avis Fleet grew operating profit by 3.2% to R641 million and lower leasing revenues in some key contracts resulted in a revenue decline of 6.8% to R3.3 billion. The business achieved a record operating margin of 19.3% (2017: 17.4%). Good used vehicle profit contribution from three to five-year-old de-fleeted vehicles positively contributed to the overall results. Notwithstanding the finance fleet reducing due to the non-renewal of a few large contracts, the total fleet under management increased by 2.0%. In October the City of Johannesburg announced the non-renewal of the Avis Fleet contract for non-specialised vehicles. However, some positive momentum has been achieved through recently securing additional sizeable corporate contracts.

Motor Trading delivered an operating profit of R524 million, down 7.1%, off a revenue of R20 billion, down 7.5% which was impacted by the dealer network restructuring and revenue recognition in line with the new agency model implemented by Mercedes-Benz (Passenger). On a comparable basis, revenue increased by 1.2% on the prior year. While the industry showed marginal growth of 0.5%, it was more negatively impacted by the premium market which declined for the fourth consecutive year. The volume brands delivered a good performance with a positive contribution from aftermarket revenues. The business has benefited from the cost alignment and restructuring decisions taken in the past two years and to further optimise the portfolio, the business closed the underperforming N4 Witbank Jaguar Land Rover dealership and disposed of a non-core business, Coachworks Tokai. Effective 19 February we acquired the minority shares in Salvage Management and Disposal (SMD), which continues to be value accretive with year-on-year growth.

Capital allocation

A key driver of managing for value is releasing capital to invest in higher yielding business units. As part of the group's capital release programme we are reviewing alternative funding solutions for our Fleet business to allow for optimal allocation of capital, while providing the business with the ability to grow organically. An improved focus on higher value opportunities will realign our cost bases to new activity levels and set the businesses up for growth.

Managing for value driving operational performance

 

Revenue (Rm)

   

Operating profit (Rm)

   

Operating margin (%)

  Revenue (Rm)     Operating prot (Rm)     Operating margin (%)

Looking forward

Industry   Car Rental   Avis Fleet   Motor Trading   Trends

Automotive
Division

Continue to create value through optimising existing business portfolio

Turnaround strategies and review of underperforming businesses and segments

Identify and implement alternative funding solutions to fund assets more effectively to enhance returns

Identify organic and acquisitive growth opportunities in asset-light adjacencies

Optimising the inherent synergies of our innovative vehicle usage offering

 

Car
Rental

Car Rental industry rental day growth to remain subdued

Dual brand strategy and yield management to deliver top line growth

Leverage technology and mobility solutions to improve customer experience and drive efficiencies

 

Avis
Fleet

Industry growth in line with inflation anticipated

Implement alternative funding solutions

 

Motor
Trading

Subdued growth expected over the next 12 months for the new vehicle market

Premium segment to remain under pressure

 

Trends

An upsurge in the global connectivity trends will drive efficiencies and also enhance our customer experiences

IIncreasing mobility trend will require the business to innovate continuously

Ongoing reliance on technology to introduce new experiences and channels to grow the business

 

Divisional key performance indicators

  Automotive Car Rental Avis Fleet Motor Trading
Financial capital 2018 2017 2018 2017 2018 2017 2018 2017  
Revenue (Rm) 29 809 31 593 6 528 6 446 3 326 3 570 19 955 21 577  
Operating profit/(loss) (Rm) 1 701 1 747 536 562 641 621 524 564  
Net operating assets (Rm) 8 758 8 675 2 854 2 750 3 778 3 687 2 126 2 238  
Social capital
Employee headcount 7 115 7 397 2 118 2 099 523 539 4 474 4 759  
LTIFR 0.94 1.12 0.61 0.44 0.48 0.61 1.15 1.48  
Work-related fatalities 1 0 0 0 0 0 1 0  
B-BBEE rating n/a n/a 3 3 2 2 3* 3*
Natural capital
Petrol and diesel (ML) 8.46 9.55 3.10 3.40 0.60 0.63 4.76 5.52  
Grid electricity (MWh) 34 564 37 296 6 781 6 454 1 169 1 329 26 614 29 513  
Non-renewable energy (GJ) 421 293 469 130 130 784 139 618 25 327 26 771 265 182 302 741  
GHG emissions (tCO2e) (scope 1 and 2) 55 017 60 413 14 005 14 332 2 547 2 769 38 465 43 312  
Water withdrawals^ (ML) 277 348 77 117 8 10 192 221  

Lost-time injuries multiplied by 200 000 divided by total hours worked.

* Ratings under Barloworld South Africa.

^ Municipal sources.

102-7, 102-15