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|
Cash flow of
Return on invested capital at
Economic profit at
Operating profit at
Operating margin at
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
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.
Operating profit (Rm)
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.
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
Operating profit (Rm)
Operating margin (%)
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 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
Industry growth in line with inflation anticipated
Implement alternative funding solutions
Subdued growth expected over the next 12 months for the new vehicle market
Premium segment to remain under pressure
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|
|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|
|Employee headcount||7 115||7 397||2 118||2 099||523||539||4 474||4 759|
|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|