Automotive dealership and car rental group Motus, which cut its car rental fleet and staff by almost half, is fit and lean to navigate one of SA’s deepest economic downturns, CEO Osman Arbee said on Wednesday.
Like many of its peers, Motus has been hit hard by a sharp drop in tourism and a fall in demand for new vehicles as the economy remained trapped in recession.
But Motus could fare better than rivals thanks to its diversified business model that includes selling car replacement parts, and it could benefit from consumers delaying purchases of new cars.
“I think we have found the right structure that will carry us through post-Covid,” said Arbee, adding that the group was already seeing robust demand for aftermarket parts.
Arbee said the group expects about 420,000-440,000 new vehicles to be sold in 2021, when in a normal year this would be about 536,000.
“We think we are ready for the new normal that will be created,” said Arbee. “It’s not all doom and gloom; there is still a market that needs to be serviced.”
The company should be able to save R680m during 2021 from jobs cuts and other initiatives to prepare for weak demand for its products and services, Arbee said, adding the tourism industry was unlikely to recover until January.
The group did not pay a dividend in 2020, saying the resumption of dividend payments will be reassessed during the 2021 financial year based on trading results.
In afternoon trade on Wednesday, the share price of Motus surged 20.67% to R39.46, on track for its best day since April. The group’s share has more than halved so far in 2020.
Imtiaz Suliman, a director and portfolio manager at Sentio Capital, said Motus stood to benefit from its diversified business while the health of its finances meant there currently was no question of a rights issue.
Motus could benefit as South Africans serviced their cars for longer and spent more on bigger services, said Suliman, adding that Motus also had little exposure to SA’s premium car market.
This meant it may also benefit as consumers opted for cheaper models, he said.
“What stood out is they were able to right-size the business and take out costs very quickly,” Suliman said.
Mergence Investment Managers portfolio manager Peter Takaendesa said some market participants had been overly negative in terms of their expectations for the group’s performance. Though earnings were largely in line with guidance the group gave, its debt was well within covenants and the group had strong cash generation, Takaendesa said.
“Some were expecting Motus to breach its debt covenants,” he said.
Overall, car sales and rental constitute more than two-thirds of the group’s revenue. Motus was unbundled from Imperial and listed separately in 2018.
Motus reported a 72% decline in headline earnings to R550m during the year to end-June, with one-off costs for the period including asset writedowns of R289m and retrenchment and restructuring costs of R171m. Group revenue fell 8% to R73.4bn, while net debt rose about 12% to R7.4bn.
The effect of the Covid-19 lockdown during its year to end-June was severe, with new-vehicle sales in SA falling 98% in April and 68% in May. Sales have recovered since June.
The group, which provides car rental through the Europcar and Tempest brands, said in June it would be closing branches and cutting staff.
The group said on Wednesday it had reduced its car rental fleet by 35%, or 7,000 vehicles. Since the end of June, its rental fleet has dropped a further 2,000 vehicles, bringing it to 12,000 from 21,000 at the beginning of its financial year.
Overall, Motus cut 2,400 staff during the financial year, just over 10%, with half of these opting for voluntary severance packages. It employed just more than 17,000 staff at the end of its financial year.
Update: September 16 2020
This article has been updated with information throughout
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