Motus, the multinational provider of automotive mobility solutions, vehicle products and services, is looking to expand its international business even further, saying SA’s growth potential is limited.
The group, which has operations in the UK, Australia and Sub-Saharan Africa, has been grappling with high interest rates, load-shedding and rising competition in the passenger car market.
The tough conditions saw it report a 27% drop in half-year profit on Tuesday after new-vehicle sales volumes came under pressure. Headline earnings per share (HEPS) were R6.62 in the six months ended December compared with R9.02 in the same period a year ago.
Speaking to Business Day after the group’s results presentation, CEO Osman Arbee said “SA’s growth potential is limited” and opportunities would subsequently come from offshore.
“The car market is very static,” he said of the local sector, adding that the trend was anticipated to continue in the short to medium term.
“There’s too many external factors affecting this, including high interest rates, high unemployment. Power outages are not helping confidence in the economy and Transnet doesn’t help either,” he said. “Unfortunately for SA in the short term, it’s going to be tough. And an election year makes it worse. Everyone is busy promising and no-one is working.”
Motus imports and sells new and pre-owned cars through its network of dealerships in SA, UK and Australia, which means it’s exposed to costs associated with volatility in the rand’s exchange rate.
The group’s passenger and commercial vehicle businesses sold 64,076 new units across all three countries during the reporting period, down from 66,147 a year earlier. However, pre-owned units rose marginally, to 43,747 from 43,422.
The sluggish sales volumes were also a result of manufacturers’ excess stock, according to Motus, whose business includes car rental and a car parts business that sells spares for cars that are no longer under warranty.
Arbee was confident the group’s internationalisation and diversification, together with organic business initiatives and selective bolt-on acquisitions, would support earnings growth and value creation for stakeholders beyond June 2024.
When the JSE-listed vehicle retailer unbundled from Imperial in 2018, foreign income accounted for 8%-9% of its earnings before interest, tax, depreciation and amortisation (ebitda). That has now risen to 35%. “In the next two-and-a-half years we looking at 50%,” Arbee said.
Growth would come from the after-market space where the group had the UK-based Motor Parts Direct (MPD) and FAI businesses. It is growing into Europe, having just secured a warehouse in Poland.
“We should get growth from the UK, where we are opening another distribution centre,” Arbee said. “We are going to increase our purchases from China so we should see more profits in China.”
Motus is also gearing up to create its own competitive brand as it gains economies of scale. “So there will be growth opportunities in the UK, China and Europe,” Arbee said, adding there would be some benefit for its SA businesses as well.
In the half year, the group made two bolt-on acquisitions — retailer Solway Vehicles Distribution and Australian retailer Wagga Wagga — for R553m, which contributed to the aftermarket segment in the review period.
The group said further bolt-on acquisitions in the UK and Australia dealerships were on the table.
Additionally, the aftermarket sales, parts markets and workshops were touted as alternative sources of income that would protect the company from the volatility of the new-car market.
Smalltalkdaily analyst Anthony Clark said Motus had delivered a “fair set of results” in very tough conditions in the UK, Australia and SA.
“Looking at the underlying businesses, operationally they all did well. What killed this business is the rise in finance costs. If you back all of that out, Motus actually did reasonably well,” he said.
For Clark, the turnaround in Motus will come when interest rates start to fall in the major economies.
“The UK looks like it’s leaning towards interest rate cuts later this year, as does Australia,” said Clark. “As interest rates start to fall, that significant finance cost inside Motus will start to rapidly diminish and as such the operational leverage that will come through to earnings and HEPS inside Motus will power Motus going forward.”
Group core profit rose 13% to R4.2bn as a result of the two acquisitions.
The board declared an interim dividend of R2.35 a share, which was down 22% year on year.
Motus shares ended barely changed, down 0.1% at R95.97 on Tuesday, having earlier declined as much as 2.94%.
Update: February 27 2024
This story contains new information on Motus’ business plans and comment from an analyst.
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