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HomeBusiness NewsMotus’ R4.7bn acquisitions to increase its diversification

Motus’ R4.7bn acquisitions to increase its diversification


Motus, the JSE-listed integrated automotive business, made strategic acquisitions collectively worth R4.7 billion in the year to end-June 2023, in line with its strategy of increased diversification.

The strategy aims to place less reliance on the revenue and profits generated directly from vehicle sales to enhance the group’s sustainability.

Motus CEO Osman Arbee said on Wednesday the acquisitions since 1 July 2022 included:

  • MPD, an aftermarket business-to-business parts distributor based in the UK, in October 2022 for R3.7 billion;
  • The acquisition of 10 South African aftermarket parts franchise stores at various dates during the year for a total of R177 million;
  • Three Mercedes-Benz passenger dealerships and one commercial vehicle dealership in Gauteng in November 2022 for R715 million; and
  • A local multi-franchise Hyundai dealership in May 2023 for R69 million.

Arbee added that post Motus’ year-end, in July 2023 the group finalised the bolt-on acquisition of Solway Vehicle Distribution Limited in the UK for R69 million. It has four DAF commercial vehicle dealerships in northwest and southern England.

Rationale

Arbee said the rationale for the MPD acquisition is that it is aligned with Motus’ international growth strategy for the group’s aftermarket parts segment and its integrated business model and will reduce the group’s dependency on vehicle sales. It is also a non-cyclical business that will provide economies of scale, group procurement benefits and synergies, and it is cash-generative, asset-light and not capital-intensive.

“MPD exceeded our expectations and contributed a meaningful 8% towards group Ebitda [earnings before interest, tax, depreciation and amortisation] for the year,” he said.

Arbee said the Mercedes-Benz dealership acquisition will enhance Motus’ South African portfolio in the luxury vehicle segment.

Figures

Motus’ aftermarket parts segment was the star performer in the year to end-June, increasing its operating profit contribution to the group, before capital items and net foreign exchange gains, by 62% to R1.04 billion from R644 million in the prior year.

By comparison, the retail and rental segment increased its operating profit by 16% to R2.55 billion and the mobility solutions segment by 14% to R1.14 billion, while the operating profit contribution to the group from the import and distribution segment declined to R1.41 billion.

Arbee said the group achieved growing contributions from non-vehicle sales in the year to end-June 2023, in line with its internationalisation and diversification priorities.

He said the group’s target from diversification is an equal 50% Ebitda split from earnings generated from vehicle and non-vehicle sales.

At end-June 2023, Ebitda from vehicle sales accounted for 54% and non-vehicle sales 46% of total Ebitda, compared with 62% from vehicle sales and 38% from non-vehicle sales at end-June 2021.

Arbee said Motus also had a target to get to a 65%/46% Ebitda split from its South African and international operations, in line with the group strategy to increase the earnings contribution from its international operations.

This split was 73%/27% at end-June 2023, compared with 78%/22% at end-June 2021.

Looking ahead

“Motus’ scale and operational maturity in South Africa leaves us well placed to maintain our leading position and selectively expand our geographical footprint through bolt-on complementary acquisitions, both locally and internationally.

“We will also continue to explore strategic acquisitions that expand our offering in the aftermarket parts segment or enhance the technology capabilities of the group,” he said.

Arbee added that Motus is positioned for sustainable, profitable growth, and the group managed cyclicality in the tough market it found itself in by balancing income from vehicle sales with growing contributions from non-vehicle sales.

He said Motus sells one in five new vehicles in South Africa and sells one new vehicle for every 0.7 pre-owned vehicles sold.

Arbee said current trends favouring Motus’ market share include:

  • The continuation of the buy-down trend, with a change to less premium brands and lower category vehicle models;
  • Sales heavily weighted to contributions from importer brands; and
  • Customers having access to an omnichannel experience, with motus.cars being the biggest online vehicle buying platform in SA.

Interest rates and customer affordability

Arbee highlighted interest rates, affordability, bank approval rates and appetite for credit when commenting on the health of the South African motor industry.

He said South Africa’s economy is experiencing the longest phase of money tightening since the global financial crisis, with the uncertainty around future interest rate increases compounding soft vehicle sales.

“Vehicle sales will immediately begin to improve when interest rates reduce,” he said.

Arbee said vehicle affordability is affected by consumer debt, which is impacted by inflation, increasing fuel prices and energy costs, and vehicle inflation above the consumer price index (CPI).

Read:
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He said bank finance approval rates are declining due to weak consumer applications, not banks tightening up their credit criteria.

Arbee added that banks, where possible, are restructuring debt instead of repossessing vehicles, and there is an increase in approved applications not being taken up because customers are currently choosing to hold on to their vehicles and not replace them.

He said affordability appears to be driving consumer spending, which is reflected in new vehicle sales, as consumers move from luxury vehicles to more affordable ones.

New vehicle sales

However, Arbee said new vehicle sales have been exceeding expectations despite ongoing increases in the total cost of ownership, with new vehicles retailed increasing by 10.4% to 541 000 units in the 12 months to end-June 2023.

Arbee said Motus achieved a 19.8% retail market share for this 12 month-period.

Motus is forecasting vehicle sales of between 520 000 and 540 000 units for the 2023 calendar year, compared with the 529 000 unit sales in 2022.

Listen: July sees uptick in new vehicle sales

Motus on Wednesday reported a 16% increase in revenue to R106.32 billion in the year to end-June 2023, from R91.97 billion in the prior year.

Ebitda grew by 19% to R8.08 billion from R6.78 billion, while operating profit improved by 14% to R5.72 billion from R5.03 billion.

Headline earnings per share grew by 1% to 2 046 cents from 2 025 cents.

An unchanged full-year dividend per share of 710 cents was declared.

Arbee said Motus’ competitive advantages of scale, differentiation and integration, as well as its entrepreneurial leadership, continue to position the group positively for sustainable growth.

He said despite the present economic conditions, the group expects to deliver revenue growth and stable operating profit for the six months to 31 December 2023 compared with the prior period.

Shares in Motus declined by 3.61% on Wednesday to close at R102.08 per share.



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