VEHICLE DEALERSHIPS

Philip Michaux 
Philip Michaux,
Chief executive officer of motor dealerships. 
This business has a clearly defined strategy to continue its proud record of growth, innovation and top-quality customer service. The benefits of this approach were reflected in acquisitions and franchise awards during the year, which was arguably one of the most difficult periods for vehicle sales in recent memory.
                    
   2009  2008  Change  H2  H1  Change 
   Rm  Rm  %  Rm  Rm  % 
Revenue  16 691  19 181  (13,0) 7 195  9 496  (24,2)
Operating profit  279  423  (34,0) 128  151  (15,2)
Operating margin (%) 1,7  2,2     1,8  1,6    


DIVISIONAL CONTRIBUTION

 

31%

 
Revenue  

11%

 
Operating profit 

7%

 
Profit before tax and exceptionals 
  
VEHICLE DEALERSHIPS 
        % 
   2009 2008  change 
Revenue  16 691 19 181  (13)
Operating profit  279 423  (34)
Net financing cost  (185) (170) 9 
Profit before tax and exceptional items  142 293  (52)
Operating assets  4 932 5 201  (5)
Non-interest-bearing liabilities  1 658 1 777  (7)
Capital expenditure  297 505  (41)
Operating margin (%) 1,7 2,2    
Employees  6 802 7 744  (12)

Imperial owns the largest network of motor dealerships in South Africa and represents all major original equipment manufacturers (OEMs).

The business has a clearly defined strategy to continue its proud record of growth, innovation and top-quality customer service. These critical success factors are all aimed at delivering superior returns and generating strong cash flows.

The spread of brands includes Alfa, Audi, BMW, Chrysler, Chevrolet, Dodge, Fiat, Ford, Freightliner, Fuso, Hino, Honda, Hummer, International, Isuzu, Iveco, Jaguar, Land Rover, Lexus, Mazda, MAN, Mercedes- Benz, Mini, Mitsubishi, Nissan, Nissan Diesel, Opel, Renault, Suzuki, Saab, Seat, Toyota, Volkswagen and Volvo.

In the United Kingdom, we retail DAF, MAN, Isuzu, Renault/Fiat and Hino commercial vehicles. In Sweden we have four dealerships retailing Nissan vehicles.

During the year, the dealership division acquired Key Delta Isando – an Opel, Isuzu, Chevrolet and Isuzu Truck franchise – and was awarded the Ford, Mazda, Volvo and Land Rover franchises for George and Knysna. In addition the minority shareholdings in Beekman Super Canopies and Jurgens CI were acquired.

Results

It has been an extremely difficult year for vehicle sales, especially the second half when the total market declined by 34%, while the commercial vehicle market declined by 49%. Unit sales of passenger and light commercial vehicles in the division declined by more than the total market as a result of dealership closures, but the division outperformed the market in medium to extra-heavy commercial vehicles. While 23 unprofitable outlets were closed in the review period, the dealer portfolio is constantly being improved through rationalisation and modest expansion into areas that offer better trading prospects.

New flagship dealerships generally performed well. Importantly, and in line with the group strategy, revenue from rendering services increased by 8% against a decline of 13% in total revenue.

We view the operating margin of 1,7% as acceptable under the circumstances.

The main driver behind the recent slump in vehicle sales has been reduced lending by vehicle finance banks and, to a lesser extent, reduced demand. Recent rate cuts have not provided much relief yet, as banks increased their lending margins to compensate for liquidity constraints and to price correctly for risk following increased credit losses in their vehicle finance books.

The LDV franchise in the United Kingdom was closed following the insolvency of the LDV manufacturer. No further impairment charges are required. Operating profit from the DAF truck dealerships in the United Kingdom and the Nissan dealerships in Sweden declined by 59% to R29 million. Trading conditions in the United Kingdom are expected to remain tough for the foreseeable future.

Jurgens recorded a loss due to a significant decline in consumer spending on leisure items, while Beekman Canopies performed very well in a market where light commercial sales were significantly lower.

HIGHLIGHTS

  • New flagship dealerships performed well
  • Revenue from services higher despite decline in total revenue
  • Dealer portfolio constantly being improved through rationalisation and modest expansion into areas offering better trading prospects