It is with regret that I advise that, due to the severe impact of COVID-19, a formal Section 189 retrenchment consultation process was started with labour unions in May 2020. We cut costs and found even deeper efficiencies in the first instance before we unfortunately had to resort to retrenchments to ensure the future of the Group. By mid-September, there were 1 181 voluntary retrenchments and 1 216 compulsory retrenchments. This process will be completed by the end of September 2020.
Even as most of the world appears to be descending from its initial COVID-19 peak, talk about the 'new normal' can only be informed speculation. The initial damage assessments are sobering. COVID-19 has hit the global and local automotive industry hard. Factories have closed, supply chains have been disrupted and consumer debt has soared. Rising unemployment in South Africa is reducing the number of consumers that qualify for vehicle financing. Moody's has predicted a 20% slump in global vehicle sales for 2020, while the International Labour Organization says the situation is "considerably worse" than during the 2008/09 global financial crisis, which cut the global automotive market by about 8% over two years.
Net asset
value per share
6 653 cents
per share
(June 2019: 6 185 cents per share)
Revenue
R73 417 million
(2019: R79 711 million)
We can be certain that the 'new normal' will
require that we tighten our belts both as
individual vehicle owners and as a provider
of services in the automotive sector; that
vehicles will stay longer on the road, the
luxury car market will decline and the preowned
car market will benefit from the weak
new car market sales. Dealers will have to
work harder and smarter for fewer sales and
lower profitability.
The world has become a harder place in
which historic definitions of value and
success no longer hold true. COVID-19 has
brought about profound loss that extends
beyond individual industries and even the
business community as a whole. It has
touched the motivations and values of
people around the world.
"The Times They Are A Changing"
In August last year the Business Roundtable,
which represents the chief executives of
America's largest companies with combined
annual revenues of USD7 trillion, moved
away from Milton Friedman's 1970 dictum
that profit is the only social responsibility of
business. Instead, they stated: "Each of our
stakeholders is essential. We commit to
deliver value to all of them, for the future
success of our companies, our communities
and our country."
Corporate society is experiencing the power
of social movements, highlighting the inequities
of the past including racial injustice and
gender discrimination, justifiably agitating
to change the world in which we operate.
Young people refuse to be silenced about
the world they are inheriting. For many, this
pandemic is also putting a sharper edge to
fears of permanent harm due to climate
change. Discontent with the status quo
now also extends to the investor community,
and is changing the tone and tenure of
boardroom discussions and voting patterns
of shareholders.
COVID-19
did not trigger the
shift in activism but
accelerated its pace.
Bob Dylan sang it;
perhaps the most
influential group of
executives in the
world confirmed it:
"The times they are
a changing," and
leaders everywhere
are responding
positively.
For those at the helm of large businesses, ensuring that social consciousness is at the heart of the decisions we make is as fundamental as delivering the financial returns we make for our owners, to create meaningful value for all our stakeholders.
In the extraordinary disruption of the final three months of the financial year, it is easy to forget how tough the first three quarters were. The downgrade of South Africa's investment rating to junk status confirmed what consumers already knew. Our economy was in bad shape, long before COVID-19 emerged. In the pandemic's wake, South Africa's sovereign debt threatens to spiral out of control unless the political will is found to cut back public sector expenditure and enhance the efficiency of social spending.
More broadly, the commissions of inquiry and promises of justice have not yet generated results, while corruption continues and many people go hungry. Some state-owned enterprises as a consequence of poor management are not performing their critical roles, and Eskom's failure to keep the lights on, is hindering production as South Africa returns to work, an added burden for the country at a time that it can least afford more disruption.
Our government is intent on reshaping the post-pandemic economy for faster more inclusive growth. This will require a deep adjustment in attitude both on the street and in the halls of power if we are to achieve the solidarity and alignment on common goals required to rebuild and reconstruct South Africa's economy.
The British economy suffered its sharpest contraction in more than 40 years in the first half of 2020. Gross domestic product (GDP) growth is expected to return in 2021, although gains are likely to be in the low single digits, while unemployment is expected to reach 11%. Brexit negotiations are incomplete, with the UK government and the European Union yet to agree on all aspects of their future ties, from trade to security to transport, from 2021 onwards. It is vital that trade continues smoothly.
Against a background of a COVID-19 constrained global economy, rising debt and higher unemployment, Australia's economic recovery appears to be underway. However, the Australian government will need to navigate significant fiscal constraints. Walking the tightrope between trade and political interests while trade and technology tensions between the United States (US) and China persist, might be even more challenging.
Against the significant headwinds of the past financial year, Motus' performance for the first nine months was in line with expectations. More importantly, the way performance held up in this challenging environment confirmed that our scale, integrated business model and enduring relationships with key stakeholders were effective in buffering our competitive potential against economic downturn.
COVID-19, and the unprecedented global lockdown of movement and activity, has already been more than a downturn. All countries have been affected and only a handful of companies made it through the initial peaks of the pandemic unscathed. Motus was not one of those, as the automotive industry has been one of the hardest hit industries. The 98% drop in South African vehicle sales in April 2020 confirms this.
Well-run companies have continuity plans, but few of those would have considered a black swan event of this magnitude. Even the most prescient of plans are only as good as the abilities of the people responsible for implementing them, often in conditions that are virtually impossible to simulate. COVID-19 confirmed that the notion of people being a "soft issue" is not so. The calibre and commitment of people make an enormous and invaluable contribution directly to the possible outcomes - the difference between business failure, survival and success.
Motus' numbers for the final quarter and the financial year do not tell the story. They do not show the determination to replace face-to-face communication with digital entirely and almost overnight. Our investments in technology proved timeous during the lockdown and our frontline colleagues made excellent use of it while our dealership doors were closed. Whether through emails, Facebook, WhatsApp or electronic conferencing our people remained in contact with their locked down customers. They used the time their customers were forced to spend at home to continue communication with them and increase our retail market share. They adapted quickly, and lived up to the first rule of the vehicle trade to 'move the metal', even as economic uncertainty and rising job losses tightened credit extension and eroded consumer confidence.
Social compact
From his first address to the nation, President Cyril Ramaphosa made it clear that South Africa's response to COVID-19 would demand solidarity and sacrifice. This has certainly been the case. Given the enormity of the global pandemic, the many unknown factors that were facing decision makers, and the reality that emerging market countries such as South Africa are less equipped to respond to such a pandemic, the actions taken by the authorities have, overall, resulted in a relatively well-managed outcome to the COVID-19 human crisis.
In times of great crisis, people and nations tend to rally together and look beyond short-term self-interest and focus on bigger and more important macro-challenges that can make more meaningful longer-term improvements that lead to a better life for all. This is such a time. We have the opportunity to forge a social compact among key stakeholders to make meaningful improvements to our society and economy. There are encouraging signs of government, business and labour showing a preparedness to seek to do so. The stakes are high and we all need to commit to work together in a spirit of nationhood and goodwill.
To be effective, a post-pandemic social compact needs to be built on a foundation of morality and mutual trust. We understand that works both ways with the private and public sector having much to do to achieve this. Motus will not tolerate any of its people deviating from our moral compass.
Board matters
As mentioned in our report last year, Kerry Cassel joined the board as an executive director on the first day of this financial year.
Phumzile Langeni tendered her resignation as an independent non-executive director and will serve on the board until the annual general meeting (AGM) on 10 November 2020. The board thanks her for her contribution and guidance for the 19 years, first at Imperial Holdings and then at Motus and we wish her all the best for the future.
Our board continues to represent the skills and experience the company needs, especially during these challenging times.
Outlook
The medium term will be tough. High efficiency and performance will need to be our watchword, both operationally and in the allocation and deployment of capital.
Motus is well placed to succeed. Our high-value offerings and more affordable importer brand vehicles will meet car buyers' needs. Cash-strapped consumers and a high unemployment rate will mean that vehicles remain on the roads longer. Our strength in aftermarket parts will supply that demand - also in the emerging township and rural economies. Our ability to leverage the integrated business model to offer customers comprehensive value-added products and services will continue to attract business from our competitors.
Changes that started before the pandemic will accelerate and create new realities and preferences. We were particularly encouraged by our sales force's use of digital platforms during the lockdown period. Increased reliance on digital platforms and innovative mobility solutions will be a permanent feature of the automotive market.
Appreciation
Our people have shown the entrepreneurial determination that will carry Motus through the years ahead, and which positions us well to grow in the years beyond. We thank them sincerely on behalf of Motus' stakeholders of today and tomorrow. The board and shareholders owe a debt of gratitude to the management team. They were decisive and determined yet maintained their commitment to our people, to decency and our moral compass. They refused to give up and quickly developed an entirely new business plan aimed at survival. Our CEO, Osman Arbee and his executive management team, have led with distinction, showing gravitas and remarkable dedication to serve in the toughest of times. I wish to thank every one of our employees for their immense contribution and sacrifices they made during the year.
My fellow board members were committed and very involved in engaging with the management team during this period of immense uncertainty. Their maturity and insight were of great comfort and incalculable value to management and myself, and I extend my deep thank you to each one of them.
GW Dempster
Chairman
15 September 2020
