Retail and Rental

We operate a centralised finance and insurance business across the dealer network, which provides economies of scale. Rental vehicles are provided through the Europcar and Tempest brands, each with targeted offerings for customers. We operate 83 car rental outlets in South Africa and 15 outlets in neighbouring countries.

Our dealerships in the UK are based mainly in provincial areas, and in Australia are located in New South Wales and Victoria.

Representing leading brands

South Africa		United Kingdom		Australia

Growth opportunities

We are investing in innovation to improve our digital capabilities in order to improve market share penetration. Limited selective expansion of the retail operations will be driven by the need to protect our market positions and complement existing networks in the shorter term and by the introduction of additional brands in areas close to existing dealerships, via multi-franchise or bolt-on acquisitions, over the medium to longer term. We will expand our pre-owned vehicle offering within the existing footprint.

2020 performance

Market leadership

The political uncertainty in South Africa and negative economic outlook, together with the global recession as a result of COVID-19, will continue to constrain growth in the short term. In addition, the shift by customers away from luxury vehicle brands continues and will result in a permanent structural realignment of the market to more affordable vehicle brands and pre-owned vehicles. Intense competition is driving down prices of vehicles and other services in order to achieve market share targets resulting in profit margin compression.

Our ability to evolve our dealership representation and optimise our structure and footprint allows us to proactively respond to disintermediation trends as OEMs move towards the agency model. Our ability to implement and refine a multi-franchise dealership model will also support the optimisation of our business processes, allowing us to improve efficiencies and reduce cost of operation.

Investing in innovation and improving our digital capabilities will enhance our retail strategy and overall customer experience. We will focus on developing a customer-facing centralised vehicle stock aggregator and online portal that supports digital lead generation. It will allow us to improve our customers' visibility of our inventory of pre-owned vehicles while also enhancing customer service by reducing our time to serve, for example by increasing the speed of providing trade-in values.

Our car rental business de-fleets through our Auto Pedigree network, ensuring that we have a constant and reliable source of pre-owned vehicles, in the right condition and at the right price. The impact of COVID-19 restrictions on tourism and the rental market will require us to refine our footprint, accelerate the de-fleet of rental vehicles to control costs and ensure the longer-term sustainability of our operations.

In the UK, we have expanded our DAF representation to be recognised as the largest DAF dealer group in Europe. This enables us to achieve economies of scale and offer enhanced service solutions to fleet customers over a significant part of the UK.

Continued organic expansion in both commercial and passenger retail sectors will be considered in the UK and selective expansion via bolt-on acquisitions will be driven by the introduction of additional brands in areas close to existing dealerships. In Australia, further selective expansion will be driven by the introduction of additional brands in areas close to existing dealerships via bolt-on acquisitions. We remain focused on growing our provincial town footprint outside of large metropolitan areas.

Integration and optimisation

We continually review our dealership footprint to align it to OEM strategies and to respond to changing customer behaviours, ensuring that we enhance our retail strategy and customer experience. We constantly evolve our footprint by consolidating existing franchises into facilities in key locations, rationalising underperforming dealerships and brands and by selectively expanding our dealership footprint and introducing additional brands through selective bolt-on acquisitions in areas that complement our current network to build critical mass and leverage synergies. During the year, we acquired bolt-on DAF dealerships in the UK and in Australia we purchased eight passenger dealerships, increasing our access to grow market share in these regions.

Over the past 18 months, the car rental business has migrated its legacy IT systems onto a new platform that offers bi-directional system integration capabilities. We will continue to create a sustainable technology environment that supports specialised customer digital applications across multiple platforms.

Rightsizing our operations in response to COVID-19 has meant that we will close 19 of our car rental retail outlets, de-fleet 7 000 vehicles and retrench 45% of workforce. Ongoing work to contain costs and preserve cash includes combining Europcar and Tempest outlets to further consolidate our car rental footprint, in line with new market realities, with appropriate premium and low-cost offerings to customers.

Read more about the Group’s approach to innovation and technology in the Chief Innovation Officer's review.

Our people

We aim to create a purpose-driven workplace that fosters a culture of continual improvement and innovation by continually embracing change and customer centricity in response to emerging disruption in our industry.

Our people processes are designed to attract, develop and retain talented, diverse and committed employees and we continue to invest in the development of our people, with a strong focus on technical competence development. Our Dealer Principal and Portfolio Manager programmes are focused on transforming these roles in response to the market dynamics.

Read more about the Group’s people strategy in Our people.

2020 financial performance

Revenue
R59 898 million

Operating
profit
R332 million

Operating
margin
0,6%

	HY1 2020 unaudited^	% change on HY1 2019 unaudited^	HY2 2020 pro forma*	% change on HY2 2019 pro forma*	2020 audited	2019 audited	% change on 2019 audited

Revenue (Rm)	34 265	7	25 633	(22)	59 898	65 041	(8)
Operating profit (Rm)	801	(2)	(469)	(<100)	332	1 578	(79)
Operating margin (%)	2,3		(1,8)		0,6	2,4

^	HY1 numbers are unaudited and were released in the interim published results for the six months ended 31 December 2019.
*	HY2 numbers are unaudited and derived from deducting the HY1 results from the full year published results of 30 June 2020.

Revenue declined by 8% as a result of the decline in sales volumes and the change in the mix of vehicles sold (shift to pre-owned) coupled with the poor performance from the car rental division. The Retail and Rental segment retailed 77 772 new units (2019: 94 003) and 74 768 pre-owned units (2019: 83 104) during the year. The reduced unit sales and rental volumes were attributable to the global COVID-19 crisis which resulted in severe vehicle market contraction and no local and international tourism for the last three months of the financial year.

Operating profit declined by 79% mainly due to vehicle market contraction and reduced utilisation of rental vehicles, increased pressure on consumer affordability and lower margins realised on entry level vehicles. We were unable to reduce overheads to the same extent, as the business was negatively impacted by reduced trading levels during lockdown.

The South African retail operating profit decreased 53% from the prior year mainly due to the decline in sales volumes of 12%, the change in the mix of vehicles sold, the reduction in profitability of premium branded vehicle sales, price competitiveness and cost of vehicles. The declined volumes were attributable to the global COVID-19 crisis which resulted in severe vehicle market contraction. This was partly offset by increased revenue from pre-owned vehicles in Auto Pedigree.

Car rental revenue and operating profit reduced by 17% and 144% respectively mainly as a result of no local and international tourism, reduced government and corporate travel during the lockdown for the last three months of the financial year with utilisation levels dropping to 60% (2019: 71%) and increased fixed depreciation. The car rental division has subsequently been rightsized by de-fleeting 7 000 vehicles, reducing the workforce by 45% and closing 19 rental outlets.

UK revenue and operating profit reduced by 6% and 138% respectively mainly as a result of the poor performance of passenger dealerships and reduced volumes, partly offset by revenue and operating profit attributable to acquisitions. The UK retailed 22 912 new units (2019: 29 399) and 12 966 pre-owned units (2019: 14 544) during the year. The commercial dealerships performed well in a competitive and contracting market and remained profitable, with continued demand for parts and servicing during the UK lockdown period. The passenger dealerships reported a decline in performance largely related to the contraction in the UK market and limited brand representation. The UK operations have been affected by the global COVID-19 crisis, as well as political uncertainty arising from Brexit.

Australia's revenue and operating profit reduced by 4% and 50% respectively mainly as a result of reduced volumes, offset by revenue and operating profit attributable to acquisitions. Australia retailed 8 675 new units (2019: 10 495) and 3 960 pre-owned units (2019: 4 305) during the year. Both the New South Wales and Victoria operations were negatively impacted by certain underperforming brands in the market, reduced volumes and the discontinuation of the Holden brand in the country.

Integrated report
for the year ended 30 June 2020

2020 priorities

Corné Venter

Rob Truscott

John Johnson