“DEALERSHIPS SA REPORTED VERY GOOD RESULTS, INCLUDING THE NINE WESTERN CAPE DEALERSHIPS, OUTPERFORMING NAAMSA. THE ACQUISITION OF ESSEX AUTO GROUP IN MARCH 2017 AND SLOUGH MOTOR CORP ON 4 JULY 2017 STRENGTHENED OUR FORD PRESENCE IN THE UK TREMENDOUSLY.”
Graeme Watson (Dealerships CEO)
|R’000||Change %||Year ended
|Revenue||15 915 299||13 583 928|
|Dealerships SA||36.7||9 074 861||6 637 676|
|Dealerships UK||(1.5)||6 840 438||6 946 252|
|EBITA||468 525||388 291|
|Dealerships SA||37.0||288 101||210 303|
|Dealerships UK||1.4||180 424||177 988|
|Operating profit||463 344||381 853|
|Dealerships SA||37.0||288 101||210 303|
|Dealerships UK||2.2||175 243||171 550|
|Operating margin (%)|
|Profit before tax||327 648||293 510|
|Dealerships SA||18.8||210 683||177 310|
|Dealerships UK||0.7||116 965||116 200|
|Net operating assets||2 263 572||1 001 951|
|Dealerships SA||Nm||1 000 715||162 116|
|Dealerships UK||50.4||1 262 857||839 835|
Nm: Not meaningful
The Dealerships business consists of 54 franchised motor dealerships (45 passenger vehicles, eight commercial vehicles and one Super Group Wholesale dealership), based in the Gauteng, North West, Mpumalanga and Western Cape Provinces. The division represents most major brands including Nissan, Renault, Ford, Mazda, Toyota, Lexus, Mercedes-Benz (including SMART), Honda, Land Rover, Jaguar, Volvo, Chrysler, Jeep, Dodge, Volkswagen, Audi, Isuzu, Chevrolet, Opel, Suzuki, Alfa Romeo, Fiat (including Abarth), UD trucks, Hino trucks, FUSO trucks, Mercedes-Benz trucks and Isuzu trucks. The majority of new vehicle sales are passenger and light commercial vehicles, while medium, heavy and extra heavy commercial vehicles represent slightly more than 6% of new vehicle sales.
Allen Ford is the second largest independently-owned Ford franchise network in the UK, operating 18 franchised Ford motor dealerships, four franchised Kia dealerships as well as a Mazda and Fiat dealership in four of the key Ford franchise areas in England. This includes Ford dealerships in Coventry, Rugby, Nuneaton and Warwick and a Kia dealership in Solihull. In Northampton County, Allen Ford has three Ford dealerships in Riverside (Fortune Close, Long Itchington and Bedford Road, with the latter being a commercial vehicle dealer), Daventry and Kettering. In Essex County, Allen Ford has eight Ford dealerships, two Kia dealerships and one Mazda and one Fiat dealerships. One of the Ford dealerships, situated in Basildon, is regarded as being the largest flagship for Ford in the UK, and is close to the Ford Dunton Technical Centre. The fourth county, Swindon, Allen Ford has Ford dealerships in Swindon and Bath, as well as a Kia dealership in Bath.
As one of the UK’s leading Ford dealership groups, Allen Ford has substantial leverage, enabling it to stock large volumes of new and used passenger and light commercial vehicles (vans), which in turn gives the Group a competitive advantage in the high volume new vehicle market. The Group is also a Motability Premier Partner, which is the leading car scheme in the UK for disabled people, enabling them to use their UK Government-funded mobility allowance to lease a new car. Moreover, it is one of the UK’s largest Privilege dealers, selling high volume of cars at preferential prices to Ford, Jaguar, Land Rover and Aston Martin employees and their families.
Results for 2017
Dealerships SA reported very good results despite local market conditions and include the nine Western Cape dealerships, primarily Mercedes-Benz dealerships and a property, acquired effective 1 September 2016. During the year, Dealerships added six passenger, four commercial and one Super Group Wholesale (a new concept dealership) dealerships to its stable, totalling 54 dealerships at 30 June 2017.
As a result, revenue increased by 36.7% to R9 074.9 million (June 2016: R6 637.7 million) and Dealerships SA maintained its operating margin at 3.2%. The increase in sales, together with strict overhead control and working capital management, resulted in Dealerships SA increasing its operating profit by 37.0% from R210.3 million (June 2016) to R288.1 million, and its profit before tax by 18.8% from
R177.3 million (June 2016) to R210.7 million (June 2017).
Despite the NAAMSA dealer market reporting a 7.9% decline in new vehicle sales for the year ended 30 June 2017, Dealerships new vehicle sales increased by 4.5% with used vehicle sales increasing by a satisfactory 15.7%. The Parts and Services business continued to perform well. Dealerships SA maintained its operating margin at 3.2%.
Dealerships UK delivered an excellent set of results, in Great British Pound terms. The strengthening of the average Rand against the GBP had a severe negative impact on the profit before tax of the Group of R32.0 million (June 2016: positively impacted results by R24.3 million). Strong overall vehicle sales growth of 17.9% (2016: 3.2%) was shown, with new vehicle sales growth of 16.7% (2016: 2.4%) and used vehicle sales growth of 20.4% (2016: 4.9%) being achieved during the year. The Ford and Kia operations all performed above market sales benchmarks and the contribution from services was satisfactory. The results include Essex Auto Group’s results for four months. Essex Auto Group was acquired effective 1 March 2017 for R407.0 million and consists of five Ford (one being the flagship in Basildon), two Kia, one Mazda and one Fiat dealerships.
In GBP-terms revenue increased by 22.4% and operating profit by 26.9% while in Rand-terms, revenue decreased by 1.5% to
R6 840.4 million (June 2016: R6 946.3 million), EBITA increased by 1.4% to R180.4 million (June 2016: R178.0 million) and operating profit by 2.2% to R175.2 million (June 2016: R171.6 million). Operating profit margin increased slightly from 2.5% (June 2016) to 2.6% during the year.
Risks and Opportunities
The risks identified are as follows:
|Material risks||Management of these risks|
|New vehicle market: Vehicle price and interest rate increases are having a negative effect on new vehicle volumes. The decline in volumes will continue to have a negative impact on margins and gross profit generation, as well as the potential to earn factory incentives||
|Resource-based local economies: The vehicle market in Rustenburg appears to have stabilised after the ongoing labour issues in the Platinum and Metal sectors, but the negative outlook on resources in general, as well as the possibility of labour issues
reoccurring has made consumers in this area more cautious
|Global market conditions/Rand volatility: Conditions in the global markets causing severe Rand weakness and instability has resulted in increased vehicle pricing, which will negatively impact new vehicle sales. Price and interest rate increases over the past year have resulted in additional margin pressure, which is likely to continue||
|Staff: Employment cost inflation and the availability of skilled personnel||
The opportunities identified by Dealerships SA are as follows:
- Ownership of strategic properties – Significant advantages can be derived through strategic property ownership by reducing lease cost averaging and avoiding substantial rental escalations.
- “Going Above and Beyond” – Dealerships’ culture has improved staff morale ensuring staff retention, ultimately resulting in improved customer service and retention.
- Finance and Insurance income – The division continues to improve the contribution received from back-end income and continuously seeks out further opportunities, enabling these levels to be maintained.
- Parts and Service – A growing new vehicle car park, offset slightly by extended service intervals, continues to create an opportunity for improved cost absorption and margin mix.
- Multi-franchising – Selected OEM’s are allowing multi-franchising in certain areas, and Dealerships SA has a number of these arrangements in place, and expect to realise the benefits in the coming year.
- Online marketing and sales – Increased focus on the online marketing environments will provide increased sales opportunities to the division.
The risks identified are as follows:
|Material risks||Management of these risks|
|New vehicle market: New commercial stock availability continues to be poor. This is particularly frustrating as demand remains strong. Although the business is taking advantage of improved margins, the poor stock availability may at some point affect contribution and overall profitability||
|Key management: The loss of any senior executives will potentially create management and leadership challenges in this highly competitive market||
|Dilapidations: The onerous nature of UK leases with regard to the dilapidation process and cost at the end of a lease is an area of concern and of potential un-budgeted cost to the business||
|Brexit: The long-term effect of Brexit on the UK economy when trade agreements are renegotiated||
The opportunities identified Dealerships UK are as follows:
- New vehicle sales – Ford continues to be the market leader in the UK and Dealerships UK has a strong Ford presence with flagship dealerships in key locations.
- Fleet and commercial – Demand continues to be high for commercial vehicles in the UK, and our dealerships are geographically well positioned to take advantage of this segment.
- Used vehicle sales – Interest rates remain low and stable, with no likely increase in the next 12 months; therefore the relatively buoyant used car market is expected to continue. The introduction of fixed interest rates has proved successful so far and potentially enhances the ability to sell added value products.
- Service and Parts – A growing new vehicle car park, offset slightly by extended service intervals, continues to create an opportunity for improved cost absorption and margin mix. Parts internet sales continue to grow.
- Ownership of strategic properties – Availability of properties in the UK is limited and thus, relocation at the end of a lease is often difficult and costly. Fortunately, the lease terms on the existing sites are long, while significant advantage can be derived through strategic property ownership. If the economy continues to grow and interest rates remain stable, it is likely that commercial property prices will increase and make it more costly to acquire in the future.
Social and ethics responsibilities
The Sustainability Committee, established during the previous year, ensures that the Code of Conduct for the division is maintained.
A number of South African dealerships have continued with initiatives within their respective communities. For a comprehensive list of community involvement and activities, refer to the Sustainability Report
The training of SA Dealerships’ personnel is very important and the following projects continue:
- Entrenching the culture change initiative of “Going Above and Beyond” within the entire division’s staff complement, with a specific goal of improving employee motivation, retention and satisfaction levels, and with an ultimate desired outcome of improved customer service.
- The Dealer Principal Development and Assessment initiative through Sewells where two candidates participated in a 12-month Leadership Development Programme. A number of individuals who previously participated in this programme have been appointed as Dealer Principals since completing the course.
- The continued support of the MERSETA four-year apprentice programme where the division has 100 candidates participating in the training and development programme and this programme will continue to be supported during the 2018 financial year.
During the course of the past financial year, Dealerships continued to focus on improving existing sustainability initiatives within the division. These included:
- An ECO3 waste recycling initiative is at Rand Stadium Toyota, where all material waste is separated and where run-off storm water is controlled to ensure that there is no oil contamination.
- Grand Central Motors has a Water Recycling Plant and Rain Harvester.
Ensuring that used motor oil is collected and recycled by a third party, and that oil separators are regularly cleaned.
Allen Ford is a Motability Premier Partner. Motability is the leading car scheme in the UK for disabled people, enabling them to use their UK Government-funded mobility allowance to lease a new car. This means that there is a minimum of two fully trained Motability specialists at each of its sites, focused on providing disabled customers with the best information and advice in order to help them choose a vehicle that suits their requirements.
Outlook for 2018
The Dealerships SA business is anticipating difficult trading conditions to continue as consumers remain under pressure. The interest rate cut announced in July 2017 is not expected to make a significant difference.
Dealerships UK is expecting a slowdown in growth in the new vehicle market given the uncertainty pertaining to the effect of Brexit and the speculation regarding the change in Government policies on shifting diesel technology used towards the latest cleaner Euro 6 diesel standard. Since April 2017, there has been a marked decline in new vehicle registrations. The UK economy has been resilient following the announcement of Brexit, however, once implemented, may affect the UK dealership market as all Ford vehicles are imported from Europe.
On 4 July 2017, Dealerships UK acquired Slough Motor Corporation, which owns six Ford, and two Suzuki dealerships in Kent and Berkshire, for £24.0 million. Both the Essex Auto Group and Slough Motor Corporation acquisitions are complementary to Allen Ford’s existing businesses.