Chief Executive Officer’ Report

Super Group’s strategy of being an innovative, integrated mobility solutions company remains integral to growing and expanding its core businesses, with the Group exploring viable acquisition opportunities, both locally and abroad.

Introduction

The Group reported a record set of results for the year ended 30 June 2018 – this was mainly attributable to the excellent performance by the commodities businesses within Supply Chain Africa, good contributions from the acquired businesses, and solid results from SG Fleet. The Dealerships SA and UK operations outperformed their respective markets, while the South African consumer business operated in an environment characterised by poor consumer demand and competitive trading conditions.

The mining commodity industry in Africa experienced an excellent year with good volume growth. However, the consumer-facing and industrial operations in South Africa faced serious headwinds such as the increase in Value-Added Tax (VAT), fuel price increases, high price inflation and increasing unemployment levels. The European and UK economies also faced a myriad of challenges and uncertainties given the protracted Brexit negotiations. The Australian economic climate improved towards the end of the first half of the financial year with conditions remaining above average for the rest of the period.

Super Group, continuing its strategy of geographically diversifying its revenue stream, reported revenue and operating profit from its non-South African businesses of 47% (June 2017: 40%) and 60% (June 2017: 61%), respectively. The average Rand exchange rate for the year strengthened against the Australian Dollar and US Dollar but weakened against the Pound Sterling and Euro.

The geographical diversity of the Group is illustrated below:

In October 2017, the Group raised an amount of R500 million through an Accelerated Bookbuild placement of 12 422 360 shares at a price of R40.25 per share mainly to fund the increased shareholding in SG Fleet. The price represented a 4.1% discount to the 30-day volume weighted average price on 12 October 2017. The book was significantly oversubscribed.

During the financial year ended 30 June 2018, Super Group acquired an additional 14 186 914 shares in SG Fleet for an amount of R551.7 million, increasing the Group’s effective shareholding to 57% (30 June 2017: 52.4%). The Group also purchased the remaining 45% of Digistics for R102.7 million and an additional 15% in Legend for R99.7 million.

The other transactions concluded during the year are explained in more detail in the Financial Performance and the Divisional Review sections of this report.

Financial performance

Group revenue increased by 19.4% to R35.7 billion (June 2017: R29.9 billion) primarily due to the significant volume increase in Supply Chain Africa’s commodities businesses, the acquisitions of the Slough Motor Corporation (SMC) dealerships in the United Kingdom and SG inTime’s net acquisition of an 88% interest in the Spanish courier company, Ader. Revenue also increased as a result of the inclusion of Essex Auto Group and the Western Cape dealerships for the full year. The acquired businesses contributed 10.8% to revenue growth.

Operating profit before capital items of R38.5 million (June 2017: R17.5 million), increased by 16.0% to R2 474.0 million from R2 133.5 million in the comparable prior year. The capital items mainly relate to the impairment of certain properties in Dealerships UK and the impairment of goodwill in Phola Coaches. The UK properties were revalued during the year resulting in a net value increase of R36.4 million. In terms of IFRS, R54.8 million positively impacted equity and R18.4 million was impaired against profits. The impairment of a portion of the Phola Coaches’ goodwill relates to the termination of a staff transportation scheme by a major mining client.

Operating profit increased by 15.1% to R2 435.5 million (June 2017: R2 116.1 million). The main reasons for the softening of the margin is due to the acquisition of lower margin businesses, namely SMC and Ader. The acquired businesses contributed 3.5% to operating profit growth.

The increase in net finance costs of 18.0% to R330.5 million (June 2017: R280.0 million) is attributable to the funding of the various acquisitions, as well as the funding of the working capital and the properties acquired with SMC. The average interest rate paid on borrowings was 5.8% (June 2017: 6.2%) and the average interest rate earned on cash was 3.1% (June 2017: 3.7%).

Profit before tax increased by 14.7% to R2 105.0 million (June 2017: R1 836.1 million). The effective tax rate increased to 29.1% (June 2017: 27.4%). Excluding the capital items and other one-off items, the effective tax rate was 27.7% (June 2017: 27.9%).

Earnings per share and headline earnings per share increased by 12.7% to 320.8 cents (June 2017: 284.7 cents) and 15.3% to 332.2 cents (June 2017: 288.2 cents), respectively.

The increase in total assets of 14.8% to R28.5 billion (June 2017: R24.9 billion) is mainly due to the newly acquired assets in SMC and Ader, together with an increase in the vehicle fleet in the commodity businesses. The Group’s return on net operating assets, after tax, is 12.3% (June 2017: 12.2%) with the Group’s weighted average cost of capital being 8.6% (June 2017: 8.2%).

The Group’s net debt position at 30 June 2018 is R2 853.9 million, a decrease of R251.8 million, resulting in the net debt to equity ratio improving to 25.1% from 31.5% at 30 June 2017. The net asset value per share increased by 13.0% to R27.05 at 30 June 2018 from R23.94 at 30 June 2017.

Operating cash flow increased by 21.4% for the year to R3 776.7 million (June 2017: R3 111.4 million) mainly because of the strong cash generation from the Supply Chain Africa businesses, a combination of the acquisition of SMC, the inclusion of the Western Cape dealerships and Motiva for the full year compared to the prior year. Super Group invested R2 517 million (June 2017: R2 976 million) in net additions and acquisitions to ensure future growth for the Group.

Divisional reviews

Revenue contributions for the year to June 2018 reflect that the Dealerships division generated 54% of the Group's turnover (June 2017: 53%). The revenue contributions for the Supply Chain business segment remained the same as last year at 35%, while the Fleet Solutions segment was 1% down at 11% (June 2017: 12%).

The EBITA contributions from the Fleet Solutions operations decreased to 45% from 50% last year, with Dealerships remaining relatively flat at 21% (June 2017: 20%). The Supply Chain business contributed 34% of EBITA, increasing by 4% from 30% in June 2017.

For a comprehensive overview of each division and business, refer here on this Integrated Report.

Governance and sustainability initiatives

Super Group, across both our African and international operations, continues to invest in its people by way of individual development, equality and performance-based advancement to ensure that we maintain a balanced and highly-skilled workforce.

High standards of honesty, integrity, behaviour and ethics in dealing with all stakeholders are a priority as always, and everyone employed by the Group must subscribe to our Code of Ethics and Business Conduct, which requires them to maintain high personal ethical standards and to act in good faith and in the best interests of the Group.

Super Group actively contributes to the social upliftment of previously disadvantaged communities as well as where there is a real need. We have again invested in numerous projects which are set out in more detail in the Sustainability Report. The Group’s total CSI contribution totals R8.7 million.

The Group continues to focus on environmentally friendly business practices. Many of these initiatives make good business sense in that they form part of the Group’s continuing drive to improve efficiencies. The Group continues to ensure that its vehicles are properly maintained and not overloaded. Along with continuous driver training, this ensures that carbon emissions from all vehicles meet manufacturers’ specifications.

For more detail on the Group’s corporate governance and sustainability practices, refer to our website.

Prospects and strategy

The Group has mixed views on the economic conditions and prospects for our businesses across our geographical regions, for the new financial year ending 30 June 2019.

Africa: Despite the election of the new political leadership in South Africa, policy uncertainty is extremely negative for economic growth and there is no indication of economic stimulation or the encouragement of investment in South Africa. Encouraging to the Group is government’s anti-corruption stance which bodes well for the South African businesses in terms of securing new tenders, especially for Fleet Africa. The African market conditions in the mining commodity sectors are expected to remain fairly similar to the 2018 financial year. The medium-term outlook remains subdued for consumer-facing industries and growth prospects in the supply chain industries continue to be weighed down by margin pressure on the back of strong competition and poor consumer demand. The dealership market will remain under pressure as a result of the weak consumer and the soft economy.

Australasia: In Australia, a trend towards higher value-add solutions in the FML market continues with SG Fleet being well positioned, as a specialised provider to blue chip companies, to benefit from this trend. Demand for management services for electric fleets, as well as for telematics and driver safety applications is growing steadily. The New Zealand economy has seen a relatively lengthy period of strong growth. This positive mood was reflected in healthy tender activity, providing continued opportunities for SG Fleet.

UK: The economic climate in the UK saw some improvement during the year and that was reflected in an uptick in interest in both tool-of-trade, particularly light commercial vehicles, and salary packaging services. Another area that has seen increased interest is personal contract hire. The UK dealership market seems to be stabilising despite the continuing uncertainty regarding the Brexit outcome.

Europe: Germany, with its high employment rate, remains a challenge in terms of driver shortages in the SG inTime business. USA’s trade wars, together with the Brexit outcome uncertainty, plagues the European market and continues to be a concern for the Supply Chain Europe businesses. Nevertheless, the inTime business should perform adequately into the forthcoming financial year.

The Group’s strategy of being an innovative, integrated mobility solutions company remains integral to growing and expanding its core businesses with the Group exploring viable acquisition opportunities, both locally and abroad. The Group should perform reasonably well in the next year mainly on the back of a strong African commodities performance and new business in the South African consumer-facing operations.

Acknowledgements

Once again, I thank my fellow Board members and the Executive Committee for their support and guidance this year. I also want to thank our people for their continued hard work and dedication. This dedication is what makes Super Group the great company it is, and without your support we would not achieve the levels of success we have enjoyed to date.

To our shareholders, customers, suppliers, advisers and business partners, thank you for your ongoing support.

Peter Mountford
Chief Executive Officer

27 September 2018