SIMON BROWN: I’m chatting now with Motus CEO Osman Arbee. Results [are] out to the June year-end. Revenue is up 19%, headline earnings up 298%, and a R4.15 dividend [was declared]. Osman, I appreciate the time today. Motus has been a company for a long time, a listed company for three years. This financial year must be head and shoulders the toughest that you’ve had, but the business has come through in many ways strongly – looking at cash flows, looking at balance sheets, [and it’s] actually looking well positioned going forward.
OSMAN ARBEE: Yes. You are quite right, it’s been the toughest trading that I’ve seen in the business world for the last 40 years, and I’ve been in the motor business for the last 17 years in Imperial and now Motus.
Yes, it has been the toughest year but we South Africans are resilient. We find new ways of doing things.
What has happened is that during Covid, say in April and May last year, we put strategic plans together, and we continue with the plans because Covid hasn’t left us. We are still with Covid. So those business strategies that we set at that time are treating us well, and we are continuing with them.
What has helped the cashflow over and above the profitability is the impact of the car-rental business. Our car-rental business, Europcar and Tempest, used to be a 24 000/25 000 car business, and is today sitting at 10 000 cars. So we had to de-fleet about 10 000 to 12 000 cars in about 14/15 months, and that generated cash. That’s why we’ve got extra cash.
And then, as you would know, there is a shortage of new vehicles currently because of the microchip problem, so we’re not carrying all the stock we want to. We are understocked by about R1.5/2 billion. As a result of the understocking and the de-fleeting of the cars, you are quite right, the profits that we generated we converted into cash. That adds another R2 billion, so all in all that gives you the R5.9 billion cash that we generated.
SIMON BROWN: I’ve seen this with a number of companies. The past year has been zero fun for everybody, but you come out of that process much leaner. With your car fleets, not necessarily that 25 000 was overstocked, you’re in a much leaner position and can kind of grow into that growth as it picks up as we move beyond the pandemic.
OSMAN ARBEE: I think that’s what the pandemic has taught South Africans – that you need to trade with less; if you have less cash, you have fewer assets, you can do better. And your overhead structure doesn’t have to be bloated. You can run a business very neatly and control your costs, control your capital expenditure, and you can run a very strict business.
I think the learnings that have come through for us are that, firstly, you can do with less A. B, the integrated business model, which is unique to us in South Africa. We’re the only group that has this. What do I mean by that? We import vehicles – Hyundai, Kia, Renault, Mitsubishi, and we’ve got a retail division that sells cars. We rent cars, we repair cars, we’ve got financial services and we’ve got the aftermarket parts, which you would know as Midas or Alert Engine Parts.
So it’s the integrated family (where) what you lose on the swings you pick up on the roundabouts, and they have different times when they do well.
Overall it gives you nice sustainability, it takes you down through the cycles quite comfortably; and the cash was there, thank you very much.
SIMON BROWN: And that smooths some of those bumps along the road.
You mentioned the suppliers and almost all industries that import or export are having supply-chain issues. Has that seen perhaps a bit of a shift to the used-car market as opposed to the new market, or will a customer say, “You know what, if it’s going to take an extra couple of weeks, maybe a month, we will wait it out”?
OSMAN ARBEE: The customers are getting very good value for money in pre-owned vehicles. Remember, when the car-rental companies de-fleeted, there were some good quality cars – not only Europecar and Tempest, but Avis and Budget – and everybody else would have de-fleeted. The customer had good choices to buy pre-owned vehicles; good value, good pricing. Unfortunately it’s pushed up the pricing of those cars where you could get cars at trade and book values. We’ve actually been overtraded at the moment, so customers are happy to go to pre-owned vehicles in the group.
We normally sell 0.7 pre-owned to one new car. This year we sold 0.9, virtually one-to-one, one new for one pre-owned.
So you can see, customers are happy to go into pre-owned provided they get value for money.
The shortage hasn’t helped; not of the new cars, but still cars. So people have gone into pre-owned cars. I would agree with your sentiment that people didn’t wait, they bought.
SIMON BROWN: The rental market? You are obviously under pressure. We have just come out of a Level 4 (lockdown). We are still in Level 3 with restrictions. Are we seeing some sort of pickup there? Certainly we are seeing a little more activity from the airlines, a couple of new ones coming back in September. Are there some green shoots starting in the rental space?
OSMAN ARBEE: The green shoots are coming from two areas. One is the airlines. That helps, obviously.
When people fly more, they hire more cars. But the other area (where) we are picking up some green shoots is the replacement business.
So if people travel more, they [have] accidents. When they [have] an accident, in terms of some of the insurance policies, they get a car-rental vehicle. So that business is also starting to pick up, local tourism is starting to pick up. At the moment we are 50% pre-Covid [levels]. We are hoping we can get to 65%/70% by the end of December and, next year June, maybe get to 80%/85% of pre-Covid [levels]. And then after that hopefully we can get to pre-Covid levels once we get international tourists.
SIMON BROWN: Okay. I take your point on that – international tourists. I used to fly a lot and I used to rent cars 30/40 times a year. I haven’t rented one in the last year because I haven’t been struggling through an airport.
We’ll leave it there. Motus CEO Osman Arbee, as always I appreciate the time, sir.