NOMPU SIZIBA: On Thursday last week [November 22] Motus Holdings was unbundled from Imperial Holdings and listed as an independent company on the JSE.
So why spin out of Imperial? And now that it is independent, what will its focus be, and where is it looking to strike growth? To give us an idea I’m joined on the line by Ockert Janse van Rensburg, the chief financial officer at Motus Holdings.
Ockert, you listed independently on the JSE last week. Just give the listeners a sense of what the business is about.
OCKERT JANSE VAN RENSBURG: Nompu, it is so that, eventually, through our people, products and services, we can unlock value for our shareholders in the near term. In brief, what our business is about is that we operate across the full value chain – except for manufacturing on the automotive side of the business. We are doing this through virtually four sectors.
The one would be our vehicle and import distribution. There we are the largest importer of vehicles into the South African market, mainly through some of the well-known brands such as Hyundai, Kia, Renault and Mitsubishi – where we also distribute parts and panels into the automotive side in South Africa.
The second segment of our business is around our retail chain. There we have an estimated 356 dealerships across the country, but also some offshore, mainly in the UK and Australia. There we sell all the imported brands, as well as all the well-known OEM [original equipment manufacturer] brands. In total we sell 23 different OEM brands – once again across a full spectrum. We also have a car rental business in that segment, namely Europcar and Tempest, which you are quite familiar with.
Our third pillar is around financial services, where we distribute and service the service and maintenance plans, mainly to do with our imported brands, but also across some of the other OEMs, as well as some joint ventures with financial institutions as well the insurance markets.
Then, last but not least, we are also in the after-market parts business where, through our Midas and Alert Engine Parts chains, we also distribute and sell parts, mainly [for] vehicles out of warranty, normally in the five-to-12-year cycle.
NOMPU SIZIBA: Why was there a need to spin out of Imperial Holdings and, in the process of doing so, was there any value for Imperial shareholders?
OCKERT JANSE VAN RENSBURG: The transformation and development of Imperial in recent years confirmed the absence of any synergies between the logistics business on the one side and the automotive business on the other. And to further entrench the independence and focus of Imperial Holdings, the heads of the functions were systematically devolved into our two operating businesses. I suppose, after due consideration, the board decided that it would probably enhance value if the two businesses are left – as they have really grown apart – to become separate opportunities, and the decision was for shareholders to invest in them separately.
NOMPU SIZIBA: Ockert, you are in an area that is very heavily correlated to what’s happening in terms of economic growth, and of course the South African economy has been experiencing some turmoil for a number of years and we’ve had our technical recession. Hopefully we’ll have come out of it formally in the third quarter when we get the number from Statistics South Africa. So what do you see as the prospects for the car market in South Africa, especially because people are having a tough time – fuel prices have been shooting through the roof and things are tough.
OCKERT JANSE VAN RENSBURG: Yes, that’s certainly true. I think if you’ve been monitoring it you will realise that the products that we are selling are talking at least to the higher LSM [living standard measure] groups, so are maybe slightly more defensive than the real GDP numbers would suggest. Similarly I think the automotive businesses have been finding it quite a tough environment to work in.
I think we are slightly different in that space in that we have diverted the franchises ourselves a bit with a unique proposition where we also provide other services and are not totally exposed to the new-car market sales.
Similarly, in our retail business we sell virtually one-to-one used versus new vehicles, for instance. Then of course we’ve got the annuity-income streams of the financial services and after-market parts protecting us.
But you are right in the way the emerging entrants redefine our consumers by owning, using and driving their cars – [this] is continuously changing, and to that extent we are also investing quite heavily in innovation ourselves.
NOMPU SIZIBA: I know that you are heavily concentrated in South Africa, but earlier you touched on the fact that you have a little bit of a presence in the UK and Australia. Do you see any growth prospects in those particular markets in order to perhaps balance your portfolio a little bit, especially when the South African economy is still experiencing difficulties in terms of growth?
OCKERT JANSE VAN RENSBURG: We will still maintain and grow our market share in all the jurisdictions we operate in. But you are right. We have been making certain acquisitions in the last while. In the past financial year we had 87% of our operating profit still being derived from South Africa. As you can see, it’s not easy to change metrics just like that. Through the recent acquisitions – I must just stress that they were really selective acquisitions that we made – we are certainly not prepared to bet the family farm on the international market yet, but we had some bolt-ons within the UK and also in Australia. There we believe there are some values in right-hand-drive English-speaking countries where, in most cases, the laws and regulations are very similar to what we experience in South Africa.
We also believe that in the near term we could potentially replicate certain parts of our integrated model into those markets.
NOMPU SIZIBA: Then, coming back to the South African market, in terms of growth potential, is it going to be “steady as you go”, given the fact that we are in a lacklustre economic environment – or are there some windows of opportunity that you see for investment?
OCKERT JANSE VAN RENSBURG: The areas we do see for investment are maybe more around the innovation side of the operations, as I alluded to earlier. I think we have seen that the way consumers behave has certainly changed, and there is a need to improve in the line of digital platforms and leveraged data and integrated channels to enable a fully integrated customer journey. So I suppose that most of our investments will be around the innovation space. We’ve certainly done a lot of work there and in fact we’ve also appointed one of our executives to lead the charge on our investment side. There I think there will be some additional investment opportunities, even in the local space.
NOMPU SIZIBA: Lastly, I assume that shareholders can look forward to a nice dividend?
OCKERT JANSE VAN RENSBURG: [Chuckling] I think shareholders always want a nice dividend. We will probably continue to provide attractive dividend yields. We have given guidance to the market, as a standalone, that we will – as a start – be paying a dividend of approximately 45% of headline earnings per share. As a kick-off to a new venture as a listed entity it is probably a nice platform to start off with. But people who have been following this share in the past – the Imperial share, that is – would realise that Modus is obviously a large cash generator and they could see some potential upside in the long run.