South Africa’s economic headwinds were unlikely to change this year, even after the May elections, Motus CEO Osman Arbee said yesterday, adding that better conditions could only be realistically expected in 2025 on condition of improvement in logistics and infrastructure, resurgence in the rand currency and improved job creation.
Speaking during an interview with “Business Report” after the company reported a decrease in headline earnings per share and dividends for the half-year period to end June, Arbee said there was unlikely to be any respite for South Africa this year.
“Nothing much can change in 2024 because interest rates are not changing much, inflation is not changing, the currency is still weak, and the political situation is gonna take time to settle down. Calendar 2024 is what it is,” he said.
South Africa’s economy was “going through a difficult period” with political uncertainty ahead of the May 2024 elections, Transnet inefficiencies persisting and unemployment creeping up. With inflation also remaining elevated, said Arbee, there was going to be stagnation in the automotive industry in South Africa as there was “nothing new” to excite consumers and companies.
“We have all the ingredients to create a fragile economy and a fragile consumer,” explained Arbee, adding that a better economic outlook was on the horizon only for 2025 onwards.
“If there is going to be sunshine it will happen in 2025 onwards, provided interest rates come down, there is impetus in the economy, the currency strengthens a bit and we get some new jobs being created.”
Despite raising revenues for the interim period to December 2023 by 11% to R57.1 billion and bumping up earnings before interest, tax, depreciation and amortisation by 13% to R4.2bn, profitability in Motus plunged. The revenue surge was spurred on by “increased contributions from the retail, rental and aftermarket parts segments,” the company said.
Headline earnings per share (Heps) of R6.62 per share for the period fell from R9.02 per share in the 2022 comparative period. Interim dividend of R2.35 cents per share was also lower in the half year to December compared to R3.00 per share in the same period a year earlier.
Cash generated from operations before movements in net working capital amounted to R3.9bn compared to R3.4bn a year earlier, while free cash flows generated from operations amounted to R2.8bn compared to R425m previously.
Net finance costs for the period were up by R639m at R1.1bn, impacted by higher average working capital and vehicles for hire levels, financing of acquisitions, additions to fixed assets, increased interest rates across all geographies in which Motus operates as well as higher finance cost on lease liabilities.
Anthony Clark, an independent analyst with Smalltalkdaily Research, said Motus’s financial performance for the period reflected a better operation. Motus’s results were in line with market guidance as the company’s share price was basically flat in morning trade.
“Even though Heps are below midpoint guidance, looking at underlining business, operationally they did well. What killed the business was the 137% rise in finance costs. Motus did well and that’s why the market has not slammed the stock today,” he told “Business Report”.
Motus intends to continue growing its international footprint to balance the business’s exposure to economic headwinds.
Currently, South Africa accounts for about 65% of its earnings while the UK, Australia and Asia account for the remainder. In the next two years, Motus plans to balance its earnings at 50% in South Africa and 50% in the rest of its other markets.
“For the next two years, our target is gonna be 50 SA and 50 offshore to create a well-balanced business that can buffer the good and bad times in the different economies we operate in,” said Arbee.
In South Africa, Motus was pushing up its resilience despite the “difficult” environment in the outlook. The Australian business for Motus will likely continue to benefit from normalised supply and demand for vehicles.
“Everyone says if there is a declining interest rates in South Africa it will only happen in Q4 (quarter four) of 2024 but it’s not going to be material. We need to get stability in Eskom so that we have continuous power for our businesses to operate, we need new jobs, we need new customers; we need a fresh economy to be created but that’s not gonna happen in the current environment,” said Arbee.
BUSINESS REPORT