Reducing dependency on a staling SA economy has become one of Super Group’s strategic priorities.
Results of its efforts are impressive.
Since December 2014, the company has made two sizeable offshore acquisitions, and it shot the lights out in its year to June. It lifted offshore operating profit 66% to R1.2bn — 60% of its R2bn operating profit.
Super Group was an early starter in the move offshore through its long-held 51% stake in SG Fleet. A major player in Australia’s fleet management sector, SG Fleet remains the cornerstone of Super Group’s offshore interests.
It did not disappoint in the latest year, upping its operating profit contribution to Super Group by 37% to R768m. Excluding the boost provided by the rand’s fall against the Australian dollar, SG Fleet, with the help of a A$200m (R2.2bn) domestic acquisition, lifted operating profit 27%.
First of Super Group’s new offshore additions to come aboard was the UK’s number two independent Ford dealer network, Allen Ford, acquired for £33m. Now a meaningful factor in Super Group’s fortunes, in the year to June Allen Ford contributed 9% of group operating profit, not far short of the 11% from SA dealerships.
"Allen Ford’s sales are strong," says Super Group CE Peter Mountford, who shrugs off thoughts about risks posed by Brexit, the UK’s exit of the EU.
"The impact of Brexit is being overplayed. I expect the UK’s relationship with the EU to develop along the same lines as Switzerland’s," he says.
Super Group ventured into the EU for the first time in October 2015 when, in a €137m deal, it acquired a 75% stake in In Time, a German logistics firm serving vehicle manufacturers such as Volkswagen, BMW, Ford, Porsche and MAN.
Things were tough for what is now SG In Time in its first eight months in Super Group’s fold. What did the damage was a slump in Volkswagen sales in Germany, triggered by a scandal surrounding falsified emission disclosures.
"There was huge anger in Germany," says Mountford. But a 16% rise in Volkswagen’s sales in Germany in August suggests that anger appears to be abating.
A rebound in SG In Time’s fortunes would provide a useful kicker to Super Group’s results. It is indicative of damage done by Volkswagen’s sales slump that SG In Time’s pre-tax profit was about R100m in the year to June, compared with a profit after tax of €11.9m (R193m) in its year to December 2014.
In SA, Super Group will be looking to solid results from its fleet management unit, FleetAfrica, and dealerships to deliver growth. But a repeat of the latest year’s results is a big ask.
FleetAfrica roared in with operating profit of R163m, up 41%, a growth performance Mountford does not expect to be repeated this financial year. But on an upbeat note, he says: "FleetAfrica has won 11 new contracts."
Dealerships also excelled in the past year, bucking a 5.6% fall in SA new car sales to lift sales a hefty 6.8% and operating profit 19% to R210m. Providing help in the new year will be Western Cape Mercedes-Benz car and commercial vehicle dealership Sandown Motors, acquired in a deal worth about R700m, excluding inventory. The deal should add taxed profit of up to R60m in a full 12 months.
More acquisitions are almost a given.
"We are looking at a number of propositions," says Mountford.
Super Group is well prepared, thanks to a R900m rights issue in October and R360m book build (share issue) in December. With an added boost from strong cash flow, Super Group ended its past year with R3.1bn cash on its balance sheet and net debt at about half its 40%-to-equity maximum target.
Super Group’s 14 p:e reflects solid investor confidence in the ability of Mountford and his team to continue delivering robust growth.
Their confidence appears well founded.