Motus Holdings Limited (MTH) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us this morning on this pre-close briefing and trading update for the Motus Group. Nice to have you here. Thank God we're not clashing with Tito Mboweni. I believe he's on tomorrow, so you've got enough time today, where generally, when we have these year-end presentations in February, then we normally clash with him as well. So this time around, we're lucky. And thanks for joining us, and thanks to members of the Motus team. I think some of you are already on, so nice to have you on the call as well. What we want to do this morning, we've got an agenda. We want to talk for about 40 minutes, and there's 20 minutes for discussion that will last -- so in total, we're going to be with you for 1 hour. We've got an agenda. You can have a look at that. I'm sure you can look at this on the website as well. Okay. So just a brief update on what's happened since we first went into lockdown. Since that day, obviously, our lives have changed. We're not in the offices. We're not meeting in the offices. The boardroom's been lying empty. So we've been having regular meetings with EXCO members and with Board members through Teams. And the meetings have been working well, and we've had to make some very quick decisions over this period. So we've been regularly meeting with the team, both the EXCO and the Board. Then obviously, we had to meet with local and international funders. So we've done presentations to both those parties. Since the lockdown, we've sent out a SENS announcement. And the only reason it came out a bit late was because we waited for the March results before we did the first SENS announcement. And then again, once the May results came off, we did the SENS announcement last week that you saw, giving you an update. And we gave you quite a bit of detail in the update because we had the management accounts to talk to. So that helped us through that process. And then obviously, navigating this business through these unprecedented times is always difficult. I mean, you may -- we made a decision maybe on the 27th of March. On the 10th of April, that decision could have been changed as well. So we continue making decisions because this is one time where no textbook could have assisted us and no past experience could have assisted us. So we're making decisions as we go along. And while we're doing this at the same time, we're preparing our business segments for a post and -- pandemic environment as well. So we're fixing up what we've got, but by the same token, we're preparing the business for the future. Okay. So then let's just recap quickly what's happened in the 3 different countries because they all behave differently. In South Africa, for example, the phase -- we went into a lockdown on the 27th of March. And there was a phased-in approach for us getting back to work. So you can see on the 12th of May, 30% went to work; 25th of May, 60%; and 8th of June, 100% went to work. It was trying times for us because, obviously, you haven't got your teams around you, a; b, not everyone was working at that stage. So the one of the hurdles we ran into was the licensing and registration offices. They only got back to work in the first week of June. And then when they got back to work, they didn't have all the equipment, the sanitizers and the masks. So they only started operating from -- after the 8th of June. So you can see we had a bit of a delay. And that's when the Department of Trade and Industry gave us the go ahead, but we didn't get the registration from the Department of Transport. So you have these dilemmas when you're in this kind of environment. In the U.K., it was similar. They went into a lockdown on the 23rd of March. However, the workshops remained open because we service a lot of trucks, the DAF and the milk trucks and the Isuzu and the HINO trucks. But again, because of the lockdown, the volumes have turned down. And passenger, despite the workshops being open, didn't do much work at all. And they all got back to work now on the 1st of June, where the showrooms and the workshops are opened. Then we got Australia. The hit was slightly different that we didn't have to close all our dealerships, but because of people not moving around and not traveling to work, there were very few people that were coming into the dealerships, either to buy cars or to service their vehicles. They only started getting back on the 1st of June as well. So although there was no shutdown, but there was not much business happening in Australia. So that just gives you a glimpse of what happened in the 3 countries. Then let's get back to home. Where are we at the -- where were we in terms of the car market? You can see in 2019, this country sold 536,000 vehicles. In 2020, before the virus, before the pandemic, we were projecting about 500,000, 510,000 vehicles but you can see what's happened. Now the projection is between 375,000 and 400,000 vehicles. And the big number there is not only through the dealerships but is the reduction in the volume through the car rental businesses because, obviously, there is no car rental business, so they're not buying any more cars. And generally, as a rule of thumb in the car rental industry, they fleet up for July, August, September, October, and that's not happening this year. So you can see the projection for this year is much lower than even the projected number at the beginning of the year. And you can see for 2021, the projections between 425,000 and 450,000. Now all that business is not happening through the dealerships, and we've put in an estimate of 30,000 car rental units into that number as well. So that's why you're getting a bit of a larger-than-normal increase. These numbers are calendar year numbers, so don't follow them purely in our financial years. What's interesting is that in the month of May, we as Motus sold 6,200 vehicles, which we never thought we would do. At best, we thought 1,500 to 1,000 because when you were sitting at home, not sure of your job, not sure whether you're going to get bank funding, despite that, we managed to sell 6,200 vehicles. And that's why you can see our share going up of the market from 15% last year to 20%. Now yes, it's artificial. It's 1 month, but it just gives you a trend as to how the team has been working during the lockdown. And then, obviously, that helped us with Motus then selling 1 in 4 vehicles, whereas in the past, we sold 1 in 5 vehicles. So that helped us quite a bit as well in getting our stock turned into cash. Okay. So to make life interesting because we don't have the boring accountants, we've given you some pictures about how the different businesses were impacted during the lockdown. So this is purely the impact during the lockdown. Don't take this and extrapolate it for the next 6 months. So you can see the Import and Distribution, despite the lockdown, it was impacted by about 50%. The retail, 60% was impacted, so you can see they were hit harder. The industry that in our business that was hurt the most was the car rental business because there were no planes flying, and we didn't have international tourists. We didn't have local tourists. Companies were not renting our cars and government, very little. The only bit of business we had, and that's why it's not 100%, is we still had some of the replacement business, which is the business with the insurance companies, where their customers meet up with an accident, and we provide vehicles. We had some of that work. And then we had some work in some of the essential services that we normally provide rental vehicles, too. So there was some of that work as well that continued. The Motor-Related Financial Services, you can see the impact was less, was 20%. But generally, this is an annuity type of business, and it's a cash-generative business, so the impact was less. And then the Aftermarket Parts business was impacted by 30%. And the reason for that is that, as we all know, we have much older cars in this country that need parts and services, and we'll talk a bit about that when I do the divisional presentation. Okay. So then what happened is that then immediately we went into lockdown, what did we do? We got a COVID Crisis Committee set up at Motus, and we were all linked up with Teams. And we started preparing responses, responses that will impact our people, our customers and our businesses. And the EXCO members were very involved in developing these plans, together with the Crisis Committee. So obviously, what happens when you have a crisis like this, you've got to think about what -- how are we going to get the cars back on -- or how do we get the customers back in? How are we going to sell cars? How are we going to secure the people? So all those plans were getting to play. But immediately, we couldn't -- we had the plans but couldn't do much. So what could we do immediately because we were in a lockdown? So we prioritized all the cash payments to preserve the cash because without cash, we would be in trouble with the banks, and we won't have sufficient cash. So that's step number one we've got into is preserving cash in the business, and we'll tell you later in the presentation as to what steps we took there. While we were looking at the cash, we're looking at -- we looked at our operational footprint, not only in terms of dealerships, but we were looking at car rental outlets. We were looking at our office operations and saying, what can we do and how do we operate? And then we looked at the staff complement across our segments as well. What's interesting is that while people were working from home, and we're fortunate we have a lot of innovative people that work in our businesses, they started using the digital platforms and social media to make sure that they were talking to customers during the lockdown as well. So that was very positive, especially amongst our importers like Hyundai, Kia, Renault and Mitsubishi. The other OEMs, we use the platforms that they provide us with. And you'll see the benefits, when I talk to you later, about how we operated during the lockdown, and you'll see the benefits of having an agile and entrepreneurial management team. Okay. So let's look at the business overview, and then we'll go into our businesses by division. So what do we have? We have a diversified business with a leading position in South Africa, and we've got some selected international presence in the U.K., Australia and China. What helps us is the integrated model. What do I mean by that? We import vehicles. We sell vehicles. We rent vehicles. We repair them in our workshops. We provide financial services, and then, obviously, we provide aftermarket parts to the vehicles that are older than 5 years old. So you can see the integrated model is what's benefited this business. The other thing that we have in South Africa is, obviously, the scale we have our business, and that is a very good value proposition, both for all the OEMS, the suppliers, our customers and our business partners. So they have a number of touch points in our businesses that they can talk to their customers from. Then our financial services business. Like I said, it's a cash flow -- cash-generative business that's got annuity streams as well, so that helps you in the time when we were in the lockdown and into the future as well. And the innovation started some time ago, but it continues. And you can -- already what we've done, I'm sure you've seen that launch by Discovery on a warranty product where we had partnered with them, and we are their partners into the future as well on the product and other products that will happen over time. And like I said, we're continuing with the digital mobility and automation trends, and that's working well for us. I talked about the teams. And all the above then create a resilient business model. Okay. So then what do our divisions offer? Some of this you would have seen in our press before or in the SENS before. You can see we've got strong relationship with the OEMs, and that worked well for us during these times, difficult times. They've still supported us. They've made cars available to us. They've made parts available. So we were -- we've got enough stock of cars and parts. We're very fortunate that through the structures we have in the business, through the ForEx committees that we have, we've got enough ForEx cover for importers right up to April. So that's helped us a lot. Because we've got good ForEx cover, that's going to help us with our pricing. We can ease our pricing in over the next 6 months. We don't have to do price increases of 9% and 10% at one go. We can phase them in until we get to the new cover, which could be in March, April next year. The other advantage that we have in our import distribution is that we all know that the buying patterns in South Africa have changed, which is instead of buying only premium vehicles or very expensive vehicles, customers have been buying down. And the brands that we have, Hyundai, Kia, Renault and a bit of Mitsubishi, do offer a wide range of vehicles. So we can give you a premium vehicle, but we give you middle-of-the-road vehicles and we can give you entry-level vehicles as well and that's been a big advantage of the importers that we have. For example, if you look at our Hyundai range, we can give you the i10. We give you the i20. We give you the Creta. We give you the Venue. We can give you a Tucson. We can give you any of the larger vehicles you want. And then on top of it, we have people carriers, and we have a bakkie and a truck. So the range is helping us, and they're very well priced. The other advantage that we have in the importer business is that we have a fantastic footprint and infrastructure. What do I mean by that? For example, in the Hyundai business, 70% of what we import, we sell through our dealerships. A similar percentage of 65% to 70% will be Kia, and it will be about 60% for Renault. Mitsubishi, we do a lot smaller percentage, but it's a smaller brand. So the footprint and the ability to move your own vehicles makes you more agile and you allow -- you can do things differently, much quicker, and that's a big plus for a business like ours. On the retail side, where we have some of the importer dealerships, and obviously, we have other OEMs well represented in that business, but because we've got a fantastic footprint around the country, that will help us to trade out of the overstock situation created by the crisis. Because of the large footprint, we own our properties. We have the ability to multi-franchise. So what we mean by multi-franchising is that you can have 1 address, but you could have 3 dealerships on it. And that's a big plus for us because we own the property. By merely putting in partitions, by changing the workplace, we can immediately from 1 dealership create 3. So that's a big plus for us because we own about 75% of our properties in South Africa. I've talked about the digital platforms where we're very active on. Like I said previously, the car rental business is hurt. And you'll see that we had to de-fleet 7,000 vehicles, but what are we doing with 7,000 vehicles? We have homes for these vehicles in 70 Auto Pedigree dealerships, plus our own dealerships in the Hyundai, Kia, Renault's stable, plus the other OEMs like Mercedes, Toyota, VW, Nissan, Ford, Land Rover, Jaguar. All these other dealerships give us a footprint where we have another place to sell the vehicle, not only from our electronic platforms and our stock portals, but we've got outlets. And the scale then gives you a good opportunity to start destocking. The other advantage we have, obviously, we've got a broad range of brands that we look after and that helps because different brands do different things at different times, and the broad range helps us with facility. Okay. We talked about the rental business, and you all read the press. You can see we've dropped the rental fleet by 40%. That's the 7,000 vehicles I was talking about. We started with an early retirement and a retrenchment process, so we'll have to retrench and early retire people. It will be about 50% to 60% of the people in that business. We're closing sites. The 20 sites are in South Africa, and it's 20 out of 100 sites. And more could happen over time, depending on when the industry gets back. It will be slow because people are not flying. The earliest where we think there will be some form of normality could be January, February next year. We've been fortunate that we've been -- we've got some good insurance replacement work that we're doing with the insurance company, so our cars are being utilized. And we've got some work in the essential services as well where vehicles are being utilized. And while we're doing all this, we're still working on technology and innovation to make sure that our customers will have a better experience after the lockdown and after we get back to normality. So we're busy working on those IT platforms. If we go to our Motor-Related Financial Services, to be clear, we don't provide funding for motor vehicles. We provide funding, and we manage service plans, maintenance plans, warranty plans, all the insurance products, the paint protection products and things like that. That base gives you a bit of an annuity income. It's cash generative. It comes off a low asset base. So you don't have a lot of assets to make that money. So you're not investing in a lot of working capital to make that money. So that's a big positive for us. What we did in these times when we were in a lockdown, we extended people's warranty, service and maintenance plans. So if you're 1 year expired on the 31st of March when we were in a lockdown, we granted you an extension. And after the lockdown, you could bring your vehicle in without losing your benefits. So I think that was very good for the workshops because they continue selling the parts and labor that we normally do for these customers, and it brought us brand royalty -- loyalty as well. The financial services business, you can operate remotely and that was a good opportunity for people to work from home, and they didn't all have to come into the campuses where they work. However, during this time, what has happened is the banks have become tighter with finance. But we -- the dividends that we received from them have declined during this period as well, which is understandable because the banks got additional bad debt provisions that they're providing for. We look at the Aftermarket Parts business. This is the business when we got into lockdown initially, we were very worried about this business because a lot of their stock was coming from China. But the way it panned out is that when the other parts of the world went into the crisis and the pandemic, China was reviving its factories. So we're very fortunate that I was -- we had a lot of stock because of the Chinese New Year, so we were overstocked a bit. And when we were in lockdown, our containers were arriving. In fact, 167 containers arrived. And the minute the lockdown is over, we cleared those containers. So we've got enough stock in that business. And what happened after the lockdown, there was a lot of pent-up demand. So in the first 3, 4 weeks after the lockdown had opened, that -- those businesses were still supplying stock. And fortunately, we had the stock to supply. So we were very fortunate that we went into liquidating some of that stock. The other thing that makes us fortunate in this business is that it's a franchisee model. So you don't have a store in the rural areas, in a lot of the places, like Valcom, and these places, you don't have your own stores, but you've got franchisees. So they need stock, and they've been demanding stock from us, and that's helped us as well with getting our product out there without owning all the outlets and the franchisee model helps you do that. Like I said, the strong supply chain we have in South Africa and China, that's also helped us because we can get our stock at the right places quickly. We've got good available stock. And remember that South Africa has a big car market outside the warranty. And one of the industries that's outside -- a lot of these vehicles outside warranty is the taxi industry, and that was working. . So the taxi guys needs air filter, brake pads, oil filters, all these kind of equipment, and our shops had all these parts available for them. And that's why we could service the pent-up demand for the taxi industry, people that were health workers, people that were in government departments like social services, the prisons departments. Those people were working, but we could service -- supply parts to that industry. Okay. So if we look at what's happened from a health and safety perspective. So as I've said on our first slide there, sadly, we've lost 1 employee in South Africa, who succumbed to the virus. When I prepared these slides, we were 37 employees. I think we're about 50 employees now, the bulk of it in South Africa. In the U.K., there are very few. When I wrote this, it was only 8. But I don't think so that number's change materially. The bulk of the increases have come from South Africa, where people have tested positively. Fortunately, we have very good processes in play that the minute you walk into our premises, they take your temperature. If you're not well, they send you back immediately. If you get unwell while you're at work, there are quarantine premises that we -- offices that we use. We have processes in which we can get you tested, and staff can then quarantine at home as well. And we have a good tracing system as well, where we can contact people in offices where they've been contact, and then get them back into quarantine. We've been following the guidelines set up by the Department of Health, which are basically the sanitization, the masks, recording of temperatures, registers, social distancing. We're very fortunate that we've had process -- while we were in lockdown, we have written these processes, so when people got to work, we could start implementing this quite soon. And because of our ability for people to work from home, we could go for a rotational occupancy at our offices, either in our admin offices, in the head offices, like a Hyundai, our financial services. Our head office at Motus, there's only about 6 or 8 people at the moment out of the 35 people. So we can do a lot of work from home and people can work remotely. We've assisted people that needed to work from home with either computers or with data lines or with any other equipment that they need, while they need to work from home. So we've learned quickly, and we've implemented what we needed to implement. Like they would say in the classics, you've got to adapt and change to the new environment, and that's what we've been doing. So as far as the actions are concerned, so you can see we've been targeting -- and you've seen a lot of these in our SENS announcements. I'm not going to read every point on this slide. But you can see we're reducing our staff cost by 20%, with reductions, no increases, short time. And because we have different businesses, different businesses have applied different models of salary reduction. So what works in the dealership environment could be different to an import, would be different to Aftermarket Parts and would be different in financial services. So what we're giving you is more or less what's happening, but it -- the application could be slightly different in the divisions. Obviously, we've capitalized on the government assistance and relief that we've got in all 3 countries, in South Africa, Australia and the U.K., and the benefits have been much better in the U.K. and in Australia. But we've used those benefits and during the lockdown, there was a lot of anxiety, but we made sure that all our employees got paid in full for April, and then in May, obviously, they would be working, so they would be paid. And if they were not working for whatever reason, there'd be annual leave there as well. Together with the reduction in costs, we've had to look at our headcount. And we started, like I said, with the process, and approximately 2,000 people would be retrenched in our business. The bulk of that retrenchment will come from the car retail and rental space, in the car rental space, and that could cost us between ZAR 120 million and ZAR 140 million. That's the cost of retrenchment, not the ongoing benefit, which obviously, will be much higher because these are once-offs, and the others will be annual savings that we would have in the business. Like good -- all good accountants and like good entrepreneurs, we looked at all our costings in our income statements. We did it line-by-line. And we've reduced cost wherever we could, advertising, promotion, all that kind of thing we went into, and we reduced our cost in that business. And like I said, we own 75% of our properties. So what have we done to protect the cash base there was we postponed noncommitted and noncritical capital expenditure. We closed 20 rental sites, our car rental sites. Some people have allowed us to defer our rentals for 6 months, some 3 months. Some have adjusted our rentals downwards until we get out of the situation that we're in, until we get back to some normality. So we've got some rental reductions in play as well. And then our suppliers, the original equipment manufacturers, as we call the OEMs, have been very supportive. They've asked -- they've canceled our orders, for vehicle orders in July, August, September. It's a temporary reduction we wanted because we need to sell the stock that we have. Once we get back to normal, the orders will go back in. They've made sure that they've kept us well-stocked of the vehicles and the parts that we need. They've allowed us to reduce our targets because as you would know, this industry works on variable margins. So if they keep to the original targets, we don't achieve them. They've reduced our targets so we could still achieve some variable margins. So they've been very good to make sure that we stay in business. They've given us some interest relief on the floor plans. They've given us an extension on the floor plans. And then they've assisted us with our cost, which are, for example, the demo vehicles or demonstrator vehicles that we have, we're allowed to have smaller vehicles instead of larger vehicles. They've reduced the number of vehicles we need. So that's all helped the cost base. Obviously, during these difficult times, they suspended the staff training, so that helped reduce our cost as well. Over and above the income statement, we've managed our working capital quite tightly, so that means wherever we could get extended credit terms, we utilize that. And we're not buying any more stock, and we're selling at the moment. So by selling and not receiving stock, we can pay the creditors without exceeding our bank covenants and exceeding our loans. In the process, there'll be no acquisitions until the end of December to get us through getting our cash flows settled in this new way of doing business. No dividends will be paid for the 2020 financial calendar year. That means up to December, we won't be paying any dividends. And we won't be doing any share buybacks at the moment. So you can see the motto of this team at Motus is cash is king, and we need to survive and create a sustainable business into the future. The next slide will cover the facilities and the debt covenants, which Ockert Van Rensburg, the CFO, will take you through.

Thanks, Osman. So as you clearly saw there that cash is king. So as this lockdown unfolded, we immediately needed to turn our attention to 2 critical items. The one was the preservation of cash, and the second one is ensuring that we have access to all of our funding lines. We were quite fortunate that our funding lines were quite recent. We had our local facilities renegotiated at unbundling, so at the end of November 2018. And those are for periods for 3 and 5 years, so maturity dates of 2021 and 2023. And then also our international facilities, we renegotiated those in January 2020 and also for a 3-year period, so also facilities up to 2023. The group has accessed with that to both fixed and variable interest-bearing debt facilities. You can see that at our total facilities, including our floor plans, is ZAR 14 billion. We still have about 30% available there, and we don't foresee utilizing that necessarily before year-end. And then obviously, we also have the floor plan facilities, of which, there's still 30% available as well. The floor plans, of course, that is when the OEMs provides you effectively deferred credit payments. In terms of our banking covenants, quite important that there's 2 criteria there. The one is that our net debt-to-EBITDA must be below 3x, and then the EBITDA to net interest must be above 3x. Now as we looked at our facilities and negotiated or started negotiating with the banks in April, we obviously, looked where we were in March. We were inside those covenants, obviously. But we were quite concerned where this could potentially end up. We were -- uncertain times, not sure how long a lockdown necessarily would take. But I'm pleased to say, at least at the moment, after we got the May results out now as well, we're well inside those covenants still and we do foresee that we will remain inside those covenants even for June. However, with our prudent approach and talking to the banks in April, we did agree with them relaxing the covenants up to 4.5x on our net debt to EBITDA and then over 2.5x for our net interest to debt -- to interest, I mean, our net interest -- EBITDA to net interest. Obviously, with those, we had to then agree to also not have any major business acquisitions, major expansionary CapEx, share buybacks and dividend payments during this relaxation period, and this will take us up to December. Obviously, the rand has been extremely volatile, and I don't need to tell anyone on the call that. In the last year, it's been from very highs to very lows. And I think what has happened and what this has thought us, I mean, we've obviously got a ALCO strategy that we follow. But we've got a small group of a very agile but experienced team in this, from our operational side, but also from head office finance staff, who continuously look at opportunities for hedges. Obviously, being a very large importer of vehicles, especially Hyundai and Kia, we've been able to get rates there, as you can see on the slide, still going all out to March 2021 at very favorable rates if we compare them to where we stand today, ZAR 15,10 to the U.S. dollar and ZAR 16,50 to the euro, and that is including the forward points on those ForEx contracts. Mitsubishi. There, we have sufficiently fully paid stock, where our last shipment came in, in April, which was obviously covered as well. And we've got a sufficient stock there to last until December. And then on our parts side, we also covered all our commitments there. On Renault, slightly different, and we've explained that in the past that there, we have a more of a price protection really from working with our shareholder. Renault France, obviously, being a 40% shareholder in that side and we rely on pricing to help us there. If we turn the page to the outlook for June 30, clearly not the picture that we would have projected a few months ago. As you would have seen from our previous SENS in March, we were still very much on track, and our operating profit were really tracking the previous year. But as we stand now and now that we've got a bit more certainty with the May results under the belt, you can see our revenue. We project that it would have a decrease of 5% to 15%. Our operating profit range, we believe, will be between ZAR 1.8 billion to ZAR 2.3 billion. Then we've split the earnings per share and the headline earnings per share. And the reason for that would just be that we've also wanted to disclose to you that, if we were to exclude some of these once-off, cost-cutting exercise that we're busy with, what a normalized earnings per share and a normalized headline earnings per share would look like. Obviously, if you look at the normalized earnings per share still down 55% to 65%, and normalized headline earnings per share down 60% to 70%. The difference between the 2, of course, is the properties and the goodwill, which is included in the earnings per share and then, obviously, not in the headline earnings per share, and that amounts to about ZAR 250 million. And the reason why we're looking at those property and goodwill is, obviously, the reason that we cannot substantiate these values into the future. With everything that's going on, we believe that it's prudent to also just have a slightly longer time to finalize our financial year-end results and give the auditors sufficient time to review it as well as making sure that we comply to all those JSE requirements that are set out by the JSE in recent times around the COVID disclosures. And we will be releasing our company results on the 16th of September. Over to you, Osman.

Thanks, Ockert. Before I go on to the strategy, what I thought is that the one number that we've disclosed there is the operating income number. The operating income depicts for me what the trading looks like in our business. That's normally a sustainable trading number. So you can see that number hasn't declined as badly as the EPS and the HEPS. So if you want to understand our business and saying, how badly were we impacted on the trading side of our business, it was minus 35% to minus 50%. So that's where you can get a feel for the kind of trading we had for the year. Yes, we've had fantastic 9 months. We've had a terrible 3 months. But when you put it all in the mix, I think you look at that number and it could have been worse if we didn't take all these action plans. So I think what this shows is that the agility of the team control the process quite well to make sure that we came out with this kind of operating profit. Ockert's talked about the once-off impairments. But the other thing that hurts you in the -- getting to the EPS and the HEPS number is the interest burden because we didn't sell enough cars in March and April and May. Obviously, we carried the stock, and the interest burden, you'll see it also hurt that number. But if you're looking at purely trading, the operating profit is a very good guideline as to how we managed this business during these difficult times. Okay. So this is the last slide that we want to go through. And I've covered them in a way, so you heard it before, so I'm not going through each line item. But we want to emphasize that we continue to deliver exceptional service to our customers. We are very strategically focused so that we remain a strategic partner to the OEMs and our suppliers. We haven't kicked innovation for touched. It's something that's very much part of our DNA now. And we're working on that on an ongoing basis. And it sounds contradictory that on the one side, your business is taking a beating; on the other side, you're innovating. But it's the innovation that's going to make sure that we're here in 3, 4, 5 years from now. And that's why we haven't stopped the innovation in our business. And giving -- while we're doing innovation, we're going to look for new ways of earning our income streams as well. So they work hand-in-hand. And while we're doing all this, interestingly enough, we're picking up some ways of doing things better. So we're going to increase our efficiency with the way we do business, and we'll explore more of the entrepreneurial culture that we have in our business. And we'll make sure that the capital management and the disciplines of cash being allocated to our business will be -- still remain our focus within our -- will be a focus in our business. Like I said, innovation is going to be still our competitive edge. We're going to use that. We're going to invest in digital platforms. As we go, we've adjusting this business to a new norm. What's this new norm? We don't know. We'll find it maybe by January, February next year, but we're not waiting. We're adjusting the cost base accordingly so when we get to a new norm in January, February, March next year, we'll be ready for it. And we brought the base down accordingly, which is not only from a cost perspective, but from a complexity point of view as well. And we're adjusting this business to the new reduced volumes. And obviously, we're working very hard to make sure that the plans we have on cost reductions are actually taking place. And we're fortunate we're starting to see them already. And that's one of the reasons Ockert's talked about that we've applied for a relaxation of the covenants, but we're within the covenant. And we hope to be within the covenants by end of June as well. So all the above have created a resilient business model. And where does this come from? It comes from a management team that's very agile and entrepreneurial. So that's why I think it's opportune for me to not only thank my fellow colleagues, the nonexecutive directors and directors, but to thank my EXCO management team and the management team that slogs every day in our dealerships, in our call centers, in our workshops, in the parts businesses, in wherever you are, every one of our staff members. It's their agility, their entrepreneurial skills and their hard work that has allowed us to trade out of these very difficult times and still produce a very respectable results and make sure that -- their actions will make sure that we're sustainable into the future as well. So that will be it from our side. Thank you for your time. Thank you for listening. So we've ran a bit of over time. We thought it was 40 minutes, but we've taken 45 minutes. So we've got some times for questions. So Justine, where are we with the questions.

Okay. A few have come through. We can start with, how does Motus seek to remedy an operating performance deterioration in the face of covenant relaxations on the basis of the relaxation by its time, but post December 2020, Motus is required to meet covenants?

Okay. So I think as we said earlier, and Ockert said this quite clearly, is that by end of May and June, we're within covenants. And if all goes well and we continue our cash and our cost base and the working capital, we should be within covenants through to December. What you've got to remember about our business is that we're not a perishable goods business. Whatever we have, the stock, the cars, the parts and the fact that we've got this fantastic forward cover, our pricing is fantastic. The fantastic pricing will allow me to put up price increases at time-to-time. We've got a fantastic product range. We've got the variety, and we've got agile people. So we're going to start selling these vehicles and parts. Now like I said earlier, we sold 6,200 vehicles in the month of May. When we were all in lockdown, not sure who's going to buy the cars, but this Motus team went out of the way and sold 6,200 vehicles. They're going to do that in May. They're going to do that for the rest of the financial year. So as we sell the cars, we create the cash. As we create the cash, we will be repaying debt as we go along. So we're comfortable that by end of December, we would have brought this business to a new norm. The debt to equities will be at a very reasonable level. . And from then on, we'll continue buying cars for the new norm and selling cars and selling parts and continue with our financial services. So we think we've taken the actions that will make sure that we're still here in a sustainable form in the next 2 to 3 years.

The next question that's coming through, what is the new strategy towards acquisitions within the Motus table?

It's interesting if you read an article by Michael Katz in the Financial Mail, I think the next 2, 3 years are going to create a lot of opportunities for acquisitions. We won't be able to make acquisitions till the end of December, when our relaxation of the covenants applies but, obviously, after that, we will be looking for opportunities. But this is a time when we can be more selective, where you will do bolt-on acquisitions as and when you need them, in the areas you want them and the brands you want. So for example, if you gave us a Toyota dealership in South Africa, the U.K., Australia, in our regions, we'll be taking it. Why not? Because we know they've got a fantastic car park. The workshops are going to be busy. We're going to sell parts, and we're going to sell product. So it will give us an opportunity to be very selective on our acquisitions, but that will happen after 1 January. We'll pick up some opportunities where we left off before the pandemic was in China. With our supply chain management, there's some nice opportunities in China as well. And those opportunities will become even better when we get to next year because we will need their product, and it will secure our supply chain management processes much better. So from -- we're working on the acquisitions, but nothing till December. But after that, we will definitely be looking at bolt-on acquisitions. Are there any other questions, Justine?

Next question. Given that the rental business adds to overall order volumes in the second-hand car market, how does this downscaling affect the group as a whole?

As far as the car rental business is concerned, we've come to a new norm. What was the norm? The average norm during the normal was our fleet size was between 20,000 and 22,000. Our fleet will drop to 13,000, 14,000 vehicles. So that's the new norm. With the fewer vehicles, we'll have fewer rent sites. We'll have fewer people. So we've adjusted this business to the new norm and by end of August, we'll get to the new norm. As the business picks up, if and when it picks up, it's easy for us. We have an importer business. We have dealerships, so we can put more cars into car rental. And employing people is not a problem because we all know there'll be good skills around to employ. So we've taken the plans to adjust this business from a 21,000 fleet, 22,000 fleet to a 13,000, 14,000 fleet with the sites and with the people. And if it does go down further, for whatever reason, we're agile enough to do that because we've got the outlets to sell our vehicles. We'll cancel leases. And obviously, we will be able to reduce staff if we need to, but I think there won't be a need to do that because if you have 14,000 or 12,000 cars, they still need people. So I think on the people side, we wouldn't have to do much after this. But the area that we can do will be the de-fleeting and the sites. And I think the actions that we've taken so far will put us in a good place to capitalize on opportunities that will arise in the future.

Would Motus explore the option of exporting surplus pre-owned stock due to rental industry issues?

We don't believe there's a need to do that because, remember, the military export, you got to look for customers in the other countries. Those other countries are going through the same problems we're going through, so their market's down, the cost of freight, the duties in that country. And remember, those countries have enough used cars in any case, so they don't have space to accommodate our vehicles. We're not too concerned about our vehicles because the footprint we have, the 70-odd outlets we have in Auto Pedigree, the other dealerships that we have, we've got sufficient space. Yes, we can't do it in 30 days or 60 days, but if you take a 6-month period, we will be able to trade out of these pre-owned vehicles that we've got. Firstly, we know the quality of the vehicle, they're our vehicles. We know the managers. We know they're low mileage vehicles. And the fact that we bought them 12, 15 months ago at very good prices, after a year's depreciation, these cars are very marketable. So we're not going to rush tomorrow morning and flood the market. It will cost us a bit of interest, but we know we can sell these cars through our infrastructure at the right price in a very structured way instead of flooding the market.

Do you see excess used car stock coming to market at lower prices as being a major disruptor for your new car sales?

It happens generally. It happened after the global financial crisis, where you'll see the new car market will stabilize or go slightly down because the used car market is so buoyant. The prices are good. The value for money is a fantastic proposition. So yes, there could be some of that, that new cars will go slightly down. The used cars will pick up. And that phenomena can't last more than 6 months because by that time, the used cars are into the market. And they come to the end of -- they'll have normal stock. The abnormality will be gone, we'll get to normal. So it's a 5- or 6-month problem. But by that time, we get to January, and hopefully, we've created a new norm.

Next question is around whether Motus would consider a rights issue.

I think we're in a very fortunate position that this business was well-geared before we got into the pandemic and the crisis. So during that period, we managed the cash well. And like I said, we're not a perishable assets. Our assets are alive and well. And we'll trade out of this. And because of the plans that we've got, we don't believe there is a need for a rights issue. We don't believe that there is a need to -- for the debt-to-equity ratios to go out of situation where we breach our covenants. And we don't believe our debt to equities will be in an area where we all become uncomfortable. So we think that we've got processes into play to reduce our working capital and bring the debt-to-equity within reasonable levels without going to the market.

Next question. Based on management's estimates for new car sales of 375,000 to 400,000 in 2020, how many months' stock do you believe the industry has to work through?

It's difficult to talk for the industry because, obviously, on the one side, you've got the OEMs who manufacture not only for South Africa, but they manufacture for an export market. And remember, they haven't manufactured for 6 weeks, so they've also got that problem. So I don't think there is a major problem with new stock on wheels at the OEMs because there have been a reduction in production. But if I look at our OEMs, our importer business, we think we've got enough stock for the next 6 months which will carry us through. And what does that do for us? We'll order less. As we order less, we can sell and buy and reduce our stock. But I think because of the just-in-time programs that the OEMs used, the fact that they have to export, there has been a reduction of manufacturing. I don't think that the OEMs will be overstocked by maybe more than 3 or 4 months. There is no major problem there. And our problem, we've got good stocks, but that may be a 5- or 6-month problem, and we'll get out of that stock. So I don't think so this is a major problem. It's a problem that can be handled, and we -- the OEMs and the motor businesses can trade out of the situation elegantly.

And then the last one just on the webinar question so we can go to the conference call. There are a number of questions coming through on the multi-franchise model, better understanding around regions that will be considered and obstacles to the process.

If you asked me that question 5 years ago, and I said it's a no go. But today, the OEMs have realized that the single dealership in a single address cannot work because in some of the areas, they don't have a car park sizes. The markets decline, so they don't have the footprint that they need. That's why they're allowing us to 1 address could give us 3 dealerships. It's been working very well, for example, in Australia. It's been working well in the U.K. where we have our dealerships. South Africa has been slow on the uptake. But in the discussions we had pre-COVID and now we're having discussions with the OEMS, there are certain areas that they've allowed us to take our single dealerships, especially outside Johannesburg, Durban and Cape Town and Bloemfontein -- and even in Bloemfontein, in some of these areas to allow us to take 1 address and convert them into multi-franchise businesses. So that process is in play. We're working with the OEMs. They've allowed us that. They've given us permission to do that. And I would think by January, February next year, you will see a number of our outlying areas where we'll have 1 address with 3 -- 2 to 3 franchises. So that work is being done. We're getting approvals from the OEMs. However, what put us on the back foot at the moment was there were no workers on site to help us with building the partitions and fixing up the areas for the multi-franchising. So that will happen in the next 2 to 3 months. And by January, I'm confident that we'll have a number of sites with multi-franchise models on them.

Thanks, Osman. There are a number of people on the conference call at the moment. Judith, are there any questions from the audience?

And no, there are no questions on the line.

Okay. So Justine, if we don't have any questions…

There are further ones on the conference call. How many months do you think it will take at an industry level to work through excess used car stock?

It will all depend. The problem you've got is that we've only had 6 or 8 weeks or 7 weeks, say, outside the lockdown. So we've had May, touch wood, it was good. June is looking fine. If we continue at this rate, I'm saying by end of October, November and December, we'll be through the backlog. From all these de-fleets that came from car rental, we've been able to sell them. And we'll create a new norm from January onwards. So we think it's another 5 or 6 months and we should be able to get out of it. Obviously, the big unknown at the moment would be the banks. Now how long will they -- I know they will be funding vehicles, but if they drop their fundings too much, that could be a problem. But they also need business because in this industry, people replace their cars between 42 and 50 months so -- and cash comes in every month because remember, there's an installment paid. So the banks need to invest money in this side of the business as well. So we think this will continue at not pre-COVID levels, but at new levels created with COVID, but money will still be made available to this industry. If there are no further questions. Firstly, I just want to thank the Board members of Motus, the EXCO members and the management team for being very agile and entrepreneurial during these difficult times, and long may you work with that philosophy so we can trade out of the situation and create a new norm. So each one of our staff members, the 18,000 people have made this possible, so a thank you to each one of them. Then I'd like to thank our host [ Bastian ]. You've allowed us to use your facilities to do this webinar, which has worked very well from where I'm sitting. I'm not sure how it's worked on your side as the listener. But to [ Bastian ], thank you very much for allowing us. And to Ockert and Justine for arranging all these and making sure that we get through this process, thank you to you as well. And all the best to our audience out there as well. Thank you, and keep safe.