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2012 ANNUAL REPORT
4
Message
from the
CEO
Despite the very real improvements
in both our top and bottom lines on
the back of strong management and
persistent market fundamentals, the year
just ended was substantially more chal-
lenging than was 2011, the year of the
Revolution. Looking forward, we expect
2013 to be more complex still.
But however difficult the months ahead
may be, two things are clear: We have
an opportunity to post both improved
margins and gains in net income as
we react decisively to tough and fluid
market dynamics in Egypt. Simultane-
ously, we will focus on growing our Iraqi
operations even as we roll-out operations
across the two new exciting markets of
Libya and Algeria.
The facts speak for themselves in
2012, as they will again this year: We
maintained leadership of the Egyptian
passenger car market despite a supply
shortage of key CBU models that saw
us fall quite short of combined market
demand in Egypt and Iraq. We added
Geely passenger cars to our portfolio of
brands, rounding out our already-com-
petitive product offering. Our Motorcy-
cles and Three Wheelers division posted
a record year; Commercial Vehicles and
Construction Equipment continued its
decisive recovery; our Financing Busi-
nesses exceeded expectations; and we
have completed the build-out of what
was — prior to its expansion — already
Egypt’s largest after-sales network, where
the final grand opening in this growth
phase is expected in the first half of 2013.
Furthermore, we soft-launched our GB
Academy, laid the groundwork for an
exciting new Graduate Training Program
that will combine classroom and on-the-
job training, announced the comple-
tion of our C-level team with four key
appointments and laid the groundwork
for the next step in our regionalization
drive. We also took steps to reinforce
individual performance appraisal at all
levels, and to ensure our compensation
arrangements genuinely align rewards
directly to individual performance.
It has become cliché to say that 2013
represents “uncharted waters” for our
industry and our nation, but the simple
fact is that it does not: I have managed
businesses through equally difficult
times, having entered business when
the US dollar was trading at 0.67 to the
Egyptian pound and finding myself with-
in a decade trading in an environment
where the USD was worth LE 3.42.
In light of what we know today, I am
increasingly of the belief that GB Auto
stands to emerge from 2013 with health-
ier net margins and notable bottom-line
growth. We expect the significant, ongo-
ing weakening of the Egyptian pound to
result in economic dislocations including
substantial inflation. Egypt’s total pas-
senger car market size will shrink as a re-
sult, but the scarcity of foreign exchange
will see the volume of product coming to
market shrink faster than will demand.
Against this background, we have since
2012 been deploying a range of meth-
ods to ensure GB Auto has access to the
foreign-currency liquidity it needs to
deliver an uninterrupted supply of pas-
senger car units to the domestic market.
Income from our regional businesses
provides an additional buffer in this
regard.
With sufficient inventories and a guar-
anteed allocation in Egypt and Iraq from
Hyundai Motor Co., our key global part-
ner, I am convinced we will have product
at a level that will allow us to meet
market demand. (Our allocation for Iraq
is up significantly on 2012 levels.)
We also have what our American
friends call an “ace up our sleeve”: While
we expect CBU prices to rise in paral-
lel with devaluation and certainly some
of our competitors will face liquidity-
related challenges that further constrict
supply, we have an unrivaled ability to
shift sales toward CKD models. Long-
term shareholders will recall that prior
to 2004, the domestic market was c.
60% CKD and 40% CBU, a ratio that
has since flipped. With prices on CBU
models set to rise faster than on CKD
— and with a stark absence of public
transportation options — many of our
clients will remain clients, but will settle
on the more economical assembled-in-
Egypt option.
In this context, I note that we believe
we have sufficient Verna CKD kits to
meet market demand through mid-to-
late 2014.
As we optimize production at our new
paint shop, we will shortly find ourselves
with the capacity to meet rising market
demand for locally assembled Verna,
Emgrand7 and — shortly — other key
products as never before. We are, moreo-
ver, exploring creative uses for our old
paint shop with a view to how we can
further optimize domestic production
for more cost-conscious consumers.
Against this backdrop, I am pleased to
report that the Geely Emgrand7 has met
with very wide market acceptance. On
the CKD front, our emphasis at the end
of 2012 was on production in limited
quantities to ensure we could deliver to
market at an outstanding quality stand-
ard. With a handful of refinements to the
process set to be implemented by March,
we will begin ramping up production.
The Commercial Vehicles and Con-
struction Equipment line of business
remains a bellwether sector exposed to
the vagaries of the broader economy,
and a full recovery awaits a resumption
of broad-based commercial and tourism
growth. That said, I am for the first time
in several years guardedly optimistic
about the outlook for this key business
line. Already, the favorable movement of