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2017 ANNUAL REPORT • 15
Management Review and Financial Performance
GB Auto’s overall annual sales revenues increased by
15.5% y-o-y in FY17 to LE 17,656.6 million owing to the
company’s solid execution of its strategy to focus on
high-margin divisions, incrementally increase prices,
and streamline its operations.
4Q17 saw revenues climb to their highest level of the
year, closing the quarter with a top-line of LE 4,708.9
million with the Egypt Passenger Car and Motorcycle
andThreeWheelers segments showing q-o-q increases
in revenue and profitability. The Group’s market leader-
ship for Passenger Cars was successfully maintained,
with GB Auto’s market share hitting 31.1% and Hyun-
dai maintaining its number one market leadership
position with a 21.9%market share for the full year. Re-
covery was also seen in the Egypt Commercial Vehicles
& Construction Equipment segment, with volumes
growing 32.4% during the quarter compared to 3Q17
and revenues 37.1% for the same period.
Operatingprofit grewfor three consecutivequarters by the
end of the year, gaining 24.1% y-o-y in 4Q17. Gross profit for
theGroup increased 3.4%compared to 3Q17, delivering the
third consecutive increase in a row. Full-year gross profit
margin came in at 11.1% versus 14.4% last year. Finance
GB Auto’s solid management strategy and strong
execution has seen it consistently grow revenues
q-o-q, expecting to return to normalized levels in
the coming year.
costs nearly doubled y-o-y to LE 1,277.4 million for the full
year, which sawGBAuto turn a net loss of LE 666.9million
inFY17, narrowing fromLE865.7million last year.
GB Capital delivered strong results, posting a 4Q17
revenue figure of LE 774.3 million (after intercompany
eliminations), up 48.5% y-o-y and contributing 14.1% to
overall Group revenues. Revenues also climbed 47.3%
y-o-y for FY17, coming in at LE 2,561.6 million (after
intercompany eliminations) and contributing 14.5% to
the Group’s total revenues for the period.
Net debt for the Auto & Auto Related business stood
at LE 4130.7 million at the end of the year compared to
5120.6 million in FY16, a decrease of LE 989.9 million.
Net debt/equity hit 1.07x at the end of the year, com-
pared to c.1.5x at the end of last year. Net debt is the
key yardstick by which the company evaluates perfor-
mance of the Group as debt related to GB Capital is a
direct function of the portfolio size of the division and
is more than fully backed by the assets and receivables
held by GB Capital. Management seeks to reduce fi-
nance costs by keeping the debt level as low as possible,
foreseeing further interest rates cuts in the quarter to
come as inflation continues to ease.
With the company’s proven ability to react with flex-
ibility to market dynamics, its cost cutting and diver-
sification efforts, and solid steps taken to streamline
operations, the Group expects continued progress in de-
livering improved performance in the coming quarters.
Outlook
After having adopted a new disclosure structure in
2017 that reports its core automotive and high-margin
GBCapital as two separate functions due to their vastly
different financing and capital structure and risks, the
company has reimagined the Group as not solely an
automotive leader, but a full-fledged diversified player,
capturing a wealth of opportunities in the market.
With the Auto & Auto Related business continu-
ing to f ind its footing in a challenging environment,
management sees the split as a better ref lection of
the Group’s net debt, facilitating more accurate valu-
ations and revealing hidden value in the company’s
share. This is set to continue in the coming year as GB
Capital is expected to make an even bigger name for
itself through its f ive distinct subsidiaries in a market
that is looking for attractive and innovative f inancing
options. We see credit quality remaining very strong
and GB Capital has continued to maintain a healthy
loan portfolio quality.
GB Auto continues to believe in the strong fundamen-
tals of the Egyptian economy and its automotive indus-
try.Thefloat of theEgyptianpound in2016undoubtedly
had short-term downsides for the market, but signs are
emerging that the automotive industry is on the road to
recovery, with numbers improving with every quarter.
Management expects the Passenger Car market to hit
volumes of 120,000 units, of which GB Auto’s market
share is set to be at least 30% in 2018. Management is
optimistic about the sector as low-margin models have
also been largely cleared from inventory and remain-
ing units mostly provisioned for in 2017. Management
expects to see the Automotive Directive, a legislation
that aims to benefit local assemblers and open up new
opportunities for GB Auto and other local producers,
finalized before the end of 2018.
Motorcycles and Three-Wheelers are now well on their
way tomaking a complete recovery. In 2017, the compa-
ny began manufacturing two-wheeler chassis, which is
expected to boost volumes in 2018. With products be-
ing revenue-generators for its clientele, the division is
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2017 ANNUAL REPORT
Management Review
and Financial Performance