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2012 ANNUAL REPORT
13
human rights, labor, the environment and
anti-corruption. In 2012, GB Auto submit-
ted its first communication of progress for
the UN Global Compact.
Outlook
GB Auto’s emphasis heading in 2013
will be two-pronged. The company will
be focused on ensuring the stability and
profitability of Egyptian operations,
through careful oversight of the political
and economic situations, inventory levels,
customer care programs and strict cost
controls. Simultaneously, management will
be focused on nurturing our new regional
and brand representations, capitalizing
on efforts over the past year to diversify
revenue streams by product line and geog-
raphy. Management anticipates announce-
ments of additional brand representations
to come over the course of 2013.
For our Passenger Cars line of busi-
ness, management expects growth to be
somewhat limited in Egypt, as ongoing
political unrest and economic difficulties,
particularly currency devaluation and the
related high inflation, dampen consumer
sentiment. This climate will see unit sales
pushed even more toward CKD models,
which will have the positive benefit of
utilizing capacity at our newly revamped
Prima factory. Regional performance is
likely to act as a buffer to volatile condi-
tions in Egypt, as consumer sentiment in
Iraq remains quite strong as does demand
for Hyundai passenger cars, and manage-
ment has every reason to expect sales of
Geely vehicles in Algeria and Libya to
perform along the same lines.
Also in the company’s favor going
forward is our highly liquid balance
sheet, which will give us an edge as some
competitors will be constrained by risk
aversion within the banking sector, where
liquidity is low as banks increase exposure
to high-rate treasury bills.
As we have noted in the past, consum-
ers of products in the Motorcycles and
Three-Wheelers line of business are more
de-coupled from economic shocks than
purchasers of higher-value items, and
management anticipates that the strong
growth this segment reported in 2012 will
continue. That said, the company is cogni-
zant of the fact that this segment is sensi-
tive to factors including government deci-
sions that impact pricing, owner-operators’
fears as to the safety of their investments,
and consumer views on the long-term
economic situation. Nevertheless, pent-up
demand remains significant, and GB Auto’s
ability to finance purchases of two- and
three-wheelers through Mashroey is a
bulwark against sales erosion.
Management anticipates announcing
new brand and product representations in
the key Commercial Vehicles & Construc-
tion Equipment line of business in 2013,
which will address one of its historic diffi-
culties, i.e., an incomplete product line-up.
Even as the division reports significant
improvement, it will remain impaired and
at-risk so long as the general economic
downturn continues, as customers for the
division’s current product lineup are par-
ticularly sensitive to economic shocks.
On the Financing Businesses front, man-
agement expects the business to continue
to grow and thrive, potentially benefitting
from decreased lending appetite and li-
quidity in the banking sector, as customers
seek alternative financing options.
The expected devaluation of the Egyp-
tian pound against key import currencies
presents a serious downside risk in that the
company’s ability to pass on price increases
to consumers may be limited by develop-
ments in the broader economy. This is,
however, mitigated by the foreign currency
generated from our regional operations.
Finally, we note that our forecasts for the
year do not include allowances for exog-
enous shocks that may have an impact on
market sentiment. At present, these shocks
are likely to be of a political nature, but
extend to the potential for shocks related
to economic policy swings. We believe,
however, in our strong management team’s
ability to rationalize the performance of
the businesses in the coming period with
their special focus on cost effectiveness and
quick response to market changes. This
is underpinned by a strong balance sheet
since the beginning of the year as well as a
sound liquidity position.
Top-line growth in the 12% range is a testament
to the success of a business strategy that
emphasizes diversity across segments, geographies
and brands, GB Auto’s strong financial position and
timely and decisive management intervention.