GB Auto Reports First Quarter - Ghabbour...

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GB Auto (AUTO.CA)Earnings Release: First Quarter 2012

GB Auto Reports First Quarter 2012 ResultsLeading automotive player reports a profitable quarter; cautious optimism for remainder of the year, despite a tough climate14 May 2012

(Cairo, Egypt) — GB Auto (AUTO.CA on the Egyptian Exchange), a leading automotive assembler and distributor in the Middle East and North Africa, announced today its consolidated results for the first quarter of 2012, reporting a 31.9% increase in revenues to LE 1,712.4 million, while net in-come rose 136.4% to LE 18.2 million, compared to LE 7.7 million in 1Q11.

“I am pleased to report strong top-line growth in the first quarter as well as improved profitability, although I feel I must caution that the rollercoaster ride is far from over,” said GB Auto Chief Executive Officer Dr. Raouf Ghabbour. “As Egypt makes its way through the final phase of its transition to democracy, the market will remain vulnerable to political and economic shocks. At the same time, I am fully confident that GB Auto has the funda-mental strength to not just survive the turbulence, but to thrive.”

GB Auto closed 1Q12 with a 34.2% market share of passenger cars in Egypt; in the month of March alone, the company’s market share reached 41% — well more than double that of its nearest competitor.

Meanwhile, three-wheelers reported slower-than-normal growth on the back of the Custom Authority’s decision to increase customs duties on three-wheelers (significantly raising the end-price of the product) a move which was later reversed during the quarter, but which depressed sales in January and February. Motorcycles, on the other hand, reported a more-than four-fold increase in unit sales in the quarter, driven by the popularity of the new Boxer 150 model.

“We witnessed a number of unique challenges during the quarter that impacted profitability, including the customs issue with three-wheelers, as well as some disruptions in Iraqi operations, which have both now been resolved. The former, together with overall reduced margins for the Pas-senger Car line of business, saw group-wide margins weaken more than we anticipated. Moving forward, we should see better profitability in those two segments, which will reflect positively on our margins despite tough market conditions,” Ghabbour said.

The Commercial Vehicles and Construction Equipment line of busi-ness reported substantial improvement in the quarter, with its gross profit margin improving to 5.5% as the company closed a number of successful fleet sales.

“Meanwhile, road tests for new product offerings continue, and we are in the process of finalizing a series of agreements which will allow us to round out our product portfolio, thus expanding our offering to the mar-ket,” Ghabbour concluded. “It goes without saying that the current envi-ronment is quite challenging: I want to stress the fact that GB Auto is up to this challenge. We have the systems, the people and the long-term busi-ness fundamentals to see us through to better times.”

Highlights of GB Auto’s 1Q12 results follow, along with Management’s analysis of the company’s performance. Complete financials are available for download on www.ghabbourauto.com.

5-Year Progression of Key Indicators (all figures in LE million):

Revenues

Gross Profit

Net Income

EBIT

5-Year Progression of Key Indicators (all figures in LE million):

1104

188

128

85

642

85

52

7

1326

191

120

69

1298

150

69

8

1712

186

92

18

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First Quarter 2012 Highlights

• GBAutorevenuerose31.9%year-on-yearin1Q12toLE1,712.4millionfromLE1,298.3millionin1Q11,andupby29.1%comparedtoLE1,326.5millionin1Q10.

• ConsolidatedgrossprofitrosetoLE186.4millionfromLE149.7million,a24.5%increaseoverlastyear,anda2.6%declinefromLE191.4millionin1Q10.Grossprofitmarginsstoodat10.9%in1Q12,comparedto11.5%in1Q11and14.4%in1Q10.

• EBITwasLE92.4million,a33.5%increaseoverLE69.2millionin1Q11;EBITmarginswere5.4%inthequarter.

• Netincomerose136.4%toLE18.2millionfromLE7.7millionin1Q11,stillconsiderablybelowLE68.7millionin1Q10.

Passenger Carrevenueswereup37.0%year-on-yeartoLE1,314.3million,withgrossprofitsincreasing50.1%toLE127.0million.Bycomparison,PassengerCarrevenueswereLE959.3millionin1Q10.

Motorcycle and Three-WheelerrevenueswereLE158.7millionin1Q12,a21.5%dropfromthesamequarterof2011,onthebackofthetemporaryincreaseincustoms’duties.Grossprofits,accordingly,weredown38.7%toLE33.8million,whilegrossprofitmarginswerealsodown5.9percentagepointsto21.3%.Revenuesforthislineofbusi-nesswereup23.9%over1Q10.

Commercial Vehicle and Construction EquipmentreportedrevenuesofLE132.9million,an80.1%increaseoverrevenuesofLE73.8millionin1Q11.ThedivisionreportedgrossprofitsofLE7.3millionin1Q12,withagrossprofitmarginof5.5%,versusagrosslossofLE0.2millionin1Q11andagrossprofitofLE21.9millionin1Q10.

Tiresrevenueswereup92.6%toLE64.9millionfromLE33.7millionin1Q11,andup327.3%fromLE15.2millionin1Q10.Grossprofitsforthesegmentwereup150.0%percenttoLE9.5millionyear-on-year,whilegrossprofitmarginswereup3.3percentagepointsto14.6%.

Financing BusinessesreportedrevenuesofLE40.6million,a68.5%increasefromLE24.1millionin1Q11.Grossprofitsforthesegmentwereup51.3%toLE11.5millionfromLE7.6millionin1Q11.Mar-ginsfortheLOBstoodatto28.4%,ayear-on-yeardeteriorationof3.3pointsbutanimprovementof5.1pointsquarter-on-quarter.

Passenger Cars

Commercial Vehicles & Construction Equipment

Motorcycles & Three-Wheelers

Tires

Transport

Financing Businesses

1Q08

1Q09

1Q11

1Q10

1Q12

73.9%

15.6%

5.7%2.6%

1.9%

2.4%

76.8%

9.3%

7.8%

3.8%

68.7%

8.9%

19.6%

2.0%0.8%

19.1%

20.1%

1.2%2.3%

75.3%

9.8%

13.2%

1.2%

Progression of Revenue Contribution by Line of Business

0.1%

0.5%

0.4%

0.1%

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Message from the CEO

The first quarter of 2012 presented a number of unusual challenges to the business, in light of which I am very pleased to be in a position to report strong top-line growth and the preservation of bottom-line profitability. While less dramatic than the issues we faced in the first quarter of last year, our performance in 1Q12 was nonetheless marked by both the eco-nomic impact of Egypt’s ongoing transition to democracy and by recent events in Syria that have had an impact on our Iraqi operations.

In Egypt, the dynamics of the Passenger Car market’s recovery shifted sharply in the first quarter on the back of both political developments and financing constraints imposed by risk aversion in the banking system. Our market share gain in the quarter — to 34.2% in the three months to 31 March — reflects a conscious decision by management to slow the pace of deliveries in January and February amid weaker market prices for all distributors. Our stark rise to 41% market share in March 2012 is similarly the product of a closer-to-normal pace of shipments to the market by GB Auto and of lower sales volumes for all other car brands.

As you would expect, this translated into weaker-than-forecast Passen-ger Car margins in Egypt, a development exacerbated by logistical chal-lenges shipping to northern Iraq (Kurdistan) due to the security situation in Syria, the natural overland transport route. As a result, we faced both delays in sales and timing differences in client orders which further com-pressed margins.

Similarly, in Motorcycle and Three Wheelers — our second-largest LOB — we saw sales of three-wheelers sapped by both the imposition in January and February of new (and, it turned out, temporary) customs duties and by drivers’ concerns about the prevailing security situation. The recovery of our Commercial Vehicles business awaits a broader-based ac-celeration of both economic growth and of spending on infrastructure.

This is not to say that the picture is dire. Egypt’s transition to democ-racy is well on track, the imposition of new customs duties on tuk-tuks has been reversed, and we have secured a new transport route to deliver to northern Iraq that eliminates the need to transit Syria. Moreover, I am con-vinced that stability, security and economic growth will take turns for the better following the election of a civilian president in polls beginning later this month. That said, our home market will remain vulnerable to political and economic shocks — particularly through the end of 3Q12 — and the regional situation remains fluid. In this context, I note that while we are already seeing stronger results — including indications of stronger margins — in 2Q12, it would be premature to say that we have entirely placed the challenges of the post-Revolutionary period behind us.

We remain absolutely convinced of the long-term growth prospects of our current and expansion markets. Here in Egypt, we continue road test-ing of new models and look forward to the introduction of CKD Geely units in September. Further afield, we look forward to new growth opportunities in Iraq and expect to make announcements in the near future regarding new ventures that will see us expand our North African presence — all while remaining highly attuned to any new opportunities that may be pre-sented by our long-standing strategic partnership with Hyundai Motor Co.

Whatever today’s challenges, we will overcome them while laying the foundation of a company that will offer new brands in both new and exist-ing lines of business across core and expansion markets stretching from Algeria to Iraq.

Dr. Raouf Ghabbour, CEO

Passenger Cars

Commercial Vehicles & Construction Equipment

Motorcycles & Three-Wheelers

Tires

Transport


67.7%

9.4%

21.0%

1.9%

47.8%

29.1%

22.5%

0.2% 0.4%

56.2%36.5%

2.3% 5.0%

75.1%

9.7%

12.9%

1.1% 0.4%

67.8%

17.8%

3.8%

5.9%4.9%

1Q08

1Q09

1Q11

1Q10

1Q12

Progression of Gross Profit Contribution by Line of Business

0.8%

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GB Auto is a leading passenger car importer and distributor in the Middle East and North Africa. In Egypt, it is the largest player in the market, being the sole representative of Hyundai and Mazda passenger cars and owning the biggest nationwide distribution and after-sales service networks of any brand. In Iraq, GB Auto has management control and majority ownership of a joint ven-ture to distribute Hyundai passenger cars. GB Auto serves the Egyptian market with both Completely Knocked Down (CKD) and Completely Built Up (CBU) products while operating in Iraq with CBU units. The company has concluded a strategic partnership with China’s Geely Automotive Holding Ltd for assembly and dis-tribution of their line of passenger cars.

Passenger Car Line Of Business

Hyundai Egypt

Hyundai Iraq

Mazda Egypt

After-Sales

85.0%

4.3%

10.7%

45.1%

4.1%

50%

0.8%

61.9%

3.7%

34.4%

1Q11

1Q10

1Q12

Passenger Car Revenue Breakdown by Segment

Breakdown of Units Sold, all brands and markets

CBU

CKD

1Q080

2000

4000

6000

8000

12000

10000

1Q09 1Q10 1Q11 1Q12

6,269

3,660

9,269

8,843

10,085

5,187

3,406

5,125

1,114

4,257

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1Q11 4Q11 1Q12%Change

Y-o-Y%Change

Q-o-Q

CBU Sales Volume (Units) 8,843 11,810 10,085 14.0 -14.6

CKD Sales Volume (Units) 3,406 4,828 5,187 52.3 7.4

Total Sales Volume (Units) 12,249 16,638 15,272 24.7 -8.2

Sales Revenue (LE million) 919.7 1,384.1 1,265.9 37.6 -8.5

Gross Profit (LE million) 73.2 147.7 112.7 54.0 -23.7

Gross Profit Margin (%) 8.0 10.7 8.9 0.9 -1.8

After-Sales Revenue (LE million) 39.7 48.5 48.4 21.9 -0.2

After-Sales Gross Profit (LE million) 11.4 16.3 14.2 24.6 -12.9

After-Sales Gross Profit Margin (%) 28.8 33.5 29.4 0.6 -4.1

Total Passenger Car Revenues (LE million) 959.3 1,432.6 1,314.3 37.0 -8.3

Total Passenger Car Gross Profit (LE million) 84.6 164.0 127.0 50.1 -22.6

Passenger Car Gross Margin (%) 8.8 11.4 9.7 0.9 -1.7

1Q11 4Q11 1Q12% Change

Y-o-Y% Change

Q-o-Q

CBU Sales Volume (Units) 2,967 6,869 5,534 86.5 -19.4

CKD Sales Volume (Units) 3,406 4,828 5,187 52.3 7.4

Total Sales Volume (Units) 6,373 11,697 10,721 68.2 -8.3

Total Market (Units) 23,225 35,767 31,192 34.3 -12.8

GB Auto Market Share* (%) 28.0 32.6 34.2 7.0 1.6

Sales Revenue (LE million) 440.1 923.4 814.0 84.9 -11.8


Gross Profit Margin (%) 10.5 11.8 10.2 -0.3 -1.6

After-Sales Revenue (LE million) 38.5 48.5 48.4 25.7 -0.2

After-Sales Gross Profit (LE million) 10.9 16.3 14.2 30.3 -12.9

After-Sales Gross Profit Margin (%) 28.2 33.7 29.4 1.2 -4.3

Egypt Passenger Car Revenues (LE million) 478.6 971.9 862.4 80.2 -11.3

Egypt Passenger Car Gross Profit(LE million) 57.1 125.7 96.8 -23.0 69.5

Egypt Passenger Car Gross Margin(%) 11.9 12.9 11.2 -1.7 -0.7

Table 1A: Total Passenger Car Sales Activity — All Brands and Markets

Table 1B: Passenger Car Sales Activity — Egypt

* Market shares calculated based on figures from the Automotive Marketing Information Council (AMIC)

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Table 1C: Hyundai Passenger Car Sales Activity — Iraq


Y-o-Y%Change

Q-o-Q

CBU Sales Volume (Units) 5,876 4,941 4,551 -22.5 -7.9

Total Sales Volume (Units) 5,876 4,941 4,551 -22.5 -7.9

Sales Revenue (LE million) 479.6 460.8 451.9 -5.8 -1.9


Gross Profit Margin (%) 5.6 8.3 6.7 1.1 -1.6

After-Sales Revenue (LE million) 1.1 0.0 0.0 - -

After-Sales Gross Profit (LE million) 0.6 0.0 0.0 - -

After-Sales Gross Profit Margin (%) 48.7 - - - -

Hyundai Iraq Passenger Car Revenues (LE million) 480.7 460.8 451.9 -6.0 -1.9

Hyundai Iraq Passenger Car Gross Profit (LE million) 27.6 38.4 30.1 9.1 -21.6

Hyundai Iraq Passenger Car Gross Margin (%) 5.7 8.3 6.7 1.0 -1.6

Egypt

• Management’sdecisioninJanuaryandFebruarytowithholdunitsfromthemarket—aspricestabilityfalteredmarket-wideonthebackoffallingconsumersentimentasaresultofpoliticalandeconomicturmoilaswellasbroad-basedliquiditychallengesinthepassengercarsector—didnotaffectunitsalesgrowthyear-on-year,whichrose69.9%in1Q12comparedto1Q11,anddropped17.9%comparedto1Q10.

• GBAutomarketshareof34.2%in1Q12reflectsthefactthatnearlyhalfofthecompany’ssalesinthequarterwereinMarch(5,176vehicles),witha41%marketshareinthatmonth.

• AsuccessfulmarketingcampaigninMarch2012drovesalesofCKDmodels,shiftingsalesmixinMarchto63.4%CKDresultinginthequarterreportingsalesmixof48:62CKD:CBUfromthec.35:65CKD:CBUratiosseeninJanuaryandFebruary.

• Sharppricesensitivityinthemarket—whichsawsalesofhigher-endvehiclesplummetwhilelower-endsaleswerelargelyun-changed—maytranslateintoanincreasedpercentageofCKDsalesinthe1H12mix.

• TheNationalTaxiReplacementProgramhasessentiallyended.Thestatecontinuestoallowexistingtaxiownerstotransfertheirplatestonewlypurchasedvehicles,butnolongerofferssubsidiesorcreditsforscrappedvehicles.GBAutoaccountsforthelion’sshareofsalestothetaxisegmentat100-150vehiclespermonth,withsalesgrowthconstrainedbytaxidrivers’concernsaboutpublicsafetyandsecurity.

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• TheCairo-IsmaliyyaHighwayafter-salesfacility(GBAuto’slargestever)haslaunchedandisalreadyaveraging75serviceclientsperdayfully74%ofwalk-insatthatfacilityareclientswhohavenotpreviouslycometoGBAutoforserviceneeds,confirmingmanage-ment’sresearchfindingsthatthefacilitywillnotcannibalizede-mandatotherGBAutoafter-salesoutlets.

• ThenewsalesandservicefacilityinAssiuthasalsobeensoft-launched.

• WorkontheRingRoadafter-salesfacilitycontinuesafterabriefdelayduringwhichplansforthefacilitywereredesignedinlightofpermissiontoaddanadditionalfloortothestructure.TheRingRoadoutletisexpectedtolaunchbyyear’send

• Managementmaintainsitsforecastofmarketshareinexcessof30%forFY12,albeitinthecontextofamarketthatwillpostrelativelymodestgainsinthefirsthalf,withsomeaccelerationindemandexpectedposttheJune2012presidentialelections.

• RoadtestingcontinuesonnewvehiclesandtheGeelyCKDproj-ectcontinuesapace.ManagementistargetinganearlySeptember(post-Eid)launchforGeely.

Iraq

• 1Q12saleswereimpactedbythespillovereffectfromunrestinSyria,astheformerwasanimportantshipmentrouteforGBAuto.WehavesincestartedoperationsfromanalternativeroutethroughTurkey,leadingtoasharprecoveryinsalesmomentum.

• ManagementviewsanyshorttermchallengesinIraqasoperationalchallengesandbelievesthemtobeone-offissuesratherthanhar-bingersofchangingmarketfundamentals.

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GB Auto is the Egyptian agent and distributor for Bajaj three-wheel scooters (“tuk-tuks”), two-wheel scooters and Boxer mo-torcycles.

Motorcycle & Three-Wheeler Line of Business

Three-Wheelers

Two-Wheelers

1Q080

3000

6000

9000

12000

15000

1Q09 1Q10 1Q11 1Q12

6,572

8,4798,775

13,110

7,781

6,000

1,3631,365832879Motorcycles

After-Sales

Three-Wheelers

6.8%4.7%

88.5%

4.1%4.1%

91.8%

19.4%

6.1%

74.5%

1Q11

1Q10

1Q12

Motorcycles & Three-Wheelers Revenue Break-down by Segment

Breakdown of Units Sold

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Y-o-Y%Change

Q-o-Q

Three-wheeler Sales Volume (Units) 13,110 14,938 7,781 -40.6 -47.9

Two-wheeler Sales Volume (Units) 1,363 4,466 6,000 340.2 34.3

Sales Revenue (LE million) 193.9 246.9 149.0 -23.2 -39.6

Gross Profit (LE million) 52.8 61.5 32.2 -39.0 -47.6


After-Sales Revenue (LE million) 8.3 9.0 9.6 15.7 6.7

After-Sales Gross Profit (LE million) 2.3 0.1 1.7 -26.1 1,600.0

After-Sales Gross Profit Margin (%) 27.3 1.4 17.2 -10.2 15.8

Total Motorcycles & Three-Wheeler Revenues (LE million) 202.2 255.9 158.7 -21.5 -38.0

Total Gross Profit (LE million) 55.1 61.6 33.8 -38.7 -45.1

Motorcycles & Three-Wheelers Gross Margin (%) 27.2 24.1 21.3 -5.9 -2.8

Three-Wheelers (Tuk-tuks)

• Slowingsalescameonthebackofcustomsandsalestaxin-creasesappliedinJanuary,andwhichwerelaterreversedinlateFebruary,howeverinflictingdamageongroupsalesforabout1.5months.

• Followingadeclineinsalestoc.1,700unitspermonththroughlateFebruarywhenthecustomsissuewasresolved,unitsalesrecov-eredtoc.3,700inMarch,stilloffthehistoricalaverageofc.6,000unitsmonthly.Weeklydemandpatternsremaininconsistent.

• Managementexpectstoseearelativerecoveryinvolumesthroughtheremainderof1H12,withrecoverytohistoricalsaleslevelsbeginningpostthepresidentialelectionsandpendinganimprove-mentinthesecuritysituationperceptionfortargetbuyers.

• Pent-updemandforthree-wheelersinlow-income/peri-urbanareasremainssignificant.

Motorcycles

• Salescontinuetoincrease,quadruplinginvolumecomparedto1Q11duetotheintroductionofthepopularBoxer150motorcyclemodelinlate2011.

• Managementexpectsthestrongperformanceofthetwo-wheelerstocontinuetosupporttop-lineperformanceofthedivision,whileprofitabilityfromtheproductshouldgraduallyimprove.

Table 2A: Motorcycle & Three-Wheeler Sales Activity

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The Commercial Vehicles and Construction Equipment line of business offers a wide range of assembled-in-Egypt trucks and buses under exclusive agent and distributorship agreements with Mitsubishi and Volvo. GB Auto also operates in the manufacturing and distribution of semi-trailers and superstructures (i.e., oil and chemical tankers as well as concrete mixers). The Commercial Vehicles LOB also distributes Volvo construction equipment in Egypt. GB Auto exports trailers to Algeria through a joint-venture distributorship and produces buses for domestic and export mar-kets through GB Polo, a state-of-the-art facility in partnership with global leader Marcopolo.

Commercial Vehicles and Construction Equipment Line of Business

Buses

Trailers

Trucks

Construction Equipment

Buses

Trailers

Trucks

Construction Equipment

After-Sales

3.3%

31.2%

41.9%

12.7%

10.9%

4.0%31.6%

27.7%17.3%

19.4%

3.3%

27.3%

50.1%

9.0%

10.2%

1Q11

1Q10

1Q12

Commercial Vehicles & Construction Equipment Revenue Breakdown by Segment

Breakdown of Units Sold

1Q080

100

200

300

400

500

1Q09 1Q10 1Q11 1Q12

404416

232

295

130

179

380

49

6

67

160

55

1

100

418

45

14

115

158

11


Y-o-Y%Change

Q-o-Q

Buses Sales Volume (Units) 67 130 100 49.2 -23.1

Trucks Sales Volume (Units) 160 161 418 161.2 159.6

Trailer Sales Volume (Units) 55 14 45 -18.2 221.4

Construction Equipment (Units) 1 13 14 - 300.0

Sales Revenue (LE million) 59.5 88.4 118.8 99.8 34.4

Gross Profit (LE million) -2.6 0.8 5.2 n/m 550.0

Gross Profit Margin (%) -4.3 0.8 4.4 n/m 3.5

After-Sales Revenue (LE million) 14.3 12.6 14.1 -1.4 11.9

After-Sales Gross Profit (LE million) 2.4 2.6 2.1 -12.5 -19.2


Total CV&CE Revenue (LE million) 73.8 101.0 132.9 80.1 31.6

Total CV&CE Gross Profit (LE million) -0.2 3.4 7.3 - 114.7

Total CV&CE Gross Profit Margin (%) -0.3 3.3 5.5 n/m 2.2

• Unitsalesoftrucksrosesignificantlyinthequarter,withtheseg-mentcontributingfully50.1%ofthelineofbusiness’totalrev-enues.Thatsaid,thissegmentisnotshowingsignsoffullrecovery,andmanagementisnotexpectingsharpimprovementsinperfor-manceintheshort-term.

• Thesegmentrecordedrevenuegrowthof80.1%year-on-yearand31.6%quarter-on-quarter.Marginsarealsoshowingimprovement,rising2.2percentagepointsQ-o-Qandswingingfromanegative0.3%in1Q11toapositive5.5%in1Q12.

• Aspreviouslynoted,theCommercialVehicleslineofbusinessfacesaprolongedrecessionpendingthereturnofbroad-basedeco-nomicgrowthandaresumptionofbothcorporatefleetspendingandstatespendingoninfrastructure,aswellasareboundinthetourismsector,amongotherindustries.Moreover,fillinginimpor-tantproductgaps,whichshouldstartin2013,willhelpsignificantlychangethecourseofthisLOB.

Table 3A: Commercial Vehicles and Construction Equipment Sales ActivitySales Activity

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Tires


GB Auto distributes Lassa passenger car and light truck tires and Yokohama passenger car, semi-truck, truck, bus and construction equipment tires to the Egyptian market.

Initially established to provide finance to GB Auto’s commercial vehicles and corporate fleet clients, GB Lease has diversified its field of operations into other asset classes. Mashroey, the Group’s microfinance venture, sells GB Auto’s Bajaj-branded two and three-wheelers on credit terms to microfinance-eligible clients and has added home electrical appliances to its product range. GB Auto will start extending consumer finance through Drive, which will finance consumer purchases of our passenger car brands in phase 1 of its operations.


Y-o-Y%Change

Q-o-Q

Total Sales Revenue (LE million) 33.7 36.0 64.9 92.6 80.3

Total Gross Profit (LE million) 3.8 4.8 9.5 150.0 97.9

Gross Profit Margin (%) 11.3 13.3 14.6 3.3 1.4


Y-o-Y%Change

Q-o-Q

Total Sales Revenue1 (LE million) 24.1 50.8 40.6 68.5 -20.1

Total Gross Profit (LE million) 7.6 11.8 11.5 51.3 -2.5

Gross Profit Margin (%) 31.7 23.3 28.4 -3.3 5.1

Table 4: Tires Sales Activity

Table 5: Financing Businesses

• Managementlooksforwardtonewbusinessannouncementsinthissegmentlaterintheyearand,inthemeantime,expectscontinuedstrongsalesofexistingYokohamaandLassabrandsin2Q12.

• Overall, the Financing Businesses continue to exceed expectations, closing 1Q12 with a strong 28.3% gross margin, albeit down 3.4% against 1Q11; this decline is attributable to the lower level of bor-rowing in 1Q11. With the stabilization of borrowing levels during the

1 Please note that the contribution of Mashroey to the total revenues figure for the Financing Busi-nesses is calculated based on the incremental sales revenue generated by Mashroey from the sale of products and the financing margin on those products; sales via intercompany accounts are, therefore, eliminated.

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Financial Position and Working Capital Management

Latest Corporate Developments

The first quarter of 2012 was healthy despite previously noted obstacles in the Iraqi Passenger Cars and Egyptian Motorcycles and Three-Wheelers lines of business. Substantial top-line growth of more than LE 400 million came on the back of Management’s decision to offer special incentives to support sales, which in turn translated into slight reductions in gross mar-gins. In parallel, Management maintained its focus on cost controls, which boosted margins on the operating profit level.

Also noteworthy from a bottom-line perspective is the increase in tax rate to 25% on earnings over LE 10 million as compared with 20% in the same period last year.

Working capital management remains a key priority for the Group, which has recorded an improvement in trade payables that is in part driven by operational enhancement to this area as well as recording approved dividend payments as per the AGM.

On the inventory front, as a direct result of market disruption in Iraq Passenger Car operations and Motorcyles & Three-Wheelers, inventory levels increased by LE 200 million compared with the end of last year. This increase was caused by the closure of the borders with Syria — forcing management to find an alternative route to transport passenger cars into Kurdistan — and by the change in sales tax and custom tariffs on three-wheelers, since resolved, both of which led to a mismatch between our planned supply cycle and delivery to market.

Receivables remain under tight control with the Group paying very close attention to its trade exposure. The long cash collection cycle with the Iraqi government remains the primary factor behind the Group’s skewed receiv-ables, a factor management is now addressing.

On the whole, the total working capital (excluding dividend payable) of the Group increased for the period by LE 200 million, thereby setting the Group’s net debt:equity level at 0.57 vs. 0.45 at end of 4Q11. Finance costs rose in lock-step with the finance debt level.

The launch ceremony for the company’s newest 3-S facility, on the Cairo-Ismaliyya Desert Road was held on Tuesday 7 May. Attendees included Dr. Raouf Ghabbour, Chief Executive Officer of GB Auto, and Mr. Abd Elkawy Khalifa, Governor of Cairo, as well as senior management of GB Auto. The new facility is GB Auto’s latest 3-S facility: One-stop shopping for custom-ers seeking sales, service and spare parts, adding a 2,700-square-meter

course of 2011, gross profit margin gained five points compared with 4Q11.

• GB Lease continues to extend lease finance for a diverse asset base including the automotive, heavy equipment, real estate industries as well as production lines, among others. GB Lease closed 1Q12 with a notes-receivable book of LE 272 million and strong collections to-date.

• Mashroey has actively grown its portfolio of two wheelers, capitaliz-ing on the success of GB Auto’s sale of Bajaj’s Boxer. Two and three wheelers continue to constitute the bulk of Mashroey’s portfolio. With notes receivable of LE 73 million, Mashroey is now operating out of 43 branches nationwide. Like GB Lease, Mashroey reported strong col-lections in the quarter.

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GB Auto expects growth of the Passenger Car line of business in Egypt will be tempered by weak consumer sentiment throughout 2012, particu-larly in the higher-cost CBU segment. On the other hand, Management expects that the complementary CKD assembly agreement with Geely Au-tomotive Ltd. will allow the company to make better use of its expanded CKD assembly capacity. Capacity allotted to Geely will increase gradually starting with the anticipated 3Q12 launch of assembly operations.

Going forward, GB Auto will aim to maintain a Passenger Car market share in excess of 30%. Some short-term upward momentum in sales is also possible in light of consumer expectations of higher pricing arising from devaluation of the Egyptian pound against key import currencies. Sales momentum for GB Auto and the broader passenger car market in 1H12 will be limited by both political and economic concerns. Moreover, while GB Auto is possessed of a highly liquid balance sheet, growth of some competitors will be constrained by risk aversion within the bank-ing sector, where liquidity is low as banks increase exposure to high-rate treasury bills.

Commercial Vehicles will remain impaired so long as (a) the general economic downturn continues, as customers for the Division’s current product lineup are particularly sensitive to economic shocks, and (b) GB Auto does not hold a complete product portfolio including microbus, pickup truck and micro-microbus products. Management has taken ac-tive steps in this respect, and anticipates making an announcement in 2Q/3Q12.

The likely devaluation of the Egyptian pound against key import cur-rencies presents downside risk in that GB Auto’s ability to pass-on price increases to consumers may be limited by developments in the broader economy. That said, Management notes the company’s success in intro-ducing both higher-priced new Passenger Car models in FY11 as well as the ability last year to pass organic price rises on to the market. Offering a cost-competitive Commercial Vehicles product in the context of devalu-ation and / or rising inflation may serve as an additional advantage to GB Auto.

Consumers for products in the Motorcycles and Three-Wheelers line of business are largely de-coupled in the long term from the economic slow-down, but sales patterns in 1Q12 underscore that the segment is exposed to (a) government decisions impacting consumer sentiment and (b) owner-operators’ fears as to the safety of their investments in the current security situation. That said, these vehicles provide service to an exceptionally large and under-served peri-urban population, and GB Auto’s ability to finance purchases through Mashroey will be a further bulwark against sales ero-sion or new competition.

Growth in the After-Sales segment is dependent on maintaining im-proved Passenger Car and Motorcycle and Three-Wheeler volumes and the planned doubling of capacity through the opening of three new After-Sales facilities in 2012. This is expected to deliver considerable growth in this high-margin segment heading into 2013.

On the Financing Businesses front, we expect the business to continue to grow and thrive, and that Drive, the consumer financing arm, will launch

Outlook

showroom, 217 service bays and 1,200-sqm spare parts gallery and body workshop to the company’s already-extensive network of total customer care locations

15

operations in 2Q12.Finally, we note that our forecasts for the year do not include allowance

for exogenous shocks that may have an impact on market sentiment. At present, these shocks are largely of a political nature. We believe, however, in our strong management team’s ability to rationalize the performance of the different segment during FY12 with their special focus on cost effec-tiveness and their quick response to market changes. This is underpinned by a strong balance sheet at the beginning of the year as well as a sound liquidity position.

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Financial Statements

Three Months Ended31 December

(LE million) 2011 2012 % Change

Revenues 1,298.3 1,712.4 31.9

COGS 1,148.6 1,525.9 32.8

Gross Profit 149.7 186.4 24.5

Gross Profit Margin 11.5 10.9 -0.6

Selling and Marketing -54.2 -57.9 6.8

Administration Expenses -30.9 -40.3 30.4

Other Operating Income (Expenses) 5.1 5.7 11.8

Operating Profit 69.7 93.9 34.7

Operating Profit Margin (%) 5.4 5.5 0.1

Net Provisions and Non-Operating -0.5 -1.6 218.2

EBIT 69.2 92.4 33.5

EBIT Margin (%) 5.3 5.4 0.1

Foreign Exchange Gains (Losses) -8.3 -11.5 38.9

Net Finance Cost -43.9 -56.0 27.6

Earnings Before Tax 17.0 24.9 46.6

Income Taxes -5.4 -6.3 16.7

Net Profit Before Minority Interest 11.5 18.6 61.7

Minority Interest -3.8 -0.4 -89.5

Net Income 7.7 18.2 136.4

Net Profit Margin (%) 0.6 1.1 0.5

Income Statement

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Three Months Ended31 December

(LE million)31 Dec

201131 March

2012% Change

Cash 1,010.1 1,039.1 2.9

Net Accounts Receivable 790.4 805.5 1.9

Inventory 1,259.8 1,462.6 16.1

Other Current Assets 518.2 667.8 28.9

Total Current Assets 3,578.6 3,975.1 11.1

Net Fixed Assets 1,638.5 1,681.1 2.6

Goodwill and Intangible Assets 179.7 179.4 -0.2

Lessor Assets 164.2 195.4 19.0

Investment Property 5.5 5.5 0.0

Other Long-Term Assets 38.8 38.3 -1.3

Total Long-Term Assets 2,026.7 2,099.6 3.6

Total Assets 5,605.3 6,074.8 8.4

Short-Term Notes and Debt 1,352.0 1,650.8 22.1

Accounts Payable 1,056.1 1,363.1 29.1

Other Current Liabilities 73.1 116.8 59.8

Total Current Liabilities 2,481.1 3,130.6 26.2

Long-Term Notes and Debt 710.6 636.3 -10.5

Other Long-Term Liabilities 85.6 106.9 24.9

Total Long-Term Liabilities 796.2 743.2 -6.7

Minority Interest 343.9 347.9 1.2

Common Stock 126.0 131.1 4.0

Shares Held With the Group -9.5 -9.6 1.1

Legal Reserve 214.2 226.4 5.7

Other Reserves 1,036.3 1,037.7 0.1

Retained Earnings (Losses) 615.0 467.4 -24.0

Total Shareholder’s Equity 1,984.0 1,853.0 -6.6

Total Liabilities and Shareholder’s Equity 5,605.3 6,074.8 8.4

Balance Sheet

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About GB Auto S.A.E.

GB Auto S.A.E. (AUTO.CA on the Egyptian Exchange) is a leading au-tomotive producer and distributor the Middle East and North Africa. The company assembles, imports and exclusively distributes passenger cars under the Hyundai and Geely brands. GB Auto also assembles, imports and exclusively distributes commercial vehicles (buses and trucks) in Egypt under the Volvo and Mitsubishi brands, as well as manufacturing trailers and superstructures. Via GB Polo, a joint-venture with leading global play-er Marcopolo, the company manufactures and assembles bus bodies. It is the exclusive importer and distributor of Mazda passenger cars in Egypt and is the exclusive importer and distributor of Hyundai vehicles in Iraq through a joint venture, GK Auto. In addition, it exclusively distributes other products in Egypt, namely: two and three-wheelers under the Bajaj brand, tires under the Lassa and Yokohama brands and construction equipment under the Volvo brand. GB Auto provides financial leasing, microfinance and consumer finance via GB Lease (business to business financial leas-ing), Mashroey (microfinance) and Drive (consumer finance - under estab-lishment). The company also operates Egypt’s largest network of service centers and automotive spare parts sales points as well as passenger and cargo transportation services. GB Auto is headquartered in Giza, Greater Cairo Area, Egypt. (www.ghabbourauto.com)

Forward-Looking Statements

This document may contain certain “forward-looking statements” relating to the Company’s business. These may be identified in part through the use of forward-looking terminology such as “will,” “planned,” “expecta-tions” and “forecast” as well as similar explanations or qualifiers and by discussions of strategy, plans or intentions. These statements may include descriptions of investments planned or currently under consideration or development by the Company and the anticipated impact of these invest-ments. Any such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance, decisions or achievements of the Company to be materially different from any future results that may be expressed or implied by such forward-look-ing statements.

Head OfficeCairo-Alex Desert Road, Km 28 Industrial ZoneAbu Rawash, Giza, Egypt

Tel: +202 35391201Fax: +202 35391198

Investor RelationsMs. Hoda YehiaInvestor Relations Manager

Direct: +202 3910 0485Fax: +202 3539 0139

e-mail: [email protected]

Shareholder InformationReuters Code: AUTO.CABloomberg Code: AUTO.EY

Number of Shares Outstanding: 129,000,000

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