Dear Shareholders,
The year 2009 was one of the most successful ones in the operating history of Inter Cars S.A., which, let me frankly admit, came as a surprise. Expecting only a modest growth, if at all, we focused on reducing general and administrative expenses. The market, however, is anything but predictable, and as each new month unfolded we were able to report – with great pleasure and delight – record-high sales figures. It has always been my belief that the independent market for automotive parts and services is pretty immune to economic downturns, regardless of their source. Not only did it prove immune, but it manifested an ability to develop despite unfavourable market conditions.
According to a report by Stowarzyszenie Dystrybutorów Części Motoryzacyjnych (Polish Automotive Aftermarket Suppliers Association, SDCM), the independent automotive aftermarket grew from PLN 22bn in 2008 to almost PLN 25bn in 2009. Since 2004, the market has experienced an over PLN 13bn growth, with Inter Cars S.A. emerging as the main beneficiary of the upward trend. In 2009, we posted sales revenue of over PLN 2bn, up by almost 19% year on year. We managed to substantially outperform our major competitor, which posted PLN 700m-worth of sales.
A combination of factors contributed to the 2009 success. The economic slowdown was one of the them. On the back of repeated messages of concern about the impending economic crisis heralded by the media, many households and businesses started to shift into the cost-efficiency mode. According to the SDCM’s report, in Poland car expenses are the second-largest item in a family budget. In 2009, the average motorist in Poland spent PLN 1,486 on car maintenance, compared with PLN 1,354 a year earlier. The average cost of car parts alone was PLN 730 (relative to PLN 703 in 2008), a major portion of which was spent on goods sourced from the independent automotive aftermarket. Suffice it to say that the share of independent automotive parts manufacturers in the auto repair market is 70%. It appears that this market trend – a growing market share – will continue in the years to come.
Businesses followed the steps of consumers and began to cut fleet operating costs. According to our in-house estimates, almost 400 thousand vehicles migrated from the OEM service stations to independent garages in 2009. The automotive fleet services division of Inter Cars S.A. reported an over 80% year-on-year rise in sales revenue, a visible sign of an ever-stronger movement from the OEM to independent segment of the automotive market.
The market-migration trend is additionally driven by a growing awareness that original spare parts arenot only those bearing the trademark of a vehicle manufacturer but also those produced according to the manufacturer’s specifications and standards. Such a definition of original spare parts is given inthe explanatory brochure for Commission Regulation (EC) No. 1400/2002, commonly known as GVO. Although the regulation is due to expire in May 2010, it is to be superseded with legislation which not only upholds the advantageous regulatory framework (e.g. the definition of original spare parts), but goes even further and abolishes the rule whereunder warranty repair services may be provided only if OEM-branded spare parts are used in a vehicle. We expect the trend of movement from the OEM to independent segment to prevail, albeit to a lesser extent than in 2009.
We hesitate to believe that the 2010 figures will be as spectacular as those reported in 2009, yet we anticipate a sustained business growth in Poland and abroad. Our foreign operations have a particularly strong potential for increasing the Company’s market shares, as some markets for automotive parts and services in which we are present (including Romania) are not yet fully fledged, and our market rivals have to cope with difficulties arising from a hasty consolidation process (whichresulted in a dramatic decline in sales).
Obviously, hoping for our competitors to fail is not a point of reference in defining our growth strategy. Inter Cars S.A. has always been the pioneer in business solutions for the auto parts distribution market, and aims to continue as a provider of innovation, exploring new ways of improving our flexibility and competitive advantage.
A new solution, designed to complement our existing distribution channels, is the Motointegratoronline platform, which facilitates communication between customers and repair service providers. It enables customers to select suitable spare parts and a garage where the repair work is to take place. Dedicated consultants provide customers with support in selecting the spare parts. In addition, we intend to furnish motorists who join our Motointegrator platform with an access to comprehensive packages, including insurance policies, assistance service, and other products. We expect that over the next five years Motointegrator will become an important distribution channel, and will additionally reinforce loyalty of our partner auto-service stations.
In 2010, we expect to see first tax savings derived from synergies among our subsidiary companies.
An area of some concern is the heavy vehicles market. The financial collapse of many companies from the Polish transport industry translated into a drop in truck repair spending. The previous year was severely felt by all market participants involved in the distribution of heavy vehicles. The undiversified business profiles of key players in this market make them vulnerable. Should the tendency continue, they will be exposed to significant losses, given the business expansion policies they followed until recently. Capitalising on the weakness of its rivals, Inter Cars S.A. may soon emerge as the leader in the truck segment as well.
To conclude, I wish to thank all our shareholders for their trust put in the Company. Those who refused to question the Company’s value were proven right last year when our stock price climbed from below PLN 30 in January to over PLN 80 in December. I would like to ensure you that our goals are set high, and, as I have said on many occasions, our ultimate objective is to achieve the leading position on the European market. Nothing stimulates growth more than challenging yet attainable goals.
Krzysztof Oleksowicz
President of the Management Board