COMBINED Motor Holdings (CMH) turned around a first-half loss to an attributable profit of R168.8 million in the year to February 28, only 11.4 percent below that of the previous year, as car sales growth ticked up in the second half.
The share price increased 4.9 percent to R18.25 yesterday afternoon. The share closed the day at R18.35. Net asset value per share was up 11.6 percent to R12.16. Revenue fell 23.1 percent, and operating profit was 17.3 percent lower at R345.05m. A dividend of 125 cents per share was declared.
Chief executive JD Macintosh said the “outstanding” results were achieved through one of the harshest lockdowns in a country that was already in economic depression.
The retail motor segment faced 77 days when licensing departments and testing stations were closed, so no vehicle sales could be effected, and car hire utilisation was less than 20 percent.
The main impact of this was that an interim earnings loss of R14.2m was reported, despite remaining financially sound with substantial cash resources.
The second half continued to be impacted by the pandemic and pressure from load shedding.
The focus since the lockdown had been mainly to protect cash resources through reducing working capital levels, maximising gross profit on lower sales, the alignment of costs, and the safety and motivation of staff.
Reduced sales levels meant inventory was cut by 22 percent, receivables 11 percent, and the car hire fleet 22 percent. Cash resources were at a comfortable R755m, after the payment of R76m in dividends, and a R72m property investment. Some cash would be applied to reduce borrowings on the car-hire fleet.
Macintosh said the reduced sales level was offset, to a degree, by an improvement in the trading margin on vehicle sales. An improvement in the car-hire rate, and the reduced cost of borrowing after the interest rate cut, also assisted the gross margin.
The reduction in costs involved, among other things, the taking “of many hard decisions regarding pay cuts, early retirements, retrenchments, termination of fixed term contracts and salary freezes”, he said.
“Perhaps more important is the impact that the reduction (in interest rates) has on vehicle affordability for customers. A significant portion of vehicles are bought on credit. The instalment reduction, for both housing and vehicle loans, has brought welcome relief,” he said.
Macintosh said the trading results and the strength of the financial position and cash flows had enabled the resumption of dividend payments.
The group’s motor retail segment went from a six-month pre-tax loss of R4.1m to an annual profit of R202.4m.
The decline in unit sales was 10.5 percent in the second half, compared with the national fall of 17.3 percent. Annual used vehicle sales fell 18 percent for the year, and 4 percent for the second half.
After the lockdown, the parts and service departments returned quickly to about 80 percent of previous sales levels, and since then the progress had been steady, but slower, with the current average at 90 to 95 percent.
The car-hire businesses had survived on the slow growth in the domestic travel market. A strategic alliance with FlySafair had boosted revenue and provided an opportunity for increased market share.
There had been growth in the insurance replacement market following a successful tender to one of the major insurance underwriters.
Macintosh said the new year would present the challenge of rebuilding a shattered economy. Developments regarding the pandemic were now focused on the possibility of further surges in infection rates, and the government’s ineptitude in securing a sufficient supply of vaccine and developing an immunisation programme. Gross domestic product would take at least two years of good growth to recover, he said.
edward.west@inl.co.za
BUSINESS REPORT ONLINE