The Covid-19 lockdown has had a disastrous impact on the South African economy and the motor industry, where consumer confidence and affordability levels were already touching record lows, and unemployment had reached a record high. Photo: Thobile Mathonsi/African News Agency (ANA)
The Covid-19 lockdown has had a disastrous impact on the South African economy and the motor industry, where consumer confidence and affordability levels were already touching record lows, and unemployment had reached a record high. Photo: Thobile Mathonsi/African News Agency (ANA)

CMH revved-up and ready to steer ahead

By Edward West Time of article published Jun 24, 2020

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CAPE TOWN – Combined Motor Holdings (CMH) had a strong balance sheet with significant cash resources to see it through the tough trading environment and gain market in a motor retail industry that was likely to have fewer players post Covid-19, chief executive Jebb McIntosh said on Tuesday in the audited annual results.

The Covid-19 lockdown has had a disastrous impact on the South African economy and the motor industry, where consumer confidence and affordability levels were already touching record lows, and unemployment had reached a record high.

CMH’s attributable profit fell to R58.87 million in the year to February 29 from a restated R81.72m the year before, and from R128.93m in 2018.

McIntosh said the consensus view was that following the lockdown, national new vehicle sales volumes would decline year-on-year by about 30 percent.

The impact on used car sales was not expected to be as great as that of new car sales. CMH’s parts and services divisions, which operated to a limited extent under level 4, had begun to rebound since the easing to level 3.

He said management had to take extraordinary measures to manage the crisis, the most significant of which were initiatives to reduce expenses to offset the drop in revenue.

The accumulated slide in interest rates by 250 basis points since year-end, together with significantly lower stock holding, was expected to result in a decrease in finance costs of about 40 percent.

Variable costs were expected to reduce in line with the drop in revenue, while employee costs were expected to reduce by about 40 percent in the short term after a reduction in head count and temporary salary cuts.

Once salaries reverted to the pre-lockdown levels, the impact was an expected long-term reduction of 20 to 25 percent, said McIntosh.

The group acquired Mandarin Motor Spares, a parts importer, distributor and retailer, from March 1. The business has 17 independent franchisees and its focus has been replacement parts sourced in China and India.

The group's motor retail segment suffered a 19.2 percent decline in profit in the past year, due mainly to rising overheads against a flat revenue and gross profit margin. Total new vehicle volume sales fell 7 percent, against a national market decline in passenger and light commercial sales of 3 percent.

The lagging performance was due to three of the group's highest-volume contributors losing an average of 17 percent market share, said McIntosh.

Car hire First Car Rental performed well to maintain its revenue and market share. In anticipation of a tough trading year, the fleet size was reduced by 8 percent. The smaller fleet yielded improved utilisation levels, especially during the off-peak winter months, and helped offset the fleet holding costs, being interest and depreciation.

Overhead expense increases were aligned with inflation. Pressure in the used car market reduced the values at which the retired fleet was able to be offloaded, and was the principal reason for the segment’s 6.4 percent fall in profit.

The financial services segment, which comprises special purpose insurance underwriting cells, relating to products sold in tandem with vehicle sales, and joint ventures in the financing and collection of credit facilities granted to vehicle purchasers, produced 8 percent profit growth.

To reduce the cost of the insurance underwriting entities, new partnership alliances were formed in November last year. The cost savings would become apparent during the next 6 to 18 months, as the volumes through the new structures grow, he said.

CMH shares closed 6.86 percent higher at R12 on the JSE on Tuesday.

BUSINESS REPORT

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