(AP Photo/Michael Probst)
(AP Photo/Michael Probst)

Combined Motor Holdings keeps it together

By Edward West Time of article published Apr 24, 2019

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CAPE TOWN – Combined Motor Holdings’ attributable profit fell 7.8 percent to R228.17 million in the year to February 29, but the motor sales and vehicle hire group is in good shape, considering the very low level of industry-wide vehicle sales.

Tight cost and cash management even saw the group declare an unchanged dividend of 115 cents a share. Shares in Combined Motor Holdings rose 2.04 percent to close at R20.97 on the JSE yesterday.

“While it is disappointing to interrupt a record of rising headline earnings per share, given the political and economic background, I am satisfied with the results. I am cautiously optimistic that after the election we will see better confidence levels in the market,” chief executive Jebb MacIntosh said in an interview.

Group vehicle sales volumes rose by 1 percent over the financial year, this after sales were held back by since-resolved supply disruptions at Ford, the manufacturer that represents the highest volume contributor to group sales.

This contributed to a 5.5 percent increase in revenue to R11.15 billion, which was also boosted an increased mix of higher priced new luxury vehicles sold, and a 2 percent to 3 percent average new vehicle price increase through the year.

The 1 percent rise in group vehicle sales is slightly better than industry new car and light commercial vehicle sales, which fell 1.8 percent in the reporting period, following only a 0.4 percent rise last year and declines in each of the preceding three years.

“The macro-picture for the industry is one of increasing costs, principally salaries and property costs, offsetting a static revenue line,” said MacIntosh.

He said the group had cut costs as much as it could over the past two years, and he did not want to get to the point where “we start cutting into the muscle”.

Industry expectations of a -1 percent to 2 percent increase in vehicle sales during calendar 2019 would mean the lowest level of vehicle sales in a decade.

There had been no discernible improvement in market conditions since year-end, but MacIntosh said he was hopeful that consumer and business confidence levels would improve after the election.

The decline in attributable profit came about after margins were squeezed and operating profit declined.

The gross profit margin fell to 16.4 percent from 16.7 percent.

Good cash flow controls kept finance costs on par with last year. Periodic use of surplus funds to settle car hire borrowings offset higher interest paid on vehicle floor-plan levels that arose from periods where dealers were forced by vehicle manufacturers to hold higher than optimum inventory.

Although borrowings continued to be settled with surplus cash, a parcel of new fleet vehicles was acquired using external finance, and intra-group funds were held on call account.

As a result, R676 million in cash was realised at year end, compared with R373m the previous year

MacIntosh said the affordability of new vehicles for consumers had continued to improve with the stable interest rates. Attractive sales incentives from vehicle manufacturers were also expected to help lift the market.

“The group is in a sound financial position. The management team is experienced, hard-working and enthusiastic. The missing ingredient is a boost to the revenue line,” he said.

The car hire operations suffered a reversal of a 10-year record of rising earnings, and a 24 percent decline in attributable earnings was due mainly to the reduced prices at which the retired fleet was sold.

In the financial services division, essentially insurance cells relating to products sold in tandem with the sale of vehicles, and joint ventures in the financing of credit facilities granted to purchasers, saw increased increased profitability in a flat market, and an 11 percent increase in premiums during the year was expected to grow steadily over time.


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