Combined Motor Holdings hit by deferrals

Published Oct 14, 2016

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Johannesburg - Listed vehicle retailer Combined Motor Holdings (CMH) says interest rate hikes and substantial new vehicle price increases, coupled with social and political unrest, have combined to produce a climate of uncertainty and a deferral of purchasing decisions.

Jebb McIntosh, the chief executive of CMH, said yesterday that group sales of new passenger and light commercial vehicles declined by 8.8 percent in the six months to August compared with the decrease nationally of 12.4 percent.

However, McIntosh said this decline was offset by a 6.7 percent rise in used vehicle sales.

Depressed

McIntosh stressed the declining level of new vehicle sales was a reflection of the subdued economic activity brought about by depressed business and consumer confidence levels.

He said CMH’s board did not foresee an improvement in trading conditions during the second half of the group’s financial year.

“The optimists are speculating that the new vehicle sales levels are bottoming out and that further year-on-year declines will be limited. It is clear that new vehicle price hikes have made purchases very expensive despite the marketing incentives offered by manufacturers.

“On the plus side, the banks are reporting an increase in applications for used vehicle financing. This indicates that consumers are switching from new to used, rather than not investing at all.

“The group has a strong used car presence, able to take advantage of the increased demand,” he said.

CMH yesterday reported an 18.7 percent growth in headline earnings a share to 116.6 cents in the six months to August from 98.2c in the previous corresponding period.

Revenue from continuing operations declined by 4.5 percent to R5.26 billion from R5.5bn.

Operating profit improved by 11.7 percent to R164.15 million from R146.95m.

Higher

A dividend of 55c a share was declared, which is 18 percent higher than the 46.5c dividend declared for the previous corresponding period.

Overall the retail motor division recorded a 16 percent improvement in pre-tax profit to R63.7m from R55.1m.

McIntosh attributed this to an increase in gross profit margins, a below-inflation rise in selling and administration expenses and the positive impact of the closure of loss-making dealerships.

The operating margin before the impairment of goodwill impairment improved from 2.1 percent to 2.2 percent.

McIntosh said the car hire division enjoyed continued success and increased profit after taxation by 52 percent to R29.3m from R19.2m. This increase in profit was underpinned by strong demand for the group’s retired fleet vehicles and an 18 percent growth in revenue to R226m.

The profit after tax of the financial services division declined by 7 percent to R15.6m from R16.7m.

Shares in CMH remained unchanged at R17 yesterday on the JSE.

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