CMH reports annual profit after recovery in second half car sales

Through Edward West 2 months ago

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COMBINED Motor Holdings (CMH) reversed a first-half loss to attributable profit of Rand 168.8 million as of February 28, just 11.4% lower than the previous year, as growth in car sales increased in the second half of the year.

The share price rose 4.9 percent to R18.25 yesterday afternoon. The action closed the day at R18.35. The net asset value per share rose 11.6 percent to Rand 12.16. Revenue fell 23.1 percent and operating profit was 17.3 percent lower at Rand 345.05 million. A dividend of 125 cents per share was declared.

Managing Director JD Macintosh said the “exceptional” results came from one of the toughest lockdowns in a country already in economic crisis.

The motor vehicle retail segment had to cope with 77 days when licensing departments and test stations were closed so that no vehicle sales could be made and use of car rental was less than 20%.

The main impact of this situation has been that an intermediate loss of R14.2 million has been reported, although it remains financially sound with substantial cash resources.

The second half of the year continued to be impacted by the pandemic and the pressure of power cuts.

Since the lockdown, the main focus has been to protect cash resources by reducing working capital levels, maximizing gross profit on declining sales, aligning costs, and ensuring staff safety and motivation.

The reduction in sales levels resulted in a reduction in inventory by 22%, receivables by 11% and rental car fleet by 22%. Cash resources were at a comfortable R755m, after the payment of R76m in dividends, and a real estate investment of R72m. Cash would be used to reduce borrowing from the rental car fleet.

Macintosh said the lower sales level was offset, to some extent, by an improvement in the profit margin on vehicle sales. An improvement in the car rental rate and a reduction in the cost of borrowing after the interest rate drop also contributed to the gross margin.

Cutting costs involved, among other things, making “many difficult decisions regarding pay cuts, early retirements, layoffs, termination of fixed-term contracts and wage freezes,” he said.

“Perhaps the impact of the reduction (in interest rates) on the accessibility of vehicles for customers is greater. A significant portion of vehicles are purchased on credit. The reduction in installments, both for housing and for car loans, has brought welcome relief, ”he said.

Macintosh said business results and a strong financial position and cash flow allowed dividend payments to resume.

The group’s automotive retail segment went from a 6-month pre-tax loss of Rand 4.1 million to an annual profit of Rand 202.4 million.

Unit sales fell 10.5% in the second half of the year, compared to a national decline of 17.3%. Annual used vehicle sales fell 18% for the year and 4% for the second half.

After the lockdown, parts and service quickly returned to around 80% of previous sales levels, and since then progress has been steady, but slower, with the current average hovering between 90 and 95%.

Car rental companies had survived the slow growth of the domestic travel market. A strategic alliance with FlySafair had increased revenues and offered an opportunity for increased market share.

The insurance replacement market had grown following a successful tender to one of the major insurance underwriters.

Macintosh said the new year would present the challenge of rebuilding a crumbling economy. Developments regarding the pandemic were now focused on the possibility of further surges in infection rates and the inability of the government to ensure an adequate supply of vaccines and develop a vaccination program. Gross domestic product would take at least two years of good growth to recover, he said.

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CMH reports annual profit after recovery in second half car sales

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