JSE-listed Combined Motor Holdings’ (CMH’s) basic and headline earnings per share (HEPS) were up 51% to 302c for the six months ended August 31, compared with the 200c posted for the six months ended August 31, 2021.

The group highlights that it achieved “outstanding results” for the interim period, despite the headwinds faced by the economy.

Total profit and comprehensive income were up 51%, to about R226-million.  

“The achievement of a 51% increase in headline earnings reflects the resilience and agility shown by the group in adapting to difficult and uncertain trading conditions,” it highlights.

New-vehicle sales were hampered by continued disruption to the supply chain as a result of the shortage of electronic chips.

“The surging petrol price has created a drain on consumers’ disposable income. Ongoing, and more severe, loadshedding has played havoc with business productivity and necessitated costly investment in alternative power sources.

“The country has suffered six successive interest rate hikes in less than a year, and those, together with more restrictive lending criteria applied by finance houses, have placed a considerable strain on vehicle affordability,” CMH outlines.

The 11.7% increase in the group’s revenue was largely owing to an increase in both new-vehicle prices and volume sales.

The improvement in the gross profit margin, from 17.2% to 19.7%, reflects the increased contribution from the car hire and financial services segments, both of which enjoy higher trading returns than the motor retail and distribution segment.

Selling and administrative costs increased by 22%, a third of which relates to employee remuneration, principally variable incentives relating to the 28% rise in gross profit.

The net interest expense has risen in line with the various hikes in the prime overdraft rate and the tax rate has increased marginally to 28.2%.

The net result is a 51% improvement in both earnings a share and HEPS.

A dividend of 168c apiece will be paid on December 19, up 53% on the comparative period.

CMH says the only notable movement in the statement of financial position is the increased investment in working capital including car hire fleet movements, which arose from the higher trading levels compared with August 2021.

The inventory value includes the initial purchase of Proton vehicles ahead of the September launch.

The value of cash resources has reduced from year end, partly because of the Proton inventory investment and partly because of the dividend of R168-million paid in June.

MOTOR RETAIL / DISTRIBUTION

Group new-vehicle unit sales increased 17%, against national sales growth of 12%.

In respect of all the brands where the group is well represented, unit sales penetration levels were noted to be higher than those achieved by the manufacturers in the national market.

Inventory availability from a number of manufacturers improved during the latter months of the review period and is expected to continue over the balance of the financial year.

CMH has been appointed as the importer and distributor of the Malaysia-sourced range of Proton vehicles. The first models were officially launched in September.

The group currently has a network of 12 owned retail outlets, complemented by six independent dealerships. It is expected that the network will grow to a total of 30 within the next 12 months.

All setup costs, in respect of both the distributor and retail operations, have been expensed in the period under review.

Used vehicle outlets recorded a decline in operating profit, reflecting the tougher trading conditions which prevailed during the latter months. Both parts and workshop departments enjoyed a pleasing increase in operating profit, CMH highlights.

CAR HIRE

This segment continued the successful run it has enjoyed since its reopening after the Covid-19 lockdown.

Since August 2021 the fleet has increased 66%, while revenue has increased 90%.

Both average daily rental and use rates have risen, resulting in a 168% improvement in profit before taxes.

Contracts in respect of the insurance replacement market have provided a solid base underpinning a large portion of fixed costs. This ensures that the gain in market share from the other customer sources contributes significantly to the bottom line, CMH says.

FINANCIAL SERVICES

This segment comprises two divisions – insurance underwriting and two finance joint ventures (JVs).

A concerted drive to sell policies, coupled with a reduced claims rate post Covid-19, has generated a substantial increase in both gross and operating profit, CMH outlines. 

The conservative doubtful debt provisioning during the Covid-19 era is gradually being released with the result that the JVs recorded in excess of 100% operating profit improvement, albeit off a low base.

PROSPECTS

CMH expects a tougher second six months. Rising interest rates and worsening power cuts, which have slowed the momentum of new-vehicle sales, are set to continue to impact the economy.

The improvement in the new-vehicle supply chain will have mixed consequences, CMH indicates.

The national new car market is not expected to show further month-on-month increases over the balance of the calendar year.

The Proton venture is expected to start to generate profits and cash flow as it gains momentum during the next 12 months.

CMH says it remains confident that its financial position and business model will enable it to weather the expected short- to medium-term storm and continue to produce satisfactory results.