Retail motor group Combined Motor Holdings (CMH) has posted strong results for the half-year ended August 31, lifting revenue by 17% to R5.04-billion and gross profit by 10% to R689-million, despite what it describes as a relatively tough trading period.

After eliminating the interests of noncontrolling shareholders, the JSE-listed group achieved a 42% increase in headline earnings to R56.2-million and proposed a dividend of 28c a share, payable on December 17.

“Outstanding results” were delivered by the financial services segment, which increased operating profit from R4.8-million to R15.5-million for the half-year, driven by a substantial increase in policy sales and the introduction of new products.

CMH’s retail motor division remained the largest contributor to its revenue, with a 9% increase in new vehicle sales driving an improvement in the segment’s profit from R89.2-million for the first six months of the 2013 financial year to R109.9-million for the first half of the 2014 fiscal period.

In addition, used vehicle volume sales increased by 8%, while efforts to increase the penetration level of after-sale products, as well as the implementation of tight expense control, were rewarded with an increase in the operating profit margin from 2.2% to 2.3%.

Meanwhile, the car hire segment also enjoyed solid results, lifting its operating profit margin from 7.3% to 9.3%, largely owing to higher fleet utilisation rates and a hike in the average daily rental returns.

“In the face of tough competition, our car hire company First Car Rental was awarded two large tender contracts, and four new branches were opened to provide customer service in outlying areas,” the company said in a statement.

Meanwhile, in line with its strategy, the last retail outlet in the marine and leisure division was sold in June, and the division now concentrates exclusively on its wholesale operation.

The resultant reduction in overheads and release of working capital enabled the division to narrow its operating loss from R9.7-million in the previous year to R1.8-million in the six months ended August 31.

The company added that the operating profit of R785 000 from the corporate services segment was principally investment income. 

CURRENCY PRESSURES

Despite an impressive first-half performance, the group expected currency pressures to precipitate higher price increases in the second half of the year, driving down sales volumes and narrowing margins.

“The significantly weaker rand and the prolonged debilitating strikes in the motor and allied industries have placed a dampener on consumer confidence and economic activity levels.

“Low to moderate vehicle price increases over the past three years have buoyed sales levels, but, for the first time since late 2009, monthly year-on-year total industry vehicle sales have registered a decline,” said the company. 

On the positive side, continued stable and low interest rates, together with “extremely” competitive offerings, especially in the entry-level segment, were expected to retard a decline in demand.

CMH also expected an increased gap between new and used car prices to provide a boost to the used car market, adding that management's challenge in the second half of the year would be to react quickly to the changing environment and adapt working capital levels to an optimum.

“In addition, the restructured marine and leisure division will benefit from the summer months, which fall in the second half of the financial year, and the group's workshops, parts departments and financial services are expected to continue the steady earnings they have historically achieved,” said the company.