As a result of the headwinds facing the domestic economy, Combined Motor Holdings (CMH) suffered an 8.3% year-on-year decrease in headline earnings a share to 305.2c for the financial year ended February 28.
Widespread corruption, mismanagement of State-owned enterprises, uncertainty regarding land expropriation and political leadership focused on short-term tactics ahead of the national election combined to reduce business confidence to near all-time lows, leading to this decline, CMH CEO JD McIntosh said in a release on Tuesday.
Revenue, however, grew by 5.5%, owing to a slight increase in vehicle sales volumes, an increased mix of higher-priced luxury models and a modest 2% to 3% increase in the average price of new vehicles.
Further, despite the decrease in headline earnings, continued strong cash flow generation enabled the directors to recommend that the dividend scheduled for payment in June be held at last year’s level of 115c a share.
McIntosh highlighted noteworthy movements in respect of the car hire fleet and its attendant borrowings.
The net book value of the fleet increased by R52.8-million, while the related borrowings level increased by R237.9-million.
In previous years, the group used a portion of its surplus cash to early settle interest-bearing borrowings. While this policy continued during the year under review, at year-end, a parcel of new fleet vehicles acquired was financed using external finance facilities and the intra-group funds were returned and held on call account.
At year-end, the group held cash resources of R676-million, compared with the previous year’s R373-million.
This segment represents the majority of the group’s business and is at the leading edge of economic cycles.
During the year under review, national new passenger and light commercial vehicle sales volumes decreased by 1.8%.
This follows a 0.4% rise in the prior financial year, and declines in each of the preceding three years.
McIntosh noted that the macro picture for the industry was one of increasing costs, principally salaries and property costs, offsetting a stagnant revenue line.
Against the national sales volume decline, the group achieved a modest 1.9% improvement. The opportunity for higher volume growth was hampered by supply disruptions
at Ford, which represents the highest volume contributor to group sales.
The national luxury model segment continued its downward trend in volume sales. The group is only exposed in respect of its Volvo/Land Rover/Jaguar dealerships and these, collectively, bucked the trend and recorded volume growth.
The segment’s overall decline in profitability is attributable mainly to the difficult conditions in the used car departments.
While national sales levels are estimated to have fallen by about 10%, group sales volumes were flat.
This segment suffered a reversal of its ten-year record of rising earnings.
The 24% fall was attributable to the reduced prices at which the retired fleet could be sold.
Nevertheless, the fleet size, utilisation rate and average daily income rate remained stable.
The increase in the price of replacement fleet vehicles was offset, in part, by a reduction in the number of luxury vehicles and the replacement thereof by models in the medium price range.
The sector remains extremely competitive and the drive to reduce operating costs
This segment comprises insurance cells, relating to products sold in tandem with the sale of vehicles, and joint ventures in respect of the financing and collection of credit facilities granted to buyers.
Both areas recorded increased profitability despite the tough market and adverse consumer
Particularly highlighted was the 11% growth in premium income, an indication of improved penetration in a flat market. This annuity-type income is expected to provide steady growth in the years ahead.
McIntosh is not optimistic about the short-term future of the domestic vehicle sales market.
Predictions of national motor sales growth for the current calendar year vary from a 1% contraction to 2% growth, which will be the lowest level in almost a decade.
On a more positive note, however, McIntosh noted that interest rates appear to be stable, and, in real terms, new-vehicle affordability continues to improve.
The National Association of Automobile Manufacturers of South Africa has recently reported that the rate of new-vehicle price increases has been well below the consumer price index for the last 15 months.
Competitive pressures facing motor manufacturers are expected to ensure that attractive sales incentives continue.