Combined Motor Holdings (CMH) lifted its dividend 67% to 393 cents per share in the year to February 28 off strong financial results, but it has warned that trading conditions in the year ahead are likely to be tough.
CEO Jebb McIntosh said in the motor retail and distribution and car hire group’s annual report that the South African socio-economic environment would likely be driven by continued power outages, infrastructure failure, violent crime and high youth unemployment.
“Corruption remains endemic, with little evidence of the government’s pledge to root it out and hold the perpetrators accountable. On the economic front, nine interest rate hikes and a weakened currency have placed severe strain on households, where the rising cost of housing and transport is now exacerbated by the need to invest in costly electricity-replacement equipment,” he said.
“Naamsa predicts the local new vehicle market will remain resilient, and sees a single-digit increase in national sales this calendar year. I expect Toyota may regain the market share lost during the flood disruption. It is likely margins in the car hire industry will come under pressure,” he said.
However, competitors were unlikely to chase margin at any cost given the high price of fleet vehicles and the current interest rate.
“The group … has consistently shown compound growth in a cyclical market, and is poised to take advantage of the few opportunities which the year ahead may present,” said McIntosh.
On vehicle retailing, he said the multi-franchising strategy had proven beneficial, with increased revenue achieved and little impact on fixed overheads.
At manufacturer level, local producers were coming under increased pressure from Chinese and Indian brands. Several had changed product range or operating strategy. Ford had discontinued production of its traditional passenger range to focus on light commercials and SUV/crossovers.
Jaguar/Land Rover had introduced an agency supply system in terms of which ownership of unsold product was retained by the manufacturer as opposed to being passed to the dealers.
National new vehicle passenger and light commercial sales grew by 10.8%, and the dealer sales component by 7.8%. Against this, the group’s sales increased 12.4% in the past year, he said.
Over the past two years CMH had tested a strategy of developing a chain of standalone used vehicle outlets, but the new operations experienced difficulty in sourcing quality stock and, with reduced supply from the car hire segment, they proved unprofitable and were closed.
“Focus has returned to the traditional used car departments forming part of each dealership and, with the aim of selling up to 80% of car hire’s monthly de-fleeted vehicles, an improved trading year is expected,” said McIntosh.
Mandarin Parts Distributors, with its network of 28 franchisees, enjoyed a steady year. Some supply difficulties were experienced from areas of China that were still under Covid restrictions. Rokkit, the digital marketing division, ensured the group stayed abreast with the latest developments in sales, lead generation and customer communication.
CMH was testing the water with the introduction of a range of electric carrier bikes and a small pick-up van. Both were being evaluated by logistics companies and major retail chains.
In the past year, CMH increased revenue 11.3% to R12.43 billion, while operating profit rose 27.6% to R773.4 million. Total profit was 18.3% higher at R443.5m, while headline earnings per share increased by 23% to 617.1 cents. Net asset value per share increased by 13.9% to R16.90.
BUSINESS REPORT