Sputtering economy catches up with CMH

Like most companies in consumer-facing industries, motor retail company Combined Motor Holdings (CMH) probably cannot wait for the sputtering South African economy to turn around.

Since the country’s economic growth has slowed, vehicle traders have had to contend with hard-pressed consumers choosing to “trade down”.

If the economic downturn drags on for much longer, the implications for these companies are dire. Affordability has become an issue as disposable income comes under immense pressure. In the automotive sector, it is known that vehicle sales generally track GDP growth. So this low-growth environment induces a slump in vehicle sales.

KwaZulu-Natal-based CMH, however, has a history of defying the pressure on household disposable income and low levels of consumer confidence.

For instance, in the 2017 financial year, when SA was wrestling with volatile economic conditions, new vehicle sales fell 11.4%. But in that year, CMH increased basic earnings per share an impressive 17.8%, while dividends were up 25.6%. This was despite the fact that its core motor retail business is particularly susceptible to depressed consumer confidence.

But in the 2019 financial year, slow economic growth and increasing costs in the industry caught up with the group as fullyear headline earnings per share fell 8.3%. CMH expects the pressure on discretionary income and the low business confidence to persist for the remainder of the financial year.

It, however, hopes that new acquisitions, disposal of lossmaking operations and an improvement in new vehicle sales will come to its rescue.

WILL RENEWABLE ENERGY INDUSTRY OFFER MORE?

With the Integrated Resource Plan (IRP) finally released with a generous allocation for wind and solar power, the government has made it clear that it expects the renewable energy industry to contribute more to SA’s development.

At a recent wind industry gathering in Cape Town, mineral resources and energy minister Gwede Mantashe told delegates they are expected to play a part in the industrialisation agenda.

The climate change issue aside, Mantashe said renewable technologies could create the green economy jobs that are needed. It is key that a big portion of the renewables allocation in the IRP is localised, with industrialisation being the imperative for transformation, he said. But the government is best reminded it is the stop-start nature of its renewable energy procurement programme that has imperilled development in the local sector.

From 2016-2018 Eskom refused to sign power purchase agreements with projects, which had been selected under the government programme.

In 2016, solar equipment manufacturer SMA Solar closed shop. In May 2017, the DCD Group sold its majority share in the R500m DCD Wind Towers, in the Coega industrial zone.

Potential investors were also scared off. LM Wind Power, a wind blade manufacturer, had been scouting for sites in SA but instead opened one of its new blade plants in Turkey.

After the gazetting of the IRP, there will be renewed momentum on renewables. But both the state and the private sector must play their parts to ensure SA derives maximum benefit.