Combined Motor Holdings’ strategy overcomes tough market conditions

COMBINED Motor Holdings shareholders are in for a healthy 135 percent dividend increase after the group lifted headline earnings 117 percent to 501 cents in the year to February 28.

Cash resources increased 8 percent to R817 million. Revenue was up 30 percent to R11.17 billion. Operating profit increased 75.7 percent to R606.15m.

Dividends declared amount to 225c per share, up from 100c the year before.

Net asset value per share was up 22 percent to 1 484c per share.

Chief executive Jebb McIntosh said the results were “exceptional” and the period was a classic case of “preparation meeting opportunity”.

“Tough and stressful decisions and actions taken in the previous year positioned the group to take advantage of the few positives that emerged during a period of continued turmoil,” he said.

Challenges included the ongoing Covid-19 pandemic, civil riots and social unrest, followed by interest rate and fuel price hikes.

He said the July 2021 spree of mass destruction had dealt a “deadly and lingering blow to the confidence of the country and the economy”, while a new round of load shedding had started.

The revenue increase was largely due to improved new car sales, driven in turn by the add-on brands that were growing in contribution, and despite the national shortage of inventory during the second half of the year.

Constraints on availability enabled dealers to earn greater margins and a higher penetration of value added products.

In the car hire business, improved average revenue per hire day and fleet utilisation rate lifted returns.

The group’s gross profit margin increase to 18.5 percent from 17.4 percent may not appear significant, but the group sells high value products so the quantum impact was meaningful.

Operating expenses were up 27 percent. Employee remuneration increased 28 percent due to increased variable incentives on the higher trading levels, and the resumption of full pay following salary cuts imposed during the Covd-19 lockdowns.

Used vehicle unit sales increased 4 percent, in line with the national market – sales were also negatively impacted by stock shortages.

“On the one hand customers were unable to access new vehicles, and this led to a dearth of trade-ins.

“On the other hand … the car hire

division was unable to refresh its vehicles in line with its fleet retirement policy because insufficient replacements were available, and this meant that fewer vehicles were released for sale by the dealerships,” McIntosh said.

The overall result was that for many models, used vehicle price inflation exceeded that experienced by new vehicles.

However, strategies – including not panic-selling the surplus fleet when the used car market was depressed; concluding new sales contracts with major customers when competitors were reducing exposure; taking advantage of the FlySafair alliance to gain market share; and focussing on customer service despite being forced to retain an ageing fleet – had stood the car hire business in good stead through uncertain times.

The group owns 43 retail motor dealerships representing 29 brands in Gauteng, KwaZulu-Natal and the Western Cape, and four used car dealerships trading as CMH Select and Mandarin Parts Distributors which imports after market vehicle parts.

Its car hire business First Car Rental operates throughout South Africa from a network of 51 branches. The Financial Services unit provides insurance underwriting products sold in tandem with the sale of new and used vehicles.

McIntosh said that even if vehicle supply was fully restored, it was very likely to be at a much higher price, with a negative impact on trading margins.

Despite the challenges, national new vehicle sales were expected to grow 10 percent and spawn a similar increase in the used vehicle market.

He said that First Car Rental should be able to refresh its fleet, and the release of retired vehicles to the dealer network at favourable prices would be a boon.

At the end of February 2022, the level of car hire forward reservations was close to three times that of the prior year.