From loss to profit - stellar turnaround in H2 for CMH

JSE-listed vehicle retailer Combined Motor Holdings (CMH) achieved a significant turnaround in its financial performance in the second half of its financial year to end-February 2021.

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CMH CEO Jebb McIntosh said the group recorded an earnings loss of R14.2 million in the six months to August 2020 but achieved a remarkable R183.0 million positive earnings in the second six months to end-February 2021.

McIntosh said this meant the group ended the financial year with positive earnings of R168.8 million, which is only 11.4% below the group’s earnings of R190.5 million in the previous year.

The loss in the first half of CMH’s financial year was attributed to the impact of the COVID-19 lockdowns.

“The retail motor segment was faced with 77 days during which the licencing departments and testing stations were closed, so no sales could be effected, and car hire utilisation was less than 20%,” he said.

McIntosh said the group’s motor retail segment enjoyed a remarkable second half of the financial year, which propelled it from a six-months pre-tax loss of R4.1 million in the first half to a full year profit of R202.4 million compared to the R150.1 million profit in the prior year.

“Improved trading margins, particularly during the last quarter when inventory shortages limited trading, cost reductions, and the lower interest rate combined to produce an outstanding performance,” he said.

McIntosh said both national and CMH group new passenger and light commercial vehicle sales declined 32% over the financial year.

However, McIntosh said despite the nationwide shortage of inventory, the group showed a considerable improvement in the second half of the financial year, with the decline in unit sales only 10.5% compared with the national reduction of 17.3%.

McIntosh said annual used vehicle sales showed more resilience, declining only 18% for the full year and 4% in the second half.

“Supply was hampered by a shortage of trade-ins. In contrast, panic selling was experienced in the national market during mid-year as car hire companies scrambled to dispose of their excess fleet. Again, the group’s second half out-performed estimates of the national level,” he said.

Turning to the parts and service departments, McIntosh said these departments quickly returned to about 80% of previous sales levels after the lockdown but the progress since then has been steady but slower, with the current average at 90% to 95% and both departments ending the full year slightly below that of the prior year.

CMH acquired Mandarin Parts Distributors, an importer, wholesaler and retailer of aftermarket vehicle parts, effective from March 1 2020. The company operates a large retail outlet from its head office near Pretoria and has a network of 23 franchisees around the country.

McIntosh said despite logistical difficulties during lockdown, it met budget expectations during its first year and is scheduled to add a further six franchisees during the year ahead.

CMH has also purchased a Ford dealership in Ballito, which will be operational from 1 May 2021.

McIntosh said the size of the acquired premises will allow for the creation of a motor city/ lifestyle centre comprising five vehicle brands alongside a restaurant, coffee shop, hair stylist and personal care specialist.

“In addition, two Mitsubishi and three Peugeot/ Citroen/Opel franchises will be added to existing outlets at little overhead expense,” he said.

CMH sold a loss-making dealership during June 2020, which yielded a surplus of R2.3 million over its book value.

Turning to CMH’s prospects, McIntosh believes the year ahead will produce some economic growth off the low base, with subdued business and consumer confidence.

“Various predictions indicate that new vehicle sales growth will range between 12% and 20%. While this will be welcome, it must be remembered that the growth is off the calendar 2020 base, which was 29% below that of 2019.

“First half sales will be hampered by low inventory availability as manufacturers struggle to overcome component shortages following worldwide supplier lockdowns. If the expected increase in both new and used vehicle sales and airline passengers is achieved, there is every prospect that the group will improve its earnings,” he said.

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