Combined Motor Holdings faces challenges with a 26.2% profit decline

Combined Motor Holdings’ (CMH) headline earnings a share fell 25.6% in the year to February 28 as vehicle affordability continues to wane among South African consumers.

The dividend declared fell 22.3% to 171 cents a share from 220 cents last year. Revenue increased 3.2% to R13.25 billion. Total profit fell 26.2% to R301.49 million, marking the second year in a row of decline.

CMH operates in the motor retail and distribution, car hire, and financial services segments in South Africa, employing 2,666 people. It has 43 retail motor dealerships representing 29 brands in Gauteng, KwaZulu-Natal, and the Western Cape. Its Mandarin Parts Distributors business imports aftermarket vehicle parts.

CEO Jebb McIntosh said in the results that while a mild resurgence in new vehicle sales in the last quarter was encouraging, it was insufficient to rescue the market and lift it to the 2019 pre-Covid level.

“Vehicle finance houses have recorded that few newcomers are being added to the customer base, with only 10 million of 65 million South Africans being able to afford a vehicle, let alone a new one...The luxury vehicle sales market has been hardest hit in recent years and has been in decline for almost a decade,” he said.

Looking to the new financial year, he said industry leaders had predicted that national sales would increase between 3.5% to 5% this year, but all views hinged on significant caveats, particularly relating to interest rates and political stability.

“Early economic optimism has been curbed somewhat by the furore that followed the advance leaking of the government’s intention to raise the VAT rate by two percentage points. The group’s prior year losses on Proton have been stemmed, and a significant return is expected from the first full year of Foton activity,” he said.

Although not yet back to pre-Covid levels, inbound tourism potential growth provided some optimism for the car hire segment.

“The predicted, although seemingly stalled, trend of interest rate cuts will also provide welcome relief against fleet borrowings,” said McIntosh.

He said that in the past year within the group, several dealerships underwent costly restructuring and repositioning to take advantage of brand and product changes.

Ford was now more focused on the light commercial market; although it had shown growth in various segments, its scope was more limited.

Nissan was no longer producing its previously very popular and affordable half-ton and one-ton pickups. Some of its key models sourced from Japan had been discontinued because they were no longer affordable locally.

Volvo’s intention to focus on electric and hybrid models had severely hampered its local attraction. The dealer network had been cut from 25 dealers to 7, which would operate only in the major metropolitan areas.

CMH would operate 4 of the 7 survivors and expected to benefit from a greater share of the workshop and parts sales business.

The Proton import and distribution operation continued to be challenging. Current inventory would be sold during the first half of the coming year, and thereafter the group and the Malaysian manufacturer would decide on the way forward.

In contrast, the September introduction of the Foton light commercial range had exceeded expectations. The launch was well supported by the Chinese manufacturer, and the product featured in the February local top 10 sales list for commercial brands.

He expected sales to enjoy a further surge in June when a new cabover model would be launched. A network of 55 local dealers had been established, of which 14 were owned and operated by CMH. A further 5 dealers would be added this year.

Foton was expected to be a meaningful profit contributor in the year ahead.

BUSINESS REPORT