CMH cuts its cloth to fit new Covid-19 reality


CMH cuts its cloth to fit new Covid-19 reality

Published Date: 2020-06-24 | Source: Stephen Gunnion | Author: Stephen Gunnion

CMH cuts its cloth to fit new Covid-19 reality

The automotive group is adjusting its inventory to match reduced demand for vehicles as it also scales back its car rental business.

Combined Motor Holdings says it is adjusting its inventory to match reduced demand for new vehicles as the lockdown eases. It is also scaling back its car rental business following a slump in demand due to travel restrictions.

Writing in the group's annual report, CEO Jebb McIntosh said new vehicle sales were likely to slump by 30% year-on-year as trading built up following the lockdown. It had frozen its order book for new vehicles for the duration of the lockdown and the acquisition of new stock would be carefully controlled. Within two to three months, McIntosh said inventory levels would be aligned with the new demand levels for most of the ranges it sells from its dealerships around the country.

However, it was its car hire business that CMH highlighted as its biggest risk exposure as it was affected earlier and more severely by the lockdown - and was likely to be the slowest to return to some form of normality. Downsizing of First Car Rental's fleet would take an estimated 3-4 months and would be accompanied by the mothballing of low-mileage vehicles. It said its motor dealerships were able to assist in the disposal process through their used car departments. The group had already reduced its fleet of rental cars by 15% and planned to continue shrinking it by 2-3% a week until it reached an optimal level. After cutting its staff complement by 15%, a further 15-20% reduction was expected over the coming months.

While the Covid-19 outbreak came after the end of its financial year, CMH said it was already impacted by the reintroduction of peak-time load shedding in the second six months of a period that was already characterised by low economic growth and a sideways movement in new car sales.

Revenue for the year to end-February was flat at R11.2 billion but operating profit fell 7.1% to R417 million. Net profit declined by 11% to R191 million and headline earnings per share were also 11% lower at 254.8c. It hasn't paid a dividend after a 115c per share payout last year.

CMH said some smaller competitors could become casualties of the reduced demand that had resulted from Covid-19 and this could, indirectly, result in it gaining market share.

Its shares rose 6.9% to R12 yesterday.

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