Combined Motors revs up to overtake tough economy

print

Combined Motors revs up to overtake tough economy

Published Date: 2017-10-17 | Source: Stephen Gunnion | Author: Stephen Gunnion

Combined Motors revs up to overtake tough economy

The motor group says sales of luxury vehicles, in particular, have been under pressure

Combined Motor Holdings says it's done well to grow profit under tough economic trading conditions. While there were signs of a mild economic recovery in the first quarter of the year, April's "inexplicable" cabinet reshuffle by President Jacob Zuma destroyed all positivity. The country entered a recession, unemployment hit a 13-year high and business and consumer confidence were rocked by ongoing reports of corruption, maladministration and political uncertainty. CMH says July's 25 basis point reduction in interest rates provided scant relief for overburdened consumers.

Instead of improving new vehicle sales, which it expected during the first quarter of the year, national sales declined by 0.7% in the six months to August, with a sharp drop in the luxury segment. After falling by 15% last year, sales of luxury vehicles dropped 18% in the six months to end August.

"This is a clear indication that the middle and upper-class consumers are feeling the effects of the sustained economic downturn, and that the financial investment in new vehicles has declined in excess of the fall in unit sales," says CMH.

It's managed to hold its own though, with revenue declining by 3% to R5.1 billion for the period after it closed two retail motor dealerships last year. Its gross margin improved to 16.5% as it kept a tight control on operating costs, leaving operating profit 16% higher at R190 million. Headline earnings per share rose 10% to 128.5c and it's lifted its interim dividend by 11% to 61c.

CMH says its retail motor division's 4% rise in operating profit, before goodwill impairment, belies the tough economic conditions which prevailed throughout the period. First Car Rental achieved an 11% increase in revenue and managed to hold its operating margin. The financial services division recorded an 11% improvement in profit.

The group says the current six months is likely to remain equally tough in the run-up to the ANC conference in December as consumers, and particularly the corporate market, adopt a "wait and see" approach to capital expenditure. However, it says analysts are still predicting a modest increase in vehicle sales.s

Its shares gained 5.7% yesterday to end at R28.



Similar Stories