Rand weakness to hit outlook for new car sales - CMH

Despite attempts by manufacturers to “stall the inevitable”, rand weakness should lead to further vehicle price increases, says Combined Motor Holdings chief executive Jeb McIntosh.

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Johannesburg - Despite attempts by manufacturers to “stall the inevitable”, rand weakness should lead to further vehicle price increases, Combined Motor Holdings (CMH) chief executive Jeb McIntosh warned yesterday.

McIntosh said these increases, potential interest rate hikes and tightening of the bank’s lending criteria would all contribute to a deteriorating outlook for new vehicle sales.

The listed retailer believes the trading environment would be tough during the second half of its financial year to February. However, McIntosh said an increase in new vehicle prices would create an opportunity for the used-car market, which was an area where the group had traditionally been strong.

“The service and parts department have delivered consistent results and, coupled with expected continued improvement in the car hire and financial services segment, should enable the group to deliver satisfactory results for the full year,” he said.

McIntosh added the year-on-year new vehicle sales for the first eight months to this year were 3.3 percent down and economists and industry experts were suggesting that full-year sales would decline by between 5 percent and 7 percent.

“Price rises have been eased, to an extent, by manufacturers offering price cuts and other incentive packages to promote sales,” he said.

McIntosh said CMH group new vehicle sales increased by 5.5 percent and used vehicle unit sales by 8.7 percent in the six months to August.

Volumes

Despite the increases in unit sales volumes, the sales mix reflected a continuing trend towards lower priced vehicles, he said.

CMH yesterday reported a 13 percent increase in headline earnings a share to 98.2c in the six months to August from 86.7c in the previous corresponding period.

McIntosh said headline earnings a share were boosted by increased headline earnings and fewer shares in issue following the share repurchase in July.

CMH in July repurchased 21.1 million of the company’s ordinary shares for R11.83 each at a total cost of R251.6 million using existing cash resources.

Together with the R62m dividend declared in June, this reduced CMH’s cash resources of R450.5m at the beginning of the period by 65 percent to R155.9m at end-August.

Results

Revenue from continuing operations rose 1 percent to R5.51 billion from R5.45bn. Operating profit deteriorated by 9.6 percent to R146.95m from R162.55m.

A dividend of 46.5c was proposed, which is 43 percent higher than the 32.5c dividend declared in the prior period.

McIntosh said CMH’s directors were satisfied with the results achieved bearing in mind the many factors that had impacted negatively on the level of economic activity in the period under review.

“Electricity supply constraints, petrol price inflation, new vehicle price increases and a hike in the interest rate all contributed to a subdued trading environment,” he said.

McIntosh added that CMH’s car hire division showed continued excellent growth, with a 9 percent increase in profit before taxation to R19.2m.

He said financial services yielded a pleasing increase in both premium income and profit, with profit before taxation increasing by 8.5 percent to R16.7m.

Shares shed 1.69 percent yesterday to close at R17.50.

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