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COMBINED MOTOR HOLDINGS LIMITED - Interim results for the six months ended 31 August 2018

Release Date: 17/10/2018 09:00
Code(s): CMH     PDF:  
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Interim results for the six months ended 31 August 2018

COMBINED MOTOR HOLDINGS LIMITED             
("the Company" or "the Group")              
Registration number: 1965/000270/06         
Income tax reference number: 9471/712/71/2  
Share code: CMH
ISIN: ZAE000088050                          
                                            
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2018


GROUP FINANCIAL HIGHLIGHTS

                                                                                      Unaudited   Unaudited      Audited
                                                                                       6 months    6 months    12 months
                                                                           Change     31 August   31 August  28 February
                                                                                %          2018        2017         2018

Total assets                                                    (R'000)        2,2    2 703 709   2 645 210    2 772 650
Cash resources                                                  (R'000)        0,1      385 345     384 787      372 882
Net asset value per share                                       (cents)       17,5          933         794          935
Revenue                                                         (R'000)        8,8    5 572 638   5 123 421   10 572 596
Operating profit                                                (R'000)      (4,7)      180 655     189 627      438 378
Total profit and comprehensive income                           (R'000)        0,1       96 231      96 113      247 460
Earnings per share                                              (cents)          -        128,5       128,5        330,7
Headline earnings per share                                     (cents)        0,2        128,7       128,5        332,9
Dividend paid per share                                         (cents)                                            161,0
Dividend declared per share, payable December 2018              (cents)          -         61,0        61,0
Dividend cover                                                  (times)          -          2,1         2,1          2,1

GROUP STATEMENT OF FINANCIAL POSITION as at 31 August 2018

                                                                                     Unaudited   Unaudited       Audited
                                                                                     31 August   31 August   28 February
                                                                                          2018        2017          2018
                                                                                         R'000       R'000         R'000

ASSETS
Non-current assets
Plant and equipment                                                                     61 857      68 710        64 967
Car hire fleet vehicles                                                                587 871     632 299       760 282
Goodwill                                                                                 8 078      10 078         8 078
Insurance receivable                                                                    57 544      46 470        45 144
Deferred taxation                                                                       44 536      40 000        43 865

                                                                                       759 886     797 557       922 336

Current assets
Inventories                                                                          1 197 160   1 136 993     1 164 428
Trade and other receivables                                                            361 318     325 873       311 635
Tax paid in advance                                                                          -           -         1 369
Cash and cash equivalents                                                              385 345     384 787       372 882

                                                                                     1 943 823   1 847 653     1 850 314

Total assets                                                                         2 703 709   2 645 210     2 772 650

EQUITY AND LIABILITIES
Capital and reserves
Share capital                                                                           38 091      38 091        38 091
Share-based payment reserve                                                              8 176       6 699         8 873
Retained earnings                                                                      650 068     548 175       651 439

Ordinary shareholders' equity                                                          696 335     592 965       698 403
Non-controlling interest                                                                 1 339       1 124         1 229

Total equity                                                                           697 674     594 089       699 632

Non-current liabilities
Borrowings                                                                              41 186           -        60 081
Lease liabilities                                                                       52 802      47 066        49 780

                                                                                        93 988      47 066       109 861

Current liabilities
Trade and other payables                                                             1 460 344   1 339 471     1 452 888
Borrowings                                                                             446 924     654 300       503 600
Lease liabilities                                                                        1 365       1 866         1 292
Current tax liabilities                                                                  3 414       8 418         5 377

                                                                                     1 912 047   2 004 055     1 963 157

Total liabilities                                                                    2 006 035   2 051 121     2 073 018

Total equity and liabilities                                                         2 703 709   2 645 210     2 772 650 
 
GROUP STATEMENT OF COMPREHENSIVE INCOME for the six months ended 31 August 2018
                                                                                 Unaudited     Unaudited        Audited
                                                                                  6 months      6 months      12 months
                                                                                 31 August     31 August    28 February
                                                                                      2018          2017           2018
                                                                                     R'000         R'000          R'000

Revenue                                                                          5 572 638     5 123 421     10 572 596
Cost of sales                                                                  (4 663 698)   (4 274 179)    (8 806 119)

Gross profit                                                                       908 940       849 242      1 766 477
Other income                                                                        10 710        10 199         29 659
Impairment of goodwill                                                                   -             -        (2 000)
Selling and administration expenses                                              (738 995)     (669 814)    (1 355 758)

Operating profit                                                                   180 655       189 627        438 378
Finance income                                                                      10 099        12 270         24 452
Finance costs                                                                     (60 574)      (65 575)      (124 871)

Profit before taxation                                                             130 180       136 322        337 959
Tax expense                                                                       (33 949)      (40 209)       (90 499)

Total profit and comprehensive income                                               96 231        96 113        247 460

Attributable to:
Equity holders of the Company                                                       96 121        96 116        247 358
Non-controlling interest                                                               110           (3)            102

                                                                                    96 231        96 113        247 460

Reconciliation of headline earnings
Total profit and comprehensive income attributable to equity holders                96 121        96 116        247 358
of the Company
Re-measurement items
-  impairment of goodwill                                                                -             -          2 000
-  loss/(profit) on sale of plant and equipment
    - gross                                                                            255          (40)          (445)
    -  impact of income tax                                                           (71)            11            125

Headline earnings attributable to equity holders of the Company                     96 305        96 087        249 038

Weighted average number of shares in issue                             ('000)       74 802        74 802         74 802

Earnings per share
Basic                                                                  (cents)       128,5         128,5          330,7
Diluted basic                                                          (cents)       127,8         127,8          325,8
Headline                                                               (cents)       128,7         128,5          332,9
Diluted headline                                                       (cents)       128,0         127,7          328,1
Dividend declared per share, payable - December 2018                   (cents)        61,0          61,0              -
Dividend paid per share                                                (cents)           -             -          161,0
Dividend cover                                                         (times)         2,1           2,1            2,1

GROUP STATEMENT OF CHANGES IN EQUITY for the six months ended 31 August 2018
                                                                             Attributable
                                                        Share-                  to equity
                                                         based                    holders          Non-
                                              Share    payment    Retained         of the   controlling       Total
                                            capital    reserve    earnings        Company      interest      equity
                                              R'000      R'000       R'000          R'000         R'000       R'000

Balance at 28 February 2017                  38 091      6 981     527 358        572 430         1 127     573 557
Total profit and comprehensive income                               96 116         96 116           (3)      96 113
Release following exercise of share
appreciation rights                                    (2 349)       2 349
Cost of shares delivered in terms of share
appreciation rights scheme                                         (2 846)        (2 846)                   (2 846)
Share-based payment charge                               2 067                      2 067                     2 067
Dividends paid                                                    (74 802)       (74 802)                  (74 802)

Balance at 31 August 2017                    38 091      6 699     548 175        592 965         1 124     594 089
Total profit and comprehensive income                              151 242        151 242           105     151 347
Cost of shares delivered in terms of share
appreciation rights scheme                                         (2 350)        (2 350)                   (2 350)
Share-based payment charge                               2 174                      2 174                     2 174
Dividends paid                                                    (45 628)       (45 628)                  (45 628)

Balance at 28 February 2018                  38 091      8 873     651 439        698 403         1 229     699 632
Total profit and comprehensive income                               96 121         96 121           110      96 231
Release following exercise of share
appreciation rights                                    (3 160)       3 160
Cost of shares delivered in terms of share
appreciation rights scheme                                        (14 631)       (14 631)                  (14 631)
Share-based payment charge                               2 463                      2 463                     2 463
Dividends paid                                                    (86 021)       (86 021)                  (86 021)

Balance at 31 August 2018                    38 091      8 176     650 068        696 335         1 339     697 674 


GROUP STATEMENT OF CASH FLOWS for the six months ended 31 August 2018
                                                                              Unaudited   Unaudited         Audited
                                                                               6 months    6 months       12 months
                                                                              31 August   31 August     28 February
                                                                                   2018        2017            2018
                                                                                  R'000       R'000           R'000

Cash flows from operating activities
Cash generated from operations                                                  221 708       73 153        223 241
Taxation paid                                                                  (35 214)     (30 775)       (89 340)

Net cash movement from operating activities                                     186 494       42 378        133 901

Cash flows from investing activities
Purchase of plant and equipment                                                (10 756)      (8 285)       (20 616)
Proceeds on disposal of plant and equipment                                         252          737          3 406
Insurance receivable                                                           (12 400)      (8 308)        (6 982)

Net cash movement from investing activities                                    (22 904)     (15 856)       (24 192)

Cash flows from financing activities
Cost of shares delivered in terms of share appreciation rights scheme          (14 631)      (2 846)        (5 196)
Finance income received                                                          10 099       12 270         24 452
Finance costs paid                                                             (60 574)     (65 575)      (124 871)
Dividends paid                                                                 (86 021)     (74 802)      (120 430)

Net cash movement from financing activities                                   (151 127)    (130 953)      (226 045)

Net movement in cash and cash equivalents                                        12 463    (104 431)      (116 336)
Cash and cash equivalents at beginning of period                                372 882      489 218        489 218

Cash and cash equivalents at end of period                                      385 345      384 787        372 882


GROUP SEGMENT INFORMATION for the six months ended 31 August 2018

                                                                                                          Corporate
                                                                          Retail            Financial     services/
                                                              Total        motor  Car hire   services         Other
                                                               2018         2018      2018       2018          2018
                                                              R'000        R'000     R'000      R'000         R'000
Segment revenue                                           5 590 126    5 251 353   263 023     44 023        31 727
Inter-segment revenue                                      (17 488)            -         -          -      (17 488)
External revenue                                          5 572 638    5 251 353   263 023     44 023        14 239
Operating profit                                            180 655      123 063    51 309     12 122       (5 839)
Finance income                                               10 099            -         -      3 247         6 852
Finance costs                                              (60 574)     (36 754)  (22 907)         -          (913)
Profit before taxation                                      130 180       86 309    28 402     15 369           100
After charging
-  employee costs                                           377 722      307 781    40 655          -        29 286
-  depreciation charge
   - included in cost of sales                               53 090            -    53 090          -             -
   - included in selling and administration expenses         13 359       10 077     1 317          -         1 965
Total assets
- per statement of financial position                     2 703 709    1 582 513   652 788     57 544       410 864
- set off of inter-segment balances                         101 200            -         -          -       101 200
                                                          2 804 909    1 582 513   652 788     57 544       512 064
Total liabilities
- per statement of financial position                     2 006 035    1 437 560   541 840          -        26 635
- set off of inter-segment balances                         101 200            -   101 200          -             -
                                                          2 107 235    1 437 560   643 040          -        26 635
Goodwill at period-end                                        8 078        8 078         -          -             -


                                                                                                          Corporate
                                                                        Retail              Financial     services/
                                                           Total         motor   Car hire    services         Other
                                                            2017          2017       2017        2017          2017
                                                           R'000         R'000      R'000       R'000         R'000
Segment revenue                                        5 139 281     4 814 256    251 219      42 070        31 736
Inter-segment revenue                                   (15 860)             -          -           -      (15 860)
External revenue                                       5 123 421     4 814 256    251 219      42 070        15 876
Operating profit                                         189 627       115 829     65 039      14 349       (5 590)
Finance income                                            12 270             -          -       2 920         9 350
Finance costs                                           (65 575)      (27 073)   (34 932)           -       (3 570)
Profit before taxation                                   136 322        88 756     30 107      17 269           190

After charging
- employee costs                                         352 708       279 903     41 084           -        31 721
- depreciation
   - included in cost of sales                            32 447             -     32 447           -             -
   - included in selling and administration expenses      13 354        11 213      1 317           -           824
Total assets                                           2 645 210     1 485 256    707 027      46 470       406 457
Total liabilities                                      2 051 121     1 324 930    691 866           -        34 325
Goodwill at period-end                                    10 078        10 078          -           -             -


COMMENTARY ON RESULTS
Given the particularly difficult economic circumstances which prevailed during the period under review, the directors are satisfied with
the marginal increase in headline earnings per share achieved. 2018 has been challenging for corporate South Africa. The economy has
suffered the after-effects of years of corruption and mismanagement and the ANC's recent pronouncement that it intends to amend the
constitution to allow land redistribution without compensation. Investor confidence, both local and international, has been dented, causing
the economy to enter a technical recession, and currency exchange rates to fall. The domestic economic growth outlook for the remainder
of 2018 is weaker than earlier expected.

Given the background, it is not surprising that the national new vehicle market has perpetuated the sideways cycle that has been in place
for the past 2-3 years. Sales levels have been sustained by a negative movement in real new car prices and robust sales incentives.
A consequence of negative new vehicle pricing over the past 2-3 years has been a sharp downward adjustment in the value of used
vehicles, particularly in the luxury segment. This has created pressure for customers who wish to trade-in and recycle their vehicles every
3-4 years.

Group operating results were characterised by increased revenue at a lower trading margin. The 8,8% revenue improvement was recorded
at a gross margin of 16,3%, compared with the 16,6% achieved last year. The net interest cost decreased 5,3%, leaving profit before
taxation 4,5% down. This decline was offset by a lower effective tax rate, leading to a 0,2% improvement in headline earnings. The values
on the statement of financial position are substantially unchanged from 2017. The reduction in borrowings reflects the further settlement
of car hire fleet liabilities using Group cash resources. Cash flow generation from operating activities remained strong, and has enabled the
directors to recommend a dividend of 61 cents per share, equal to last year.


OPERATING REVIEW
Against the backdrop of flat national new vehicle sales, the Group achieved a 5,6% increase. Particularly pleasing was the Group's increase
in luxury model sales, a segment which has suffered declining trends over the past three years.

Offsetting to an extent the improved new car profitability, used car unit sales declined 1,7%. Longer periods over which vehicles are
financed, coupled with the fall in their residual values, has led to a greater gap between the resale values and the finance settlement
values. Adjustments have been made to ensure that Group inventory is realistically valued, and the past two months have produced
positive outcomes. The parts and service departments have recorded steady collective improvement.

The car hire market, in general, has been forced to retain its vehicles for longer periods, and rent them out at a lower daily rate, because
the fall in used vehicle values has rendered the retired fleet less saleable. The result of the pricing competition and lower recoveries on
the disposal of the retired fleet on the Group's First Car Rental division is that, although revenue increased 4,7%, profit before taxation has
declined 5,7%. The directors are confident that the fleet is conservatively valued, and anticipate improved performance during the summer
months ahead.

A once-off increase of R3,2 million to the doubtful debts provision in the records of the Group's joint venture partner, following the
introduction of IFRS 9, has meant a 10,1% decline in operating profit of the Group's financial services division. This charge pre-empts the
provision that would otherwise have been incurred over the life of the debtors' credit agreements. It is pleasing that the premium income
level continues to rise, despite the flat vehicle market, and this augurs well for future annuity-type income.


PROSPECTS
The financial outlook for the short-term future remains fragile. The economy contracted by 0,7% during the second quarter of 2018,
and is expected to grow by less than 1,0% for the full year. Consumers have been hit by the VAT rate increase, and face further fuel price
rises. Unemployment levels remain at record highs. On the positive side, interest rates have remained stable, and the stimulus package,
announced as part of the Government's economic recovery plan, will provide some boost to business confidence. It is important that this
injection is aligned with consistent policy and implementation aimed at attracting local and foreign investment, with the ultimate objective
of promoting faster economic growth and job creation.

The directors believe that the Group will have performed well if it is able to maintain headline earnings growth for the full year to
February 2019.


CHANGES IN DIRECTORATE
There has been no change in directors since the release, in April 2018, of the results for the year ended 28 February 2018.

DIVIDEND DECLARATION
A dividend (dividend number 61) of 61 cents per share will be paid on Tuesday, 18 December 2018 to members reflected in the share
register of the Company at the close of business on the record date, Friday, 14 December 2018. Last day to trade cum dividend is Tuesday,
11 December 2018. First day to trade ex dividend is Wednesday, 12 December 2018. Share certificates may not be dematerialised or
rematerialised from Wednesday, 12 December 2018 to Friday, 14 December 2018, both days inclusive. The number of ordinary shares in
issue at the date of the declaration is 74 801 998. Consequently, the gross dividend payable is R45 629 219 and will be distributed from
income reserves. The dividend will be subject to dividend withholding tax at a rate of 20%, which will result in a net dividend of 48,8 cents
per share to those shareholders who are not exempt in terms of section 64F of the Income Tax Act.


BASIS OF PREPARATION
The summary consolidated financial statements for the six months ended 31 August 2018 have been prepared under the supervision of
SK Jackson CA (SA), financial director, in accordance with the requirements of the JSE Limited Listings Requirements for interim reports,
and the requirements of the South African Companies Act, No 71 of 2008, applicable to summary financial statements. The Listings
Requirements require interim reports to be prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, and Financial Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum,
contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied are in terms of IFRS and are
consistent with those applied in the financial statements as at 28 February 2018. The results have not been reviewed nor audited by
PricewaterhouseCoopers Inc., the Group's external auditors.

CORPORATE GOVERNANCE
The Group is committed to maintaining the high standards of governance as embodied in the King IV Report on Corporate Governance
("the Report") and applies the principles and the appropriate best business practices as recorded in the Report. The Group also complies
with the corporate governance requirements set out in the JSE Limited Listings Requirements.

By order of the board of directors
K Fonseca CA (SA)
Company Secretary
17 October 2018
                                                              
DIRECTORS                                                      
JS Dixon (chairman)
JD McIntosh (CEO)                                              
BWJ Barritt                                                    
LCZ Cele
SK Jackson
ME Jones
JA Mabena
MR Nkadimeng

SPONSORS
PricewaterhouseCoopers Corporate Finance Proprietary Limited 
4 Lisbon Lane
Waterfall City
Jukskei View 2090

TRANSFER SECRETARIES
Computershare Investor Services Proprietary Limited
PO Box 61051
Marshalltown 2107

BUSINESS ADDRESS AND REGISTERED OFFICE
1 Wilton Crescent
Umhlanga Ridge 4319

WEBSITE
www.cmh.co.za



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