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COMBINED MOTOR HOLDINGS LIMITED - Consolidated Financial Results

Release Date: 23/04/2019 09:00
Code(s): CMH     PDF:  
 
Wrap Text
Consolidated Financial Results

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

 
FINANCIAL RESULTS

GROUP FINANCIAL HIGHLIGHTS                                                                      
                                                                                            2019         2018   % change   
Total assets                                                                  R'000    3 110 681    2 772 650       12,2   
Cash resources                                                                R'000      675 966      372 882       81,3   
Net asset value per share                                                     cents        1 052          935       12,5   
Revenue                                                                       R'000   11 154 757   10 572 596        5,5   
Operating profit                                                              R'000      411 181      438 378      (6,2)   
Net profit attributable to ordinary shareholders                              R'000      228 166      247 358      (7,8)   
Return on shareholders' funds                                                     %         30,8         38,9     (20,8)   
Basic earnings per share                                                      cents        305,0        330,7      (7,8)   
Headline earnings per share                                                   cents        305,2        332,9      (8,3)   
Dividends paid per share                                                      cents        176,0        161,0        9,3   
Dividend declared - payable June 2019                                         cents        115,0        115,0        0,0   


GROUP STATEMENT OF FINANCIAL POSITION
AS AT 28 FEBRUARY 2019
                                                                                                    2019            2018
                                                                                                   R'000           R'000

ASSETS
Non-current assets
Plant and equipment                                                                               71 431          64 967
Car hire fleet vehicles                                                                          813 102         760 282
Goodwill                                                                                           8 078           8 078
Insurance receivable                                                                              37 530          45 144
Deferred taxation                                                                                 38 676          43 865
                                                                                                 968 817         922 336
Current assets
Inventories                                                                                    1 160 680       1 164 428
Trade and other receivables                                                                      304 770         311 635
Taxation paid in advance                                                                             448           1 369
Cash and cash equivalents                                                                        675 966         372 882
                                                                                               2 141 864       1 850 314

Total assets                                                                                   3 110 681       2 772 650

EQUITY AND LIABILITIES
Capital and reserves
Share capital                                                                                     38 091          38 091
Share-based payment reserve                                                                       10 927           8 873
Retained earnings                                                                                736 483         651 439

Ordinary shareholders' equity                                                                    785 501         698 403
Non-controlling interest                                                                           1 502           1 229

Total equity                                                                                     787 003         699 632

Non-current liabilities
Borrowings                                                                                       287 419          60 081
Lease liabilities                                                                                 55 001          49 780
                                                                                                 342 420         109 861
Current liabilities
Trade and other payables                                                                       1 460 215       1 452 888
Borrowings                                                                                       514 194         503 600
Lease liabilities                                                                                  1 001           1 292
Current tax liabilities                                                                            5 848           5 377
                                                                                               1 981 258       1 963 157

Total liabilities                                                                              2 323 678       2 073 018

Total equity and liabilities                                                                   3 110 681       2 772 650


GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY 2019
                                                                                                    2019            2018
                                                                                                   R'000           R'000

Revenue                                                                                       11 154 757      10 572 596
Cost of sales                                                                                (9 329 488)     (8 806 119)

Gross profit                                                                                   1 825 269       1 766 477
Other income                                                                                      22 634          29 659
Impairment of goodwill                                                                                 -         (2 000)
Selling and administration expenses                                                          (1 436 722)     (1 355 758)

Operating profit                                                                                 411 181         438 378
Finance income                                                                                    23 769          24 452
Finance costs                                                                                  (122 971)       (124 871)

Profit before taxation                                                                           311 979         337 959
Tax expense                                                                                     (83 540)        (90 499)

Total profit and comprehensive income                                                            228 439         247 460

Attributable to:
Equity holders of the company                                                                    228 166         247 358
Non-controlling interest                                                                             273             102
                                                                                                 228 439         247 460
Reconciliation of headline earnings
Total profit and comprehensive income attributable to equity holders of the company              228 166         247 358
Re-measurement items:
- impairment of goodwill                                                                               -           2 000
- loss/(profit) on sale of plant and equipment
  - gross                                                                                            219           (445)
  - impact of income tax                                                                            (61)             125

Headline earnings attributable to equity holders of the Company                                  228 324         249 038

Earnings per share
Basic                                                                                 (cents)      305,0           330,7
Diluted basic                                                                         (cents)      302,4           325,8
Headline                                                                              (cents)      305,2           332,9
Diluted headline                                                                      (cents)      302,6           328,1


GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 28 FEBRUARY 2019
                                                                                 Attributable
                                                        Share-based                 to equity           Non-
                                                Share       payment    Retained    holders of    controlling       Total
                                              capital       reserve    earnings   the 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                                   247 358       247 358            102     247 460
Release following exercise
 of share appreciation rights                               (2 349)       2 349
Cost of shares delivered in terms
 of share appreciation rights scheme                                    (5 196)       (5 196)                    (5 196)
Share-based payment charge                                    4 241                     4 241                      4 241
Dividends paid                                                        (120 430)     (120 430)                  (120 430)

Balance at 28 February 2018                    38 091         8 873     651 439       698 403          1 229     699 632
Total profit and comprehensive income                                   228 166       228 166            273     228 439
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                                    5 214                     5 214                      5 214
Dividends paid                                                        (131 651)     (131 651)                  (131 651)

Balance at 28 February 2019                    38 091        10 927     736 483       785 501          1 502     787 003


GROUP STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 28 FEBRUARY 2019
                                                                                                    2019            2018
                                                                                                   R'000           R'000

Cash flows from operating activities
Operating profit                                                                                 411 181         438 378
Adjustments for non-cash items:                                                                  139 485         105 760
Sale of car hire fleet vehicles                                                                  371 686         399 496
Purchase of car hire fleet vehicles                                                            (525 558)       (471 433)
Working capital changes:
  Inventories                                                                                      3 748        (45 865)
  Trade and other receivables                                                                      6 865        (56 792)
  Trade and other payables                                                                         8 031         131 212
  Borrowings                                                                                     237 932       (277 515)

Cash generated from operations                                                                   653 370         223 241
Taxation paid                                                                                   (76 959)        (89 340)

Net cash movement from operating activities                                                      576 411         133 901

Cash flows from investing activities
Purchase of plant and equipment                                                                 (38 927)        (20 616)
Proceeds on disposal of plant and equipment                                                        3 470           3 406
Insurance receivable                                                                               7 614         (6 982)

Net cash movement from investing activities                                                     (27 843)        (24 192)

Cash flows from financing activities
Cost of shares delivered in terms of share appreciation rights scheme                           (14 631)         (5 196)
Finance income received                                                                           23 769          24 452
Finance costs paid                                                                             (122 971)       (124 871)
Dividends paid                                                                                 (131 651)       (120 430)

Net cash movement from financing activities                                                    (245 484)       (226 045)

Net movement in cash and cash equivalents                                                        303 084       (116 336)
Cash and cash equivalents at beginning of year                                                   372 882         489 218

Cash and cash equivalents at end of year                                                         675 966         372 882

GROUP SEGMENT INFORMATION
FOR THE YEAR ENDED 28 FEBRUARY 2019



                                                                                       FINANCIAL          CORPORATE
                                        TOTAL      RETAIL MOTOR         CAR HIRE        SERVICES         SERVICES/OTHER
                                   R'000      %        R'000     %      R'000    %     R'000      %         R'000      %
2019
Segment revenue               11 196 974    100   10 523 718    93    512 561    5    82 591      1        78 104      1
Inter-segment revenue           (42 217)    100            -     -          -    -         -      -      (42 217)    100

External revenue              11 154 757    100   10 523 718    94    512 561    5    82 591      1        35 887      -

Operating profit                 411 181    100      279 932    68     94 570   23    34 824      9         1 855      -
Finance income                    23 769    100            -     -        203    1     6 601     28        16 965     71
Finance costs                  (122 971)    100     (75 946)    62   (45 695)   37         -      -       (1 330)      1

Profit before taxation           311 979    100      203 986    65     49 078   16    41 425     13        17 490      6

After charging
- employee costs                 789 491    100      643 266    82     89 111   11         -      -        57 114      7
- depreciation                   147 490    100       21 314    14    122 111   83         -      -         4 065      3

Total assets                   3 110 681    100    1 468 009    47    893 967   29    37 531      1       711 174     23
Total liabilities              2 323 678    100    1 408 794    60    851 735   37         -      -        63 149      3

Goodwill at year-end               8 078    100        8 078   100          -    -         -      -             -      -

                                                                                       FINANCIAL          CORPORATE
                                        TOTAL       RETAIL MOTOR         CAR HIRE       SERVICES         SERVICES/OTHER
                                   R'000      %        R'000     %      R'000    %     R'000      %         R'000      %

2018
Segment revenue               10 603 356    100    9 958 756    93    497 415    5    74 585      1        72 600      1
Inter-segment revenue           (30 760)    100            -     -          -    -         -      -      (30 760)    100

External revenue              10 572 596    100    9 958 756    94    497 415    5    74 585      1        41 840      -

Operating profit/(loss)          438 378    100      307 472    70    115 479   26    28 775      7      (13 348)    (3)
Finance income                    24 452    100            -     -          -    -     5 379     22        19 073     78
Finance costs                  (124 871)    100     (70 838)    57   (51 279)   41         -      -       (2 754)      2

Profit before taxation           337 959    100      236 634    70     64 200   19    34 154     10         2 971      1

After charging
- employee costs                 745 005    100      597 303    80     88 864   12         -      -        58 838      8
- depreciation                   139 133    100       20 352    15    115 002   82         -      -         3 779      3
- impairment of goodwill           2 000    100        2 000   100          -    -         -      -             -      -

Total assets
- per statement of
  financial position           2 772 650    100    1 449 200    52    875 734   32    45 144      2       402 572     14
- set off of inter-segment
  balances                       205 000    100            -     -          -    -        -       -       205 000    100
                               2 977 650    100    1 449 200    49    875 734   29    45 144      2       607 572     20
Total liabilities  
- per statement of
  financial position           2 073 018    100    1 371 537    66    646 327   31         -      -        55 154      3
- set off of inter-segment
  balances                       205 000    100            -     -    205 000  100         -      -             -      -
                               2 278 018    100    1 371 537    60    851 327   37         -      -        55 154      3
Goodwill at year-end               8 078    100        8 078   100          -    -         -      -             -      -


EXTRACTS FROM THE REPORT
OF THE CHIEF EXECUTIVE OFFICER

Whilst it is disappointing to interrupt a record of rising
headline earnings per share, given the political and economic
background I am satisfied with the results achieved.

The head winds which the domestic economy faced
during the year under review have been comprehensively
documented. Suffice to record that the widespread
corruption, mismanagement of SOEs, uncertainty regarding
land expropriation threats, and political leadership focused on
short-term tactics ahead of the election, have combined to
reduce business confidence to near all-time lows.

FINANCIAL OVERVIEW
In the face of the onslaught the Group suffered an 8,3%
decline in headline earnings per share.

Revenue grew 5,5%. This resulted from a slight increase in
vehicle sales volumes, an increased mix of higher-priced
luxury models, and a modest 2-3% average new vehicle
price hike. The more competitive industry meant that trading
margins were squeezed, and the gross profit margin fell from
16,7% to 16,4%.

The increased gross profit led to an increase in variable costs,
which accounted for a proportion of the overall 6,0% increase
in total selling and administration expenses, and the resulting
operating margin aligns with the top achievers in the retail
motor sector.

Excellent cash flow controls kept net finance costs on
a par with last year. Increased interest paid on vehicle
floorplan levels, during periods when dealers were forced by
manufacturers to hold higher than optimum inventory, was
offset by the periodic use of surplus funds to settle car hire
borrowings. The tax rate remained constant at 26,8%.

Despite the decrease in headline earnings, continued
strong cash flow generation has enabled the directors to
recommend that the dividend scheduled for payment in June
2019 be held at last year's level of 115 cents per share.

Looking at the statement of financial position, the only
noteworthy movements are in respect of the car hire fleet
and its attendant borrowings (both long- and short-term).
The net book value of the fleet has increased R52,8 million,
whilst the related borrowings level has increased
R237,9 million. In previous years the Group has used a
portion of its surplus cash to early settle interest-bearing
borrowings. Whilst this policy continued during the year
under review, at year end a parcel of new fleet vehicles
acquired was financed using external finance facilities,
and the intra-Group funds were returned and held on call
account. At year end, the Group held cash resources of
R676 million compared with the previous year's R373 million.

MOTOR RETAIL
This segment represents the majority of the Group's
business and is at the leading edge of economic cycles.

During the year under review, national new passenger and
light commercial vehicle sales volumes decreased 1,8%.
This follows a 0,4% rise last year, and declines in each of the
preceding three years. The macro picture for the industry
is one of increasing costs, principally salaries and property
costs, offsetting a stagnant revenue line.

Against the national sales volume decline, the Group
achieved a modest 1,9% improvement. The opportunity for
higher volume growth was hampered by supply disruptions
at Ford, which manufacturer represents the highest volume
contributor to Group sales. Ford's market share fell 18%
during the financial year. The hiccup has been resolved, and
the launch of exciting new products will provide a boost for
next year.

The national luxury model segment continued its downward
trend in volume sales. Fortunately the Group is only exposed
in respect of its Volvo/Land Rover/Jaguar dealerships, and
these, collectively, bucked the trend and recorded volume
growth.

The segment's overall decline in profitability is attributable
mainly to the difficult conditions in the used car departments.
Whilst national sales levels are estimated to have fallen
±10%, Group sales volumes were flat. I warned in my half-
year report of the challenges facing this area of business.
Longer periods over which new vehicles are financed, coupled
with a fall in their residual values, has led to a greater gap
between trade-in values and finance settlement values.
This forces owners to drive their vehicles for longer periods,
until the gap closes. When these vehicles are eventually
traded-in, they have high mileage, and are often not in the
desired condition to be resold with a warranty by a reputable
retailer. The lack of trade-ins has forced dealers to source
inventory in the open market where retained margins are
lower. Parts and service departments once again provided
the essential stability and dependability that underpins
successful dealerships.

CAR HIRE
This segment suffered a reversal of its 10-year record of
rising earnings. The 24% fall was attributable to the reduced
prices at which the retired fleet was able to be sold. I have
addressed the difficulties faced by the Group's used car
departments, and similar difficulties were experienced
on disposal of the car hire fleet. This aside, the fleet size,
utilisation rate, and average daily income rate remained
stable. The increase in the price of replacement fleet vehicles
has been offset, in part, by a reduction in the number of
luxury vehicles and the replacement thereof by models in
the medium-price range. The sector remains extremely
competitive and the drive to reduce operating costs
continues.

FINANCIAL SERVICES
This segment comprises insurance cells, relating to products
sold in tandem with the sale of vehicles, and joint ventures
in respect of the financing and collection of credit facilities
granted to purchasers. Both areas recorded increased
profitability despite the tough market and adverse consumer
credit statistics. Particularly pleasing is the 11% growth in
premium income, an indication of improved penetration in
a flat market. This annuity-type income will provide steady
growth in the years ahead.

PROSPECTS
It is not easy to be optimistic about the short-term future
of the domestic market. The brief euphoric spell, which
prevailed during the first months following the election of our
new president early last year, soon evaporated in the face of
daily revelations of large-scale corruption, further job losses,
higher indirect taxes, and a power struggle ahead of the May
elections between the ANC and the labour unions, and within
the party itself. The Eskom debacle has been, and continues
to be, highly disruptive and costly.

Predictions of national motor sales growth for calendar 2019
vary from -1% to +2%, which will mean the lowest level in
almost a decade. On the positive side, interest rates appear
to be stable, and, in real terms, new vehicle affordability
continues to improve. NAAMSA has recently reported that
the rate of new vehicle price increases has been well below
the CPI for the last 15 months. Competitive pressures facing
motor manufacturers are likely to ensure that attractive sales
incentives continue.

The Group is in a sound financial position. Its financial
statements record a solid and stable asset base, backed
by strong cash flow generation. Costs have been reduced
to a minimum, and the management team is experienced,
hardworking and enthusiastic. The missing ingredient is a
boost to the revenue line.

DIVIDEND DECLARATION
A dividend (dividend number 62) of 115 cents per share will
be paid on Tuesday, 18 June 2019 to members reflected in
the share register of the Company at the close of business
on the record date, Friday, 14 June 2019. Last day to trade
cum dividend is Tuesday, 11 June 2019. First day to trade ex
dividend is Wednesday, 12 June 2019. Share certificates may
not be dematerialised or rematerialised from Wednesday,
12 June 2019 to Friday, 14 June 2019, 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 R86 022 298 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
92 cents to those shareholders who are not exempt in terms
of section 64F of the Income Tax Act.

CHANGES IN DIRECTORATE
There has been no change to directors since the release of
the interim results in October 2018.

BASIS OF PREPARATION
The summary consolidated financial statements for the
year ended 28 February 2019 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 preliminary reports, and the requirements
of the South African Companies Act, No 71 of 2008, (the
"Act"), applicable to summary financial statements. The
Listings Requirements require preliminary 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 preparation of the previous consolidated financial
statements, except for the adoption of new standards.
The Group adopted IFRS 9: Financial Instruments and
IFRS 15: Revenue from Contracts with Customers from
1 March 2018. Both standards were adopted retrospectively.
The implementation of the standards has not had a material
impact on amounts reported in prior years and accordingly
management has not restated any comparative figures.

These results are extracted from audited information, but
are not themselves audited. The consolidated financial
statements were audited by PricewaterhouseCoopers Inc.,
who expressed an unmodified opinion thereon. The audited
consolidated financial statements and the auditor's report
thereon are available for inspection at the Company's
registered office.

The directors take full responsibility for the preparation of
these results and confirm that the financial information has
been correctly extracted from the underlying consolidated
financial statements.

CORPORATE GOVERNANCE
During the year the Group applied the principles and the
appropriate best business practices as recorded in the 
King IV Report on Corporate Governance. The Board recognises
that the Report seeks to instil a greater level of transparency
and integrated thinking in its deliberations, and to consider
not just financial gain, but the larger triple context, including
social and environmental considerations.

A report on the Group's corporate governance is recorded in
the Integrated Annual Report 2019.

ANNUAL GENERAL MEETING
Details of the annual general meeting are expected to be
released on 2 May 2019.

By order of the board of directors


K Fonseca CA (SA)
Company Secretary

23 April 2019

CORPORATE INFORMATION

DIRECTORS
JS Dixon (chairman)
JD McIntosh (CEO)
BWJ Barritt
LCZ Cele
SK Jackson
ME Jones
JA Mabena
MR Nkadimeng

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

BUSINESS ADDRESS AND REGISTERED OFFICE
1 Wilton Crescent
Umhlanga Ridge 4319

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

WEBSITE
www.cmh.co.za





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