Car sale slump hits CMH

Johannesburg - Revenue and profits at automotive retailer Combined Motor Holdings (CMH) shrank in the six months to end-August, after demand for cars ground to a virtual halt.

Revenue at the company, which operates dealerships for new and used cars as well car rental, declined 17% to R2.9bn. Gross profit fell 4% to R473.7m during the six months under review.

Headline earnings per share increased 106% to 16.3c as a direct result of strict cost controls to combat the market slump.

CMH cut operating and administrating expenses by 5% during the period under review. Finance costs fell 33% after the application of a lower tax rate and the gradual easing of interest rates during the period.

Other measures to slash costs included cutting one-fifth of staff in its biggest division, motor retail, which accounts for 90% of revenue. The company also closed seven out of its 60 dealerships.

Operating profit rose 20% to R34.8m during the interim period as a result of these saving initiatives.

However, at the time of release of CMH's trading update in late September, the group's financial director Stuart Jackson said that the jump in earnings was "off a very low level".

The motor retail division experienced a 17% drop in revenue as South African consumers are still reluctant to consider taking on long-term debt and banks remain wary of risky credit.

"Despite talk of less restrictive minimum requirements for new business, the reality is that only one in four applicants is being approved," said the company.

High World Cup hopes

However, the groups's CEO Jebb McIntosh is confident that the decline in new car sales will stop in November 2009.

"Hopefully, we will see some small growth after that," he added.

CMH sells new and used cars under the internet brand carshop.co.za and operates dealerships around the country.

The group's car rental division - First Car Rental - underwent a turnaround in profitability. The division reported a loss of R2.4m last year into a profit before tax position of R4.1m at end-August 2009.

"We stopped doing discounting. That is what helped us there. We are now getting a better rate per day," said McIntosh, who added that the groups' fleet also has a higher utilisation rate at the moment.

"Car hire is also extremely well positioned to benefit from the World Cup next year. Winter is usually downtime but next year it will actually be peak season for us," he added.

CMH also owns high-end pre-owned car chain Investment Cars, which has branches in Johannesburg and Cape Town.

"They have been hit quite badly but we are also starting to see a bit of a turnaround there," said McIntosh.

CMH declared an interim dividend of 6 cents per share.

- Fin24.com