Shares in Combined Motor Holdings (CMH) declined as much as 2.8% in light trading on Friday after the group reported a 32% slump in headline earnings at the halfway stage.
By the close the stock had recovered somewhat to R34.52, down 2% on the day.
Revenue for the six months ended August declined 1% to R6.53bn, with operating profit 22% lower at R283.9m, the group said in a statement. Headline earnings per share fell 32% to 179.3c.
The retail motor and car hire group blamed the performance on erratic monthly results especially in May during the build-up to the general elections, and uncertainty in June in the lead up to the formation of a government of national unity.
Consumer confidence was low and reluctance to spend on big-ticket items was evident, CMH said.
Despite the earnings reversal, the group structure remains sound, and continued cash generation has enabled the recommendation of a dividend of 102c per share, it said.
During the first half, the new vehicle unit sales recorded a decline of 8%, which was in line with the national market in respect of passenger and light commercial vehicles.
In addition, tough competition, particularly from new Chinese entrants to an already saturated local market, created intense trading margin pressure, CMH said.
Traditional brands, with local manufacturing investment, are struggling to compete against the flood of cheaper import alternatives, it added.
Though used vehicle unit sales were down 7%, trading margins showed some improvement.
Fleet levels of major car hire operators appear to have stabilised, and there have been fewer instances of surplus vehicles being dumped on the used car market, CMH said.
Regarding new and used vehicles sales, the group said banks’ finance approval rates have remained low. In addition, the increasing trend of approved loans not being taken up by customers reflects a lack of confidence in the economic future, it added.
First Car Rental experienced its toughest trading period since Covid-19, CMH said.
Predictions of a reasonable economic growth rate during the next six months are tinged by a number of dark clouds, CMH said, including the continued high level of unemployment and exorbitant proposed hikes in the cost of electricity.
“Expected relief from further interest rate cuts will be more than offset by Eskom’s attempt to recover the cost of its mismanagement,” it said.
On the positive side, the group cited the country’s peaceful transition to a government of national unity, the trend of fuel price cuts and a stronger rand.
“The group expects a meaningful improvement in the period ahead. Current signs are that national new vehicle sales are edging up modestly on the back of consumer confidence and in anticipation of meaningful interest rate cuts,” CMH said.
The group has recently launched the Foton range of light commercial vehicles, and early indications are that its success in the market has met expectations. The brand is the market leader in China.
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