Combined Motor Holdings (CMH), the importer of Volvo, Nissan and Lexus, has reported a large jump in annual profit helped largely by cost cuts pushed through in the previous year to navigate challenges posed by the pandemic.
“The period was a classic case of preparation meeting opportunity,” said CEO Jebb McIntosh. “The tough and stressful decisions and actions taken during the previous year positioned the group to take advantage of the few positives that emerged during a period of continued turmoil,” he said.
CMH, which employs about 2,300 people, competes with Motus in car dealerships while also owning car hire and insurance businesses, reported an increase in headline earnings per share, which strips out one-off items, of 117% to R5.01
This bottom-line growth outstripped that of revenue, which gained just 30% to R11.1bn — a sign that much of the profit growth came from cost control rather than sales.
In 2021, CMH joined a host of companies pushing through cost-saving measures to navigate challenges posed by lockdown restrictions and power cuts, offering retrenchments and early retirement packages, as well as limiting advertising and sales promotions.
The JSE-listed group said severe staff cuts were inevitable but it did try to retain key employees in each function.
McIntosh highlighted the situation that alleviating the shortage of skilled staff in the industry remains a priority.
CMH lamented that global parts and new vehicle shortages meant consumers were still unable to access new vehicles, which in turn led to a dearth of trade-ins.
Subsequently, its car hire division was unable to refresh its vehicles in accordance with its fleet retirement policy because insufficient replacements were available, and this meant that fewer vehicles were released for sale by dealerships.
The overall result was that, in respect of many models, price inflation of used vehicles exceeded that of new vehicles, CMH said.
Despite headwinds, the Umhlanga-based group posted an 8% increase in cash reserves that topped R800m.
The company reported that improved gross margin, coupled with tight control over operating costs generated an unprecedented operating profit of 5.4%.
“This is the first time that the group has achieved above 5%, and I am not aware of any retail motor/car hire group that has achieved better,” the CEO said.
Through its vehicle hire flagship, First Car Rental, which operates with a fleet of about 7,000 vehicles, CMH improved average revenue per hire day and fleet utilisation rate, resulting in an increase in gross profit margins.
Operating and gross profit surged 17.3% and 17.4% respectively to R345m and R1.4bn.
Add-on brands are growing in contribution, according to CMH, which acquired a Ford dealership in Ballito in KwaZulu-Natal last May, while two Mitsubishi and three Peugeot operations are expected to be added to existing dealerships.
CMH has also partnered with Malaysia’s biggest carmaker, Proton, to relaunch its offering in September spearheaded by two SUVs: the X50 and X70 with the Saga sedan set to come later.
The group said opportunities for acquisitive growth are expected in the coming period, adding that its equity structure is sound, and cash flow generation is good.
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