Wrap Text
Financial Results For The Year Ended 28 February 2017
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
COMBINED MOTOR HOLDINGS LIMITED
FINANCIAL RESULTS
FOR THE YEAR ENDED 28 FEBRUARY 2017
GROUP FINANCIAL HIGHLIGHTS
FOR THE FIVE YEARS ENDED 28 FEBRUARY 2017
COMPOUND GROWTH IN HEADLINE EARNINGS PER SHARE UP 19%
COMPOUND GROWTH IN DIVIDENDS PER SHARE UP 27%
INCREASE IN RETURN ON SHAREHOLDERS' FUNDS, UP 80% TO 37,4%
INCREASE IN OPERATING MARGIN, BEFORE GOODWILL IMPAIRMENT, FROM 2,6% TO 3,9%
GROUP FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED 28 FEBRUARY 2017
HEADLINE EARNINGS PER SHARE UP 15%
BASIC EARNINGS PER SHARE UP 18%
DIVIDENDS PER SHARE UP 26%
28 February 29 February Change
2017 2016 %
Total assets (R'000) 2 786 806 2 783 469 0,1
Cash resources (R'000) 489 218 498 254 (1,8)
Net asset value per share (cents) 767 643 19,3
Revenue (R'000) 10 224 900 11 016 150 (7,2)
Operating profit before goodwill impairment (R'000) 396 652 394 905 0,4
Operating profit (R'000) 379 652 372 905 1,8
Total profit and comprehensive income (R'000) 197 388 182 949 7,9
Return on shareholders' funds (%) 37,4 32,6 14,7
Basic earnings per share (cents) 263,3 223,5 17,8
Headline earnings per share (cents) 284,2 247,5 14,8
Dividends paid per share (cents) 140,0 111,5 25,6
Dividend declared - payable June 2017 (cents) 100,0 85,0 17,6
Headline earnings and dividends per share (cents)
2013 2014 2015 2016 2017
Dividends per share 61,0 78,0 82,5 111,5 140,0
Headline earnings per share 158,7 156,7 194,6 247,5 284,2
Return on shareholders' funds (%)
2013 24,8
2014 27,2
2015 25,3
2016 32,6
2017 37,4
GROUP STATEMENT OF FINANCIAL POSITION as at 28 February 2017
2017 2016
R'000 R'000
ASSETS
Non-current assets
Plant and equipment 74 864 71 715
Car hire fleet vehicles 757 085 -
Goodwill 10 078 27 078
Insurance receivable 38 162 30 032
Deferred taxation 39 454 39 934
919 643 168 759
Current assets
Car hire fleet vehicles - 643 882
Inventories 1 118 563 1 118 004
Trade and other receivables 254 843 266 680
Taxation paid in advance 4 539 2 590
Cash and cash equivalents 489 218 498 254
1 867 163 2 529 410
Assets of disposal group held for sale - 85 300
Total assets 2 786 806 2 783 469
EQUITY AND LIABILITIES
Capital and reserves
Share capital 38 091 38 091
Share-based payment reserve 6 981 5 987
Retained earnings 527 358 436 013
Ordinary shareholders' equity 572 430 480 091
Non-controlling interest 1 127 722
Total equity 573 557 480 813
Non-current liabilities
Lease liabilities 44 945 44 745
Current liabilities
Advance from non-controlling shareholder of subsidiary - 255
Trade and other payables 1 322 376 1 521 268
Borrowings 841 196 726 137
Lease liabilities 1 755 6 413
Current tax liabilities 2 977 3 838
2 168 304 2 257 911
Total liabilities 2 213 249 2 302 656
Total equity and liabilities 2 786 806 2 783 469
GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 28 February 2017
2017 2016
R'000 R'000
Revenue 10 224 900 11 016 150
Cost of sales (8 539 618) (9 275 592)
Gross profit 1 685 282 1 740 558
Other income 25 905 28 064
Impairment of goodwill (17 000) (22 000)
Selling and administration expenses (1 314 535) (1 373 717)
Operating profit 379 652 372 905
Finance income 21 498 14 906
Finance costs (126 338) (117 644)
Profit before taxation 274 812 270 167
Tax expense (77 424) (87 218)
Total profit and comprehensive income 197 388 182 949
Attributable to:
Equity holders of the company 196 983 182 502
Non-controlling interest 405 447
197 388 182 949
Reconciliation of headline earnings
Total profit and comprehensive income attributable to equity holders of the Company 196 983 182 502
Non-trading items:
- impairment of goodwill 17 000 22 000
- profit on sale of plant and equipment
- gross (1 954) (3 395)
- impact of income tax 547 951
Headline earnings attributable to equity holders of the Company 212 576 202 058
Earnings per share
Basic (cents) 263,3 223,5
Diluted basic (cents) 261,8 223,5
Headline (cents) 284,2 247,5
Diluted headline (cents) 282,6 247,5
GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 28 February 2017
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 2015 27 794 12 011 600 543 640 348 275 640 623
Issue of shares 11 579 11 579 11 579
Shares repurchased (4 607) (247 036) (251 643) (251 643)
Transfer to share capital 3 325 (3 325)
Total profit and comprehensive income 182 502 182 502 447 182 949
Release following exercise of
share appreciation rights (5 655) 5 655
Cost of shares delivered in terms of
share appreciation rights scheme (8 511) (8 511) (8 511)
Share-based payment charge 2 956 2 956 2 956
Dividends paid (97 140) (97 140) (97 140)
Balance at 29 February 2016 38 091 5 987 436 013 480 091 722 480 813
Total profit and comprehensive income 196 983 196 983 405 197 388
Release following exercise of
share appreciation rights (2 567) 2 567
Cost of shares delivered in terms of
share appreciation rights scheme (3 483) (3 483) (3 483)
Share-based payment charge 3 561 3 561 3 561
Dividends paid (104 722) (104 722) (104 722)
Balance at 28 February 2017 38 091 6 981 527 358 572 430 1 127 573 557
GROUP STATEMENT OF CASH FLOWS for the year ended 28 February 2017
2017 2016
R'000 R'000
Cash flows from operating activities
Cash generated from operations 273 354 596 122
Taxation paid (79 754) (84 748)
Net cash movement from operating activities 193 600 511 374
Cash flows from investing activities
Purchase of plant and equipment (36 242) (37 007)
Proceeds on disposal of plant and equipment 5 146 7 422
Proceeds on disposal of businesses 49 890 31 205
Purchase of businesses - (5 537)
Insurance receivable (8 130) (9 614)
Insurance payable - (1 680)
Net cash movement from investing activities 10 664 (15 211)
Cash flows from financing activities
Proceeds of issue of shares - 11 579
Advance from non-controlling shareholder of subsidiary (255) -
Repurchase of shares - (251 643)
Cost of shares delivered in terms of share appreciation rights scheme (3 483) (8 511)
Finance income received 21 498 14 906
Finance costs paid (126 338) (117 644)
Dividends paid (104 722) (97 140)
Net cash movement from financing activities (213 300) (448 453)
Net movement in cash and cash equivalents (9 036) 47 710
Cash and cash equivalents at beginning of year 498 254 450 544
Cash and cash equivalents at end of year 489 218 498 254
GROUP SEGMENT INFORMATION for the year ended 28 February 2017
Corporate Marine
Retail Financial Services/ and
Total Motor Car Hire Services Other Leisure*
2017 2017 2017 2017 2017 2017
R'000 % R'000 % R'000 % R'000 % R'000 % R'000 %
Segment revenue 10 253 982 100 9 627 137 93 483 672 5 68 884 1 74 289 1 - -
Inter-segment revenue (29 082) 100 - - - - - - (29 082) 100 - -
External revenue 10 224 900 100 9 627 137 94 483 672 5 68 884 1 45 207 - - -
Operating profit/(loss) 379 652 100 247 430 65 108 747 29 27 619 7 (4 144) (1) - -
Finance income 21 498 100 - - - - 5 379 25 16 119 75 - -
Finance costs (126 338) 100 (68 031) 54 (50 515) 40 - - (7 792) 6 - -
Profit before taxation 274 812 100 179 399 65 58 232 21 32 998 12 4 183 2 - -
After charging
- employee costs 737 241 100 600 915 82 79 593 11 - - 56 733 7 - -
- depreciation charge 117 324 100 21 180 18 93 032 79 - - 3 112 3 - -
- impairment of goodwill 17 000 100 17 000 100 - - - - - - - -
Total assets 2 786 806 100 1 380 717 50 844 769 30 38 162 1 523 158 19 - -
Total liabilities 2 213 249 100 1 255 998 57 906 158 41 - - 51 093 2 - -
Goodwill at year-end 10 078 100 10 078 100 - - - - - - - -
Corporate Marine
Retail Financial Services/ and
Total Motor Car Hire Services Other Leisure*
2016 2016 2016 2016 2016 2016
R'000 % R'000 % R'000 % R'000 % R'000 % R'000 %
Segment revenue 11 086 217 100 10 493 058 94 422 932 4 67 027 1 65 700 1 37 500 -
Inter-segment revenue (32 567) 100 - - - - - - (32 567) 100 - -
External revenue 11 053 650 100 10 493 058 95 422 932 4 67 027 1 33 133 - 37 500 -
Operating profit/(loss) 372 905 100 253 513 68 90 973 24 34 554 9 (6 135) (1) - -
Finance income 14 906 100 182 1 - - 3 150 21 11 574 78 - -
Finance costs (117 644) 100 (75 725) 65 (41 469) 35 - - (450) - - -
Profit before taxation 270 167 100 177 970 66 49 504 18 37 704 14 4 989 2 - -
After charging
- employee costs 755 998 100 638 379 84 68 307 9 - - 49 312 7 - -
- depreciation charge 112 603 100 21 932 19 88 786 79 - - 1 885 2 - -
- impairment of goodwill 22 000 100 22 000 100 - - - - - - - -
Total assets 2 783 469 100 1 502 239 54 724 231 26 30 032 1 525 034 19 1 933 -
Total liabilities 2 302 656 100 1 446 173 63 803 642 35 - - 51 877 2 964 -
Goodwill at year-end 27 078 100 27 078 100 - - - - - - - -
* Discontinued
EXTRACTS FROM THE REPORT OF THE CHIEF EXECUTIVE OFFICER
The Group achieved commendable results during what was a
difficult year for the motor industry. The tough trading conditions
which prevailed throughout the previous year, continued to place
pressure on consumer spending. The year-on-year decline in GDP,
coupled with the volatile economic climate, added to the financial
strain on many households, and resulted in a 11,4% decline in
national new vehicle sales.
Against this backdrop, the Group delivered a 17,8% increase in
basic earnings per share, a 14,8% increase in headline earnings
per share and a 25,6% improvement in dividends per share. The
recommended dividend of 100 cents per share is 18% above that
paid last year.
I am proud that, during the five years since 2012, a period during
which the level of national new vehicle sales has shown steady
decline, the Group has recorded 19% compound growth in headline
earnings per share, and an impressive 27% growth in dividends per
share. I believe that this track record places the Group alongside
some of the best counters on the JSE.
FINANCIAL OVERVIEW
Principally as a result of the previously-reported closure of two
BMW / Mini operations in 2015, and a third in June 2016, Group
revenue fell 7%. In respect of the continuing operations, growth
of 6% was achieved. The improved gross margin, from 15,8% to
16,4%, resulted in a decline of only 3,2% in gross profit. Strict cost
control measures ensured that operating expenses in respect of
the continuing operations were contained at a 5% increase. The
goodwill impairment charge related to a loss-making dealership
(R15 million), and the closed BMW/Mini branch (R2 million). The
Group is left with only R10 million of goodwill, all of which is
considered to be fairly valued. The net result is that the operating
margin increased from 3,4% to 3,7%.
Despite the investment of R251 million last year in the repurchase
of shares, the net finance cost remained almost unchanged.
Utilisation of assessed losses created in prior years, and a lower
level of non-deductible expenses, principally goodwill impaired,
reduced the taxation rate from 32,3% to 28,2%. The net result
was a 7,9% increase in earnings and, taking into account the
fewer shares in issue, a 14,8% improvement in headline earnings
per share.
The values reflected on the statement of financial position are
largely unchanged from the previous year, with the exception of
the treatment of the Group's car hire fleet. A conscious decision
has been taken to extend the life of the fleet beyond the previous
period of 12 - 15 months. As a result, the fleet has been recorded
as a non-current asset. Whilst this change does give rise to the
appearance that the long-term asset is financed by the utilisation
of short-term borrowings, the reality is that movements in the
fleet size and the borrowings level are linked. The borrowings level
can be reduced at short notice by a sale of surplus vehicles,
or by the utilisation of Group cash resources.
The Group's year-end cash resources balance of R489 million
remained sound in line with that of last year. At year end
R70 million had been used to settle interest-bearing fleet
borrowings, and a further R200 million to reduce trade payables
relating to new vehicle purchases.
OPERATIONAL OVERVIEW
For the third successive year, the national market for new vehicle
sales has recorded a year-on-year decline. The volumes sold are at
a level last recorded in 2010 and 2011, and 100 000 units below
that of 2014, only two years ago. Reasons cited for the decline
are the slowdown in the economy, above average price increases,
pressure on household disposable income, and low levels of
consumer confidence. Elevated political tension and increased
electricity prices, rates and taxes exacerbated the problem.
Countering, to an extent, the fall in new vehicle sales has been
the improvement in the used vehicle market. Whilst there are no
reliable statistics to verify sales levels, indications from the major
vehicle finance houses are that the national market increased by
3 - 4%. In comparison, Group volumes increased 6,7%. The trend
of consumers purchasing used rather than new vehicles has
continued.
Motor Retail
Against the national market which declined 11,4%, Group new
vehicle sales, excluding the closed operations, fell 8,3%. Unlike
in previous years, the high value models were also adversely
affected, a sign that even the rich are suffering in the economic
downturn. Dealers are faced with increased pressure from
manufacturers to "move metal". In some instances dealer margins
have been reduced, and replaced with more aggressive incentive
schemes directed at boosting volumes at sub-economic margins.
The Group's ability to meet the incentive qualifying criteria and
benefit from the incentive schemes helped to improve gross
margins.
Two of the Group's sub-performing dealerships have been closed.
A further two have been combined with existing operations to take
advantage of shared overheads. The used vehicle departments
recorded a pleasing 20% improvement in profitability. An increased
off take from the car hire division's retired fleet supplemented the
source of quality retailable units.
The Group's workshops and parts departments provided stable
and steady contributions. Renewed focus on workshop efficiency
measures has produced increased hours sold from a reduced
labour force. Aggressive marketing and customer-retention
efforts have ensured optimal workshop throughput. The parts
departments have also benefited from the higher workshop
activity levels through increased sales at favourable margins.
They have resisted the temptation to chase sales volumes at low
margins and high debt collection risk.
Car Hire
First Car Rental has achieved an enviable 8 consecutive years of
profit growth. Its success has elevated its contribution to 21%
of Group profit before taxation, a welcome underpin during a
period in which the retail motor division has been under pressure.
The business recorded revenue growth of 14%, largely because
of increased penetration into both the business and tourism/
leisure markets. A change in segmentation mix, with a focus
on lower-volume, higher-margin business, has resulted in an
increase in the average daily hire rate and an improvement in
the profit margin, from 21,5% to 22,5%. Taking advantage of
the build quality of current models, and the extended warranty
plans offered by manufacturers, management has been able to
extend the useful life of fleet vehicles, without compromising the
offering to customers. This has resulted in a lower average rate
of depreciation of the fleet as the initial diminution in value of a
newly-registered vehicle is spread over a longer period.
Sharp new vehicle price increases have buoyed the used vehicle
market and enabled the retired fleet, aged between 18 and
24 months, to be disposed of at favourable prices.
Financial Services
This segment recorded a 12,5% decline in pre-tax profit, mainly
because of lower returns from the Group's finance joint ventures.
The joint ventures, in partnership with two of the major vehicle
finance houses, offer both fixed and variable rate credit to vehicle
buyers. Fixed rate lending provides a higher interest rate margin
for the lender, and offers greater certainty to the customer.
Because of the relative stability in interest rates in recent years,
fewer borrowers have opted for fixed rates and the net interest
margin has declined.
Profit from the Group's insurance and vehicle warranty cells
increased 10%. Despite the decline in Group vehicle sales, premium
income increased 3%. This will provide stability in future years.
PROSPECTS
Until recently, the economy, whilst remaining fragile and volatile,
did appear to be showing signs of a potential mild recovery. Market
commentators believed that interest rates will remain stable, and
may even fall marginally during the last quarter of calendar 2017.
They were predicting modest GDP off a low base which bodes
well for new vehicle sales which historically have shown a close
correlation with GDP movements. The country is slowly recovering
from one of the worst droughts in its history. The currency had
recorded strength and should have provided relief for new vehicle
prices. All this positivity was thrown into doubt and confusion by
a few days of political mayhem, leading to a reversal of the Rand's
gains, and the downgrading of the country's credit risk rating.
What is astounding is the potential for our political leaders,
through their actions or inaction, to turn the economy on its head.
There are not many countries where political influence can have
such a damaging influence on the economy and public confidence
as is the case in South Africa. Allegations of fraud, corruption,
nepotism and incompetence within government circles continue to
dominate news headlines. The ANC election conference, scheduled
for the end of this year, has already split the party into conflicting
factions, and the scramble for leadership positions, with the
expectation of favours for supporting bodies, has the potential to
result in violence. Rather than supporting the private sector drive
for job creation and prosperity, the government is a stumbling
block. Its leaders seem unwilling to accept responsibility for its
failures and to replace incompetent and corrupt officials for fear
of losing political patronage.
Within the motor industry the majority opinion is that, after a flat
start, national new vehicle sales will start to gain traction during
the second half of calendar 2017, with an improvement of
3 - 5%. After three years of decline, this will be a welcome relief.
The availability of good quality used vehicles with less than
50 000 kilometres travelled will come under pressure as the
demand continues. This will drive up prices and spark a natural
shift back to the new vehicle market.
At Group level, the majority of out-of-line dealerships have been
addressed, and the network has potential for organic growth. The
Mazda and Mitsubishi branches are starting to reap the rewards
of two successful years of new vehicle sales, and are experiencing
increased workshop and parts demand. New product launches
and more aggressive marketing support from the Volvo/Land
Rover/Jaguar stable will herald an increase in sales volumes. This
will benefit the Group's outlets which have suffered declining
returns during the past three years. The workshops and parts
departments are expected to show continued steady growth.
The Group's car hire and financial services segments provide
33% of its profit and, unless there is a surge in the motor retail
contribution, this underpin is predicted to increase to 35% in the
year ahead. First Car Rental can expect to obtain good prices for
the fleet vehicles retired in the year ahead, but will come under
some strain when it starts to replace them at prices which are
some 15% higher. The business will look to expand its fledgling
van and truck hire offering and increase penetration in the
medium-term rental market.
The balance sheet and cash generation are strong and stable, and
the Group is well-structured in terms of management and product
offerings. I believe that the year ahead will be tough, but the Group
is well positioned to take advantage of the potential upturn.
CHANGES IN DIRECTORATE
There has been no change in directors since the release of the
interim results on 13 October 2016.
DIVIDEND DECLARATION
A dividend (dividend number 58) of 100 cents per share will be
paid on Monday, 19 June 2017 to members reflected in the share
register of the Company at the close of business on the record
date, Thursday, 15 June 2017. Last day to trade cum dividend is
Monday, 12 June 2017. First day to trade ex dividend is Tuesday,
13 June 2017. Share certificates may not be dematerialised or
rematerialised from Tuesday, 13 June 2017 to Thursday,
15 June 2017, 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 R74 801 998 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 80 cents 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
year ended 28 February 2017 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.
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
The Group is committed to maintaining the high standards
of governance as embodied in the King Report on Corporate
Governance and, except as recorded in the Integrated Annual
Report, complies with the principles of both the Report and the
JSE Limited Listings Requirements.
ANNUAL GENERAL MEETING
Details of the annual general meeting are expected to be released
on 3 May 2017.
By order of the board of directors
K Fonseca CA (SA)
Company Secretary
19 April 2017
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
DIRECTORS
JTM Edwards (chairman)
JD McIntosh (CEO)
BWJ Barritt
LCZ Cele
JS Dixon
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
Private Bag X36
Sunninghill 2157
WEBSITE
www.cmh.co.za
Date: 19/04/2017 12:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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