Wrap Text
FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2015
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 FOR THE YEAR ENDED 28 FEBRUARY 2015
GROUP STATEMENT OF FINANCIAL POSITION as at 28 February 2015
2015 2014
R'000 R'000
ASSETS
Non-current assets
Plant and equipment 74 846 74 803
Goodwill 44 972 74 972
Insurance receivable 20 418 18 039
Deferred taxation 51 224 46 643
191 460 214 457
Current assets
Car hire fleet vehicles 609 811 572 765
Inventories 1 175 207 1 214 577
Trade and other receivables 266 293 263 831
Cash and cash equivalents 450 544 308 480
2 501 855 2 359 653
Total assets 2 693 315 2 574 110
EQUITY AND LIABILITIES
Capital and reserves
Share capital 27 794 27 794
Share-based payment reserve 12 011 14 441
Retained earnings 600 543 523 379
Ordinary shareholders' equity 640 348 565 614
Non-controlling interest 275 112
Total equity 640 623 565 726
Non-current liabilities
Insurance payable 1 680 2 156
Lease liabilities 74 298 90 244
Provisions 4 231 –
80 209 92 400
Current liabilities
Advance from non-controlling shareholder of subsidiary 255 4 193
Trade and other payables 1 279 367 1 258 014
Borrowings 667 561 622 962
Lease liabilities 15 232 8 759
Current tax liabilities 10 068 22 056
1 972 483 1 915 984
Total liabilities 2 052 692 2 008 384
Total equity and liabilities 2 693 315 2 574 110
GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 28 February 2015
Restated
2015 2014
R'000 R'000
Continuing operations
Revenue 10 737 862 10 703 616
Cost of sales (8 986 601) (9 056 748)
Gross profit 1 751 261 1 646 868
Impairment of goodwill (30 000) –
Selling and administration expenses (1 395 103) (1 329 645)
Operating profit 326 158 317 223
Finance income 14 821 13 709
Finance costs (103 355) (89 000)
Profit before taxation 237 624 241 932
Tax expense (77 074) (75 245)
Profit for the year from continuing operations 160 550 166 687
Discontinued operation
(Loss)/profit for the year from discontinued operation
(attributable to equity holders of the company) (8 000) 2 745
Total profit and comprehensive income 152 550 169 432
Attributable to:
Equity holders of the company 152 387 169 440
Non-controlling interest 163 (8)
152 550 169 432
Reconciliation of headline earnings
Profits/(losses) for the year attributable to equity holders of the company
– from continuing operations 160 387 166 695
– from discontinued operation (8 000) 2 745
Total profit and comprehensive income attributable to equity holders of the company 152 387 169 440
Non-trading items:
– impairment of goodwill 30 000 –
– profit on sale of plant and equipment
– gross (93) (115)
– impact of income tax 26 32
Headline earnings attributable to equity holders of the company 182 320 169 357
From continuing operations 190 320 166 612
From discontinued operation (8 000) 2 745
182 320 169 357
Weighted average number of shares in issue during year ('000 shares) 93 673 108 057
Restated
2015 2014
Total earnings per share (cents)
Basic 162,7 156,8
Diluted basic 160,1 154,9
Headline 194,6 156,7
Diluted headline 191,6 154,8
Earnings per share from continuing operations (cents)
Basic 171,2 154,3
Diluted basic 168,5 152,4
Headline 203,1 154,2
Diluted headline 200,0 152,3
Earnings per share from discontinued operation (cents)
Basic (8,5) 2,5
Diluted basic (8,4) 2,5
Headline (8,5) 2,5
Diluted headline (8,4) 2,5
GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 28 February 2015
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 2013 29 500 13 024 638 027 680 551 120 680 671
Issue of shares 1 274 1 274 1 274
Total profit and comprehensive income 169 440 169 440 (8) 169 432
Transfer to share capital 377 (377)
Release following exercise of share
appreciation rights (2 182) (2 182) (2 182)
Loss on share appreciation rights exercised (864) (864) (864)
Share-based payment reserve 3 976 3 976 3 976
Dividends paid (85 026) (85 026) (85 026)
Shares repurchased (3 357) (198 198) (201 555) (201 555)
Balance at 28 February 2014 27 794 14 441 523 379 565 614 112 565 726
Total profit and comprehensive income 152 387 152 387 163 152 550
Release following exercise of share
appreciation rights (5 471) (5 471) (5 471)
Gain on share appreciation rights exercised 2 058 2 058 2 058
Share-based payment reserve 3 041 3 041 3 041
Dividends paid (77 281) (77 281) (77 281)
Balance at 28 February 2015 27 794 12 011 600 543 640 348 275 640 623
GROUP STATEMENT OF CASH FLOWS for the year ended 28 February 2015
2015 2014
R'000 R'000
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit
From continuing operations 326 158 317 223
From discontinued operation (7 906) 3 001
318 252 320 224
Adjustments for non-cash items
Depreciation/other 138 365 103 836
Sale of car hire fleet vehicles 324 772 294 102
Purchase of car hire fleet vehicles (443 107) (427 013)
338 282 291 149
Working capital changes
Inventories 39 370 (29 609)
Trade and other receivables (2 462) 176
Trade and other payables 20 084 129 817
Borrowings 44 599 59 846
Cash generated from operations 439 873 451 379
Taxation paid (93 643) (56 055)
Net cash movement from operating activities 346 230 395 324
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-current plant and equipment (32 858) (38 227)
Proceeds on disposal of non-current plant and equipment 4 807 5 105
Insurance receivables (2 379) (16 965)
Insurance payables (476) (452)
Net cash movement from investing activities (30 906) (50 539)
CASH FLOWS FROM FINANCING ACTIVITIES
Non-controlling shareholders of subsidiaries (3 938) (7 000)
Proceeds of issue of shares – 1 274
Repurchase of shares – (201 555)
Settlement of share appreciation rights (3 413) (3 382)
Finance income received 14 971 13 709
Finance costs paid (103 599) (89 256)
Dividends paid (77 281) (85 026)
Net cash movement from financing activities (173 260) (371 236)
Net movement in cash and cash equivalents 142 064 (26 451)
Cash and cash equivalents at beginning of year 308 480 334 931
Cash and cash equivalents at end of year 450 544 308 480
GROUP SEGMENT INFORMATION for the year ended 28 February 2015
TOTAL RETAIL MOTOR
2015 2014 2015 2014
R'000 % R'000 % R'000 % R'000 %
External revenue 10 832 583 100 10 831 384 100 10 282 716 95 10 261 436 95
Operating profit 318 252 100 320 224 100 225 498 70 234 173 74
Net finance costs (88 628) 100 (75 547) 100 (68 074) 77 (62 778) 83
Profit before taxation 229 624 100 244 677 100 157 424 68 171 395 70
Total assets 2 693 315 100 2 574 110 100 1 489 272 55 1 538 713 60
Total liabilities 2 052 692 100 2 008 384 100 1 283 403 63 1 272 973 63
Goodwill at year-end 44 972 100 74 972 100 44 972 100 74 972 100
Total employee costs 754 356 100 705 183 100 627 590 83 594 904 84
Number of staff 2 881 100 2 935 100 2 398 83 2 427 82
CAR HIRE MARINE AND LEISURE*
2015 2014 2015 2014
R'000 % R'000 % R'000 % R'000 %
External revenue 368 493 3 337 439 3 94 721 1 127 768 1
Operating profit 77 889 24 65 431 20 (7 906) (2) (449) –
Net finance costs (40 413) 46 (35 594) 47 (94) – (256) –
Profit before taxation 37 476 16 29 837 12 (8 000) (3) (705) –
Total assets 673 268 25 645 072 25 34 587 1 51 432 2
Total liabilities 725 351 35 681 724 34 14 198 1 12 247 1
Goodwill at year-end – – – – – – – –
Total employee costs 71 468 10 63 678 10 9 462 1 9 841 1
Number of staff 373 13 368 13 3 – 28 1
FINANCIAL SERVICES CORPORATE SERVICES/OTHER
2015 2014 2015 2014
R'000 % R'000 % R'000 % R'000 %
External revenue 60 268 1 77 910 1 26 385 – 26 831 –
Operating profit 33 683 11 30 289 9 (10 912) (3) (9 220) (3)
Net finance costs 2 297 (3) 2 384 (3) 17 656 (20) 20 697 (27)
Profit before taxation 35 980 16 32 673 13 6 744 3 11 477 5
Total assets 20 419 1 18 039 1 475 769 18 320 854 12
Total liabilities 1 680 – 2 156 – 28 060 1 39 284 2
Goodwill at year-end – – – – – – – –
Total employee costs – – – – 45 836 6 36 760 5
Number of staff – – – – 107 4 112 4
* Discontinued
EXTRACTS FROM THE REPORT OF THE CHIEF EXECUTIVE OFFICER
It gives me pleasure to report on a strong set of financial results for the year ended 28 February 2015. Despite a
difficult first half, in an economy beset by many national holidays and protracted strike action, the Group proved its
resilience by recording commendable results. More stable trading conditions during the second six months, and an
unrelenting focus on capital and cash management, and operating efficiencies, has underpinned a challenging, but rewarding, year.
The Group recorded a 24,2% increase in headline earnings per share, and has recommended a final dividend of 65,0 cents
per share, up 30% on the previous year.
FINANCIAL OVERVIEW
Group revenue remained unchanged at R10,7 billion; however, the trading margin improved by 1%, from 15,3% to 16,3%,
yielding an additional R104 million gross profit. The increase in selling and administration expenses, which includes
variable expenses attaching to the increased gross margin, was well contained at 4,9%, and operating profit before
goodwill impairment, improved by 12,3% to R356,2 million. The operating margin increased to 3,3% from its previous 3,0%.
As the result of the sub-performance of a dealership, it was considered prudent to impair the goodwill attributable to
that operation, and a charge of R30 million was effected in the statement of comprehensive income. The net effect, after
this charge, was a 2,8% increase in operating profit. Net finance costs increased by 17,6%, primarily due to the R200
million absorbed by the share repurchase effected in February 2014, and an additional R30 million investment in the car
hire fleet.
The tax rate increased from 31,1% to 32,4% because of the non-deductibility of the goodwill impairment charge. A loss of
R8 million was recorded in respect of the Group's discontinued marine and leisure division, more detail of which
is provided in the operational overview.
The Group's return on shareholders' funds remained steady at a creditable 25,3%.
After eliminating the goodwill impairment charge, headline earnings attributable to equity holders increased by 7,7% to
R182,3 million. Taking into account the reduced number of shares in issue, following the repurchase of 15,4 million
shares in February 2014, headline earnings per share increased 24,2% to 194,6 cents. A dividend of 65,0 cents per share
has been recommended. This, coupled with the 32,5 cents declared in October 2014, reflects an increase of 25% over the
comparative period.
The assets and liabilities levels recorded in the statement of financial position remain substantially unchanged from
the previous year. Inflationary increases in the value of inventory have been more than offset by a reduction in the
marine and leisure, and MG/Maxus divisions. The increase in borrowings reflects the higher investment in the car hire
fleet.
The cash flow statement once again reflects strong cash generation from operating activities. This cash generation,
equal to 138% (2014: 140%) of operating profit, is key to expansion, payment of dividends and, more recently, the
repurchase of shares.
OPERATIONAL OVERVIEW
One of the positive features of the year under review was that the market fundamentals, particularly interest and
currency exchange rates, remained relatively stable. Both are of critical importance to the Group. This influence is not
direct, because of the Group's low level of interest-bearing borrowings and exposure to currency risk, but does have an
impact on the affordability levels of the Group's customers and their ability to raise acquisition funding.
The Group as a whole, and the Car Hire division, measured separately, have retained their status as level 4 and level 3
contributors respectively. However, management has assessed the impact of the revised, and considerably more challenging
scorecard which will soon be effective, and believes that the Group's rating will be adversely affected. One of the
challenges in this regard is that the motor manufacturers, from which the Group secures the vast majority of its
purchases, do not have a favourable rating, and this reduces the Group's score.
Motor retail
Against a 2,6% decline in the national dealer market in respect of the brands which the Group represents, Group volume
new vehicle sales declined 0,6%. Encouragingly, sales during the last quarter were up 11%. Despite expectations of an
increase in used vehicle sales volumes, as a result of new vehicle price hikes, both national and Group unit volumes
declined 5,9%. In line with the new vehicle sales trend, used vehicle sales improved 4,4% during the last quarter.
I believe that it is inevitable that this trend will continue as the depreciating Rand places pricing strain
on new vehicle manufacturers.
The infrastructure costs of a new dealership are prohibitive, making "green fields" expansion uneconomical. The Group
was fortunate this year that it was able to open four new Mazda and six new Datsun operations in premises already
established as Ford and Nissan dealerships respectively. The sharing of overheads ensures a much lower break-even
volume, and provides for expense saving to be channelled into product marketing. A further Mazda, two Mitsubishi, and an
Iveco branch will be opened during the first quarter of the new year.
Intense competition in a declining market has forced manufacturers to offer large discounts and other incentive packages
to promote sales. Whilst qualification for these offerings is often premised on higher-than-optimal inventory levels,
with consequent interest charges, they do enable dealers to negotiate favourable purchase price savings, which can be
passed on to customers.
Sales of MG and Maxus vehicles, which are manufactured in China, have not met expectations. The strong Chinese currency,
coupled with the weak Rand, has made it difficult to price the vehicles favourably against established local
competitors. The Group's investment in these brands has been considerably reduced, and management is reviewing its
options regarding the way forward.
Internet and electronic marketing is producing an increasing level of awareness and response. CMH Bid Auction provides a
platform for the disposal to outside dealers of units which are not of the right quality to be marketed from showroom
floors, or are surplus to requirements. The CarShop web-site generates an increasing number of sales leads, and the
Group internet marketing platform has been consolidated under the brand "Rokkit Digital".
The Group's workshops and parts departments, which are the backbone of the dealerships' profitability, continued to
produce steady, pleasing results.
Car Hire
This division enjoyed another successful year. Contributing to its success has been a 3,5% increase in rental days sold,
coupled with a 1,8% improvement in average daily rental rates. Whilst seemingly low numbers, they combine to produce a
significant increase in gross profit, with no attendant expense. In addition, the division has extended its average
fleet life from 12–13 months, to 15 months. Although marginally older, the retired vehicles command the same
selling price, with the result that the vehicle depreciation during the extended period is significantly reduced.
The division has recently announced the launch of a van and truck rental division, which will be leveraged off the
existing infrastructure. In addition, under the brand name "Restart" it will market the hire of older vehicles,
typically to fill temporary gaps in corporate fleets, for periods averaging 90 days. Both start-ups are expected to
record modest growth and profit during the first 6 to 9 months, and thereafter to make a meaningful contribution.
Financial Services
This division comprises six insurance cells providing life, disability, retrenchment, and vehicle warranty cover, and
two joint venture vehicle financing operations. The number of policies sold, and gross premium income, during the year
was in line with that of 2014. This provides the platform for sustainable growth over the next 2 to 4 years. Gross
profit, being the excess of premium income over claims paid, increased by seven percentage points as the result of an
improved claims experience, and operating profit increased by 11,2% to R33,7 million. Continued growth is expected
in the year ahead.
Marine and Leisure
The Board's decision to discontinue this division was prompted by substandard returns. Market surveys indicate that,
following years of decline in consumers' disposable income, expenditure in this area has been steadily eroded. The
emerging Black middle- and upper-level income groups have shown little interest in this form of leisure activity. At
year-end the Group had an investment of R34 million in inventory and trade receivables. This has since been
reduced by R8 million, and it is expected that it will be substantially liquidated by the end of August 2015.
SHARE REPURCHASE OFFER
The Board has proposed the repurchase of 21,1 million shares at a price of R11,83 per share. In terms of the proposal
the Company will make an offer to all shareholders to voluntarily submit for repurchase all or a portion of their
shareholding, or no shares. Because of the confirmation by the Zimmerman family that it will tender all of its 28,4 million
shares for repurchase, an over-subscription is guaranteed. On this basis, each shareholder who tenders shares for repurchase
will be paid pro rata to the total submissions received by the Company. The proposal will be placed before shareholders
for approval in May 2015.
CHANGES IN DIRECTORATE
In July 2014 Maldwyn Zimmerman announced his retirement as a director. He has served the Group as director and, until
recently, chairman since its inception in 1976, and his contribution has been invaluable. I take this opportunity to
thank him for the guidance and support he has given me over many years, and wish him a long and healthy retirement.
Following Maldwyn's retirement, his son Issy was invited to the Board to represent the family's significant investment
in the Group. During February 2014 the family took advantage of the Group's voluntary share repurchase offer, and
disposed of some 15,0 million shares. The family has confirmed that it will similarly participate in the repeat offer
which has been proposed by directors for approval by shareholders at the end of May 2015. On the assumption that
a large majority of the 21,1 million shares proposed for repurchase are supplied by the family, its remaining interest
will be reduced to approximately 7,3 million shares, and Issy has indicated that he intends to retire as a director
with effect from the date of the annual general meeting.
Dineo Molefe, a director nominated by Thebe Investment Corporation, the Group's empowerment partner, resigned in June
2014, and in her place we welcomed Jerry Mabena.
Mike Jones was invited to join the Board on 16 April 2015.
PROSPECTS
I believe that the year ahead will be hampered by power outages and labour unrest. A lack of strategic planning over an extended
period, particularly with regard to maintenance of Eskom's ageing infrastructure, has manifested in rolling blackouts which are
hugely disruptive to the economy. There appears to have been a breakdown in Eskom's lines of authority and responsibility at
leadership level, and this does not bode well for a speedy solution. Within the Group, an investment in alternative energy
sources for over 100 dealerships and car hire depots is prohibitively expensive and impractical.
The recent expulsion of Cosatu's leader highlights the problems which have beset this Government-aligned labour union. Affiliates
will be faced with the choice of remaining part of the existing union, or building a more independent alternative. The struggle
to gain membership support will be contested in each workplace with a Cosatu union. Very often these battles turn violent, with
paralysing consequences, and act as a deterrent to foreign investment in the country.
Within our industry, the outlook is towards a stable new vehicle sales market, with an expected marginal decline in passenger car
sales offset by an improvement in the light commercial sector. The weakening of the Rand will inevitably result in price increases
and a continued trend in favour of lower-priced models. The long-expected recovery of the used vehicle market does appear to
have commenced, with a 5% upturn having been experienced this calendar year. Interest rates are anticipated to remain unchanged,
at least until the last quarter of calendar 2015.
The Group has capacity for earnings growth by continuous elimination of under-performing outlets, and maximising the opportunities
to drive further volumes through its existing infrastructure. Some of the low-volume manufacturers are starting to appreciate that
the high cost of standalone dealerships cannot be supported by the sales of one product range, and are more amenable to independent
showrooms being supported by a single parts, workshop and administration backup.
The Group's financial position and cash generation are strong. The manufacturers we represent are sound, long-term players in the
South African market, and our leadership team is committed. All things considered, I am confident of another year of good financial
performance.
DIVIDEND
A dividend (dividend number 54) of 65 cents per share will be paid on Monday, 15 June 2015 to members reflected in the share
register of the Company at the close of business on the record date, Friday, 12 June 2015. Last day to trade 'cum' dividend is
Friday, 5 June 2015. First day to trade 'ex' dividend is Monday, 8 June 2015. Share certificates may not be dematerialised or
rematerialised from Monday, 8 June 2015 to Friday, 12 June 2015, both days inclusive. The number of ordinary shares in issue
at the date of the declaration is 93 673 498. Consequently, the gross dividend payable is R60 888 000 and will be distributed
from income reserves. The dividend will be subject to dividend withholding tax at a rate of 15%, which will result in a net
dividend of 55,25 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 2015 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 abridged 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 abridged 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. The figures previously presented in respect of the Group 2014 Statement of
Comprehensive Income have been restated to exclude the results of the discontinued Marine and Leisure operation.
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
The annual general meeting will be held at 1 Wilton Crescent, Umhlanga Ridge, at 15h00 on Thursday, 28 May 2015. The
record date in terms of section 59(1)(a) of the Act for shareholders to be recorded on the securities register of the
Company in order to receive notice of the annual general meeting is Friday, 24 April 2015. The record date in terms
of section 59(1)(b) of the Act for shareholders to participate in and vote at the annual general meeting is
Friday, 22 May 2015.
By order of the board of directors
K Fonseca CA (SA)
Company Secretary
21 April 2015
DIRECTORS
JTM Edwards (chairman)
JD McIntosh (CEO)
LCZ Cele
MPD Conway
JS Dixon
SK Jackson
ME Jones
JA Mabena
N Siyotula
II Zimmerman
JW Alderslade (alternate)
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: 21/04/2015 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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