Wrap Text
Preliminary report
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 29 FEBRUARY 2016
GROUP STATEMENT OF FINANCIAL POSITION as at 29 February 2016
2016 2015
R'000 R'000
ASSETS
Non-current assets
Plant and equipment 71 715 74 846
Goodwill 27 078 44 972
Insurance receivable 30 032 20 418
Deferred taxation 39 934 51 224
168 759 191 460
Current assets
Car hire fleet vehicles 643 882 609 811
Inventories 1 118 004 1 175 207
Trade and other receivables 266 680 266 293
Taxation paid in advance 2 590 –
Cash and cash equivalents 498 254 450 544
2 529 410 2 501 855
Assets of disposal group held for sale 85 300 –
Total assets 2 783 469 2 693 315
EQUITY AND LIABILITIES
Capital and reserves
Share capital 38 091 27 794
Share-based payment reserve 5 987 12 011
Retained earnings 436 013 600 543
Ordinary shareholders' equity 480 091 640 348
Non-controlling interest 722 275
Total equity 480 813 640 623
Non-current liabilities
Insurance payable – 1 680
Lease liabilities 44 745 74 298
Provisions – 4 231
44 745 80 209
Current liabilities
Advance from non-controlling shareholder of subsidiary 255 255
Trade and other payables 1 521 268 1 279 367
Borrowings 726 137 667 561
Lease liabilities 6 413 15 232
Current tax liabilities 3 838 10 068
2 257 911 1 972 483
Total liabilities 2 302 656 2 052 692
Total equity and liabilities 2 783 469 2 693 315
GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 29 February 2016
Restated
2016 2015
R'000 R'000
Continuing operations
Revenue 11 016 150 10 737 862
Cost of sales (9 275 592) (8 986 601)
Gross profit 1 740 558 1 751 261
Other income 28 064 14 764
Impairment of goodwill (22 000) (30 000)
Selling and administration expenses (1 373 717) (1 409 867)
Operating profit 372 905 326 158
Finance income 14 906 14 821
Finance costs (117 644) (103 355)
Profit before taxation 270 167 237 624
Tax expense (87 218) (77 074)
Profit for the year from continuing operations 182 949 160 550
Discontinued operation
Loss for the year from discontinued operation (attributable to equity holders of the company) – (8 000)
Total profit and comprehensive income 182 949 152 550
Attributable to:
Equity holders of the company 182 502 152 387
Non-controlling interest 447 163
182 949 152 550
Reconciliation of headline earnings
Profits/(losses) for the year attributable to equity holders of the company
– from continuing operations 182 502 160 387
– from discontinued operation – (8 000)
Total profit and comprehensive income attributable to equity holders of the company 182 502 152 387
Non-trading items:
– impairment of goodwill 22 000 30 000
– profit on sale of plant and equipment
– gross (3 395) (93)
– impact of income tax 951 26
Headline earnings attributable to equity holders of the company 202 058 182 320
From continuing operations 202 058 190 320
From discontinued operation – (8 000)
202 058 182 320
2016 2015
cents cents
Total earnings per share
Basic 223,5 162,7
Diluted basic 223,5 160,1
Headline 247,5 194,6
Diluted headline 247,5 191,6
Earnings per share from continuing operations
Basic 223,5 171,2
Diluted basic 223,5 168,5
Headline 247,5 203,1
Diluted headline 247,5 200,0
Earnings per share from discontinued operation
Basic – (8,5)
Diluted basic – (8,4)
Headline – (8,5)
Diluted headline – (8,4)
GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 29 February 2016
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 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 shar
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
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 reserve 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
GROUP STATEMENT OF CASH FLOWS for the year ended 29 February 2016
2016 2015
R'000 R'000
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit
From continuing operations 372 905 326 158
From discontinued operation – (7 906)
372 905 318 252
Adjustments for non-cash items:
– depreciation/other 94 192 138 365
Sale of car hire fleet vehicles 341 606 324 772
Purchase of car hire fleet vehicles (461 388) (443 107)
347 315 338 282
Working capital changes:
Inventories (48 024) 39 370
Trade and other receivables (387) (2 462)
Trade and other payables 238 642 20 084
Borrowings 58 576 44 599
Cash generated from operations 596 122 439 873
Taxation paid (84 748) (93 643)
Net cash movement from operating activities 511 374 346 230
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-current plant and equipment (37 007) (32 858)
Proceeds on disposal of non-current plant and equipment 7 422 4 807
Proceeds on disposal of businesses 31 205 –
Purchase of businesses (5 537) –
Insurance receivable (9 614) (2 379)
Insurance payable (1 680) (476)
Net cash movement from investing activities (15 211) (30 906)
CASH FLOWS FROM FINANCING ACTIVITIES
Non-controlling shareholders of subsidiaries – (3 938)
Proceeds of issue of shares 11 579 –
Repurchase of shares (251 643) –
Cost of shares delivered in terms of share appreciation rights scheme (8 511) (3 413)
Finance income received 14 906 14 971
Finance costs paid (117 644) (103 599)
Dividends paid (97 140) (77 281)
Net cash movement from financing activities (448 453) (173 260)
Net movement in cash and cash equivalents 47 710 142 064
Cash and cash equivalents at beginning of year 450 544 308 480
Cash and cash equivalents at end of year 498 254 450 544
GROUP SEGMENT INFORMATION for the year ended 29 February 2016
MARINE FINANCIAL CORPORATE
TOTAL RETAIL MOTOR CAR HIRE AND LEISURE* SERVICES SERVICES/OTHER
R’000 % R’000 % R’000 % R’000 % R’000 % R’000 %
2016
Segment revenue 11 086 217 100 10 493 058 94 422 932 4 37 500 – 67 027 1 65 700 1
Inter-segment revenue (32 567) 100 – – – – – – – – (32 567) 100
External revenue 11 053 650 100 10 493 058 95 422 932 4 37 500 – 67 027 1 33 133 –
Operating profit 372 905 100 253 513 68 90 973 24 – – 34 554 9 (6 135) (1)
Net finance costs (102 738) 100 (75 543) 74 (41 469) 40 – – 3 150 (3) 11 124 (11)
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 1 933 – 30 032 1 525 034 19
Total liabilities 2 302 656 100 1 446 173 63 803 642 35 964 – – – 51 877 2
Goodwill at year-end 27 078 100 27 078 100 – – – – – – – –
2015
Segment revenue 10 855 688 100 10 282 716 95 368 493 3 94 721 1 60 268 1 49 490 –
Inter-segment revenue (23 105) 100 – – – – – – – – (23 105) 100
External revenue 10 832 583 100 10 282 716 95 368 493 3 94 721 1 60 268 1 26 385 –
Operating profit 318 252 100 225 498 70 77 889 24 (7 906) (2) 33 683 11 (10 912) (3)
Net finance costs (88 628) 100 (68 074) 77 (40 413) 46 (94) – 2 297 (3) 17 656 (20)
Profit before taxation 229 624 100 157 424 68 37 476 16 (8 000) (3) 35 980 16 6 744 3
After charging:
– employee costs 754 356 100 627 590 83 71 468 10 9 462 1 – – 45 836 6
– depreciation charge 109 390 100 23 294 21 84 107 77 417 – – – 1 572 2
– impairment of
goodwill 30 000 100 30 000 100 – – – – – – – –
Total assets 2 693 315 100 1 489 272 55 673 268 25 34 587 1 20 419 1 475 769 18
Total liabilities 2 052 692 100 1 283 403 63 725 351 35 14 198 1 1 680 – 28 060 1
Goodwill at year-end 44 972 100 44 972 100 – – – – – – – –
* Discontinued.
EXTRACTS FROM THE REPORT OF THE CHIEF EXECUTIVE OFFICER
I am proud to report on the financial results of CMH Group for the
year ended 29 February 2016. I believe that the performance was
excellent bearing in mind the challenging trading and economic
conditions the Group faced during the year under review. Despite
a 5,2% decline in national new vehicle sales, the Group recorded
a 27% increase in headline earnings per share. The Group learnt
harsh lessons during the global and local recession of 2009: most
importantly, the need to manage costs and cash flow in a shrinking
market. Applying these principles has enabled modest growth in
both the new and used car sectors. This growth, together with
improved operating margins, has propelled the Group to a return
on shareholders' funds of 32,6%. The recommended dividend of
85 cents per share is 30,8% above that paid last year.
FINANCIAL OVERVIEW
Despite a revenue loss of some R360 million, following the closure
of two large dealerships during the year, the Group recorded an
increase of 2,6% in total revenue. This was principally due to an
increase in vehicle sales volumes. The gross margin declined
from 16,3% to 15,8% as a result of pricing pressure, but this was
offset by a 2,6% reduction in selling and administration expenses.
The result was that operating profit, before goodwill impairment,
increased 10,9%, to R395 million. The goodwill impairment charge
of R22 million related to the closed dealerships. After eliminating
the goodwill impairment, the operating margin improved from
3,3% to 3,6%.
During the year the Group effected a repurchase of 21,1 million
shares at a price of R11,83 per share. The total outlay of
R251 million was expended from existing cash resources. Despite
this cash outflow, an additional R34 million invested in the car hire
fleet, and R96 million in new vehicle inventory, the net finance cost
increased only 15,9%. The tax rate remained constant, and the net
result was a 19,9% improvement in total profit and comprehensive income.
Headline earnings increased 10,8% to R202 million. Adjusting for
the lower average number of shares in issue, this translates into a
27,2% improvement in headline earnings per share. The proposed
dividend of 85 cents per share, coupled with the 46,5 cents
paid in December 2015, reflects an increase of 34,9% over the
comparative period.
Within the statement of financial position, the only noteworthy
movements were the increase in the car hire fleet, to cater for its
higher sales, and a temporary increase in new vehicle inventory,
ahead of expected price increases. The decrease in total equity has
resulted from the share repurchase. Borrowings have increased in
line with the car hire fleet.
Despite the investment of R251 million on the share repurchase,
and the payment of R97 million in dividends, the Group ended the
year with cash resources of R498 million, up R48 million on the
previous year.
OPERATIONAL OVERVIEW
Vehicle sales are affected by a number of factors, which include
consumers' disposable incomes, interest rates, currency strength
and fuel prices. A measure which includes all these factors is GDP
growth. Research over many years has shown a close correlation
between national vehicle sales and GDP. During calendar 2015,
South Africa recorded a fall in GDP growth to 1,4%, and vehicle
sales declined 5%. Whilst interest rates remained stable for most
of the year, the depreciation in the rand forced manufacturers to
hike prices by an average 6,5%.
Increases in the price of basic essentials such as electricity, water
and fuel, exacerbated by the severe ongoing drought, saw sales
volumes taper off during the last quarter of calendar 2015, and
the downward trend has continued in early 2016.
The Group's management style remained unchanged:
decentralised operating and marketing control, complemented by
centralised cash flow processes, accounting standards and internal
audit. Remuneration remains linked to performance benchmarks
all of which are closely monitored using internally-generated
measurements and externally-sourced peer group comparisons.
Internet and electronic marketing, and staff training remain areas
of focus.
The Group as a whole has retained its status as a level 4
contributor, whilst the car hire division, measured separately, is
a level 2 contributor. These ratings have been completed under
the old scorecard methodology and the new scorecard will
adversely affect the Group's future ratings. Continued effort will
be made to ensure that the car hire and fleet services divisions,
which are more dependent on B-BBEE ratings, are kept in line
with competitors. A big challenge in this regard is that the motor
manufacturers, from which these divisions source the vast
majority of their purchases, do not have favourable ratings, and
this adversely affects the Group's score.
Motor Retail
Despite the weakening economy and the 5,2% decline in national
new vehicle sales, the Group recorded flat unit sales levels in total,
but a 5,1% increase if the discontinued dealerships are discounted.
In the used car market, unit sales were up 7,1% in total, and
12,3% in respect of continuing operations. Five sub-performing
dealerships, and the Group's vehicle salvage business, Bonerts,
were closed or sold during the year. Included in these was one
BMW/Mini outlet in Lyndhurst which was closed at considerable
expense because of its size, particularly in terms of staff and long
term leases. I am pleased that the Group was able to relocate the
majority of staff, with fewer than 10% having to be retrenched. All
the costs of closure have been absorbed in the year under review.
On the positive side, the 10 new dealerships which were opened
last year have all proved profitable and made bottom line
contributions. An additional Nissan and Renault dealership in
Ballito was acquired midyear and is expected to produce profit
in the year ahead. Two additional Mazda and Mitsubishi outlets
were opened alongside existing operations, and their contribution
to overheads will be beneficial. The pragmatic approach by
various smaller manufacturers, which permits the combination
of "front-end" sales areas with shared "back-end" service and
parts departments, is beneficial to both them and the dealerships.
The Datcentre Nissan/Datsun branch in Durban recently moved
from temporary premises into its new purpose-built facility which
offers a 50% increase in trading area. This dealership is a flagship
operation for both the Group and Nissan/Datsun.
The continuing decline in the rand has forced the Group
to discontinue the importation and sales of the Chinese-
manufactured MG and Maxus vehicle ranges. The inventory of
these vehicles has been sold, but the Group will continue to offer
facilities to support customers and the brand in terms of parts
supply, warranty and service backup.
The Group's workshops and parts departments, which are the
backbone of the dealerships' profitability, continued to produce
steady, pleasing results. Extended warranty periods offered
by manufacturers, which are underpinned by regular service
requirements, do assist dealerships to retain customers for longer
periods.
Car Hire
First Car Rental's continued excellent performance was made
possible by a 9,7% increase in hire days, improved fleet utilisation,
and control over fleet and overhead costs. Revenue increased
14,8%, and operating profit rose 16,8% to R91 million. Within
the declining general economy, the tourism sector, driven by the
weakening rand, has shown growth, and First Car Rental has
enjoyed its share of this windfall.
The recently-launched venture into the longer-term truck and
van hire market has recorded slow, but steady, progress. This
operation shares facilities and staff with the short-term division,
so the majority of gross profit becomes operating profit.
The division has made increasing use of web marketing and web-
based bookings. Not only does this save commission expenses,
but flexible pricing parameters enable improved utilisation during
off-peak periods.
Historically, approximately 30% of the retired fleet has been sold
through Group used car outlets. With the expected scarcity of
quality used vehicle inventory during the year ahead, it is planned
to increase this level to around 75%. This will benefit both the car
hire and retail motor divisions.
Financial Services
This division delivered a steady 4,8% increase in profit before
taxation, off revenue which grew 11,2%. The insurance and
warranty cells, which provide life, disability, retrenchment, and
vehicle warranty cover, delivered a pleasing 43,5% increase.
Premium income increased 11,2% and, being of a medium-term
nature, this augurs well for the years ahead, even if the number
of new policies sold declines in the short-term. The finance
joint ventures were impacted by deteriorating debtors' ageing,
and prudent accounting required higher levels of doubtful debt
provisioning. This is an area of concern and credit-granting criteria
will remain a focal point during what is expected to be a difficult
year ahead for consumers.
Marine and Leisure
The Board's decision last year to discontinue this division was
prompted by substandard returns. The Group's investment of
R34,0 million in inventory and receivables at the end of last year
has been reduced to receivables of R1,9 million, which are due for
repayment in June 2016.
SHARE REPURCHASE OFFER
Following shareholder approval in May last year, the Group
effected the repurchase of 21,1 million shares at R11,83 per
share. The offer to shareholders to voluntarily submit shares
for repurchase was fully subscribed following the tender by the
Zimmerman family of its total shareholding of 28,4 million shares.
The repurchase and related costs, amounting to R251,6 million,
was financed from the Group's existing cash resources.
PROSPECTS
The year ahead is expected to be extremely challenging, and
dominated by higher interest rates, a further rise in unemployment
levels, and political uncertainty. The political spectrum has been
rocked in recent months by allegations of indecisive leadership,
infighting, and undue influence by members of the private sector,
all of which have a negative influence on business sentiment.
Social tension, driven by perceived inequalities, is high. The
likely downward adjustment in the country's sovereign credit
rating, which will mean higher interest rates for the country
and consumers, will only be averted by tangible signs of fiscal
discipline. A positive is that the government has recommitted to
the implementation of the National Development Plan, which will
encourage investment growth and employment.
Within the motor industry, I believe there will be a number of
changes. Motor manufacturers will benefit from the depreciating
rand to boost export sales and offset their rapidly rising import
costs. However, last year manufacturers overestimated the
market size and built more vehicles than needed. As a result, they
and the dealer networks offered generous incentives to boost
volumes and clear inventory. This helped to shield the market from
price increases that should have followed the currency decline. It
is unlikely that these special deals will be repeated to the same
extent in 2016, and the result will be average price increases
of the order of 12-15%, compared with 6,5% in 2015. Price
increases, coupled with expected interest rates hike, have led both
economists and the National Association of Motor Manufacturers
to predict a fall of 9% in national new vehicle sales.
At Group level, the pain of closing sub-performing operations
over the past two years will enable strengthened focus on the
viable outlets. The closure of the BMW dealerships will reduce the
Group's representation in the high value market sector which is
expected to decline more sharply than the middle and entry level
sectors, where the Group is strongly positioned.
Experience has taught us that new vehicle sales are not the
only source of revenue in a motor dealership. As the pricing gap
between new and used vehicles grows, so does the demand for
quality used vehicles. A focus on this area during the past three
months has led to a 20% year-on-year increase in sales volumes.
Parts and service levels continue to rise, and the Group has strong
follow-up systems to retain customers after their warranties
expire and they are no longer tied to the manufacturers'
dealer networks.
First Car Rental is well positioned for growth, both in the local
business and leisure sectors, and will take advantage of the
expected increase in the foreign inbound market. Continued steady
improvement is expected from the financial services segment.
Together, these segments contribute 32% of the Group's profit
before taxation.
The Group has a healthy balance sheet, capable and experienced
management team, and is a strong cash generator. The principal
manufacturers represented are sound long-term operators in
the South African market, and we have a mutually-beneficial
relationship with them.
On this basis I believe the Group will emerge favourably from a
difficult year.
CHANGES IN DIRECTORATE
There has been no change in directors since the release of the
interim results on 21 October 2015.
DIVIDEND DECLARATION
A dividend (dividend number 56) of 85 cents per share will be
paid on Monday, 20 June 2016 to members reflected in the share
register of the Company at the close of business on the record
date, Friday, 17 June 2016. Last day to trade cum dividend is
Thursday, 9 June 2016. First day to trade ex dividend is Friday,
10 June 2016. Share certificates may not be dematerialised or
rematerialised from Friday, 10 June 2016 to Friday, 17 June
2016, 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 R63 581 700 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 72,25 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 29 February 2016 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. The figures
previously presented in respect of the Group 2015 Statement
of Comprehensive Income have been restated to separately
disclose "Other income" which was previously included in "Selling
and administration expenses". The restatement has no impact
on operating profit. 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 28 April 2016.
By order of the board of directors
K Fonseca CA (SA)
Company Secretary
19 April 2016
DIRECTORS
JTM Edwards (chairman)
JD McIntosh (CEO)
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: 19/04/2016 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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