Wrap Text
Interim results for the six months ended 31 August 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
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2017
GROUP FINANCIAL HIGHLIGHTS
Unaudited Unaudited Audited
6 months 6 months 12 months
Change 31 August 31 August 28 February
% 2017 2016 2017
Total assets (R'000) 7 2 645 210 2 478 509 2 786 806
Cash resources (R'000) 32 384 787 292 147 489 218
Net asset value per share (cents) 22 794 651 767
Revenue (R'000) (3) 5 123 421 5 262 311 10 224 900
Operating profit before goodwill impairment (R'000) 5 189 627 181 150 396 652
Operating profit (R'000) 16 189 627 164 150 379 652
Total profit and comprehensive income (R'000) 34 96 113 71 965 197 388
Earnings per share (cents) 34 128,5 96,0 263,3
Headline earnings per share (cents) 10 128,5 116,6 284,2
Dividend paid (cents) 140,0
Dividend declared payable - December 2017 (cents) 11 61,0 55,0
Dividend cover (times) - 2,1 2,1 2,0
GROUP STATEMENT OF FINANCIAL POSITION as at 31 August 2017
Unaudited Unaudited Audited
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
ASSETS
Non-current assets
Plant and equipment 68 710 66 920 74 864
Car hire fleet vehicles 632 299 - 757 085
Goodwill 10 078 10 078 10 078
Insurance receivable 46 470 40 703 38 162
Deferred taxation 40 000 39 128 39 454
797 557 156 829 919 643
Current assets
Car hire fleet vehicles - 603 331 -
Inventories 1 136 993 1 106 462 1 118 563
Trade and other receivables 325 873 319 740 254 843
Tax paid in advance - - 4 539
Cash and cash equivalents 384 787 292 147 489 218
1 847 653 2 321 680 1 867 163
Total assets 2 645 210 2 478 509 2 786 806
EQUITY AND LIABILITIES
Capital and reserves
Share capital 38 091 38 091 38 091
Share-based payment reserve 6 699 5 029 6 981
Retained earnings 548 175 443 316 527 358
Ordinary shareholders' equity 592 965 486 436 572 430
Non-controlling interest 1 124 887 1 127
Total equity 594 089 487 323 573 557
Non-current liabilities
Lease liabilities 47 066 42 972 44 945
Current liabilities
Advance from non-controlling shareholders of subsidiaries - 255 -
Trade and other payables 1 339 471 1 286 243 1 322 376
Borrowings 654 300 653 277 841 196
Lease liabilities 1 866 6 266 1 755
Current tax liabilities 8 418 2 173 2 977
2 004 055 1 948 214 2 168 304
Total liabilities 2 051 121 1 991 186 2 213 249
Total equity and liabilities 2 645 210 2 478 509 2 786 806
GROUP STATEMENT OF COMPREHENSIVE INCOME for the six months ended 31 August 2017
Unaudited Unaudited Audited
6 months 6 months 12 months
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
Revenue 5 123 421 5 262 311 10 224 900
Cost of sales (4 274 179) (4 415 618) (8 539 618)
Gross profit 849 242 846 693 1 685 282
Other income 10 199 13 753 25 905
Impairment of goodwill - (17 000) (17 000)
Selling and administration expenses (669 814) (679 296) (1 314 535)
Operating profit 189 627 164 150 379 652
Finance income 12 270 9 643 21 498
Finance costs (65 575) (64 817) (126 338)
Profit before taxation 136 322 108 976 274 812
Tax expense (40 209) (37 011) (77 424)
Total profit and comprehensive income 96 113 71 965 197 388
Attributable to:
Equity holders of the Company 96 116 71 800 196 983
Non-controlling interest (3) 165 405
96 113 71 965 197 388
Reconciliation of headline earnings
Total profit and comprehensive income attributable to equity
holders of the Company 96 116 71 800 196 983
Non-trading items:
- impairment of goodwill - 17 000 17 000
- profit on sale of plant and equipment
- gross (40) (2 230) (1 954)
- impact of income tax 11 624 547
Headline earnings attributable to equity holders of the Company 96 087 87 194 212 576
Weighted average number of shares in issue ('000) 74 802 74 802 74 802
Earnings per share
Basic (cents) 128,5 96,0 263,3
Diluted basic (cents) 127,8 96,0 261,8
Headline (cents) 128,5 116,6 284,2
Diluted headline (cents) 127,7 116,6 282,6
Dividend payable - December 2017 (cents) 61,0 55,0
Dividend paid (cents) 140,0
Dividend cover (times) 2,1 2,1 2,0
GROUP STATEMENT OF CHANGES IN EQUITY for the six months ended 31 August 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 29 February 2016 38 091 5 987 436 013 480 091 722 480 813
Total profit and comprehensive income 71 800 71 800 165 71 965
Release following exercise of share
appreciation rights (2 567) 2 567 - -
Share-based payment charge 1 609 1 609 1 609
Cost of shares delivered in terms of share
appreciation rights scheme (3 483) (3 483) (3 483)
Dividends paid (63 581) (63 581) (63 581)
Balance at 31 August 2016 38 091 5 029 443 316 486 436 887 487 323
Total profit and comprehensive income 125 183 125 183 240 125 423
Share-based payment charge 1 952 1 952 1 952
Dividends paid (41 141) (41 141) (41 141)
Balance at 28 February 2017 38 091 6 981 527 358 572 430 1 127 573 557
Total profit and comprehensive income 96 116 96 116 (3) 96 113
Release following exercise of share
appreciation rights (2 349) 2 349 - -
Share-based payment charge 2 067 2 067 2 067
Cost of shares delivered in terms of share
appreciation rights scheme (2 846) (2 846) (2 846)
Dividends paid (74 802) (74 802) (74 802)
Balance at 31 August 2017 38 091 6 699 548 175 592 965 1 124 594 089
GROUP STATEMENT OF CASH FLOWS for the six months ended 31 August 2017
Unaudited Unaudited Audited
6 months 6 months 12 months
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
Cash flows from operating activities
Cash generated from operations 73 153 (79 177) 273 354
Taxation paid (30 775) (35 280) (79 754)
Net cash movement from operating activities 42 378 (114 457) 193 600
Cash flows from investing activities
Purchase of plant and equipment (8 285) (9 085) (36 242)
Proceeds on disposal of plant and equipment 737 390 5 146
Proceeds on disposal of business - 49 954 49 890
Insurance receivable (8 308) (10 671) (8 130)
Net cash movement from investing activities (15 856) 30 588 10 664
Cash flows from financing activities
Advance from non-controlling shareholder of subsidiary - - (255)
Cost of shares delivered in terms of share appreciation rights scheme (2 846) (3 483) (3 483)
Finance income received 12 270 9 643 21 498
Finance costs paid (65 575) (64 817) (126 338)
Dividends paid (74 802) (63 581) (104 722)
Net cash movement from financing activities (130 953) (122 238) (213 300)
Net movement in cash and cash equivalents (104 431) (206 107) (9 036)
Cash and cash equivalents at beginning of period 489 218 498 254 498 254
Cash and cash equivalents at end of period 384 787 292 147 489 218
GROUP SEGMENT INFORMATION for the six months ended 31 August 2017
Corporate
Retail Financial services/
Total motor Car hire services Other
2017 2017 2017 2017 2017
R'000 R'000 R'000 R'000 R'000
Segment revenue 5 139 281 4 814 256 251 219 42 070 31 736
Inter-segment revenue (15 860) - - - (15 860)
External revenue 5 123 421 4 814 256 251 219 42 070 15 876
Operating profit 189 627 115 829 65 039 14 349 (5 590)
Finance income 12 270 - - 2 920 9 350
Finance costs (65 575) (27 073) (34 932) - (3 570)
Profit before taxation 136 322 88 756 30 107 17 269 190
After charging
- employee costs 352 708 279 903 41 084 - 31 721
- depreciation charge 45 801 11 213 33 764 - 824
- impairment of goodwill - - - - -
Total assets 2 645 210 1 485 256 707 027 46 470 406 457
Total liabilities 2 051 121 1 324 930 691 866 - 34 325
Goodwill at period-end 10 078 10 078 - - -
Corporate
Retail Financial services/
Total motor Car hire services Other
2016 2016 2016 2016 2016
R'000 R'000 R'000 R'000 R'000
Segment revenue 5 278 046 4 968 181 225 998 38 072 45 795
Inter-segment revenue (15 735) - - - (15 735)
External revenue 5 262 311 4 968 181 225 998 38 072 30 060
Operating profit 164 150 94 736 60 490 13 139 (4 215)
Finance income 9 643 - - 2 427 7 216
Finance costs (64 817) (30 977) (31 225) - (2 615)
Profit before taxation 108 976 63 759 29 265 15 566 386
After charging
- employee costs 381 586 318 569 33 966 - 29 051
- depreciation charge 54 927 11 479 42 743 - 705
- impairment of goodwill 17 000 17 000 - - -
Total assets 2 478 509 1 387 108 721 579 40 703 329 119
Total liabilities 1 991 186 1 231 670 710 671 2 739 46 106
Goodwill at period-end 10 078 10 078 - - -
COMMENTARY ON RESULTS
Against the backdrop of difficult economic trading conditions, the directors are pleased with the results achieved during the past six
months. The first quarter of calendar 2017 showed signs of a mild economic recovery, with predictions of modest GDP growth, and a
consequent boost in new vehicle sales. However, all this positivity was destroyed by the inexplicable cabinet reshuffle in April, and the
political turmoil that followed. The country officially entered a recessionary period, unemployment recorded a 13-year high, and individual
and corporate confidence levels were rocked by ongoing reports of corruption, maladministration and political uncertainty. The 25 basis
points reduction in the prime lending rate in July provided scant relief for overburdened consumers.
Given this scenario it is to be expected that national new vehicle sales would come under pressure, and passenger and light commercial
unit sales declined 0.7% during the financial period. Of further concern has been the considerable decline in the level of units sold in the
luxury segment. A drop of some 18% this year followed a 15% decline in the previous year. This is a clear indication that the middle and
upper class consumers are feeling the effects of the sustained economic downturn, and that the financial investment in new vehicles has
declined in excess of the fall in unit sales.
Due in part to the closure of two retail motor dealerships in the previous year, Group revenue declined 3%. However, an improvement, to
16.5%, in the gross margin, tight control over operating costs, and the absence of a need to impair goodwill, generated a 16% improvement
in operating profit. The operating margin, before goodwill impairment, increased from 3.4% to 3.7%. Stable net interest charges, and a
reduced tax rate, enabled a 34% increase in profit after tax. This translates to a 34% increase in earnings per share, and 10% increase
in headline earnings per share. Good cash flow generation enabled the Group to pay the June dividend of R75 million, and to utilise
R70 million to settle interest-bearing vehicle-financing debt. The directors have proposed a dividend of 61 cents per share, up 11%.
OPERATING REVIEW
The retail motor division's 4% rise in operating profit, before goodwill impairment, belies the tough economic conditions which prevailed
throughout the period. The fact that national new vehicle sales fell only 0.7% can be attributed to manufacturer incentives which have
reduced the price of new vehicles, whilst higher demand and stock shortages have increased used vehicle prices. Off a 5.4% increase in
unit sales from ongoing operations, the Group recorded improved profitability. This was due to a slight margin increase, and tight operating
cost control. A stable contribution from a 4.8% increase in used vehicle sales, and pleasing growth in the service departments provided
welcome support.
First Car Rental achieved an 11% increase in revenue, and managed to hold its operating margin. A one-off charge, recognised in respect
of a recently-concluded BEE transaction, reduced the division's profit improvement from 8% to the 3% recorded. The division, and its
related CMH First Fleet initiative now boasts BEE credentials which are in line with the industry's best.
The financial services division recorded a pleasing 11% improvement in profit. This was largely due to more favourable returns from the
Group's finance joint ventures, where the level of bad debt provisioning has been well controlled. Of concern, but not unexpected, has been
the decline of 6% in the level of premium income generated by the insurance cells. This revenue level shows close correlation with the level
of vehicle sales, and a long-term decline will impact negatively on future annuity-type income.
PROSPECTS
It is believed that corruption and lack of political leadership and direction has been, and will continue to be, a significant barrier to the
country's sustainable economic and social progress. This scourge substantially undermines public confidence, and retards prospects of
delivering inclusive economic growth and, with it, transformation. It discourages long-term foreign investment and diverts scarce public
resources that are vital to provide social support, and stimulate job creation and economic growth. Together with the political uncertainty
which will continue until the ANC conference in December, and perhaps beyond, these factors will provide serious challenges during the
next six months as consumers, and particularly the corporate market, adopt a "wait and see" approach to capital expenditure. On the
positive side analysts are predicting a modest increase in national unit sales during the next six months.
The directors believe that the Group will have performed well if it is able to maintain its reported headline earnings growth for the full year
to February 2018.
CHANGES IN DIRECTORATE
There has been no change in directors since the release in April 2017 of the results for the year ended 28 February 2017.
DIVIDEND DECLARATION
A dividend (dividend number 59) of 61 cents per share will be paid on Monday, 18 December 2017 to members reflected in the share
register of the Company at the close of business on the record date, Friday, 15 December 2017. Last day to trade cum dividend is Tuesday,
12 December 2017. First day to trade ex dividend is Wednesday, 13 December 2017. Share certificates may not be dematerialised or
rematerialised from Wednesday,13 December 2017 to Friday, 15 December 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 R45 629 219 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
48,8 cents per share 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 six months ended 31 August 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 interim
reports, and the requirements of the South African Companies Act, No 71 of 2008, (the "Act"), applicable to summary financial
statements. The interim report has been 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 financial statements as at 28 February 2017. The results have not been reviewed nor audited by
PricewaterhouseCoopers Inc., the Group's external auditors.
CORPORATE GOVERNANCE
The Group is committed to maintaining the high standards of governance as embodied in the King Report on Corporate Governance and
complies with the principles of both the Report and the JSE Limited Listings Requirements.
A report on the Group's application of the King IV Report on Corporate Governance will appear in the 2018 Integrated Annual Report.
By order of the board of directors
K Fonseca CA(SA)
Company Secretary
16 October 2017
COMBINED MOTOR HOLDINGS LIMITED TRANSFER SECRETARIES
("the Company" or "the Group") Computershare Investor Services Proprietary Limited
Registration number: 1965/000270/06 PO Box 61051
Income tax reference number: 9471/712/71/2 Marshalltown 2107
Share code: CMH
ISIN: ZAE000088050 BUSINESS ADDRESS AND REGISTERED OFFICE
1 Wilton Crescent
DIRECTORS Umhlanga Ridge 4319
JTM Edwards (chairman)
JD McIntosh (CEO) WEBSITE
BWJ Barritt www.cmh.co.za
LCZ Cele
JS Dixon
SK Jackson
ME Jones
JA Mabena
MR Nkadimeng
SPONSORS
PricewaterhouseCoopers Corporate Finance Proprietary Limited
Private Bag X36
Sunninghill 2157
Date: 16/10/2017 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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