Wrap Text
Finanical results for the year ended 28 February 2018
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 2018
GROUP FINANCIAL HIGHLIGHTS
FOR THE SIX YEARS ENDED 28 FEBRUARY 2018
up18% up25% INCREASE IN
COMPOUND GROWTH IN COMPOUND GROWTH OPERATING MARGIN FROM
HEADLINE EARNINGS PER SHARE IN DIVIDENDS PER SHARE 2,6% TO 4,2%
GROUP FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED 28 FEBRUARY 2018
up17% up15% 39% up26% up16%
HEADLINE DIVIDEND RETURN ON BASIC EARNINGS OPERATING
EARNINGS PER SHARE PER SHARE SHAREHOLDERS' FUNDS PER SHARE PROFIT
28 February 28 February Change
2018 2017 %
Total assets (R'000) 2 772 650 2 786 806 (0,5)
Cash resources (R'000) 372 882 489 218 (23,8)
Net asset value per share (cents) 935 767 21,9
Revenue (R'000) 10 572 596 10 224 900 3,4
Operating profit before goodwill impairment (R'000) 440 378 396 652 11,0
Operating profit (R'000) 438 378 379 652 15,5
Total profit and comprehensive income (R'000) 247 460 197 388 25,4
Return on shareholders' funds (%) 38,9 37,4 4,0
Basic earnings per share (cents) 330,7 263,3 25,6
Headline earnings per share (cents) 332,9 284,2 17,1
Dividends paid per share (cents) 161,0 140,0 15,0
Dividend declared - payable June 2018 (cents) 115,0 100,0 15,0
GROUP STATEMENT OF FINANCIAL POSITION as at 28 February 2018
2018 2017
R'000 R'000
ASSETS
Non-current assets
Plant and equipment 64 967 74 864
Car hire fleet vehicles 760 282 757 085
Goodwill 8 078 10 078
Insurance receivable 45 144 38 162
Deferred taxation 43 865 39 454
922 336 919 643
Current assets
Inventories 1 164 428 1 118 563
Trade and other receivables 311 635 254 843
Taxation paid in advance 1 369 4 539
Cash and cash equivalents 372 882 489 218
1 850 314 1 867 163
Total assets 2 772 650 2 786 806
EQUITY AND LIABILITIES
Capital and reserves
Share capital 38 091 38 091
Share-based payment reserve 8 873 6 981
Retained earnings 651 439 527 358
Ordinary shareholders' equity 698 403 572 430
Non-controlling interest 1 229 1 127
Total equity 699 632 573 557
Non-current liabilities
Borrowings 60 081 -
Lease liabilities 49 780 44 945
109 861 44 945
Current liabilities
Trade and other payables 1 452 888 1 322 376
Borrowings 503 600 841 196
Lease liabilities 1 292 1 755
Current tax liabilities 5 377 2 977
1 963 157 2 168 304
Total liabilities 2 073 018 2 213 249
Total equity and liabilities 2 772 650 2 786 806
GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 28 February 2018
2018 2017
R'000 R'000
Revenue 10 572 596 10 224 900
Cost of sales (8 806 119) (8 539 618)
Gross profit 1 766 477 1 685 282
Other income 29 659 25 905
Impairment of goodwill (2 000) (17 000)
Selling and administration expenses (1 355 758) (1 314 535)
Operating profit 438 378 379 652
Finance income 24 452 21 498
Finance costs (124 871) (126 338)
Profit before taxation 337 959 274 812
Tax expense (90 499) (77 424)
Total profit and comprehensive income 247 460 197 388
Attributable to:
Equity holders of the company 247 358 196 983
Non-controlling interest 102 405
247 460 197 388
Reconciliation of headline earnings
Total profit and comprehensive income attributable to equity holders of the company 247 358 196 983
Re-measurement items:
- impairment of goodwill 2 000 17 000
- profit on sale of plant and equipment
- gross (445) (1 954)
- impact of income tax 125 547
Headline earnings attributable to equity holders of the Company 249 038 212 576
Earnings per share
Basic (cents) 330,7 263,3
Diluted basic (cents) 325,8 261,8
Headline (cents) 332,9 284,2
Diluted headline (cents) 328,1 282,6
GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 28 February 2018
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 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
Total profit and comprehensive income 247 358 247 358 102 247 460
Release following exercise of share
appreciation rights (2 349) 2 349
Cost of shares delivered in terms of
share appreciation rights scheme (5 196) (5 196) (5 196)
Share-based payment charge 4 241 4 241 4 241
Dividends paid (120 430) (120 430) (120 430)
Balance at 28 February 2018 38 091 8 873 651 439 698 403 1 229 699 632
GROUP STATEMENT OF CASH FLOWS for the year ended 28 February 2018
2018 2017
R'000 R'000
Cash flows from operating activities
Cash generated from operations 223 241 273 354
Taxation paid (89 340) (79 754)
Net cash movement from operating activities 133 901 193 600
Cash flows from investing activities
Purchase of plant and equipment (20 616) (36 242)
Proceeds on disposal of plant and equipment 3 406 5 146
Proceeds on disposal of businesses - 49 890
Insurance receivable (6 982) (8 130)
Net cash movement from investing activities (24 192) 10 664
Cash flows from financing activities
Repayment of advance from non-controlling shareholder of subsidiary - (255)
Cost of shares delivered in terms of share appreciation rights scheme (5 196) (3 483)
Finance income received 24 452 21 498
Finance costs paid (124 871) (126 338)
Dividends paid (120 430) (104 722)
Net cash movement from financing activities (226 045) (213 300)
Net movement in cash and cash equivalents (116 336) (9 036)
Cash and cash equivalents at beginning of year 489 218 498 254
Cash and cash equivalents at end of year 372 882 489 218
GROUP SEGMENT INFORMATION for the year ended 28 February 2018
FINANCIAL CORPORATE
TOTAL RETAIL MOTOR CAR HIRE SERVICES SERVICES/OTHER
R'000 % R'000 % R'000 % R'000 % R'000 %
2018
Segment revenue 10 603 356 100 9 958 756 93 497 415 5 74 585 1 72 600 1
Inter-segment revenue (30 760) 100 - - - - - - (30 760) 100
External revenue 10 572 596 100 9 958 756 94 497 415 5 74 585 1 41 840 -
Operating profit/(loss) 438 378 100 307 472 70 115 479 26 28 775 7 (13 348) (3)
Finance income 24 452 100 - - - - 5 379 22 19 073 78
Finance costs (124 871) 100 (70 838) 57 (51 279) 41 - - (2 754) 2
Profit before taxation 337 959 100 236 634 70 64 200 19 34 154 10 2 971 1
After charging
- employee costs 745 005 100 597 303 80 88 864 12 - - 58 838 8
- depreciation 139 133 100 20 352 15 115 002 82 - - 3 779 3
- impairment of goodwill 2 000 100 2 000 100 - - - - - -
Total assets
- per statement
of financial position 2 772 650 100 1 449 200 52 875 734 32 45 144 2 402 572 14
- set off of inter-segment balances 205 000 100 - - - - - - 205 000 100
2 977 650 100 1 449 200 49 875 734 29 45 144 2 607 572 20
Total liabilities
- per statement
of financial position 2 073 018 100 1 371 537 66 646 327 31 - - 55 154 3
- set off of inter-segment balances 205 000 100 - - 205 000 100 - - - -
2 278 018 100 1 371 537 60 851 327 37 - - 55 154 3
Goodwill at year-end 8 078 100 8 078 100 - - - - - -
2017
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 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 - - - - - -
EXTRACTS FROM THE REPORT OF THE CHIEF EXECUTIVE OFFICER
The Group reported a good set of results for the year ended
28 February 2018, despite the ongoing challenges presented by
a difficult economic, trading and political environment. Pleasing
is the fact that the improvement has been led by a strong
performance by the Group's core retail motor sector. This is
an area which is particularly sensitive to depressed consumer
confidence, the effects of an economy which grew by only 1,3%
and suffered a downgrade by major credit ratings agencies, and a
new vehicle sales market which increased a mere 0,4%.
The financial year began under severe pressure as consumer and
international investor confidence was shattered by the irrational
and politically-motivated decision to fire a respected finance
minister. This created an extremely negative period during which
corporates, in particular, suspended capital goods purchases.
State capture allegations, and endemic corruption and
mismanagement at state-owned entities dominated the
headlines, and it was only towards the end of the year, when
a new political dispensation was forecast, that a semblance of
positivity returned.
Looking back, the past six years have been challenging yet
rewarding. The Group has achieved 18,5% compound growth in
headline earnings per share, and a 24,5% growth in dividends.
Cash flow generation has enabled two share repurchase
transactions, to a combined value of R450 million, and the early
settlement of R200 million of car hire fleet financing. This is a
record of which I am proud, and which has not been matched by
many JSE companies.
The Group strategy of steady profitable growth in each of its
business segments has proved rewarding.
FINANCIAL OVERVIEW
Operating profit increased 15,5% to R438,4 million, with a
commendable improvement in the operating margin, before
goodwill impairment, from 3,9% to 4,2%. Revenue growth was
restrained by limited vehicle price increases, as manufacturers
fought for market share, and the continuing downward trend
of sales within the luxury vehicle segment. The gross margin,
however, improved to 16,7%. Selling and operating expenses were
contained at a 3,1% increase, and net finance costs declined 4,2%.
A lower level of non-deductible expenditure, principally goodwill
impairment, reduced the tax rate from 28,2% to 26,8%. The net
result was a 25,4% increase in total profit and, adjusting for the
reduced goodwill impairment this year, a 17,2% improvement in
headline earnings.
Dividends paid during the year reflected a 15% rise, and the
directors have recommended a June 2018 dividend of 115 cents
per share.
Within the statement of financial position, the only noteworthy
movement is the reduction in borrowings related to the car hire
fleet. The movement reflects the extent to which surplus cash
generated by Group operations has been used to settle interest-
bearing loans. The finance facilities available to the car hire
division remain substantially unchanged from previous years, and
can be utilised to a greater extent should the cash be needed for
other Group opportunities.
Of concern to me is the disturbing impact which some accounting
principles can have on the economic realities of business. The
Group accounts for its numerous property leases in terms of an
accounting principle which requires that the rental charge to the
income statement be equal for each period of a long-term lease.
No allowance is made for the fact that actual lease payments
are adjusted annually to recognise the impact of inflation and
high interest rates on property values and required returns. The
degree of distortion is negligible in major western countries
where inflation and interest rates are close to zero. However,
it can materially distort earnings in local businesses where the
rental charge forms a high component of operating expenses. In
respect of a 10-year lease with 7% annual escalations, the charge
to the income statement in year one will be 138% of the cash
rental paid. Arising from this principle alone, the Group suffered
an extra R8,8 million rental expense compared with the previous
year. This equates to a fall of 8,5 cents per share, almost 3% of
total headline earnings. During the latter stages of each lease the
distortion is reversed, and earnings are overstated.
With effect from 1 March 2019, the Group will be required to
adopt the new principle for property lease accounting, which will
lead to an even greater distortion. In terms of this principle, the
year one charge to the income statement in respect of the
10-year lease mentioned above, will be 161% of the cash rental paid.
Such a difference may have an adverse impact on the assessment
of business projects with a high property component, and distort
decision-making.
OPERATIONAL OVERVIEW
The three-year declining trend in national new vehicle sales
turned during the year under review, with a 0,4% increase.
The rate of new vehicle price increases averaged approximately
3%, with reports indicating that the year-on-year increase dropped
to its lowest level since 2013. This, coupled with a hardening of
used vehicles prices, following supply shortages, has caused a
correction in the trend of past years of consumers moving to the
used vehicle market because of affordability.
The announcement by General Motors that it was withdrawing
from the country created a major shock and disruption to the
industry. Fortunately the Group was able to negotiate, at its
two affected dealerships, the continuation of its Opel and Isuzu
franchises, and the ongoing parts and servicing requirements of
the remaining GM customer base. This will enable the dealerships
to be restructured in an orderly fashion to remain profitable.
On the positive side, I believe that Nissan will be the principal
beneficiary of the GM departure, and this will benefit the Group,
which has seven Nissan outlets.
Particularly pleasing during the current year is that the profit
improvement has been contributed to by each of the Group's
operating segments and, within motor retail, by each of the new
sales, used sales, workshops and parts departments. It makes
managing the business so much easier if there is no element
which is regressing and offsetting the good results of another.
Motor retail
Against the 0,4% rise in national new vehicle sales, the Group
achieved growth of 11,8%. This improvement was driven mainly by
the Toyota, Nissan, Honda and Mazda products. The luxury market
continued its declining trend. Sales in this sector fell 8,1% during
the year, and have declined by a third over the past three years.
Fortunately the luxury brands form a relatively low proportion of
the Group's model mix. However, the Jaguar, Land Rover and Volvo
dealerships experienced a difficult year. The growth in new vehicle
sales has not translated into significant revenue growth because
the model mix of sales has trended towards lower-priced, more
affordable options. The Group was able to achieve the majority
of manufacturer sales targets, and the incentives earned helped
boost gross margins.
The industry does not have reliable statistics for the level of
national used vehicle sales. However, business levels at the major
vehicle finance banks indicate a decline of ±3%. In comparison,
Group unit sales rose 6,3% from its continuing operations.
The Group's back-end departments, workshop and parts, recorded
pleasing steady growth, with very few individual departments
recording an operating loss. These departments produce the
stable and dependable base on which all successful dealerships
are founded, and their ongoing contribution is reassuring.
Of the four under-performing dealerships at the beginning of
the year, one has been relocated to more suitable premises with
a lower infrastructure cost. In respect of the remaining three,
smaller franchises have been added to the product offering,
generating additional gross profit with low incremental costs.
Smaller franchises have also been added to three other outlets,
which will enhance their profitability.
Car Hire
First Car Rental has completed a decade of profit growth since
its rebranding in 2008. In that first year the division's operating
profit was R18,6 million, 6% of the Group total. In the year under
review this has risen to R64,2 million, a 19% contribution. The
division faced severe head winds during midyear, when the
traditionally slow winter months were exacerbated by a period
of political turmoil, and lower inbound tourist numbers following
the passport and visa requirements fiasco. During the summer
months, from November onwards, the division substantially
increased both its fleet utilisation rate and rental income per day,
and focused on driving down costs. The used car market remained
buoyant, enabling the division to obtain favourable prices for
retired fleet vehicles.
It was reported last year that the operations of this business
were being restructured to facilitate the introduction of a black
empowerment partner. This process is now complete, and the
company's car hire fleet and attendant borrowings have been
transferred to a fellow subsidiary. A 43% stake in the significantly
reduced operations division has been sold on credit terms to
Azepha Proprietary Limited, a company owned by Group director
Zee Cele and her family. As the risks and rewards of ownership in
the equity stake have not yet passed to the purchaser, as required
by the relevant accounting standards, the issue of shares has not
been recorded in the Group's financial statements.
Financial Services
After a spike in claims caused a fall in 2017 results when
compared with 2016, the Group's insurance cells were back on
track, with a 4% rise in profit. Particularly pleasing is
that, despite the three-year trend of declining vehicle sales, the
division has managed to grow its premium income by 23% since
2015. As the underwritten policies are for periods of three to
five years, annuity income is assured over the long term. The
finance joint ventures with major finance houses generated a 21%
improvement in profit, giving an overall increase for
the segment of 4%. This represents 10% of total Group
profit.
PROSPECTS
Economic growth in the year ahead is expected to be an
improvement on the past three years, provided the global
backdrop remains as supportive as it was last year. It seems likely
that political uncertainty will moderate, and a few interventions to
restore confidence will serve to ease some of the constraints on
both investment and consumption. The country's new president
has spoken of a number of practical proposals which will boost
growth and address endemic corruption, but whether he will
deliver on these remains to be seen. The reality check will come
over the next few months when he begins to deal with public
sector wage negotiations, prosecution of corrupt present and past
government officials, land redistribution pressure, and the state of
disarray at the state-owned enterprises. I believe that economic
stability and growth will be ensured by a vision which honestly
recognises past failures, accepts fairly that both the public and
private sectors are accountable, and acknowledges the available
resources with which we can work.
The recent hikes, in respect of value-added tax, ad valorem duty
and taxes on carbon emissions, all necessitated by government
mismanagement of finances, will negatively affect the motor
industry. However, I am optimistic that a new dawn has broken
and that modest economic recovery lies ahead. Together with the
possibility of a further marginal interest rate cut, it will provide
welcome respite for those many consumers who are drowning in
debt.
The Group is well positioned for continued growth. It has
remedied its loss-making businesses, pared operating costs, and
is keenly focused on marketing and customer service. It has a
strong balance sheet, healthy cash resources, and an experienced
and committed senior management team. Economists are
predicting a 3% to 5% rise in new vehicle sales, and this will provide
a welcome stimulus for the industry.
DIVIDEND DECLARATION
A dividend (dividend number 60) of 115 cents per share will be
paid on Monday, 18 June 2018 to members reflected in the share
register of the Company at the close of business on the record
date, Friday, 15 June 2018. Last day to trade cum dividend is
Tuesday, 12 June 2018. First day to trade ex dividend is
Wednesday, 13 June 2018. Share certificates may not be
dematerialised or rematerialised from Wednesday, 13 June 2018
to Friday, 15 June 2018, 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 R86 022 298 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 92 cents to
those shareholders who are not exempt in terms of section 64F
of the Income Tax Act.
CHANGES IN DIRECTORATE
There has been no change to directors since the release of the
interim results in October 2017.
BASIS OF PREPARATION
The summary consolidated financial statements for the
year ended 28 February 2018 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
During the year the Group adopted and applied the principles
and the appropriate best business practices as recorded in the
King IV Report on Corporate Governance. The Board recognises
that the Report seeks to instil a greater level of transparency and
integrated thinking in its deliberations, and to consider not just
financial gain, but the larger triple context, including social and
environmental considerations.
A report on the Group's corporate governance is recorded in the
Integrated Annual Report 2018.
ANNUAL GENERAL MEETING
Details of the annual general meeting are expected to be
released on 3 May 2018.
By order of the board of directors
K Fonseca CA (SA)
Company Secretary
17 April 2018
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
SPONSOR
PricewaterhouseCoopers Corporate Finance Proprietary Limited
4 Lisbon Lane
Waterfall City
Jukskei View 2090
WEBSITE
www.cmh.co.za
Date: 17/04/2018 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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