[TOP STORY] Robust FY results from CMH, despite challenges

‘We’ve managed to multi-franchise many of our operations. …That spreading of costs has made a major difference’ – CEO Jebb McIntosh.

SIMON BROWN: I’m chatting now with Jebb McIntosh, CEO of Combined Motor Holdings (CMH). Disclaimer: I hold shares in CMH. Results out for the year-end to February: dividend up 135%, headline earnings per share up 117%, cash up 8% at R817 million. It’s about 40% of market cap.

Jebb, I appreciate the time this morning. Before the results, I just want to touch on the Durban floods, which of course were post the period that you’re reporting on, the impact of that. Toyota manufacturing is right there, down at Prospecton, where we saw visuals of freeways under water. Of course the Durban port, where a lot of vehicles are going through [was affected too]. What is the impact on what is, I imagine, a still tight supply chain for motor vehicles?

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JEBB McINTOSH: Morning, Simon. You’re a hundred percent right. We believe that the Toyota factory will be closed for approximately 12 weeks while they clean up the mud and sort out electronics and so forth. One of our branches was completely flooded in the Bluff area, but it’s back in business already, so that’s a positive. But, as you said, the logistics issue has been a major one during the past year and I think the closure of the port etc certainly won’t help those [issues].

SIMON BROWN: And the logistics? I’ve been chatting with you and other CEOs in allied industries and [other] industries, and we keep on thinking that the chip scenario is going to resolve in the next six to 12 months, and it just keeps on going down the road. I saw Intel saying that they’re actually expecting it to remain in place in 2024. Inventory levels remain tight. Is that still seeing an opportunity perhaps for better margins, but also people moving to previously owned [vehicles]?

JEBB McINTOSH: Simon, the first part of the question: it does seem to just be continuing, and I think one of the problems is that most of the manufacturers are using, let’s call them, old-level chips, and the new factories are building on new-level chips. Without redesigning their motor cars completely, they won’t be able to use the new chips. So I think this problem’s going to continue for some time.

…Pre-owned cars is also problematic, whereas [with] restricted new-car sales you’re getting [fewer] used cars coming onto the market, and in many cases they’re really too old to be called ‘pre-owned’. The mileage is too high. So pre-owned cars are also very short in the marketplace.

The car-hiring industry has also been battling to get sufficient cars, so they aren’t depleting. So all in all there’s a shortage both of new and used motor cars.

SIMON BROWN: To these results, record headline earnings per share, operating margin at 5.4%. As far back as I could check yesterday evening, that’s a record number as well. This is, I suppose, not a base effect because these are record levels. How much of it is that Combined Motor Holdings has in many senses perhaps come out of the pandemic a stronger and better business than it went into the pandemic?

JEBB McINTOSH: Look, Simon, I think we are a stronger and better business.

We took some very tough decisions during the pandemic, especially in the early stages, and I think those have paid off.

But more to the point, we’ve managed to multi-franchise many of our operations. Over the past three years we’ve added 22 operations into our existing infrastructure without adding any extra branches or fixed property, and we are busy putting in place another six operations while we sit here. That spreading of costs has made a major difference. It’s also helped us tremendously with the shortage of stock and various of the more popular brands, shall we call them, which has helped to balance out. The supply from India and China has been a little more regular than European supply, should I say.

SIMON BROWN: Car rental – you touched on that. First Car Rental is your brand in that space; a very strong period from that. And during the pandemic you didn’t, I suppose, knee-jerk panic and de-fleet. That’s left you in a very strong position now as people are starting to rent vehicles again, and you’ve got decent levels of stock to rent out.

JEBB McINTOSH: Yes, our stock levels are higher than pre-pandemic. But the whole market appears to be at about 66% of what [it was] previously, so we definitely have picked up market share during the period.

SIMON BROWN: We’ll leave that there. That’s Jebb McIntosh, the CEO of Combined Motor Holdings, talking results for the year ending February [2022].

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