South African motor retailer McCarthy Limited on Monday reported a rise in fully diluted headline earnings per share of 5,7c for the year ended June 30 from 3,4c a year ago. No dividend was declared.
Revenue rose to R11,889-billion from R11,225-billion before, while revenue from continuing operations increased by 20,3% to R10,6-billion. Attributable income rose to R195,7-million from R96,5-million before and fully diluted headline earnings increased by 64,1% to R162,5-million from R98,9-million in the comparative period last year.
McCarthy’s motor division reported its best performance yet.
CEO Brand Pretorius said motor retailers had experienced tough trading conditions.
“Vehicle affordability didn’t improve materially, which resulted in subdued demand for both new and used vehicles. Furthermore, the rationalisation of our dealer network in line with the recently introduced representation strategies by some vehicle manufacturers, impacted negatively on our profitability,” he said.
“Nonetheless, McCarthy management has made significant progress with our own strategic plans and these pleasing results highlight the success we have achieved,” Pretorius added.
The group’s operating margin improved from 2,4% to 3,3%, while the overall level of borrowings decreased by R120-million compared to June last year and for the first time yet, the group is now ungeared.
Pretorius said the group reached a new milestone by concluding the year in a net positive cash position of R122,1-million, compared to a net borrowed position of R75,5-million at 30 June 2002.
In total R383,1-million cash was generated by operations, which was offset mainly by a R180-million increase in working capital and R148,5-million in financing costs, resulting in a net R36-million positive cash inflow from operating activities.
Proceeds from investment activities, derived largely from the RAG liquidation receipt, disposals and acquisitions of dealerships, property, plant and equipment, generated R161,6-million cash.
The motor franchise division produced record results, with income before tax increasing by 26,5% to R185,9-million. Pretorius said this was achieved despite the fact that during the period the group disposed of nine DaimlerChrysler and four BMW dealerships as a consequence of the manufacturers’ changes to their dealer network strategies.
The other motor operations – Burchmore’s Car Auctions, Budget Rent a Car and McCarthy Fleet Services – had a disappointing year reporting a 46,9% decrease in profit before tax to R3,6-million. Budget Rent a Car reported a reduction in pretax profit from R5,7-million to R1-million mainly due to the impact of increased new vehicle prices and the cost of finance, both of which materially increased the fleet holding cost, without a corresponding increase in average daily rental rates being achievable.
Burchmores pretax profit reduced from R5,1-million to R1,5-million primarily due to the level of bank repossessions falling to an all time low.
Yamaha Distributors again produced an outstanding set of results, increasing profit before tax by 39,9% to R58,6-million. McCarthy On-Line doubled its pretax profit to R2,1-million.
McCarthy Financial Services – the group’s insurance and financing activities – reported a 24% increase in revenue, but showed a 3,1% decrease in profit before tax. This reduction is mainly as a result of the McCarthy Finance income reducing from R21,3-million to R15,7-million.
The insurance operation’s pretax income improved 16,2% to R29,7-million.
Shareholders were advised last year that RAG’s wholly owned subsidiary Retail Apparel (RAP) was placed in liquidation in May 2002 and RAG’s listing was consequently suspended on the JSE Securities Exchange, South Africa. McCarthy received an interim liquidation distribution of R105,9-million on 31 December 2002 from RAG against the issuing of a bank guarantee conditional on the guarantee being able to be called up by the RAP liquidators, should the group’s secured claim be found to be invalid.
To date, the liquidators have not legally challenged the security held by McCarthy and the group’s legal advisors have confirmed that this security is valid and enforceable.
Looking ahead, Pretorius said business confidence, interest rates and vehicle affordability are the key drivers impacting the group’s trading environment. The current decreasing interest rate scenario augurs well for increased business and consumer confidence and hence improved trading conditions during the second half of the financial year. Vehicle affordability, however, continues to inhibit sales.
“Fortunately, vehicle price increases have slowed down dramatically due to the stronger rand and the benefits being derived from healthy vehicle and component exports.”
He added that the most significant negative factor affecting the earnings of the group will be the full year loss of profit from the disposal of some of the group’s DaimlerChrysler and BMW dealerships. On the positive side will be the reduction in the group’s interest expense as a result of interest rate reductions and the overall decrease in debt levels.
“We believe that continuing operations will deliver improved performance, but as a consequence of the reduced dealer network, the group will be challenged to show growth against this year’s record headline earnings,” he said. – I-Net Bridge