CMC Pre-tax Profit at 31% Due to Dwindling Sales

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Dwindling sales and high borrowing costs have pushed car dealer CMC Holdings to record a 31 per cent drop in pre-tax profit for the past six months ending in March. The car dealer says that its pre-tax profit fell to Sh433.6 million, down from Sh631.9 million achieved in the same period last year mainly due to high interest rates from outstanding debts.

The  dealer has also found it difficult to grow its books amid increasing signs of economic recovery after individuals, government, and corporate Kenya shunned showrooms due to the difficult economic times. This is what he had to say.

“Earnings per share dropped to Sh1.04 from Sh1.52 in the same period last year, We are facing a most challenging trading year, with lower unit sales and high borrowing costs which are impacting adversely on our profitability.”

The company expects the trend to continue for the rest of the year until the next financial year when it expects better fortunes.As quoted:

“This trend will continue over the remainder of our current financial year but we see an upturn in economic activity during our next financial year,”

CMC said interest and finance charges during the period stood at Sh242.5 million, against a budgeted Sh179.2 million and Sh125.33 million in the same period in 2009. Though the rest of the auto dealers are yet to make public their earnings, the slump is likely to play out across the industry as data from Kenya Motor Industry (KMI) shows most dealers are recording low sales, with a total sales volume of 4,230 vehicles between January and May. The company attributes the deteriorating competitiveness of its Nissan Diesel products to a stronger yen. As the statement reads:

“The strength of the Japanese currency has eroded the competitiveness of our Nissan Diesel products and has also affected our margins as market forces prevented us from increasing our selling prices,”

Last year the company warned that the global economic slow down and other factors had hurt sales, a trend that it said would continue into 2010. Dealers in the vehicle business industry are emerging from a shaky 2009 that saw slowed down demand for new motor vehicles due to the global economic recession, increases in financing costs, prolonged drought and the depreciation of the Kenya Shilling.

The company says it seeks to improve its performance by bringing its outstanding debt to a manageable level and reducing overall borrowings and costs.

Adopted from: www.businessdailyafrica.com

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