Bullish Bidvest gears up to diversify automotive business

Industrial conglomerate Bidvest has announced an expansion of its automotive division with a second-hand vehicle brand to be launched in April, in a move to bring scale and diversity to the unit.         

CEO Mpumi Madisa on Monday told Business Day that after a strategy review the group decided that its automotive division would expand across three divisions in a bid to capitalise on the second-hand vehicle market.

The move will also enable the group to use its ageing car-park fleet.

The reconfigured automotive segment will include its existing McCarthy business, with the addition of two subdivisions including an independent motor retail segment that will see a new second-hand brand launched in April under its umbrella.

“We want to take on the independent motor retailers head-on,” said Madisa. The new platform leveraged young minds and technology, she said.

“What we are looking at now is this market of used vehicles that are five years and older that we don’t play in,” said Madisa, highlighting that McCarthy was limited by original equipment manufacturers to retail cars up to five years old but not older, which make up 25% of the overall market in SA.

“We want to start hunting in the 75% of the used-vehicle market where we are not represented.” Madisa said that second-hand vehicle prices were softening.

She said used-vehicle stock is becoming more freely available with new car supply stabilising, while aftermarket activity has returned to pre-Covid levels.

“Used vehicles and aftermarket represent significant opportunities for this division, with this diversification now a key focus area,” said Bidvest.

Naspers-owned Prosus last week decided to cut ties with its vehicle-trading business OLX Autos, citing high costs and a slowdown in the second-hand car market dominated by WeBuyCars.

But Madisa said Bidvest is confident that diversification of the automotive unit will do well in the large used-car market while the third division will take up work in services, parts and other areas where the McCarthy unit does not operate.

Bidvest’s automotive unit reported trading profit was up 10.7% at R412.2m in the half-year to December, driven by a 2.5% lift in new vehicle sales. 

Automotive divisional CEO Steve Keys is set to retire at the end of December. The present CFO, Carla Seppings, has been appointed to succeed Keys from July 2023.

Founded three decades ago, Bidvest’s portfolio spans services, freight, consumer and commercial products, financial services and automotive and is arguably considered a proxy for the performance of the economy.

It said bumper activity in the agriculture, mining, renewable energy and travel and tourism industries helped boost half-year profit by double-digits, but it warned that disposable income pressure on consumers is expected to intensify throughout the year.

Group revenue rose 14% to R57.2bn. Trading profit was up 14.5% at R5.8bn with R1.1bn of that coming from international operations, Bidvest said.

The group will declare an interim dividend of 437c for the period, 15% higher than the payout for the previous interim period. Headline earnings per share rose 15.3% to 938.5c.

Its operating divisions — Branded Products, Freight, Commercial Products, Services SA, Automotive and Financial Services — reported higher trading profits in the six months. However, Services International reported a flat performance as rising employee costs, inflation, driven by a fuel and energy crisis, and full employment made for challenging trading conditions, particularly in the UK.

The group reported a turnaround at  its struggling financial services unit with a 10.2% rise in trading profit to R222.1m while the segment’s core trading profit rose 92.2%.

Bidvest Bank was the main driver of the improved performance, augmented by FinGlobal. Bidvest said that capital deployment at the bank accelerated, resulting in higher net interest income.

Bidvest, which moved its banking platform to 100% digital last year and closed all remaining stores in August, said the digital client and business transformation journeys are well under way.

The company said load-shedding is negatively affecting operational costs, primarily in the factory environments, which are mainly within the branded products and commercial products divisions.

It said load-shedding affected electrical appliance sales severely. That, together with constrained consumer spending, left an overstocked retail pipeline.

“Consumer disposable income pressure is anticipated to intensify throughout the calendar year,” said Madisa.

The company’s share price rose 9.86% to R257.45 by late morning on the JSE.

gumedemi@businesslive.co.za

Updated: March 06 2023
This article has been updated with additional information