Bidvest changes up gears at its laggard automotive unit

Bidvest is banking on McCarthy’s brand diversification and realignment to boost its struggling automotive division, noting that new-car sales, which bottomed out in the 2024 fiscal year, are projected to rebound.

The automotive segment is also gearing up to take up the insurance arm that will remain from the disposal of Bidvest Bank and FinGlobal.

Bidvest CEO Mpumi Madisa told investors recently that while five out of seven divisions performed well in the year to June, the automotive division’s profits had contracted due to the weak and competitive automotive trading environment.

Certain traditional original equipment manufacturers (OEMs) were under pressure from growing Chinese and Indian brands, she added. Taxi sales also fell, prompting the company to urge the industry to find a long-term financial solution.

Operating margins on new and used vehicles had declined, resulting in increased inventory levels and lower trading profit.

“The automotive trading environment remained extremely challenging due to sticky inflation, higher interest rates, cost-of-living constraints on consumers, inventory oversupply, discounting to move stock and market share declines in some of the OEMs we represent,” Madisa said.

In SA, the group said new-vehicle unit sales declined 8%, which was higher than the 6% reported for the industry, “due to McCarthy’s brand mix being misaligned with current demand trends”. A gross margin reduction worsened the volume decline.

Conversely, companies such as WeBuyCars have experienced greater success, thanks to a flexible business strategy and rapid inventory turnover. That has enabled it to swiftly adapt to market fluctuations by realigning inventory profiles with lower-priced vehicles to match consumer demand.

To adjust to the prevailing market trend of cash-strapped consumers seeking cheaper and second-hand vehicles, management had talked to several new brand owners to secure representation, Madisa said. Dealer points for Mahindra, FAW, JeTour, GAC and LDV were now operational, pivoting the automotive division to greater brand, service and product diversification.

“We believe that financial year 2024 was a trough of declining new-vehicle volumes in automotive, and added to this our franchise motor retail business now has a materially different mix of OEM representation, which sets the business up well for 2025,” Madisa said.

“Our increased brand representation now includes four Mahindra dealer points, one FAW truck, one GAC Motors and one LDV SA dealer point.”

She was confident the combination would support improved trade. “We are now in the flow of the new year and are ready to put the Bidvest machine into the next gear.”

Bidvest closed five loss-making dealerships. But more than five stores from a variety of nontraditional OEMs, including the more recent Chinese and Indian OEMs entering SA, were opened and are expected to foster organic growth.

Emphasising that a “strategic reset” was under way in the automotive division, Madisa said its executive team had been restructured to focus on delivering an end-to-end automotive solution.

This would be further bolstered by the transfer of the short-term insurance businesses — which mainly focus on vehicle insurance coverage and associated value-added products — from the financial services division to the automotive division, aligning with the strategy of diversifying into allied automotive services.

These, as well as the recently acquired Dekra and Serco, would add scale and reduce profit cyclicality, the company said.

After the sale of Bidvest Bank, which has more than 60 potential buyers, the group will comprise six divisions: services international, freight, services SA, commercial products, branded products and automotive. It also has a majority shareholding in Adcock Ingram.

Madisa said the proceeds from the sale would go towards paying debt, which rose R3.2bn from December 2023 to R22.7bn at the end of June. Of the group’s total net debt, 64.4% was offshore.

Bidvest also has more acquisitions in the pipeline, including the purchase of Citron Hygiene, which awaits UK regulatory approval.

CFO Mark Steyn said Bidvest had extended the maturity of its offshore syndicated revolving credit facility term loan by another year and had the option to extend it for one more year. Additionally, Bidvest upsized its domestic bonds with two issuances, both achieved at improved spreads, he said.

“In terms of M&A funding capacity, we have €395bn in funding capacity available offshore that’s via the revolving credit facility and a further R16bn available domestically. There’s more than sufficient funding capacity in play for the M&A pipeline,” Steyn said. “We have good debt capacity both internationally and locally, which is sufficient for the potential M&A pipeline.”

The board, chaired by Bonang Mohale, declared a final gross cash dividend of 447c. This increased the total dividend by 4.3% to 914c. Bidvest shares are up more than 12% since the start of the year, giving it a market capitalisation of R96.6bn.

gumedemi@businesslive.co.za