JSE-listed Bidvest, which operates in a range of industries from facilities management to motoring, hygiene and healthcare, expects global supply chain shortages — particularly in the automotive sector — to continue into next year.
“If I had to say where do I think we are most sensitive to the supply chain across the group, it would be in the automotive division (Bidvest Automotive). We are in September ... and we are not seeing any normalisation so we are definitely taking the supply disruptions into 2023,” said Bidvest CEO Mpumi Madisa after the release of results for the year to June.
The shortage of chips or semiconductors, as well as spare parts and other components, has been a major issue around the world over the past two years, negatively affecting the supply of new vehicles even as demand from customers recovers.
As a result, motor retailers are navigating an increasingly difficult terrain, including how to secure customers and sales even in the absence of product.
“The challenge is to keep the customer so that the sale doesn’t get lost. If they walk out the door, the sale is gone.”
The challenge is to keep the customer so the sale doesn’t get lost. If they walk out the door, the sale is gone
— Bidvest CEO Mpumi Madisa
This is one area where Bidvest Automotive, which owns retailers such as Bidvest McCarthy, is winning, with Madisa saying the division has “done very well” in keeping customers and growing market share.
“Our new vehicles (sales) are up around 11% vs (on average) dealer sales up 8.6%. We remain intensely focused on retaining a client, and ensuring the best customer service possible.”
Explaining how this works, Madisa said that if a customer comes in looking for a specific vehicle brand that is not available because of supply chain issues, the division’s teams may discuss other vehicle options across the broader McCarthy network.
If a customer is “brand loyal” and does not want to change, Bidvest Automotive will explain there may be a delay and “work with the customer while waiting for stock to arrive”.
This approach has been working, with Bidvest Automotive reporting a 25.6% rise in trading profits to R819m for the year ended June, an all-time divisional high, which follows the prior year’s profit increase of 267.3%. In its statement accompanying results, the group said apart from “the availability of new vehicles across the dealer network” continuing to be “erratic” because of global supply chain issues, the April floods in KwaZulu-Natal had also hampered supply.
Nevertheless, the division increased new vehicle sales by 8.6% while Bidvest McCarthy’s market share increased. The divisions’ fleet sales were yet to recover to pre-pandemic levels, but Bidvest Automotive said demand for used vehicles was strong, “placing pressure on the franchised dealer network to secure quality, well-priced vehicles”. In total 9.6% fewer used vehicles were retailed during the financial year.
The company said management’s “focus on margin rather than volume, and continued attention to improving efficiencies paid off handsomely”.
Madisa said high inflation had helped bolster the division’s performance.
“New vehicles are (increasingly) more expensive because of inflation and that is also feeding through to the top line.”
All Weather Capital senior equity analyst Cobus Cilliers said a similar trend of strong results was being seen in the motor retail divisions of Super Group and Motus, which were doing “very well from a South African margin perspective”.
At the same time sales to the car rental market were also growing strongly, said Cilliers.
He said the “steady supply of new vehicles is going to continue to be strained” because of chip shortages, which will “ultimately work itself out”. Local car manufacturers such as Toyota, hit by the KwaZulu-Natal floods, have also had problems with vehicle production.
“Demand is strong, and there are not enough vehicles to supply demand. Some dealers can get 50 to 75 basis points higher margin on new cars sold. Given these margins are usually 3%, that is a significant uplift.”
What should also support the continuing strong demand for new vehicles is the fact that car hire companies are going through a “re-fleeting period” as they gear up for the summer months.
New vehicles are (increasingly) more expensive because of inflation and that is also feeding through to the top line
— Bidvest CEO Mpumi Madisa
“From the management teams I have interacted with, the supply chain problems are going to be with us until next year. But with that said, the second-hand car market is very buoyant, not with regards to supply, but more due to pricing. That is going to normalise as time goes on and the pricing of second-hand cars should come down compared to what it was in the past as supply chain problems are worked out (in the new car market).”
To deal with the supply chain shortages across its various business segments, Bidvest, which has a strong balance sheet, is ordering far more inventory. And because prices of goods are continuing to increase due to high inflation, there is reduced risk over the short to medium term that the products being brought in will end up being sold at “uncompetitive prices”.
But Madisa said the group was mindful of the inflation trend reversing, and it was watching this closely.
“What you don’t want is to end up with stock that is highly priced and you have to discount it to move it.”
As it now stands, the fallout from the Covid-19 pandemic continues to reverberate when it comes to lead times between when goods are ordered and when they arrive.
“Previously, generically we would receive stock every two to three months across the group. This has now been pushed out to four to six months, and that is our new normal lead time because it has been like this for such a long time. We just have to consistently make sure we have the stock.”
As for Bidvest’s overall performance, the group said it had delivered “excellent trading profit growth”, which was 23% higher at R9.7bn for the year to June, while headline earnings per share from continuing operations grew more than a fifth to 1442c. Its total dividend was nearly a quarter higher at 744c.
Six out of seven of Bidvest’s divisions reported double-digit trading profit “off a base that had already rebounded strongly last year after the worst of the pandemic”, while four of them saw trading profits that passed the R1bn mark.
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