Car sales slump hits Bidvest

Johannesburg - SA's slump in new vehicle sales has hit earnings at diversified industrials giant Bidvest, with trading profit at its vehicle retail division falling almost 40%.

The company reported a small drop in trading margin, from 4.6% to 4.4% for the six months to end-December 2008.

Bid Auto is Bidvest's third-biggest division in terms of revenue. The unit is exposed to the beleaguered automotive sector through its ownership of McCarthy Motor Holdings, which has over 130 dealerships and franchises for brands such as Mercedes Benz, Toyota and Volkswagen.

Bid Auto's trading profit dropped 39.4% to R214.4m and revenue fell 12% to R8.8bn during the period under review. The company said that a slump in new car sales led to "excessive levels of inventory, discounting, overtrading and much-reduced dealership trading margins".

Overall, Bidvest managed to increase interim revenue by 11.3% to R60bn, which was largely as a result of market-share gains. Bidvest CE Brian Joffe said these were "solid trading results".

"The results were slightly below what people were expecting," said Andrew Kingston, senior equity analyst at Sanlam Investment Management. However, he added that the group was "doing okay" given the circumstances and was fairly resilient.

The group's headline earnings per share (heps) fell 8.9% to 454 cents/share. The bottom line was hit by a R165.3m charge related to closure and re-organisation costs in motor retailing, UK food service and Ontime Automotive divisions. Ontime Automotive is a UK-based firm which owns and operates 600 transporter vehicles throughout Europe.

Heps would have dipped a marginal 0.8% without the restructuring costs, according to Bidvest. "Decisive action was taken to put the group in a stronger position at a time of uncertainty and worldwide economic recession," said Joffe.

Bidserv the star performer

The group also declared an interim distribution of 190c/share, which represents a 13.6% drop on the previous period. Kingston said that the market had been expecting a flat distribution. "The dividend was disappointing; it signals a tough second half," he said.

Bidserv was the group's star performer. The unit posted a 27.2% increase in trading profit to R489.4m and a 57.9% return on funds employed. Bidserv offers services ranging from laundry and sanitation to banking.

Bidvest's other key divisions include Bidfreight, which operates port and airport based-assets and logistics in southern Africa; Bidvest Europe, which acts in the food service space; and Bidvest Asia Pacific in Australia, New Zealand, China and Singapore.

Bidvest Europe, which contributed 32% to total revenue in the period under review, was disappointing, with trading profit down 3.4% to R396.3m. Bidvest has blamed the recession in the UK for the poor performance of UK-based business unit 3663 First for Foodservice.

The business' one saving grace was the weaker rand - the local unit's lower value against the sterling did result in some positive translation of earnings.

Joffe said the unit's management will be focusing on capital management in future.

Bidvest will be seeking to grow the Bidvest Asia Pacific division, both through market share gain and strategic expansion. Bidvest Asia Pacific managed increase trading profit by 13.7% to R285.7m despite the sluggish economic conditions in Australia, Singapore and Hong Kong.

At 10:30 on Monday, Bidvest shares were trading 2.1% lower at 8 124c.

- Fin24.com