Industrial conglomerate Bidvest, whose operations span cleaning services to property interests, is getting out of car rental, the latest company to exit the business as Covid-19 batters the outlook for SA’s tourism sector.
The group has a non-binding offer for Bidvest Car Rental, and is looking to sell to preserve as many of the 1,200 jobs as possible, CEO Lindsay Ralphs said on Monday.
Ralphs said while many of the company’s other businesses have showed signs of recovery, the car rental business “has always been a tough business, and is going into a tough future”.
Bidvest is the latest company seeking to cut its losses in the sector that was already in bad shape even before the Covid-19 pandemic led to cascading corporate failures in other countries.
Rival Motus, which provides car rental through the Europcar and Tempest brand, is closing branches and could cut half of staff in this division. Combined Motor Holdings, the holding company of First Car Rental, has also said it is cutting staff in its rental fleet by about a third due to Covid-19.
Even with the government widely expected to further roll back restrictions, especially on international travel, the future for the sector is bleak as companies struggle to compete with ride-hailing giants such as Uber for both business and leisure travellers.
Bidvest Car Rental has a vehicle fleet worth R1.5bn and generates about 1.3% of the group’s R76bn in revenue, the company said in its earnings report.
Bidvest has opted to hold on to its final dividend to preserve cash, after Covid-19 hit the value of some of its businesses, and acquisitions led to a jump in debt.
The group faced R1.6bn in Covid-19 related charges during its year to end-June, when net debt surged to R19.2bn from R7.8bn previously. This was largely due to its £495m (R11bn) acquisition of UK hygiene services group PHS in May, its biggest deal ever.
The group was comfortable about its debt levels, said Ralphs, while the group had spent a number of years focusing on costs, which — excluding Covid-19 — have remained well controlled.
“Liquidity is king in our lives at the moment, we are going to be quite cautious,” he said.
Overall, it was a resilient performance, given challenging conditions, and Bidvest had benefited from the diversity of its portfolio, and management, said Cratos Wealth portfolio manager Ron Klipin.
“Proactive management has once again proven itself,” Klipin said, citing improved cash generation and cost containment.
The sale of Bidvest Car Rental was likely to be difficult, and should the group pursue acquisitions, it was likely to focus offshore, and on areas of expertise such as cleaning and hygiene, Klipin said.
Normalised headline earnings fell 22.5% to R3.49bn. This profit measure is adjusted for, among other things, acquisitions costs.
In the year Bidvest wrote off a 27.2% stake in Comair, which entered business rescue due to Covid-19. The capital impairment amounted to R241m.
Bidvest also announced on Monday that Ralphs will be stepping down at the beginning of October. The group announced in March 2019 that executive director Mpumi Madisa would be replacing Ralphs in the position.
Shares in the company rose nearly 5% higher, having dropped about 30% so far in 2020.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.