ffoicimatjffill iffiffiT by George Malcolm
Page 52
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Sales don't equal profits
SENSITIVE areas — price-cutting by vehicle manufacturers and dealers — were touched on in this column in February.
Needless to say there were people ready to endorse the comments raised. One reader, a dealer, sent me a copy of an invoice issued by a rival and obtained from the operator concerned where the list price for a DAF tractor unit had been discounted by over 25 per cent.
Some of the most revealing evidence of the price war appeared just after the publication of my article in the form of a Business Ratios' report on foreign vehicle distributors.
It was an eye-opener! It revealed that every single importer of heavy commercial vehicles made a loss in the last financial year for which figures were available (1981/82), with the possible exception of Mercedes-Benz (UK) Ltd where the figures were packaged in with the private car results because the company in its company accounts does not separate CVs from cars.
Iveco (UK) Ltd is revealed as the leading loser in that year; it lost £6.547m on sales of £28.311m according to the report. And that followed losses of £4.857m in the previous year. The report points out that the 1981/82 loss represents a loss ratio against sales of 25.6 per cent.
The loss figures of the other heavy vehicle importers in the same year are as follows: DAF Trucks (GB) Ltd £402,000; Scania (GB) £212,000; Volvo Trucks (Great Britian) £1,368,000; Renault Truck & Bus UK £168,000; and MAN-VW Truck & Bus £1,671,000.
Probably the most surprising figures are the loss levels at Volvo UK, which had a deficit of £1,576,000 in 1980-81 as well as that for 1981-82. However, the Volvo data in this report is dated, for a brochure on Volvo (GB) indicates a profit of £3,387,000 in the calendar year 1982 on a turnover which jumped to £115,930. This "dated" feature should be borne in mind when considering the report.
Volvo, it should also be pointed out, is the only importer which is also a real truck exporter from the UK. The report indicates that well over half of the £27m exports of the 12 "importer" companies were accounted for by Volvo Trucks (GB) and Mercedes-Benz UK — the latter's efforts were mainly in respect of cars, of course.
The question that readers of this report may ask is: "How long can lveco continue making losses of this order?" But again, is the information in the Report sufficiently up to date? Not surprisingly, lveco's md in the UK, Alan Fox, put strong stress when speaking just before last Christmas on the company's return to profitability. It will be interesting to see the latest figures when they are published.
It is intriguing to see in the report that lveco (UK) had a better sales growth rate in the years under review than anyone else, even though this was zero. Everyone else had attained a negative sales growth, with Volvo and Scania trailing the field ratings standing respectively at —12 and —19. This is not surprising in a period of market recession for it is the leaders that tend to be most affected by this kind of statistic.
All the importers (but taking note again of the position of Mercedes) had a negative return on capital employed, varying with the extent of the loss and total capital. In 1981/82 Scania's capital employed is shown as £3,170,000, DAF's at £5,986,000, Volvo's at £18,849,000, MAN-VW at £2,728,000, lveco's at £2,053,000 and Renault's a negative, — £590,000.
The conclusion of the report is gloomy. It says: "Outlook for the commercial vehicle importers is still very poor and unlikely to improve."
How valid is this, bearing in mind the uplift in weight limits and the corresponding demand for heavy-duty tractive units in the past 12 months?
There is no doubt that things are looking up on the operating side of the business, This is confirmed by the preliminary announcement from Transport Development Group on its trading in 1983. Profit before tax increased by 14.5 per cent to £21m despite a down turn of more than £2m in the results of the company's reinforcement businesses.
On the road transport side, the general haulage fleets were, however, busier than in the previous year, the company says. Contract hire and specialised haulage were highly successful and progress was made in the development of national parcels and express freight services.
TDG adds that warehousing and distribution services grew during the year as a result of new contracts with major manufacturers. Most cold stores were filled to capacity during the year.
The Dutch and French transport companies increased their profits and there was a substantial uplift in the results of the company's US transport businesses.
TDG's turnover in the year was £367,653,000 compared with £347,786,000 in the previous year and it is interesting to look at this in relation to the National Freight Corporation turnover of £493.3m. Pre-tax profits at TDG were £20,980,000 (118,329,000) in 1982 which compares with the NFC figure of £16.3m or £22.8m when property dealings are taken into account. TDG did rather better therefore on a smaller turnover.
TDG's income still stems largely from road haulage activities, which contributed £119,503,000m in the UK (up from £85,877,000 in 1982) and £92,303,000 overseas in 1983 compared with £85,877,000 to total revenue. Profit figures from this area of TDG's operations worked out at £6,621,000 in the UK and £6,411,000 overseas, up from £5,894,000 in the UK in 1982 and from £5,719,000 from overseas.
The most profitable side of the business was storage, providing very positive evidence that the two elements — transport and storage — are essentially bedfellows these days. In the Uk in this area profits went up to £9,309,000 from £6,190,000 the previous year on a turnover of £41,027,000 (134,759,000 in 1982) and overseas to £8,980,000 from £8,448,000.
Probably the best news from TDG is a hopeful note in the comments on the future outlook. The signs are, it says, that in almost all areas of activity, 1984 is likely to show an improvement in 1983.
"Perhaps not for the reinforcement companies where overcapacity continues to be a problem. But for the remainder there is more optimism than for some time past, though it may not be until later in the year that the justification for this optimism is fully demonstrated."