Barloworld confident that it has headroom to weather the storm
In a pre-close operational update yesterday, the group said the impact of coronavirus (Covid-19) on its operations was uncertain at this stage, but a strong balance sheet and a stable, mature business platform placed the group in a solid position to weather the storm. It said it had reviewed its banking facilities and modelled its liquidity over 18 months.
Barloworld said it had more than adequate headroom to weather the storms. However, given the risk to growth, measures had been put in place to reduce costs. The balance sheet held a committed funding capacity of R7.2 billion at February 29.
After considering the acquisitions of Wagner Asia and Tongaat Hulett Starch, and the recent share buy-back programme, the debt to earnings before interest, tax, depreciation and amortisation ratio remained below 2 times. Negative knock-on effects from the disruption to the global economy from Covid-19 containment measures in sectors such as tourism, supply chains, commodities and overall market confidence, were increasing rapidly. Commodity prices were expected to remain depressed in the short-to-medium term, influenced by the length of the lockdowns put in place by key economies.
Challenging trading conditions were expected to intensify in the second six months of the 2020 financial year. Tough decisions were being taken to optimise the motor retail business unit and address under-performing areas in logistics. The disposal of SmartMatta and other logistics units remained in progress.
Avis Fleet remained held for sale and an open process, including the black public, to raise the required capital was being considered.
Cash was being preserved in the group and the balance sheet optimised to limit the financial impact of Covid-19 on business activity levels.
Measures included reducing fleet sizes where possible, avoiding and minimising penalties, mothballing of assets, vehicle disposals without compromising value and postponement of non-essential capex.
Initiatives to reduce operating costs included a freeze on new employment, flexible and reduced hours, and managing working capital requirements to ensure sufficient liquidity.
Equipment sales in southern Africa were down compared to the prior year, impacted by lower commodity prices, reduced production output and lower capital investment in mining.
Reduced investment in infrastructure as a result of large trade deficits and limited foreign direct investments impacted negatively on sales to the construction sector.
Associate income from Bartrac, the joint venture in the Katanga province of the DRC, was down and was expected to continue to slow down in the medium term due to declining mining activity levels.
The total equipment firm order book amounted to R3.3bn during the period.
Barloworld shares declined 2.50percent on the JSE to yesterday to close at R62.50.