Barloworld is selling its motor retail unit to NMI Durban South Motors for R1 billion as part of its shift to an industrial processing company, it said last week. Picture: Steve Buissinne/Pixabay
Barloworld is selling its motor retail unit to NMI Durban South Motors for R1 billion as part of its shift to an industrial processing company, it said last week. Picture: Steve Buissinne/Pixabay

Barloworld selling motor unit for R1bn to ‘fix, optimise and grow’

By Dineo Faku Time of article published Jan 25, 2021

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JOHANNESBURG - Barloworld is selling its motor retail unit to NMI Durban South Motors (NMI-DSM) for R1 billion as part of its shift to an industrial processing company, it said last week.

Its share price on Friday fell 7.92 percent to R89.50 on the JSE.

Barloworld said the strategic direction was underpinned by its fundamental strategic levers of “fix, optimise and grow” and was the result of a review of the group’s automotive portfolio amid the changing environment.

Chief executive Dominic Sewela said the announcement was important as it demonstrated the group’s continued actions to ensure stakeholders derived value from the business as it delivered on its strategy.

Sewela told investors the sale was a logical next step for the motor retail business as shareholders had benefited from the ongoing partnership with the joint venture (JV) in NMI-DSM.

“Through their hands-on and entrepreneurial approach, the JV has delivered consistent earnings over the years.

“The proposed restructure into this structure will enable us to achieve efficient capital allocation while providing for a focused motor retail business platform in the South African market,” Sewela said.

NMI-DSM is a joint venture of the Barloworld Group in which Barloworld holds a 50 percent interest alongside the Akoo family.

The group said the disposal consideration of the business was estimated at R947 264 000, R54 264 000 of which would be paid on or about the closing date while R400 000 000 for goodwill would be paid in three tranches over the next two years.

The final purchase consideration would be determined using the net assets at the closing date.

“The transaction remains subject to the achievement or waiver of certain conditions precedent and is anticipated to be concluded on or around June 1, 2021,” said the group.

The Covid-19 pandemic negatively impacted the group during the year ended September 2020 resulting in a 54 percent operating profit plunge to R1.8bn from R3.9bn a year earlier, on lower revenues and higher costs.

To cushion the blow, Barloworld implemented austerity measures to bolster performance including a R289 million retrenchment process, that resulted in a 2 644 headcount reduction. The group also cut overhead costs by R691m following measures including a group-wide remuneration sacrifice plan and retirement fund payment holiday.

The group also reviewed its dealership portfolio, rationalised the car rental branch network resulting in the car rental and Avis Fleet being integrated into a single unit to address gaps in the product portfolio driven through a single focused management team. It also consolidated leased properties and activities on owned properties.

In terms of growth, the group concluded the Mongolian Caterpillar dealership acquisition in September. The group also acquired Tongaat Hulett Starch at the end of October and rebranded the business to Ingrain SA.

BUSINESS REPORT

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