Heavy equipment, automotive and logistics group Barloworld is anticipating tough trading conditions for at least another 18 to 24 months. Photo: Supplied
Heavy equipment, automotive and logistics group Barloworld is anticipating tough trading conditions for at least another 18 to 24 months. Photo: Supplied

Barloworld taking austerity measures

By Edward West Time of article published Jul 1, 2020

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CAPE TOWN – Heavy equipment, automotive and logistics group Barloworld is anticipating tough trading conditions for at least another 18 to 24 months.

It is now taking austerity measures to see that the group survives this period sustainably, said chief executive Dominic Sewela yesterday.

Speaking in a telephone interview at the release of the interim results, Sewela said decisions on Covid-19 overhead cost containment measures of about R700-R720 million were taken through the interim period.

The cost-saving initiatives implemented included, among others, a group-wide 12-month remuneration sacrifice plan and retirement fund payment holiday implemented on May 1, 2020; retrenchments; the deferment of non-essential capital expenditure; a moratorium on external appointments; a reduction in operating costs as well as additional counter-measures to contain invested capital. 

Once implemented these measures were expected to contain 2020 overhead costs by about R400m. 

The retrenchment process, which includes early retirement, was expected to cost R300-R320m when it was concluded at the end of the current financial year, resulting in about a 20 to 25 percent headcount reduction, with the automotive and logistics operations, in particular car rental, mostly affected.

Revenue was down 12.2 percent to R25.2 billion in the six months to March 31. Normalised headline earnings per share from continuing operations fell 432 percent to 354 cents from 521c.

Sewela said the challenging conditions prior to Covid-19 were expected to intensify in the second half, particularly in the vehicle trading and rental operations, as people usually did not buy cars when the threat of being retrenched was high, and vehicle rental operations would continue to be impacted by the closure of the tourism sector through the pandemic.

Business confidence in the regions Barloworld operates in had dropped significantly. The share price slipped 10.51 percent on the JSE yesterday to closing at R69.81.

Sewela said the balance sheet remained strong with funding capacity of R8.1bn, while net debt-to-earnings before interest tax depreciation and amortisation was at 0.9 times, compared with 0.2 times at the end of the 2019 financial year. There was also some R4bn of cash held offshore.

“We have acted quickly to identify areas of exposure and implement austerity measures to minimise the impact on our business. We believe these actions, together with our resilient balance sheet will serve us well in ensuring the longevity of the business,” said Sewela.

“While we have seen lower performance compared to the prior period, the delivery of our ‘Fix, Optimise, Grow’ strategy and managing for value approach is in place and along with maintaining a resilient balance sheet, we can ensure the longevity of the business,” he said.

The Automotive and Logistics division's performance was reflective of the current trading conditions affecting all business units, driven by reduced market demand and pressure on pricing as a result of a weak local macro-economic environment, but full volumes were likely to return to prior levels by 2021.

Equipment southern Africa made progress streamlining operations in Botswana and Angola with return on invested capital improving period-on-period. Sales to platinum and coal mining were holding up, but sales to diamond mines and to the copper mines in the DRC were under pressure. 

Equipment Russia produced strong results, driven by robust gold mining.

Higher operating losses at the Southern Africa Corporate Office were largely driven by lower rental income in Barloworld Limited and investments in corporate affairs and other projects.

The logistics business turnaround was ongoing, and the group is continuously assessing performance and the medium-term outlook in light of the current environment. The Avis Budget and Avis Fleet businesses had been merged to unlock synergies.

BUSINESS REPORT

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