Barloworld is a diversified investment conglomerate, with operations in consumer businesses encompassing the automotive sector, such as Motor Trading and Car Rental.
This company was impacted by constrained consumer demand, prior to the lockdown, which intensified subsequently as a result of the closure of activities, until recently.
As part of the group’s strategy of cost reduction, CEO Dominic Sewela said that they are giving consideration to selling parts of the automotive businesses, as well as reducing the workforce.
The car rental operations have seen a reduction in the Avis and Budget employees of between 50% and 60%, as demand for leisure and work travel has plummeted, in an overtraded market, unlikely to turn around anytime soon.
A writedown of a round R619m in the Avis fleet, previously a non-core asset, was unable to find a buyer or equity partner, is now a continuing operation, having been downsized and right sized.
A beam of light at the end of the tunnel, is the equipment Southern Africa division, principally involved in mining, with the iconic Caterpillar brand distribution operations. This should benefit from a continuation of strong commodity prices, especially with an uptick in the Chinese economy.
The equipment Russian order book is 4% above that of 2019, with a positive outlook for the mining and commodities, bolstered by firm aftermarket sales, at enhanced margins relative to that of the original yellow equipment.
The recent Mongolian Caterpillar business, operating in a resource rich jurisdiction, has the potential to be a worthwhile investment.
Logistics is the smallest of the business divisions, lacking the economies of scale of its peers, has estimated a 21% to 25% employee cost reduction, and should be considered as non-core.
Barloworld reported a decline in revenue of 12.2% in the past interim period, which in turn was reflected in operating margin being down from 5.5% to 4.4%. So a drive to reduce costs is of paramount importance.
This is reflected in the group objective to cut overhead costs by R400m, with the 2019 staff compliment of 15,000 to be reduced by 20% to 25%, in order to face the challenges ahead.
Group operating profit declined by 28% from R1.5bn to R1.1bn, with the automotive and logistics operating profit was down 60%. The equipment and handling division was resilient, down only 2.5%
Normalised HEPS of 354c vs H1 2019 of 521.4c, is a decline of 32%, and a reminder of the operating conditions prevailing in the economy.
The financial metrics remain strong with net debt/ebitda at 0.90x, cash of R4.6bn, and committed facilities at a substantial R8.1bn. The company says it is a precautionary measure not to declare an interim dividend, and is unlikely to declare a dividend at year end.