• 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.