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Barloworld to cut more than 2 500 jobs

MONEYWEB - COMPANIES & DEALS / 01 JULY 2020 - 05.00 / ROY COKAYNE

Will exit logistics and has put its automotive arm under ‘business review’.

More than 2 500 people in the automotive and logistics divisions of JSE-listed distribution group Barloworld are to be retrenched because of the impact of Covid-19.

The group is targeting a head office reduction of about 47%. Image: Supplied

Barloworld Group CEO Dominic Sewela on Tuesday also confirmed the group will be exiting the logistics business and has put the automotive business “under business review”.

Sewela said the objective of the retrenchments is to realise a saving of between R700 million and R720 million, before implementation costs, for Barloworld’s 2020 financial year.

Implementation costs in the year are estimated at between R270 million to R300 million, he said.

The planned job cuts by Barloworld follow Motus, the vehicle business of Imperial Holdings that was unbundled and separately listed on the JSE, last month reporting it is in the process of reducing the size of its workforce by about 2 000 people through an early retirement and retrenchment process because of the impact of Covid-19.

JSE-listed Combined Motor Holdings (CMH) last month said its staff complement has been reduced by 15% and a further 15-20% reduction is anticipated over the coming months.

Sewela said Barloworld will be putting processes in place to find a way of ensuring it realises value for the logistics business “given the fact that we have spent time fixing this business”.

Alternatives for automotive

He said putting the automotive business under business review means they will be looking at alternatives for what to do with the business.

“I will be presenting to the board and update the market [on this] when we release the results to end-September,” he said in a presentation on Barloworld’s financial results for the six months to end-March.

Sewela said it has been a very difficult and challenging environment, not only from a business point of view but at a personal level and the impact on the staff psychologically.

“Covid-19 has put into sharp focus issues of sustainability,” he said.

Sewela added the challenging trading conditions experienced prior to Covid-19 are expected to intensify in the second half of the group’s financial year but Barloworld is well positioned to withstand these challenges.

Logistics exit overdue

An analyst said the fact that Barloworld is exiting the logistics business is indicative that the business has not been fixed and questioned why it did not close it and auction off the trucks.

“There’s overcapacity in that industry and they are not going to get someone to buy it while it’s making those sort of losses.

“The worst is still to come. The March financial results only had a few weeks of Covid-19,” he said.

From R950m profit to R1.5bn loss

Shares in Barloworld slumped 11.5% on Tuesday to close at R69 after the group reported a loss of R1.53 billion in the six months to March from the R950 million profit in the previous corresponding period.

Normalised headline earnings per share from continuing operations dropped 32% to 354 cents from 521 cents in the prior period.

Group revenue was 12% lower at R25.2 billion while operating profit deteriorated by 28% to R1.1 billion.

Equipment Southern Africa’s operating profit dropped 10.4% to R722 million while Equipment Russia improved its operating profit by 17.8% to R370 million.

The operating profit of the automotive trading business slumped by 69% to R85 million and that of the vehicle rental business by 31% to R194 million.

The logistics business reported an operating loss of R30 million compared to an operating profit of R68 million in the prior period.

Barloworld automotive and logistics CEO Kamogelo Mmutlana said the operating environment has been characterised by general economic deterioration across all of their market segments and business units at varying levels, with some more affected than others.

Mmutlana said the business has a high fixed cost base and the Khulu Sizwe black economic empowerment (BEE) property sale transaction meant it incurred rental or lease cost increases of about R85 million.

He said goodwill has been impaired by R690 million because of reduced forecast cash inflow arising out of the Covid-19 impact on the business.

He said the negative impact of Covid-19 already experienced in the months of April and May have been quite glaring but they see opportunities going forward within the used vehicle market on the back of new vehicle price increases that have already been announced.

Retrenchments

Mmutlana said “well in excess of 2 500 positions” will be affected overall in the automotive and logistics division because of retrenchments and downsizing.

“In Avis and Budget Rent a Car, we are targeting between 50% and 60% of the total employee base.

“We have already initiated a Section 189 process, we are currently in consultation with our various unions and are looking at how best to come up with a solution that works for all parties concerned.

“In terms of motor retail, at this point in time we are targeting 30% of the total employee base. In the logistics business, we are looking at roughly another 30% cut. We are targeting a head office reduction of about 47%,” he said.

Site closures

Mmutlana said the rationalisation of the dealership portfolio is underway, which will result in a number of dealership closures while further rationalisation of the car rental branch network will result in the closure of at least 26 of the 90 branches.

“We will also look at the consolidation and possible exit of leased properties in favour of owned properties where feasible,” he said.

The analyst said that with the properties Barloworld had put into the BEE deal, it is not that easy “to unscramble the egg”.

He claimed the BEE deal was enrichment rather than empowerment and questioned which of the sites will be closed down, adding he doubted it will be any of the properties that formed part of the BEE deal.

“There is a conflict of interest there. Are they going to act in the best interest of the company or the best interests of the BEE deal?” he asked.

On the car rental defleet plans, Mmutlana said they were already at the peak of their cycle in terms of fleet size at the end of March with about 27 000 vehicles, but in the two to three weeks before the end of the month managed to defleet by about 5 000 vehicles “as soon as we became aware of the serious impact of Covid-19”.

Rental fleet reductions

Mmutlana said they are targeting to reduce their car rental fleet further to about 10 000 vehicles by February 2021 and have a clear plan of how to go about selling these particular vehicles.

He believes the residual values of these vehicles will hold up on the back of new vehicle prices that are already in effect.

“However, we are quite cognisant of the impact of more and more used cars volumes coming into the market, which may soften residual values somewhat,” he said.

Southern African Vehicle Rental and Leasing Association (Savrala) GM Sandile Ntseoane said there are more than 4 000 people employed in the vehicle rental industry but the total number of job losses because of Covid-19 is difficult to determine because some Savrala members keep these numbers “close to their chest”.

Ntseoane said some of these jobs will be recouped when the tourism and travel sector returns to normal but stressed nobody knows when that will happen because a lot of re-engineering is taking place.

“My assessment is that a lot of the damage is almost permanent,” he said.

“Even if airlines start operating again, people will be very uncomfortable to travel because Covid-19 seems to be coming back in some countries.”

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LINK : https://www.moneyweb.co.za/news/companies-and-deals/barloworld-to-cut-more-than-2-500-jobs/

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