On 2010: ‘I think the first half challenging, some recovery in H2.’

HILTON TARRANT: Clive Thomson is the CEO of Barloworld. Clive, the company's operating profit after the BEE charge this year down 25%, just under R2bn; headline earnings per share from your continuing operations down 43%; revenue down slightly, down 10%,but it was ahead 6% at the half-year. A very different performance in each of your business units, and the revenue line especially suggestive of a very difficult second half.

CLIVE THOMSON: Yes. Hilton, I think that's true, and it was principally a function of the downturn in Iberia in respect of the construction industry sales there down about 70% over the 12-month period. On the other hand, very strong performance in our automotive division, which generated profits up 30% in quite a difficult trading environment. So, as you point out, it's a mix in terms of the profit results.

HILTON TARRANT: You are still generating a lot of cash from your operations, and you have focused extensively on your expenses and your working capital. Together with that obviously comes head-count reduction. Have you had to let a lot of people go?

CLIVE THOMSON: Internationally, yes. We in Spain have reduced our head-count by about 400 people, which is 25% of the workforce, and about 15% in the US and the UK. And this is key in a  tough global environment. There has been, as you pointed out, a very strong focus on cash flow, and that's been up 20% in the period.

HILTON TARRANT: What are the kind of conditions that you are experiencing in each of the economies where you operate? You are in a diverse set of countries, you are in anything from the US to Siberia, as well as Spain, the Middle East, southern Africa.

CLIVE THOMSON: Yes, overall global economic growth, as we know, will end up about 2% down this year, which is the worst since the 1930s. But there's a mixture, and the developed markets of this world have been harder hit than the emerging markets. So we've seen quite big negative growth in Europe as a whole, down nearly 4%, the US also down quite strongly, and Iberia has been worst hit out of the European economies. The emerging markets have held up a little bit better, driven by China and India, and even our businesses in southern Africa have been less impacted than we've seen in developed markets.

HILTON TARRANT: The volatile rand gave you quite a smack this time round. You made a R934m gain from the rand last year, and that's reversed all the way to a R900m loss this year.

CLIVE THOMSON: I think you are quoting the overall profit numbers. We incurred a mark-to-market loss on forward covered contracts of R200m in the second six months of  this year, and that's principally the function of the forward cover contracts we had taken out to hedge our capital equipment purchase. So yes, we had a weaker rand in the first half, some benefits there, but strengthening in the second half did impact us negatively.

HILTON TARRANT: Let's talk about the automotive division here in southern Africa. You did mention that earlier - operating profit growing nicely. You even say that the division performed exceptionally well. It's a tough climate, we know it's a tough climate, and all indications are that it will pick up even further next year.

CLIVE THOMSON: Yes. I think we were very happy. Remember, our automotive division comprises Avis Car Rental, the motor retail business and Avis Fleet Services. And across all of those segments industry volumes were somewhat under pressure, but our car retail business, adjusting for things on a  like-for-like basis, was up 18%. Car rental was up 2%. And part of the drivers of this has been a more benign used-car  environment. So while new car sales have remained under pressure, we have had higher sales of used vehicles and that improved margins.

HILTON TARRANT: The Avis business - car rentals a bit of a blessing and a curse next year with the World Cup. A lot of visitors coming into the country - do you have enough cars?

CLIVE THOMSON: Well, what we intend doing is managing our fleet somewhat differently for next year. We normally roll our fleet within a 12-month period, so we buy and sell vehicles within the same year. What we'll do next year is we'll keep that fleet for longer than we ordinarily would, just to tide us over the World Cup. And there should be some benefit through that process.

HILTON TARRANT: The outlook for the overall business into 2010 - still tough?

CLIVE THOMSON: I think the first half of 2010 in particular will remain challenging. Remember, coming into 2009, particularly in our Caterpillar business, we had record customer order books - and those delivered largely in 2009. We don't go into 2010 with the benefit of that. So I think the first half challenging, some recovery in H2.

HILTON TARRANT: Clive Thomson is chief executive of Barloworld. David, the dividend - 70c per share -brings the total to 110c for the year.

DAVID SHAPIRO: The dividend's good, so you are getting good cash flow. From that point of view I think you can hold the stock. I suppose the market's now looking at what we are seeing with commodity prices improving, and a slightly better outlook for the global economy. Of course that's going to help them, and that's why the share price is going where it is.

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