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Barloworld to cut more than 2 500 jobs

Will exit logistics and has put its automotive arm under ‘business review’.
The group is targeting a head office reduction of about 47%. Image: Supplied

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.

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.

Read: Job losses and site closures hit retail motor sector

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”.

Read: Barloworld launches Khula Sizwe public BEE offer (Apr 2019)

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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My theory is that a huge part of the current problem is debt.

Yes the staff and assets need to work but if one has low or no debt then if a vehicle isn’t used enough/at all it can still wait to be sold.

We need to figure out how to get all our bug corporates, SMME and general public out of the clutches of the Lenders/banks who are really only loan sharks

I was watching an interview recently by the owner of Miele (the German mid-sized family owned company famous for their reliable household appliances), and one of the secrets to their success: No debt. They admit that they don’t grow as fast as they could had they accessed outside financing, but they say that at the end of the day when one is spending one’s own money, one thinks twice about spending it and makes sure it’s put to the best use and not wasted. Such basic logic that seems to have been forgotten in today’s instant gratification seeking world that’s driven by greed.

To both comments above: this won’t change easily in the listed-company environment where the execs are mostly incentivised on achieving short-term ‘success’. Quick growth is often made so much easier with ‘gearing’ and financing.

These loan shark Banks are protected by the Reserve Bank.

In a moneyweb article, I addressed it to the deputy reserve bank governor (whatever that means – smooth talk and management) and STILL got no response:


@Kuben Naidoo – Why is it that you only try to protect the ones that are over indebted? Surely they should bear the consequences of taking out too much loans? And punish banks who gave out too much loans?

Being good and saving does not benefit.
You are unfortunately not making sense to me.
By the way, the inflation is misrepresented, hence all your interventions are skewed.

Hope you respond.@Kuben Naidoo – Why is it that you only try to protect the ones that are over indebted? Surely they should bear the consequences of taking out too much loans? And punish banks who gave out too much loans?

Being good and saving does not benefit.
You are unfortunately not making sense to me.
By the way, the inflation is misrepresented, hence all your interventions are skewed.

Hope you respond.”

The answer to this is that the current monetary system punishes savers and rewards borrowers. In most countries the interest you will earn on savings will barely compensate for the currency debasement. Now if you add taxation into the equation, you are going backwards by saving. Central banks have forced interest rates down to avoid a deflationary collapse.

If you are a reputable company, you are offered cheap money. Cheap finance makes an otherwise unprofitable venture, profitable. This is why Anglo American has its primary listing in London. Simply borrowing in London makes the company much more profitable. Being close to new money creation, you also get to borrow and spend the new money at the old money prices i.e. before it gets debased.

A lot of companies see opportunity. To profit from this opportunity one needs capital. If you don’t have sufficient capital you can borrow money by issuing bonds, borrow from the bank or issue more shares. Waiting for sufficient capital to accumulate (organic growth) will probably result in foregoing the opportunity. Worse still a competitor may seize it if you don’t.

Issuing more paper leaves a company debt free but shareholders have to cough if they don’t want to be diluted. One thing shareholders hate is to be diluted.

Borrowing money has advantages, principally it provides shareholders with a much better return on equity should the venture go to plan. In fact, there are a lot of case histories where the use of borrowed money has enabled the company to outgrow its competitors and become the dominant player in the industry. All one has to do is work the money harder than the interest payable. This is not as hard as it sounds, particularly if your company has a sustainable competitive advantage and interest rates are rock bottom.

Borrowing money also has disadvantages. In case of a downturn (like the present) debt still has to be serviced whereas equity not. Highly leveraged companies can hit the wall when the cash flow dries up. Falling interest rates (current) effectively transfer industrial capital to bond holders. Companies find themselves having financed themselves at a too high rate thus becoming noncompetitive.

Well stated, as always Richard.

Under a fiat currency monetary system, debt is an instrument of redistribution of wealth. The fact that we currently have a fiat currency system, implies that governments have defaulted on the dollar-denominated debts. They have defaulted on their debts in real terms, in terms of constant purchasing power that is. Governments adopted the fiat currency system because this system allows them to exchange fake currency for real income. Productive, or efficient borrowing is the strategy of using the savings in the fake currency of other people, to exchange for real assets now. In this way, the savers are in fact working to repay the assets of the borrower.

During times like these, when real interest rates are negative, there is a transfer of wealth from savers to borrowers. The state is the largest borrower by far. So, the state uses the means at its disposal to control its own cost of borrowing and to repay its debt in real terms. The astute investor aligns himself with the position of the state, thereby receiving some of the real wealth that is transferred from savers.

This discussion was started by GinaSchroeder who pointed to the inherent risks of borrowing. That is true. Borrowing increases risk. This is what the monetary system forces us to. The fiat currency regime forces investors to take on more and more risk, because the alternative, to use no leverage, implies a certain loss of purchasing power. Borrowing brings a probability of loss of capital, while no borrowing ensures the certainty of a loss of purchasing power. This is what the current monetary system does to society – it forces us to speculate using leverage.

100% correct! Debt IS the worldwide pandemic, loans add more debt + compounding interest. Like giving drugs to addicts.
The problem is essentially a human problem. We are never satisfied, more is never enough, so we mortgage our lives to leverage and credit. We live on the edge, fudge the books, drive fancy cars and pay thru the nose for our foolishness. Pleased to read of Miele having no debt, I started my company with nothing 34 years ago. The banks would not lend me a cent because I had no assets. I knew the day would come when they saw the business growing and would be keen to “help”. The day came about 12 years later, the manageress phoned me, “I see that you have a lot of money going thru your account but you have no overdraft, I was wondering if we could be of assistance”. I laughed to myself while she spoke. ‘I’m afraid you’re too late I replied’. “Oh, she said, have you moved your account to another bank?” ‘I said no, I have learn’t that I don’t need an overdraft. When I desperately needed your help you were not interested in helping me’. I have survived thru the hardest part, 12 years without your help so I definitely do not need it now. But you can help me, I said, tell me which account I can deposit short term excess cash flow into to get the highest interest rate’. Ever since then the bank has been paying me interest which, as the business has grown, is a useful addition to our annual revenue. Here are a few of my maxims;
The bank is not your friend.
A good night’s sleep is worth a lot of money.
Debt is enslavement

We have no debt, personal or otherwise, we made hay during the good years and pulled in our belts during the down years. I can’t quite believe it but I have been sitting in my armchair doing nothing while making more money on my investments in the past few months than I did busting my arse in my business for the first 20 years.! I am not bragging, this is written under a nom de plume, I am sharing the lesson that it is not necessary to run a business on overdraft or loans and it is not necessary to live in debt.

The key to happiness is gratitude – not more, more, more……..

Yep … the new normal is “leverage” … another slice & dice strategy by the so-called sophisticated financiers; until you get told they want their capital back .. now.

sometimes you would see long running companies and think ,after all these years of operating,how can they still have debt?

“The worst is still to come”.

And Bidvest will layoff about 18500 soon. And the list goes on.

It is quite interesting to see how the concept of BEE is destroying the concept of BEE.
We know that this is the unavoidable results of all socialist policies, but in South Africa, we are “privileged” to witness the spectacular display of socialist destruction in action. The BEE scheme at a coal mine uses the contract with Eskom to syphon off the bottom line of the BEE company in another industry. BEE coal-mining companies inflate their profit margins by overcharging Eskom. Eskom pushes the inefficiency through to the end-user, who in many instances, are other BEE companies. Most BEE projects are underwater. That means the “beneficiaries” have more debt than equity. They will never be able to recover. The coal mining BEE companies stole the bottom line of the Barloworld BEE company.

This process of value-destruction has further consequences. BEE is a disguised tax on capital formation. All taxes on capital formation destroys and prohibits capital formation. Savings and capital formation is essential to build plant and equipment as part of the process to increase the productivity of labour. Without a rise in the productivity of labour, wages cannot rise and employment cannot be ensured.

Therefore, BEE destroys jobs. BEE is ANC policy. Therefore, the ANC destroys jobs. The fact that we have the highest unemployment figures in the world, in a country that is blessed with the most abundant mineral wealth on earth, describes the destructive power of ANC communism. Not even the most successful BEE scheme is safe and insulated from this negative feedback loop of economic destruction.

BEE schemes are devouring other BEE schemes. The most-privileged, the new wealthy elite, the new Bourgeois, are those who were lucky enough to be empowered in the project, the monopoly, that has the power to steal from all the others. If they promised equality, and now they deliver inequality in BEE schemes, how can they justify this “injustice” that they created? Now we will see a new fight, a new political network that promises to empower those BEE schemes that are less empowered than others. This is the classic race to the bottom.

Well said Sensei: I feel really quite bad in that I gain a perverse sense of pleasure (or “I told you so” )in seeing BEE Schemes Collapse : They are so fundamentally Commercially farcical thats its almost a Joke:
Our ANC seem to have willingly gone to Commercial war with themselves , seeing which Comrade can best raid the Kitty :
The Guptas were very wise businessmen in that they chose their partners well , knowing that they could simply slip away and our “justice” system will never hold them to account :

Is the firing of 2500 people really news? This is (sadly) only the start. As we shake off the effect of the lockdown many, many more people will realize that staff have to go especially as UIF TERS is ending.

It is truly a human tragedy and I fear this is only the start

Agree only the start, sadly self inflicted by the dearly beloved ANC. Their people will die of disease, cold and starvation, and JVR will get the blame.

It is going to be very ugly, as Johan Rupert said the great reset.

Abolish minimum wage lat those that want to work even if it is just to put food on the table, accumulation can come later.

I am against any form of entitlement. What i resent even more is exploitation. unscrupulous employers are the ones who ushered minimum wage into existence. They created a need for it.

A few(2 or so) years ago, a certain red-beret political party exposed an employer for paying staff R1900 A MONTH!!! after transportation costs and basic basic personal care products are factored out, what is left will not even put food on the table for a week.

King Khan, your comment reflects the popular view. They say “If you are not a socialist at the age if 18, you haven’t got a heart. If you are still a socialist by the age of 28, you haven’t got a brain.”

An employer is unable to exploit an employee in a free-market system because that employee is free to find a better job. It is communism that exploits workers because alternatives and freedom of choice disappears under communism.

The minimum wage creates a barrier to entry for any wage that is less productive than the minimum wage. In South Africa, it is clear that 50% of workers fall in that category. What is worse – a small wage and food on the table, or no wage and hunger?

The great Sensei, South Africa is characterized by features of both the free-market system and communism, though one more than the other. With a broken system like that, exploitation does indeed exist and carried out more by individuals(employers) than the current broken system in place.

Capitalism works, i am a devout believer of capitalism. Socialism and communism are works of those without a brain as you put it and it’s very true. But being against socialism/communism does not mean the less fortunate and often less educated individuals who are willing to work have to be paid pittance which will only keep hunger at bay for most days in the month, even in a perfect free-market system.

Abolish minimum wage??? I can hear the socialist cadres screaming in horror from here … next you’ll want a hire & fire policy like the US … which is what actually made it great.

King Khan, I fully agree with your last comment. The best example of humanitarianism in South Africa is not the great Nelson Mandela, but rather the wonderful Dr. Anton Rupert and his wife, Huberte Rupert who provided their employees with the best wages and housing in the country. He said “treat people as if they are what you expect of them, for then you provide them with the opportunity to be the best they can be.” This is the example from the ultimate capitalist. My father taught me to pay a fair wage if I employ someone, and if I cannot afford to pay that fair wage, to not employ that person. Now the state has intervened and decided that the minimum wage is a fair wage.

A living wage is only possible under free market conditions. Under socialism, even the best wage is an exploitative wage.

Every polical-economic system leads to particular results. A democratic system enables the voting majority to change their environment into a reflection of their cognitive abilities.

This process is active and ongoing on a national scale. This process is enforced by the Central Command Council. The result will become visable as a move away from sanitation and sewerage works, back to the pit latrine.

The human mindset has a very convincing persistence to express itself. Some minds express themselves though music, art, sculpture, engineering, poetry, song or entrepreneurship. Others, depending on their level of enlightenment, express their mindset through destruction.

This is what motivates the fallist movements. The only thing that they will succeed in, is the fall of sewerage works.

This should be a lesson to businesses out there that incur more debt than necessary. The private equity industry needed much needed reform and regulation because of such behaviour.
Too much debt sinks businesses and part reason why Steinhoff’s woes were exacerbated and perpetuated. Let us not blame banks, let us blame the highly paid and intelligent CFOs who fail to discern debt as a potentially dangerous financing instrument.

Why is it that when companies backs are against the wall all these clever executives and top management with their fancy degrees who made the fatal foolish decisions running the company are the last to go. They must face exit first and pay the price for their bad decision making.

Barloworld has been on a drive over the last 10 years to employ BEE candidates no matter what skills they lose… Self-inflicting!

most of us are just slaves to the system

Headlines from April 2019:
Barloworld launches Khula Sizwe public BEE offer – Moneyweb
Barloworld’s new BEE scheme could have a fighting chance – Moneyweb
Can Barloworld’s new BEE scheme deliver? – Moneyweb
How Barloworld’s Khula Sizwe BEE scheme could create value

Today: “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.”

So it was okay for shareholders to carry these costs 15 months ago?

End of comments.

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