Mathabo Le Roux
18 November 2008
Johannesburg — BARLOWORLD's decision to grow its southern African equipment distribution network aggressively will stand it in good stead in looming lean times.
Barloworld opted last year to ramp up distribution facilities to tap into the huge increase in African infrastructure and mining construction activity. Its order book for new equipment in the region is now at record levels as the region bucks the recessionary global trend and despite a drop in commodity prices.
But the rest of Barloworld's portfolio is feeling the pinch of the global downturn, particularly its car rental and retail division.
Conditions in Europe are particularly tough. The group said yesterday it would dispose of its Scandinavian rental business, with debt of R1,8bn on its books. That may be a difficult task with the credit crunch, and Barloworld is giving itself 10 months to rid itself of this white elephant.
The group posted solid results for the year to September, driven largely by the equipment business in southern Africa, but CE Clive Thomson said the second half reflected tighter trading conditions. Revenue grew 18% to R46,8bn. Excluding a R337m charge on the empowerment deal concluded this year, operating profit rose 31% to R2,98bn.
Headline earnings fell 8% to R1,3bn. If abnormal items -- including the empowerment charge, secondary tax on companies attracted by last year's special dividend and gains on the previous year's sale of PPC -- were stripped out, normalised headline earnings rose 29% to 760c per share. A final dividend of 150c was declared bringing the total dividend for the year to 250c per share.
On a segmental basis, the equipment unit, which forms the core of the restructured portfolio, had a good year, increasing operating profit 34%. This was driven largely by robust southern African sales. The region boosted operating profit 66%, and is expected to be a buffer in difficult times to come, with the order book increasing 30% to record levels.
Equipment sales in Spain and Portugal slumped on a sharp construction slowdown as Spain plunged into a recession expected to last well into next year.
The logistics business grew robustly, though off a low base, fired by strong organic growth and the benefit from the acquisition of Dubai-based Swift and Flynt. The unit grew operating profit 42%.
The automotive business had a tough year, as demand for new vehicles slowed. Operating profit fell 15%. Sales fell 7%, better than the average 20% drop for SA.
Barloworld sold its 50% Subaru SA stake, and will keep rationalising its dealer network to weather the slump in demand. Car sales are expected to fall 8%-10% next year.
Handling business operating profit fell 8%, again on slowdown in Europe and the US, but operating profit in the southern African business rose 130%
While Barloworld's strategy and products were "fundamentally sound", Thomson warned trade in the year ahead would be difficult in most of its major markets.
Barloworld's share price fell just more than 4% to R46,48.
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