In light of the rapidly evolving environment, the board and management of Barloworld are of the view that it is appropriate to institute regular updates containing relevant information regarding the impact of COVID-19 on the Group and the appropriate austerity measures taken in response.
Shareholders are advised that the financial information contained in this announcement has not been audited, reviewed or reported upon by Barloworld's external auditors.
Operational update
The Government imposed lockdowns across the globe continue to negatively impact the environment in which our businesses operate. The latest consensus macroeconomic forecasts indicate that most economies, including South Africa and the rest of Africa, are likely to enter recession in the first half of 2020, with a recovery only commencing in 2021.
The operating environment is therefore expected to remain weak and volatile in the near term with significantly lower activity levels in the Automotive division. Activity levels in the Equipment southern Africa and Logistics divisions are currently low, but are improving as customer activity levels improve as they adjust to operating under a lockdown environment. In Russia, trading remains strong and the current impacts of COVID-19 have been very limited.
The Group has a strong balance sheet and stable mature business platforms to weather the storm and will be well positioned in the future recovery. In the short term, we are actively focused on both cost reduction and containment, as well as driving operational efficiencies for the remainder of the financial year to September 2020.
The lockdown restrictions in various territories are causing delays in the internal consolidation and review processes of our financials. As a result, the release of the Group's interim results for the six months to 31 March 2020 has been postponed from 18 May 2020 to 30 June 2020. This remains in line with Section 3.15 of the JSE Limited (JSE) Listings Requirements which requires results to be released within three months following the end of the reporting period. Furthermore, in line with section 3.18(a) of the JSE Listings Requirements, the board has approved the release of unaudited interim results, with limited assurance.
Cost-saving initiatives
The Group's internally imposed austerity measures are expected to yield significant cost savings by the end of the 2020 financial year as well as lowering the overall cost base going forward. The following additional initiatives, amongst others, have also been adopted:
- A non-executive directors' fee reduction of 25% for a period of three months with effect from 1 May 2020;
- A suspension of the retirement fund contributions to the respective funds for a period of up to 12 months in line with applicable fund rules and country specific legislation. This plan affects all employees who are members of the respective funds, excluding those who are close to retirement age (60+) and will be effected from 01 May 2020.
- A 12 month remuneration sacrifice plan effected for employees at executive, senior, middle and junior/supervisory levels using a sliding scale that will see executives taking the highest total guaranteed pay (basic salary plus benefits) reduction with effect from 01 May 2020. The total average remuneration sacrifice is shown in the table below:
Total average remuneration sacrifice, including suspended retirement fund contributions %
Group Executives : 25%
Senior management : 21%
Middle management : 18%
Junior management /supervisors : 14%
- A further targeted reduction of head office costs across all areas; and
- A reduction of costs across all business units in southern Africa to deal with the slowdown and prepare the business for the recovery.
Shareholders are advised that the board and management are prepared to take further active measures to reduce costs as the situation demands. The full extent of all the cost savings will be communicated as part of the 2020 interim results.
Gearing and liquidity
The Group's gearing levels remain low and well within our covenants. At 31 March 2020, the Group maintained a robust cash balance in excess of R4 billion. The Group's net debt position (excluding IFRS 16) increased to over R4 billion in line with operational cycles. The Group's headroom on committed facilities for both the local and off-shore operations remains substantial at over R8 billion. In addition, we have non-committed facilities of over R2 billion.
The Group is actively reviewing all current facilities on an ongoing basis and we remain confident of our liquidity position. Even after taking into account the acquisitions being progressed, we retain significant headroom within our covenants, with Net Debt to EBITDA expected to still remain below 2.0 times.
We had working capital absorption at the end of the interim period caused by a delay in accounts receivable and inventory build-up on the back of the lockdowns in the various regions we operate in. We continue to monitor the working capital levels closely with certain countermeasures already implemented to manage the expected build-up in the second half of the 2020 financial year, as a result of an anticipated slow-down in demand and activity.
Avis Fleet
We previously disclosed our intention to sell 50% of the equity in Avis Fleet. Given the current market environment, a decision has been taken to place this initiative on hold. This position will be re-assessed at the appropriate time and in the context of the Group's strategy and optimal portfolio mix. Avis Fleet will continue to be shown as part of discontinued operations in the interim results for the period to 31 March 2020 and will revert to being reported as part of continuing operations going forward.
Update on acquisitions
The Group continues to progress the recently announced acquisitions while exercising caution on the need to ensure our ability to weather the immediate effects of COVID-19. We continue to believe that these acquisitions will strengthen the resilience of the business in the longer term. Further updates on the acquisitions will be provided in due course.
Next update
The next voluntary business update will be issued towards the end of May 2020.
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