Diversified industrial group Barloworld expects to have strong cash flows in most of its divisions in the second half of the year, following a number of actions taken in the first six months to mitigate the impacts of the global economic crisis on its businesses, CEO Clive Thomson said on Monday.

Speaking at a presentation in Johannesburg, Thomson stated that the company had already implemented a number of expense reduction initiatives, including a headcount reduction in some of its divisions.

Further, it had also placed about R740-million of capital expenditure projects on hold and increased its focus on improving its rental and leasing fleets to ensure cash generation rather than cash utilisation.

Overall, the group’s cash generated from operations had increased by 26% to R1,2-billion.

It had also taken great strides to reduce its working capital, which it brought down to R777-million in the six months ended March 31, 2009, compared with the R1,6-billion spent in the first half of the 2008 financial year.

The group’s revenues had increase by 6% to R22,5-billion for the six months, compared with R21,18-billion the year before, while headline earnings a share from continuing operations had declined to 200c a share, from 367c a share the year before.

The Southern African divisions had performed well in the six months ended March, with revenues having increased by 20% in the half year, noted FD Don Wilson.

However, the group’s operations in Europe and the US were impacted on negatively by a slowdown in activity as a result of the global economic crisis.

The group’s Southern African equipment division had boosted its operating margins to 12,4%, compared with the 10,8% in the six months ended March 2008, as Barloworld’s order book for mining and construction had contributed good results.

Activity in both the mining and construction sectors were expected to start slowing down owing to the second-round effects of the economic crisis, but the group said it expected its cash generation to remain positive.

Its Southern African equipment order book had declined to R2,9-billion at the end of March 2009, compared with the R3,7-billion at the end of September 30, 2008.

However, a number of opportunities for this market remained, both in mining and construction.

Thomson noted that there were high levels of construction activity going on in Angola and other African countries that would lead to relatively robust business for the group, if activities continued at current levels.

Meanwhile, demand for construction equipment in Spain had declined by 65% in the 2008 calendar year, while demand in Europe had been down by 25% overall, stated Thomson.

Barloworld’s European order book had declined to about €100-million at the end of March, compared with €140-million at the end of September last year.

Despite the difficult trading conditions experienced in the Iberia region, which included Spain and Portugal, among other countries, the group had increased its market share by 5% in the six months, which Thomson said was a good indication of the resilience of the Caterpillar brand.

He added that the downturn in this market had likely bottomed out and while conditions would remain slow, trading would not worsen and some signs of recovery could start filtering through from mid-2010.

Further, in Siberia, the group’s order book had declined to $40-million at the end of March, down from about $73-million at the end of September 2008.

While there had been a slowdown in the construction and power sectors in the country, revenues had only declined by 9% during the six months.

Thomson stated that the group had also now identified some opportunities for its equipment division in the forestry sector in Siberia.

AUTOMOTIVE

Barloworld’s automotive division had fared reasonably well with revenues increasing marginally to R8,3-billion in the six months, compared with R8,1-billion the year before.

The division’s cash flow had improved to R206-million, compared with the cash absorption of R962-million the year before.

The car rental business had managed to increase its rate a day by 7%, while rental days had declined by 8%. Thomson noted that it was becoming difficult to increase the rate a day.

Further, the group had also reduced its fleet by 10%.

Rental day volumes would remain under pressure in 2009, but improved utilisation and used vehicle profits would boost the business’ performance going forward.

Despite difficult trading conditions, the motor retail businesses had seen good results, which Thomson said were owing to its strategy of having a few dealerships at the right locations, selling the right brands of vehicles.

Further, the fleet services business had continued its sustained growth in the six months, the group noted, a trend Thomson expected to continue.

HANDLING

Meanwhile, the group’s handling division in Southern Africa had increased its operating profit by 93% in the six months, with the lift truck market and agricultural sectors contributing to the good performance.

However, the lift truck market had now started to slow.

Further, the Europe and US divisions, once again, had been impacted by the slowdown in trading, with the UK recording an operating loss. The operations in Belgium and Holland had remained profitable, but were worst affected by a decline in demand.

The US had also recorded an operating loss but had managed to grow its market share.

LOGISTICS

Barloworld’s logistics division in Africa had seen some organic growth in the six months, but was impacted by lower volumes. The group had now received preferred-bidder status for a supply chain management contract with a large South African furniture group, which it hoped would contribute to its performance, going forward.

Lower trading volumes in Europe were expected to continue throughout 2009, while the Middle East had also experienced significant reductions in trade flows during the first six months of the year.

Thomson noted that the group expected difficult conditions in its international logistics businesses to continue for the year.

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