Barloworld to release R8.3bn of invested capital

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JOHANNESBURG – Barloworld plans to release about R8.3billion of capital invested in its existing businesses.

The listed distribution group said it planned to redeploy the capital to enhance its return on invested capital and economic profit or reduce its invested capital through the payment of a special dividend or embarking on a share buyback programme.

Chief executive Dominic Sewela yesterday also confirmed the group’s headcount had been reduced by almost 1500 people in the past 12 months. Sewela said the group had reduced its automotive business headcount amid resignations from the logistics business as well as equipment unit retrenchments.

He said the group’s total headcount would decrease by a further 1200 when the disposal of the equipment business in Iberia was finalised.

Sewela said the total cost to the group of the retrenchment programmes was less than R100million.

He said there was a continued focus on the optimal deployment of capital within the group in line with the strategy launched a year ago and ensuring the existing portfolio of businesses was able to generate returns above the cost of capital.

Sewela said the release of capital would enable Barloworld to ensure the balance of the business was able to generate the right returns.

He said that he had given himself about 18 months from September this year to deploy the released capital, adding that they were busy assessing opportunities, particularly in emerging markets.

But Sewela said that if they did not believe they would be able to deploy the released capital within this time period, they would then have to decide whether to pay out a special dividend or alternatively reduce capital through a share buyback.

Sewela said that of the R8.3bn the group planned to release and redeploy, R2.3bn would come from the exit and sale of its equipment business in Iberia, which should be concluded in July this year.

He said a funding mechanism being considered for the leasing assets in the automotive business should release about R4bn, while about R2bn tied up in equipment leasing or rental in equipment for southern Africa could also be released.

Sewela added that if the logistics business team was able to remain on the current trajectory, he was comfortable it could reach the initial target of a return on invested capital of between 8percent to 9percent and would be retained.

“Should they not attain that, we would definitely exit the business. We would make those announcements in September. We have R2.7bn invested in the logistics business,” he said.

Sewela said the equipment business in Russia remained the benchmark for the group’s portfolio.

“If our businesses are able to generate between 18 and 20percent return on invested capital, that is the kind of portfolio we are looking for,” he said.

Barloworld yesterday reported a 32percent growth in headline earnings a share to 481cents in the six months to March from 365c in the prior period.

Headline earnings a share from continuing operations increased by 14percent to 457c from 400c.

Group revenue rose 1percent to R30.9bn from R30.6bn.

Operating profit improved by 6percent to R2bn from R1.8bn.

An interim dividend a share of 145c was declared, which was 16percent higher than the 125c declared in the prior period.

Shares in Barloworld dropped 1.89percent on the JSE yesterday to close at R145.