Barloworld Limited: Leading Brands

OUR OPERATING CONTEXT IN 2020

CAR RENTAL

• SAVRALA car rental market significantly down on prior year, the industry most severely affected by COVID-19
• Benefited from international and local travel for first six months of the financial, second half declining by more than 50%
• Gradual claw-back in all segments since May as a result of relaxation of lockdown restrictions, with the exception of long-haul leisure
• The industry rate per day hit its lowest point since 2009 in April 2020
• Used vehicle market remained resilient with margins holding and one-year old vehicles continuing to yield good returns

AVIS FLEET

• The leasing industry has not been as significantly impacted by COVID-19 due to the long term nature of the contracts, though the financial pressures are evident in the number of business rescue proceedings, payment holiday requests from customers as well as liquidations
• Customers downsizing fleet in response to downturn in business cycle
• Corporate SA was still under pressure to service the accounts especially in the tourism sector and other industries that took long to open

MOTOR TRADING

• NAAMSA dealer market for the full year is down 23.1%
• Significant impact in Motor Retail business during April with business limited to supporting essential services through a select number of strategically placed sites
• Vehicle sales impacted positively by the delay in opening of licensing offices in June
• New vehicle sales at 80% and used vehicles at similar level of pre-COVID-19 levels
• Industry impacted by new vehicle price increases as well as dealers experiencing stock shortages
• Auction sales continued through lockdown enabled by technology solutions
• Aftersales recovering well despite the slow start due to less mileage travelled during lockdown
• Recent lower interest rates stimulated some activities in cars sales providing confidence to a slightly improved outlook in a depressed market
• Automotive industry facing varied degrees of disruption through disintermediation and business models

 

HIGHLIGHTS IN 2020

Dedication and commitment of employees during this unprecedented times

Reduced our LTIFR

Successful integration achieved for Automotive and Logistics with efficiency gain

Strategic Sourcing achieved R88 million in savings and cost avoidance

NMI-DSM, improving operating profit by 13%. Share in PAT up R15 million on last year

Audi Century City dealership trading in the new facility, September 2020

Avis Budget launched 'Why buy if you can rent' monthly product

Integration of Avis Budget Car Rental and Avis Fleet to unlock synergies and value. The operating model is on the ever-evolving needs and requirements of customers and presents an opportunity to offer integrated end-to-end mobility solutions

MANAGING FOR VALUE IN 2020

Medium term strategy: Fix and Optimise Reach full potential and exceed group return on invested capital of 13% by 2022.

FIX AND OPTIMISE Change management and retention of key staff Sustain the reduce fix variable cost base to ensure an agile organisation Continue to entrench a culture of continuous improvement and managing for daily improvement across the organisation Review of optimal capital allocation and release of capital from loss making/low return businesses Review of our dealership portfolio together with optimal utilisation and rationalisation of leased and owned facilities Implementation of multipurpose sites that combines used vehicle sales and aftermarket sales, to grow our product and service offering to the customers Embed the integration of Avis Budget and Avis Fleet and provide an integrated go to market rental and fleet management offering, to drive tailor made solutions for customers Sustained cost savings and efficiencies in functional consolidation creating shared services within Avis Budget and Avis Fleet Pursue select growth opportunities to diversify on-airport and off-airport offering Avis Fleet will look to benefit from the healthy pipelines of fleet opportunities together with new products and services Sustained growth in the commercial leasing segment together with continued strong focus on public sector. Continued strong focus on public sector. Ongoing digital focus that drives innovation, customer centricity and improved efficiencies

The performance of the Automotive division is down on the prior year on a comparable basis. Revenue for the division, excluding NMI-DSM in the prior year, was down by 15% with declines across all business units as a result of economic pressures, further impacted by COVID-19. ROIC for the division was lower at 2.9% (2019: 13.2%) mainly due to operating losses incurred during the year. Cost containment through leaner and fit for purpose head office structures and operating models, branch rationalisation, right-sizing of fleet, lease rationalisation and staff reductions were key focus areas in this challenging trading environment.

Tough decisions were made during the year to safeguard the sustainability of the Automotive division, impacting estimated 27% of staff at a retrenchment costs of R68 million.

For the year, goodwill and property impairment in the division amounted to R693 million.

MOTOR TRADING

Motor Trading's (excluding NMI-DSM, now an associate) revenue is down 15% due to the decline in the vehicle market, the impact of COVID-19 stages transitioning out of lockdown trade restrictions, consumer affordability and overall vehicle price increases. New vehicle sales performed in line with the decline represented in dealer market, down 25%.

From the month of June, activity levels bounced back, with strong used car sales and better than anticipated new car sales as demand improved due to relaxations in lockdown restrictions. The business recorded an operating loss of R12 million (2019: R561 million profit which included R125 million of NMI-DSM for 11 months). Operating profit was impacted by losses incurred during lockdown levels 4 and 5, the impact of strategic investment in Khula Sizwe as well as once off operating costs.

CAR RENTAL

During the period, Car Rental activity was significantly impacted by the COVID-19 related trade restrictions and market consequences. Revenue was 18% down compared with the prior period due to the decline in rental billed days and, rate per day under pressure, while used car sales were very strong. Despite a slow increase in billed days in all segments, with exceptions of inbound, the car rental industry remains under significant pressure. The used vehicle market remained resilient, with margins holding up and one year old vehicles continuing to yield good returns. Operating profit was impacted by significant rental losses incurred since April on the back of limited local and international travel, costs incurred to re-align the cost structure, IFRS2 charges relating to Khula Sizwe as well as provision for expected credit losses. Following the dire impact COVID-19 has had on the rental industry, the branch network was rationalised, impacting more than 20% of the network. Together with the realignment of the cost structure and the review of the network, more than 40% of the staff was impacted. The rental fleet was right-sized according to plan, following the resizing of the fleet to address the change in the market demand. Following the right size fleet utilisation improved from below 50% in April to just under 75% in September.

AVIS FLEET

The Avis Fleet revenue declined by 10% to R3.0 billion mainly due to lower leasing revenue as a result of large contracts lead out. Operating profit was down due to a reduction in used vehicle margin impacted by vehicle make and model as well as early terminations. Increase in provision for expected credit losses as well as retrenchment costs further impacted operational performance.

CASH FLOW

Free cash flow of R1.8 billion was generated supported by the sale of Khula Sizwe properties as well as fleet disposals.

DIVISIONAL KEY PERFORMANCE INDICATORS

	CAR RENTAL		MOTOR TRADING		AVIS FLEET		AUTOMOTIVE
	2020	2019	2020	2019	2020	2019	2020	2019
FINANCIAL
Revenue (Rm)	5 123	6 271	12 595	18 736	3 046	3 372	20 764	28 379
Operating profit (Rm)	(143)	523	(12)	561	444	625	289	1 709
Operating margin (%)	(2.8)	8.3	(0.1)	3.0	14.6	18.5	1.4	6.0
Net operating assets (Rm)	2 442	2 431	3 257	1 861	3 117	3 777	8 816	8 075
Invested capital (Rm)	2 803	3 259	3 604	2 091	3 191	3 862	9 598	9 212
ROIC (%)	(3.2)	11.7	1.7	18.3	9.0	11.5	2.9	13.2
HUMAN AND SOCIAL
Employee headcount	1 083	2 099	3 005	3 379	328	504	4 416	5 982
LTIFR*	0.57	0.44	0.75	0.88	0.00	0.16	0.63	0.70
Work-related fatalities	0	0	0	0	0	0	0	0
NATURAL
Petrol and diesel (ML)	2.51	3.60	2.86	4.35	0.41	0.58	5.78	8.53
Grid electricity (MWh)	5 934	6 654	17 850	24 946	897	1 089	24 681	32 688
Non-renewable energy (GJ)+	107 260	147 516	165 964	244 657	17 727	24 097	290 952	416 270
GHG emissions (tCO2e)#	11 793	15 028	24 854	35 741	1 837	2 403	38 485	53 172
Water withdrawals (ML)^	141	138	183	202	5	9	328	349

*	Lost-time injury frequency rate = (Number of lost-time injuries x 200 000)/hours worked
+	Excludes energy from rental fleets
#	Scope 1 and 2
^	Municipal sources

OUR BRANDS