Barloworld plans to rent out cars for up to 11 months, as Avis continues to struggle

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Barlowrld is holding on to its Car rental business for now
Barlowrld is holding on to its Car rental business for now
  • Over the past 119 years of operation, Barloworld has reinvented itself a few times after starting off as a woolen goods, blanket and coat company.
  • Today, it is poised to make yet another pivot after trimming its portfolio down, with the goal of focusing on two core businesses: industrial equipment and services, as well as consumer industries.
  • The company will make a decision about the future of its car rental business, but for now it's planning to launch a "mobility service", which will allow for short-term rentals.

For now, industrial brands company Barloworld is holding onto its car rental business, which has been hit hard by the pandemic.

CEO Dominic Sewela said Covid-19 vaccinations and the recovery of the tourism sector will be the deciding factors in what happens to it, and when it happens.

Over the past 119 years of operation, Barloworld has reinvented itself a few times after starting off as a woolen goods, blanket and coat company. Today, it is poised to make yet another pivot after trimming its portfolio down, with the goal of focusing on two core businesses: industrial equipment and services, as well as consumer industries.

The equipment business is made up of its Caterpillar mining, construction and industrial machine range. Barloworld is a licenced Caterpillar dealer in 11 countries. Its consumer industries business consists of starch, glucose and related products company Ingrain, which it acquired from Tongaat Hulett in 2020.

After a new deal with the family-owned company Akoo, Barloworld sold a controlling stake in its vehicle dealership business NMI Durban South Motors (NMI-DSM) for almost R1 billion. It retains a 50% stake in the company. Sewela said switching from an operator to an investor in the vehicle retailer freed Barloworld from capital commitments.

"We are selling this business (the dealership group) at a time when consumer confidence is not necessarily excitingly high, so at least it ensures that when we decide to exit the other 50%, we will do so at the opportune moment," Sewela said.

Barloworld has been left with the Avis Budget Group rental business, which has earned 60% of its revenue from international tourists.

"And tourism is not likely in the short term, therefore, that's why we are not talking about a sale. We are saying we need to wait to see the rollout of vaccinations [and] to see the establishment of inbound tourists," he said.

In the meantime, the company has launched a "mobility solution", which allows consumers to lease cars from seven days up to 11 months.

Sewela said the solution has caught the interest of consumers keen on having access to cars but not the costs associated to ownership, like insurance.

As for the impact of Covid-19, Sewela said he was not too concerned about how a potential third wave will affect Barloworld since measures the group had put in place in 2020 had helped cushion it from the impact of Covid-19.

"In six months, we've got savings of R1.2 billion, so if things get worse, I will still be able to fund, for instance, Avis because it's the one that is going to be affected," the CEO said.

He explained that the group, which is sitting on a R8.3 billion pile of cash, resumed dividend payout after withholding it in 2020. This year, shareholders will be issued an ordinary interim dividend of 137 cents per share and a special dividend of 200 cents per share. And it was a payout the group approached with caution.

"All I'm saying is [we're] being prudent. I'd rather pay more in the second half in additional special dividend and a bigger final dividend to the shareholders, if we are not that impacted by the third wave," he said.

The group's cash would be enough to help it weather headwinds over the next 12 to 18 months, Sewela added.

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