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Barloworld sees challenging year ahead
November 16, 2009
Industrial brands group Barloworld CEO Clive Thomson anticipates that 2010 will be another challenging year, but notes sentiment has improved, and he believes the company is well placed to capitalise on the expected upturn when it occurs.
The group has targeted strategic growth segments.
In mining, commodity prices are above the threshold for further investment and the global recovery will drive increased demand, while in infrastructure, there is a requirement for additional infrastructure particularly in emerging economies.
Electricity infrastructure in southern Africa is unable to keep pace with demand growth and the group also sees significant growth opportunities in marine and petroleum.
In agriculture, there is a need to ensure global food security and growth in biofuels and there are expansion opportunities in southern Africa.
In logistics, the recovery in world trade and the ongoing trend to outsource supply chain management activities are also potential growth segments.
There is also sustained tourism potential for car rental leading up to and post World Cup 2010.
Thomson said it would appear that the emerging market economies have shown greater resilience and have been quicker to rebound from the global downturn.
The group expects that the major European economies will have emerged from the recession by year-end while June may have been the last month of the US recession.
The general expectation is that the developing economies will grow at a faster rate than the developed economies in the coming year, Thomson said.
The South African economy has seen three consecutive quarters of contraction and despite interest rate cuts, the consumer remains relatively indebted and the decline in rates has yet to translate into increased consumer demand.
The recovery in world economic growth should result in an increase in the demand for commodities, while the prevailing low interest rate environment should favourably impact new mining projects, he believes.
"Nevertheless our mining order book going into 2010 is considerably lower than a year ago," he said.
Barloworld believes the South African economy will remain under pressure into the new year with the strong rand hampering recovery.
While public infrastructure projects will underpin demand, the construction market in South Africa is expected to remain slow.
In Iberia the construction sector is seen continuing under pressure as the oversupply situation prevails in the residential market.
The current expectation that the Spanish budget deficit will worsen to close to 12 percent of GDP in 2010 means that the government is unlikely to be able to fund increased spending on major public work projects.
"The recession in Spain has been particularly harsh and current unemployment levels are approaching 19 percent."
"Spain is only forecast to exit the recession in late 2010 and we are therefore forecasting limited recovery in the coming year," Thomson said.
Barloworld's automotive business remains well positioned to benefit from the improvement in consumer confidence that it expects in 2010.
The car rental business is likely to be difficult in the first half but should see a strong improvement in the second half with the build up to the World Cup tournament.
The fleet services business will benefit from increased demand as fleet operators continue to outsource both financing and management of their fleets.
The handling operations in the US and Europe should show some improvement in trading as the economic recovery gains traction.
Handling in South Africa was impacted later in the cycle and Barloworld therefore expects the recovery to be later in 2010.
"Our logistics business should benefit as new supply chain projects come to fruition in the new year."
"We anticipate organic growth in our African operations while the Middle East and Asian operations should benefit from the forecast improvement in world trade," he said.
The focus on cash flow and working capital has resulted in reduced debt levels while cost reduction initiatives undertaken will ensure that any upturn in economic activity will translate into improved profitability.
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