Press releases
Decisive actions taken in 2020 begin to yield positive results for Barloworld
Acquisitions outperform expectations and robust cash balance lead to resumption of dividends
Key financial highlights:
- Revenue from continuing operations of R20.2 billion up 13% (1H20: R17.9 billion)
- Operating profit from continuing operations up 44% to R1.94 billion
- Equipment Mongolia and Ingrain contributed 23% of total operating profit
- Operating margin up by 210 basis points to 9.6% (1H20: 7.5%) due to cost containment and contribution of new acquisitions
- Savings from austerity measures of R1.2 billion
- Strong balance sheet with net debt position after Ingrain acquisition increasing to R4.9 billion (Sep 2020: R2.6bn) and robust cash balance of R8.3 billion maintained
- Free cash generation of R4 billion (excluding the Ingrain acquisition of R5.3 billion)
- Group HEPS of 367 cents up 424% from prior period (1H20: 70 cents)
- Ordinary interim dividend of 137 cents per share (cps) and special dividend of 200 cps declared for the six months ended 31 March 2021
Commenting on the results, Group chief executive officer Dominic Sewela said: “Despite the challenging operating environment our commitment to the ‘Fix, Optimise, Grow’ strategy and managing for value approach has resulted in cash generation exceeding our expectations.
The Group’s performance during the period has been bolstered by better-than-expected performances from Ingrain and Equipment Mongolia, the swift implementation of austerity measures aimed at cash preservation, maintaining a focused balance sheet management strategy and focused working capital management. While there remains macroeconomic uncertainty, the actions we have taken over the last two years have positioned Barloworld to adapt and grow through the cycles.”
Operational Performance
The strong set of results for the first six months of our financial year ended 31 March 2021 are testament to the ‘Fix, Optimise, Grow’ and Active shareholder operating model. This overarching strategy, combined with the austerity actions taken in the wake of the COVID-19 pandemic have improved our continuing operations revenue and operating profit by 13% and 44% respectively, bolstered by the significant contributions from Ingrain and Equipment Mongolia.
Our Industrial equipment and services division performed well despite challenges. Equipment southern Africa delivered a solid performance despite lower mining and construction production levels largely due to management’s focus on cost reduction and optimisation of invested capital. Equipment Eurasia exceeded expectations with strong results, largely due to the continuation of robust mining activity and growth in the gold sector. The order book for both divisions remains strong.
Our consumer industries division, consisting of Ingrain, performed exceptionally well, reporting R305 million in operating profit for the five months ended March 2021, benefiting from an improvement in operating margins and sales mix, and a recovery in sales volumes. As the uncertain macro-economic outlook continues to prevail, with the potential impact of a third wave of COVID-19 infections and possibility of further associated lockdowns, we are confident Ingrain’s diverse customer base will provide support to sales in the domestic market. Sales volumes for the remainder of the financial year are expected to benefit from reduced restrictions on economic activity and further increases in sales of powdered glucose and modified starches as the benefits of investments in capacity commissioned in the latter part of 2020 are realised.
The Car rental and Leasing businesses benefited from synergies from the integration of the Car Rental and Avis Fleet businesses, cost containment and the exploration of new growth areas. The Car rental business was repositioned towards off-airport business by expanding into mobility subscription offerings. Combined with the agility to de-fleet, strict cost containment measures and the bullish used vehicle market, the Car rental business produced positive results despite severely subdued local and international travel.
The Leasing business continued to be resilient despite the ongoing market challenges by performing ahead of expectations. The operating results were positively impacted by restructuring and cost containment efforts, enhanced used vehicle contributions, as well as improved practices around managing the maintenance fund, resulting in an operating margin of 18.8% (1H20: 16.2%).
Other segments which includes the Corporate office and Digital Direct Solutions which includes SMD, were up 20% compared to the prior comparative period mainly due higher recovery ratio's in SMD and increased online trading revenue.
Progress against our strategy
Our strategy, based on a clear ambition and outcome to double the Group’s intrinsic value every four years, has led to our focus on Industrial Equipment and Services and Consumer Industries which are defensive, relatively asset light and cash generative.
Supported by the active shareholder model and commitment to managing for value, we successfully executed two significant acquisitions in 2020, Equipment Mongolia and Ingrain. The integration of these acquisitions into the Group is progressing well and the businesses are both delivering well ahead of initial expectations. We also took the decision to exit our Motor Retail and Logistics businesses to optimise capital deployment and extract full value from our investments.
The board also approved the sale of the Motor Retail business to NMI Durban South Motors Proprietary Limited (NMI-DSM), in which Barloworld holds a 50% interest. All substantive conditions have now been met, including the Competition tribunal approval. We expect to conclude the sale of the Logistics business by the end of the calendar year after receiving several expressions of interest.
Outlook
Our outlook for 2021 remains positive as key markets recover, commodity prices improve, our customers increase capital expenditure, and government stimulus spending supports infrastructure projects. While we expect improved sales volumes in the Consumer Goods and used car sales, we also expect COVID-19 related restrictions to continue, but remain satisfied that the actions we have taken will continue to keep our businesses resilient.
Our consumer industries division, consisting of Ingrain, performed exceptionally well, reporting R305 million in operating profit for the five months ended March 2021, benefiting from an improvement in operating margins and sales mix, and a recovery in sales volumes. As the uncertain macro-economic outlook continues to prevail, with the potential impact of a third wave of COVID-19 infections and possibility of further associated lockdowns, we are confident Ingrain’s diverse customer base will provide support to sales in the domestic market. Sales volumes for the remainder of the financial year are expected to benefit from reduced restrictions on economic activity and further increases in sales of powdered glucose and modified starches as the benefits of investments in capacity commissioned in the latter part of 2020 are realised.
The Car rental and Leasing businesses benefited from synergies from the integration of the Car Rental and Avis Fleet businesses, cost containment and the exploration of new growth areas. The Car rental business was repositioned towards off-airport business by expanding into mobility subscription offerings. Combined with the agility to de-fleet, strict cost containment measures and the bullish used vehicle market, the Car rental business produced positive results despite severely subdued local and international travel.
The Leasing business continued to be resilient despite the ongoing market challenges by performing ahead of expectations. The operating results were positively impacted by restructuring and cost containment efforts, enhanced used vehicle contributions, as well as improved practices around managing the maintenance fund, resulting in an operating margin of 18.8% (1H20: 16.2%).
Other segments which includes the Corporate office and Digital Direct Solutions which includes SMD, were up 20% compared to the prior comparative period mainly due higher recovery ratio's in SMD and increased online trading revenue.
Progress against our strategy
Our strategy, based on a clear ambition and outcome to double the Group’s intrinsic value every four years, has led to our focus on Industrial Equipment and Services and Consumer Industries which are defensive, relatively asset light and cash generative.
Supported by the active shareholder model and commitment to managing for value, we successfully executed two significant acquisitions in 2020, Equipment Mongolia and Ingrain. The integration of these acquisitions into the Group is progressing well and the businesses are both delivering well ahead of initial expectations. We also took the decision to exit our Motor Retail and Logistics businesses to optimise capital deployment and extract full value from our investments.
The board also approved the sale of the Motor Retail business to NMI Durban South Motors Proprietary Limited (NMI-DSM), in which Barloworld holds a 50% interest. All substantive conditions have now been met, including the Competition tribunal approval. We expect to conclude the sale of the Logistics business by the end of the calendar year after receiving several expressions of interest.
Outlook
Our outlook for 2021 remains positive as key markets recover, commodity prices improve, our customers increase capital expenditure, and government stimulus spending supports infrastructure projects. While we expect improved sales volumes in the Consumer Goods and used car sales, we also expect COVID-19 related restrictions to continue, but remain satisfied that the actions we have taken will continue to keep our businesses resilient.
Over the short to medium-term, we will focus on aspects within our control and maintain our reduced fix cost base to ensure an agile organisation, by executing on the completion of our corporate actions through the disposal of Logistics and continuing to integrate our recent acquisitions. There remains uncertainty about the macroeconomic environment, and it is therefore still too early to provide any guidance. The Group will continue to provide regular updates to assist shareholders in assessing the Group’s performance and financial position.
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