Decisive early action, strong cash generation and balance sheet position Barloworld for recovery
Resilient Group performance under unprecedented trading environment impacted by the COVID-19 pandemic
Key financial highlights:
- Austerity measures, realised savings of R292 million;
- Revenue of R49.7 billion, down 17%;
- Operating margin* down from 6.6% to 4.1%;
- Strong Balance sheet, committed funding capacity closing at R15.6 billion;
- The Group Net debt-to-EBITDA#^ ratio is at 0.6 times (2019: 0.2 times);
- Group EBITDA to gross interest#^ paid of 4.7 times (2019: 5.7 times);
- Group return on invested capital of 1.0% (2019: 11.9%);
- Normalised headline (loss)/earnings per share*^ of 30 cents (2019: 1 167 cents);
# excluding IFRS 16 impact; *excluding B-BBEE charges and IFRS 16 impact
Commenting on the results, Barloworld CEO Dominic Sewela said: “This year has been one of the most challenging trading environments in recent history. While Barloworld has not been immune to the impact of Covid-19, swift action, a focus on creating a fit-for-purpose business and containing costs to preserve cash, resulted in the maintenance of an impressively strong balance sheet with a robust and solid liquidity position and cash balance. Unfortunately, we also had to make the difficult decision to reduce our headcount across the business. However, we believe that these difficult steps position Barloworld as a sustainable business that will generate long-term value for all our stakeholders and create more opportunities in the future.”
While all businesses were impacted by reduced activities during Covid-19 lockdowns, the Automotive and Logistics divisions have been supported by a steady increase in activity as lockdown restrictions eased and new contracts awarded. During the period under review, the Automotive and Logistics divisions were successfully integrated with centralised shared services functions and realised savings of R88 million.
Equipment Eurasia, which includes the recently acquired Mongolian Caterpillar Dealership operations and our Russian operations, performed exceptionally well during the period under review, benefiting from stronger aftermarket and prime sales in mining, as well as limited operational restrictions. The first month for Mongolia trading produced a pleasing result and we remain optimistic that this new acquisition will contribute positively to the overall Barloworld result. The division has a robust order book (USD 142 million) with firm orders at similar levels to that of Equipment southern Africa.
Equipment southern Africa produced a resilient performance despite the slowdown in trading activity, benefiting from the weaker ZAR to USD exchange rate. The focus on earthmoving machines saw an increase
in retail market share and an improved gross margin despite a slowdown in sales. The order book remains strong with R2.3 billion committed at the end of September 2020.
Higher operating losses at the Southern Africa Corporate Office were largely driven by lower rental income in Barloworld Limited, once off restructuring costs and investments in strategic projects such as the implementation of the Barloworld Business System which is premised on driving a performance culture and improve internal efficiencies to lower the cost to serve.
Progress on strategy
Barloworld continued to meet its growth objectives having expanded on our geographic capability in the Equipment business and accessed the less cyclical consumer sector through the acquisitions Wagner Asia Equipment in Mongolia and Tongaat Hulett Starch respectively. Tongaat Hulett Starch has subsequently been renamed Ingrain South Africa, a business that will form a strong pillar in Consumer Industries and position Barloworld for growth in a consumer driven demand market whilst remaining focused on business-to-business customers. Taking into consideration the current fluid macroeconomic environment, we will continue to be disciplined and cautious in our approach to growth, while giving due consideration to the changing macroeconomic environment. The consolidation of the car rental and fleet businesses will allow for further synergies and better market opportunities under a single leadership team and the review of the Automotive portfolio is ongoing amid the changing environment. The Group is also considering market conditions in the Logistics business and reviewing expressions of interest to evaluate its future options around this business.
Following the recent decisive actions taken, Barloworld expects to begin benefiting from the significant cost efficiencies and operational synergies in the short term. Our strong balance sheet and a stable business platform position us well to continue to show resilience in the midst of volatile macroeconomic dynamics in the local and global economies.
Mr Sewela added: “Barloworld is moving towards becoming a processing, distribution and services company focused on key markets and will leverage our core strengths and building on our B2B capabilities. We will continue to improve efficiencies and performance by adapting and transforming to align with the changing environment and managing levers under our control.” This includes prudent cost containment and cash preservation, as well as reducing invested capital in the short to medium term until the operating environment improves. In line with the strategy, Barloworld will continue to evaluate programmatic M&A to support key growth areas aligned to the group’s core businesses of Industrial Equipment and related services and food and ingredients under the Consumer Industries vertical.