Portfolio refinement position Barloworld for sustainable value creation22 May 2023
Performance reflects continued focus on strategic delivery and capital allocation as key enabler of value creation
· Revenue from continuing operations of R20.8 billion, up 12.9%
· Operating profit from core trading activities from continuing operations improved 16.5% to R2.1 billion
· Operating profit from core trading activities margin increased 9.8% to 10.1%
· HEPS from continuing operations of 578 cents, up 29.3%
· Improved group ROIC at above cost of capital 14.3% (1H FY2022: 14.1%)
· Interim ordinary dividend of 200 cents per share (cps) declared (1H FY2022: 165 cps)
Johannesburg - Commenting on the results, Barloworld CEO Dominic Sewela said: "Barloworld has delivered a strong set of results. The performance cements the decisions we have made with respect to our strategy and our focus on the core verticals of Industrial Equipment and Services and Consumer Industries and demonstrates operational excellence across our teams. I am positive that the work we have done to date puts the business in a strong position to continue to deliver value to all our stakeholders."
Barloworld delivered solid results for the interim period, driven by an improvement in trading activity across most business segments and supported by a continued focus on stringent cost containment measures.
Equipment southern Africa
Despite the higher interest rate environment this division largely benefitted from improved operational activity and to a lesser extent the weaker ZAR/USD exchange rate. Activity in the mining sector, fleet replacements, and a significant contribution from the Bartrac JV (48.5%) saw the division deliver a 38.4% and 31.5% increase in revenue and operating profit to R13.1 billion and R1.1 billion respectively. EBITDA saw an impressive 22.7% uplift to R1.5 billion.
Equipment Eurasia had a solid first half of the year, supported by demand for aftermarket products in Russia, and an excellent performance in Mongolia which benefited from the opening of the borders with China, spurring prime product sales. Overall revenue of $224 million was 39% lower than the prior period buffered by the improved contribution margin of Mongolia as Russia's revenue decreased by 53% to $147.5 million. A 10.5% comparatively lower operating profit of $38.6 million (1H FY2022: $43.2 million) resulted in a strong operating profit margin of 17.2% (1H FY2022:11.8%)
Despite the macroeconomic headwinds, Ingrain remained a solid contributor to the business supported by higher commodity prices and growth in export volumes. Revenue increased by 15.3% to R3.3 billion, operating profit was R331 million, and cash generation improved to R127 million from R76 million. The operating margin decreased from 12.9% to 10.1% attributable to lower contribution margins and increased overheads, on the back of investments in plant maintenance and critical skills.
Progress on strategy
Following the successful unbundling and listing of Zeda on the JSE on 13 December 2022 and the conclusion of the disposal of the remaining Logistics business effective 31 March 2023, the key exits out of non-core businesses have been completed. The group is now firmly poised on the growth agenda with both an organic and acquisitive growth strategy focused on investing within our core verticals of Industrial Equipment and Services and Consumer Industries.
To enable continued delivery of our strategic priorities, the group has ensured that it has in place clear succession planning both at a board level and within our key roles in our operations. Recent leadership appointments are a testament to the emphasis on talent retention and succession planning while reiterating our commitment to transformation.
The management teams remain focused on delivering value to stakeholders through the cycle. The total Equipment Southern Africa order book is strong at R5.7 billion compared to 30 September 2022 at R4.8 billion whilst the Eurasia order book has been impacted by Russia although the business remains self-sufficient in terms of its funding requirements.
In the short term, Ingrain's efforts are focused on growing domestic sales volumes in response to changing market dynamics and improving operating efficiencies while managing the expected impacts of the El Niño phase of South Africa's climate cycle through disciplined cash management and commodity price exposure.
Mr Sewela concludes: "Ours is a business that is not only focused on delivering on the financial aspects to shareholders. We believe that part of our role is to enable growth and progress in society. We have been able to create jobs for young people both internally at Barloworld and externally through our social entrepreneurship fund, Mbewu and Siyakhula, our ESD vehicle. I also look forward to seeing the benefit derived from our contribution towards the land and 50% of the equity at Barlow Park which seeks to provide access to adequate, safe and affordable housing in the Sandton precinct."