Barloworld strong, but wary of Covid-19
CAPE TOWN - HEAVY equipment group Barloworld turned in a resilient performance for the 12 months to September 30 in the Covid-19 environment, but it warned it was too early to see the end of the impact of Covid-19, chief executive Dominic Sewela said yesterday.
Revenue fell 17 percent to R49.7 billion, and the operating margin slipped to 4.1 percent from 6.6 percent. Austerity measures to manage the impact of Covid-19 resulted in overhead cost containment of R402 million.
The balance sheet remained strong with funding capacity of R15.6 billion and cash of R6.7bn. Normalised headline loss per share was 30 cents, versus 1 167c earnings in 2019. No dividend was declared.
The head count reduced by 2 644 employees, mainly at Avis Fleet. Retrenchments, including early retirement, cost the group R289m, said Sewela in a telephone interview.
Austerity measures included a group-wide remuneration sacrifice plan and retirement fund payment holiday, retrenchments, deferment of non-essential capital expenditure, a moratorium on external appointments, a reduction in operating costs and additional counter-measures to contain invested capital. These had reduced 2020 overheads by R691m.
Progress was made on the strategy with the acquisition of Equipment Mongolia and Tongaat Hulett Starch (now Ingrain SA). The starch business performed better than expected, Sewela said.
The constrained consumer demand that was experienced in 2019 continued during the year, as the global Covid-19 pandemic started impacting trading in March, triggered by trade restrictions, lockdowns and travel restrictions.
Sewela said he anticipated the tourism sector, a key market for the car rental and fleet operations, possibly recovering in the second half of next year, depending on whether South Africa can prevent another big wave of Covid-19 as happened in other countries and the roll out of a vaccine.
Group revenue decreased 17 percent to R49.7bn. Equipment southern Africa’s revenue declined by 14 percent, but was better than re-forecasts, boosted by comparatively good mining machine sales and resilient after market activity levels.
Equipment Eurasia’s revenue increased by 22 percent benefiting from strong levels of mining activity, particularly in the gold sector. Heavy equipment operations in these regions were relatively remote and less vulnerable to Covid-19 disruptions, although a hard lockdown had been instituted in Mongolia from November 1, he said.
The Automotive revenue (excludes NMI-DSM which is now equity accounted and includes Avis Fleet that was held for sale in 2019) was down 15 percent with declines across all business units as Covid-19 and economic pressures impact discretionary spending, coupled with lower fleet utilisation in the Avis businesses.
Used sales volumes had increased against the prior year and margins in this segment were being maintained, in part due to pent-up demand. In Logistics, revenue fell 27 percent against the prior year from the nonrenewal of contracts and the contraction of transport and supply chain markets resulting from weaker demand for goods and services.
The impact of the IFRS 16 accounting standard on operating profit was an uplift of R147m.
The R1.8bn group operating profit was down by 54 percent, negatively impacted by lower revenues, high fixed costs and B-BBEE charges of R236m.
In US dollar terms, Equipment Eurasia’s operating profit improved by 1.8 percent, with continued cost containment and sale mix driving the sustained margin.
The operating profit for Automotive was down by 83 percent, and the Logistics operating profit reduced to a loss of R153m against a R38m profit in the prior year.
Cost savings through staff reductions and lease rationalisation were key focus areas, with benefits expected to be realised in 2021.
Barloworld shares fell 2.63 percent to close at R70.11 on the JSE yesterday.