Cuts, acquisitions start to pay off as Barloworld adapts to the new normal
CAPE TOWN - BARLOWORLD’S share price rose 3.1 percent to R92.43 yesterday morning after it said austerity measures were starting to yield good results and acquisitions were performing better than expected.
The international heavy equipment and vehicle group said trading conditions remained affected by the Covid-19 pandemic, but its businesses had adapted to new trading conditions.
The focus in the first five months of the 2021 financial year had been to run the business efficiently, integrate the Ingrain and Equipment Mongolia acquisitions and execute on the sale of the Barloworld motor retail operations announced in January.
The Equipment Southern Africa business saw resilient mining activity in the five months due to strong commodity prices, while the construction sector remained subdued.
The division’s revenue fell 4.9 percent for the five months to February 28, 2021, compared with the prior year, after machine sales were flat, while after market revenue was slightly lower due to reduced parts and service activity in Angola, Mozambique and Zambia.
The weakening rand had a 0.8 percent positive impact on revenue.
Trading profit excluding the effects of currency movement increased by 29.8 percent, reflecting the cost containment actions.
The operations at a site were under care and maintenance in the Democratic Republic of Congo, and associate Bartrac remained under pressure. It also wrote-off some non-operating capital, which contributed to a loss in share of associates.
Equipment Eurasia continued to deliver results above expectations, driven mainly by strong mining sales and good margins.
The coal sector remained weak in Russia, but Mongolia had seen increased levels of coal exports to China recently.
The gold sector buoyed demand in Russia.
The inclusion of Mongolia’s revenue saw Eurasia exceed by 23.4 percent and operating profit was well above the prior year.
For the first five months revenue in Russia was down 9.3 percent, while at operating profit level, Russia operations grew 7 percent.
The order book for Equipment Eurasia to February 2021 remained strong at $169 million (R2.52 billion), well above prior year levels, supported by the region’s mining sector.
The results for Ingrain were recorded for the four months from November 1, 2020, and the business had exceeded forecasts, with strong cash flows over the last four months.
Higher international agricultural commodity prices, the large maize crop in South Africa in 2020 and improved co-product realisations had supported margins.
In the automotive and logistics operations, operating profit from car rental was down 61.5 percent after continuing to be impacted by lockdowns.
Despite this, the business has seen some recovery and was benefiting from branch rationalisation, restructuring and other austerity measures, as well as agile fleet management. It benefited from a resilient used-vehicle market.
Avis Fleet is performing in line with expectations. Operating profit was down by 5.7 percent due to large contracts lead-out. Operating results were positively impacted by used vehicle sales and lower expenses, offset by increased credit loss provisions.
The sale of the motor retail business to NMI-DSM was expected to conclude on June 1, 2021, as planned.
Logistics continued to perform below expectations, impacted by depressed local demand and interest rate pressures, as well as community and civil unrest in the transport sector.
The logistics business was being sold, with the process to commence in April 2021. The group balance sheet remained strong.
Barloworld’s share closed 0.65 percent higher at 90.27 on the JSE yesterday.