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Barloworld Limited
(Incorporated in the Republic of South Africa)
(Registration number 1918/000095/06)
(Income Tax Registration number 9000/051/71/5)
(Share code: BAW)
(JSE ISIN: ZAE000026639)
(Share code: BAWP)
(Bond issuer code: BIBAW)
(JSE ISIN: ZAE000026647)
(Namibian Stock Exchange share code: BWL)
("Barloworld' or the 'Company" or the 'Group')
PRE-CLOSE TRADING UPDATE FOR THE PERIOD UP TO 28 FEBRUARY 2021
The Group's trading results are pleasing when compared to the same trading period in the prior year, with
the austerity measures taken in 2020 starting to yield good results and the recent acquisitions delivering
better than expected performance. Whilst trading conditions remain affected by COVID-19, Barloworld's
businesses have adjusted to the new operating conditions.
The Group's focus during the first five months of the 2021 financial year has been on running the business
efficiently, ensuring the smooth integration of acquisitions, and executing on the sale of Barloworld motor
retail operations announced in January 2021.
Macro-economic environment
The economy remains under pressure with some pockets of recovery; as South Africa saw GDP expand by
6.3% in the fourth quarter of 2020, underpinned by the manufacturing and the trade sectors. Commodity
prices have remained buoyant on the back of a global economic recovery and favourable supply and
demand trends. While the rand strengthened during the period under review, currency volatility
continues to have a positive translation effect on our revenues, particularly in our Equipment businesses
as detailed below.
Operational Review for the five months to 28 February 2021
Industrial Equipment and Services
Equipment southern Africa
Despite operating under restricted COVID-19 safety measures, mining activity was resilient on the back of
strong commodity prices while the construction sector remains subdued. Equipment southern Africa's
total revenue was down 4.9% for the five months to 28 February 2021 compared to the prior year.
Total machine sales were flat, whilst aftermarket revenue was slightly lower due to reduced parts and
service activity in Angola, Mozambique, and Zambia. The weakening of the ZAR against the USD had a
0.8% positive impact on revenue due to exchange rates translations of operations in rest of Africa which
report in USD functional currency. Gross margins were in line with the prior year while the trading profit
excluding the effects of currency movement on cost of goods sold increased by 29.8% reflecting the
positive effect of cost containment actions. Excluding IFRS 16 impact and Khula Sizwe BEE charges, the
operating margin was up by 220 basis points, to 9.3%.
The operations at one of our key customers' site is still under care and maintenance in the DRC, and as a
result our associate Bartrac remains under pressure. Bartrac also wrote-off certain non-operating capital
items. This, together with the low sales activity, contributed to a loss in the share of associate.
The division has continued with efforts to optimise invested capital resulting in strong cash generation.
The total Equipment firm back order remains strong and amounted to R2.2 billion at the end of February
2021 (September 2020: R2.3 billion).
Equipment Eurasia
For the period ending February 2021, Equipment Eurasia continued to deliver results above expectations
against the backdrop of the COVID-19 pandemic and a challenging geopolitical environment. This
performance was driven mainly by strong mining sales and good margin realisation. Whilst the coal sector
remained weak in Russia, Mongolia has seen increased levels of coal exports to China over recent months.
The gold sector buoyed demand in Russia and the addition of Mongolia enhanced our resilience due to
exposure to a diversified portfolio of other commodities.
Demonstrating the benefit of the acquisition, the inclusion of Mongolia's revenue saw Eurasia exceed the
prior year by 23.4% and operating profit (in both USD and ZAR terms) is well above prior year. For the first
five months revenue in Russia is down by 9.3% compared to prior year. At the operating profit level, Russia
operations exceeded prior year by 7%, driven by solid revenue contribution and cost controls.
The operating margin was higher than the prior year driven by margin improvements across selected
product lines. The firm order book for Equipment Eurasia to February 2021 remains strong at USD169
million (September 2020: USD105 million) and well above prior year levels, supported by the region's
mining sector.
Consumer Industries
Ingrain
The results for Ingrain are recorded for the four months from the 1 November 2020 acquisition date. The
business has exceeded revenue and EBITDA forecasts and is performing ahead of expectations, with good
margins and a strong EBITDA to operating cash conversion ratio. This has resulted in strong cash flows
from the business over the last four months. Overall, Ingrain is expected to contribute positively to the
Group's EBITDA margins and overall cash conversion rates.
Ingrain continues to benefit from its diverse customer base supported by increased demand in the coffee
creamer, paper converting, canning and prepared foods sectors. The alcoholic beverage sector has proven
its resilience, with demand recovering quickly following the resumption of trade after each successive
alcohol sales ban.
Higher international agricultural commodity prices, the large maize crop harvested in South Africa in 2020
and improved co-product realisations have been supportive of margins during the period which have
improved by 4.6% compared to the prior year period. An increase in South African maize plantings due to
the higher international maize prices combined with a good summer rainfall season, are expected to lead
to another large maize crop. This second successive large domestic crop and the improved regional crop
forecasts are expected to result in more competitive local maize prices that will continue to support
margins going forward.
Automotive and Logistics
Continuing operations
Car Rental
The car rental continues to be impacted by local and international lockdowns constraining both domestic
and international travel from Individuals, corporates and government. Operating profit is down by 61.5%
from the prior period. Despite the declined performance, the business has seen recovery and is benefiting
from branch rationalisation, restructurings and other austerity measures taken since the second half of
2020 as well as the agility in the management of the fleet. The business has further benefited from the
resilient used vehicle market, with results exceeding prior year performance as the market continues to
demand affordable and reliable one-year-old used vehicles. Fleet utilisation at 76% is in line with the prior
year as management continues to respond to change in demand and customer segment mix.
Avis Fleet
Avis Fleet is performing in line with expectations. Operating profit is down by 5.7% from the prior year
due to large contracts lead out. Operating results were positively impacted by improved used vehicle
contributions and lower operating expenses; however, these gains were offset by increased provisions for
expected credit losses. Used vehicle margins benefited from the integration with car rental, leveraging
infrastructure and systems. The business continues to grow by responding to both private and public
sector tenders.
Discontinued operations
Motor Retail
Motor Retail revenue is down by 9.8% on the prior year, impacted by lower volumes in particular new
vehicle sales, reflective of the slow recovery in the new vehicle market. The market contracted by 9.7%
and represented brands by 11.6%. The strong used vehicle market, higher margins and reduction in costs
contributed positively to the performance of the business.
As announced on 21 January 2021, the board approved the sale of the Group's wholly owned motor retail
business to NMI Durban South Motors Proprietary Limited (NMI-DSM), a joint venture with the Akoo
family in which Barloworld holds a 50% interest. The transaction excludes Digital Disposal Solutions, which
includes Salvage Management and Disposal ('SMD') and the TradersOnline platform, and the used
vehicles operations of Avis Budget Rental and Fleet. The sale of the motor retail business to NMI-DSM is
progressing well and we expect to conclude on 1 June 2021 as planned.
The motor retail business is classified as held for sale from 1 February 2021 and will be disclosed as a
discontinued operation in the Group's interim results.
Logistics
Logistics has continued to perform below expectations, impacted by depressed local demand and interest
rate pressures which were further exacerbated by the disruptive impact of community and civil unrest in
the transport industry. Operating performance was affected by a higher fixed costs base and increased
fleet running costs due to delayed contract renewals. The supply chain management business continued
to yield results in line with expectations.
The Board has also approved a formal disposal process to exit the Logistics business after receiving several
expressions of interest. The business will therefore be classified as held for sale as from 1 February 2021
and the formal process will commence in April 2021. The logistics business will be disclosed as a
discontinued operation in the Group's interim results.
Funding and cash preservation
As at 28 February 2021, the Group maintains a robust balance sheet. Our liquidity position remains strong,
supported by a prudent and agile funding strategy. The Group's gearing levels remain well within our
covenants, with a healthy headroom on unutilised facilities after the acquisitions of Equipment Mongolia
and Ingrain. Net Debt to EBITDA is well below 2.0 times (Group target is < 3.0 times), whilst EBITDA interest
cover exceeds 4 times (Group target is > 3.0 times).
Ingrain was acquired utilising a R5.375 billion, 12-month available bridging facility of which R5.186 billion
was utilised and an amount of R 1.286 billion was repaid on this loan in cash in December 2020. A portion
of the balance has been successfully refinanced by a R1 billion bond which was exceptionally priced in
February 2021. The remaining balance of R3 billion has been financed using a debt syndication, expected
to close on 31 March 2021. We have reviewed our current facilities, including committed and non-
committed facilities, as well as headroom on the existing medium-term note programme and remain
satisfied with the positive state of our headroom, gearing and liquidity.
On 28 February 2021, the Group maintained a solid cash balance of R7.5 billion (R 6.7 billion at September
2020). The Group's Net Debt position (excluding IFRS 16) has increased to R6.8 billion (R2.6 billion at
September 2020) after acquiring Ingrain and remains well-within our target net debt to equity ratio. Our
headroom on committed facilities for both the local and offshore operations remain strong at R10.8 billion
(R15.6 billion at September 2020).
Progress on our strategy
The Group has made good progress in all the areas of the strategy to sustainably double its intrinsic value
every four years.
The Group's short-term priorities will be on the integration and extracting value from our recent
acquisitions of Equipment Mongolia and Ingrain, as well as maintaining focus on implementing the various
disposal and corporate actions announced to simplify the Group's portfolio.
The Group is mindful of capital allocation as part of its overall strategic objectives. Given the strong
balance sheet, various disposals currently underway and resilient trading results; the board will be
considering the resumption of the dividend and capital reduction at the May board meeting.
Conclusion
The Group expects to release the interim financial results for the six months ended 31 March 2021 on or
about Monday, 24 May 2021.
Shareholders are advised that the information related to our five month's performance to 28 February
2021, has not been audited, reviewed or reported on by the Group's external auditors. This update does
not constitute a forecast.
Sandton
31 March 2021
Sponsor: Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Enquiries:
Nwabisa Piki
Group Investor Relations
Tel: +27 11 445 1890 E-mail: nwabisap@barloworld.com
Date: 31-03-2021 07:05:00
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