Diversified group Barloworld has delivered a noteworthy increase in group operating profit of 34.7% year-on-year to R2.8-billion for the first six months ended March 31, despite starting to feel the pinch from Eurasian volatilities.
The industrial brand-owner plans on paying a 165c apiece ordinary dividend for the interim period.
Group headline earnings per share (HEPS) totalled 756c, compared with group HEPS of 362c posted in the first half of the 2021 financial year – a 109% improvement.
CFO Nopasika Lila points out that return on invested capital (ROIC) of 14.1% in the six months under review was a marked improvement on the ROIC of 3.8% in the prior comparable period.
Return on investment amounted to 16.9% in the six months under review, up from 0.8% in the prior interim period.
Barloworld explains that the group benefitted from strong performances of the Equipment Southern Africa division and the Car Rental and Leasing business, while the Equipment Eurasia and Consumer Industries divisions also proved resilient amid macroeconomic headwinds.
“This strong set of results demonstrates the intentionality of our approach to capital allocation. We have been steadfast in our focus on investing and distributing cash resources, to increase our efficiency and maximise shareholder value.
“Despite the macroeconomic headwinds and Eurasia fluidity, we are confident that the steady steps taken to ‘fix, optimise and grow’ the company will continue to deliver exceptional results,” states group CEO Dominic Sewela.
Barloworld remains impacted by the prevailing conflict in Ukraine and its resultant strain on the global supply chain, seeing the company focus on bolstering asset-light and cash-generative industrial sectors.
Of the group’s R18.4-billion revenue generated for the six months under review, Equipment Southern Africa contributed R9.4-billion, a year-on-year growth of 7%, largely driven by machine sales and rentals and exceptional growth in the greater African territories.
The Equipment Eurasia business grew its revenue by 11.8% year-on-year to R5.7-billion, buoyed by strong mining activity and growth in Russian aftermarket revenue.
However, the division was impacted by Covid-19 restrictions along the Chinese/Mongolian border, which resulted in machine inventory being stuck at the border.
Barloworld says trading in Russia is becoming increasingly difficult as the full effects of sanctions are beginning to be felt.
Sewela affirms that the company remains compliant with emerging regulatory changes, while managing costs and working capital requirements, particularly as the group reports a net loss from continuing operations of R164-million for the six months under review.
The constrained outlook in Eurasia has resulted in an impairment of R1-billion being recorded as at March 31, based on lower estimated cash flows, coupled with higher discount rates.
This is reflected in a basic loss per share (BEPS) of 31.6c posted for the company in the reporting period, compared with BEPS of 366.2c reported in the six months ended March 31, 2021.
Barloworld expects this trend to limit its medium-term top line growth, but assures shareholders it will monitor the situations in Russia and Mongolia.
The Industrial Equipment and Services division’s – comprising Equipment Southern Africa and Equipment Eurasia – order book stood at R4.5-billion at the end of March; however, Barloworld expects the sanctions against Russia to impact on the order book in the second half of the financial year.
The Consumer Industries business, or Ingrain, posted a 45% higher revenue at R2.9-billion, after only starting operations in November 2020. Barloworld says Ingrain’s performance was boosted by increased demand from the confectionary and paper-making sectors, improved agri-product recoveries and a group-driven focus on achieving higher sales volumes.
Moreover, the Car Rental and Leasing business performed “exceptionally” well as the benefits of its repositioning strategy continue to materialise. The car rental operating profit of R405-million was up 255% year-on-year.
“The business operating model, which is centred on proactively catering to the ever-evolving needs of customers, has presented an opportunity to offer end-to-end mobility solutions to customers, and paid off with positive returns,” Sewela notes.
The board had previously approved the exit of its Car Rental and Leasing business through a sale or unbundling and separate listing of the business. Significant progress has been made in preparing the business to operate on a standalone basis and the separation remains on track to be completed this calendar year.
Meanwhile, Barloworld advises that its exit from the logistics sector is largely complete, having concluded sales of most of the businesses within its Transport division. Discissions are progressing to sell the Supply Chain Solutions business.
The group continues to actively assess its portfolio of businesses and any potential acquisitions in line with its strategy of ensuring optimal returns and performance.
In conclusion, Sewela states that the order book for Equipment Southern Africa is set to maintain momentum, while the Equipment Eurasia division operations are being monitored for macroeconomic impacts and market changes.
“There are a number of factors outside of our control, which we will seek to proactively manage and overcome. However, there are a lot of factors within our control and the steadfast execution of our strategy and ambition places us in a comfortable position to withstand the uncertainties ahead.”