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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)
("Barloworld' or the 'company" or the 'group')
VOLUNTARY TRADING UPDATE FOR THE ELEVEN MONTHS TO 31 AUGUST 2022
Overview
The group has delivered improved results for the eleven months to 31 August 2022 ('period') with both revenue from
continuing operations and operating profit increasing by double digits when compared to the prior eleven-month period
ended 31 August 2021 ('comparative period'). This achievement is driven by the robust performance from the group's
Equipment businesses, together with the good growth of Ingrain during the period.
As the group's order book and delivery capacity increased in 2022, there was a natural increase in the working capital
of the business. This necessitated increased funding requirements and therefore an increase in related net debt for the
period and will be witnessed through the growth of fleet over the period, as well as increased inventory levels. To achieve
a more appropriate capital structure during the current financial year, Barloworld de-risked its defined benefit pension
fund obligation in the United Kingdom (UK) and delivered value to shareholders through special and ordinary dividends,
as well as share buybacks.
Operational Review for the period
Industrial Equipment and Services
Equipment southern Africa
Equipment southern Africa has been able to favourably navigate the global supply chain challenges to deliver on our
commitment to customers, since reporting the interim results for March 2022. Strong growth in machine sales coupled
with strong performance in aftersales and rental contributed to a 19.6% increase in revenue for the period compared to
the comparative period.
Operating profit was up 17.6% compared to the comparative period which demonstrates that cost efficiencies and lean
principles are now embedded within the business. The operating margin maintained its position at 10.2% compared to
the comparative period, despite the strong machine sales contribution.
Bartrac, the joint venture in the Democratic Republic of Congo, is set to deliver a positive share of associate income
compared to a loss in August 2021.
The firm order book increased to R5.3 billion (H1 FY22: R4.5 billion) on the back of strong mining demand.
Equipment Eurasia
Barloworld Equipment Eurasia revenue decreased by 2.6% in USD terms for the period compared to the comparative
period due to the lower revenue generated by Mongolia.
Trading in Mongolia over the first nine months of the financial year was negatively impacted by border closures and
bottlenecks at Chinese ports due to strict Covid-19 measures implemented by the Chinese government. These
measures not only restricted products entering the country for supply to operational mining customers, but also resulted
in many mines suspending operations due to inability to export commodities through the Chinese border. These
restrictions have recently been lifted and products have started flowing through the borders at a more normalised rate.
This had an immediate positive impact on trading in the region for August 2022, which continued in September 2022.
Most mines in Mongolia have recommenced operations as demand for commodities is strong.
The Equipment Eurasia operating profit ended 5.3% lower in USD terms than the comparative period despite the 6.3%
increase from Russia, which was offset by the decreased operating profit in Mongolia.
Russia
Revenue and operating profit from the group's Russia business was 6.3% ahead of the comparative period in USD
terms. Despite increased cost pressures, Russia delivered an operating margin of 11.4% in line with the comparative
period. The business benefitted from a stronger rouble in the second half of the year.
The firm order book for Russia at 31 August 2022 reduced to $30 million compared to $94 million at 31 March 2022.
This reduction was due to the impact of sanctions implemented by various countries. In addition, during the second half
of the financial year the business successfully cancelled contracts with customers valued at more than US$175 million
without negative consequences and has diverted most of these units to other dealers.
The group continues to manage its risks and exposures in Russia, including a strong focus on addressing the needs of
its employees through a very uncertain and challenging period while remaining agile and adaptable to ensure
compliance with an ever-changing regulatory environment. Measures have commenced to reduce costs and right-size
working capital in line with expected revenue reductions, at the same time maintaining customer service.
Consumer Industries
Ingrain
Ingrain's results for the period reflect revenue and EBITDA well ahead of the preceding 11-month period, on the back
of increased sales volumes, improved co-product realisations and higher international soft commodity prices. Revenue
is up 36.4% from the preceding 11-month period, with an operating margin of 12.2% that is 60 basis points higher than
the comparative period. Operating profit is up 40% on the comparative period. The division continues to invest in
resources to support the growth of the Consumer Industries division in line with group strategy.
Gross margins for the period are 120 basis points lower than the comparative period mainly due to a normalisation of
sales mix, which partially offset the benefit from higher international agricultural commodity prices.
In the domestic market, the alcoholic beverages sector saw continued strong performance, while recovery in the
confectionery and prepared foods sectors provided further support to domestic volume growth and offset the impact of
softening demand from the coffee creamer sector. A focus on export sales saw increased volumes made possible by
increased production from Ingrain's operations.
Local maize prices have been trading higher than the comparative period for most of the period, on the back of increased
international corn prices and a weaker exchange rate. This is notwithstanding an anticipated 2022 crop harvest of
15,004 million tons, which will be sufficient to meet domestic demand.
Discontinued operations
Car Rental
There are a number of tailwinds which have benefited the car rental industry across our operating markets as the easing
of pandemic-imposed restrictions has positively impacted activity levels and rental demand. Whilst demand has
improved, global supply chain constraints continue to impact our ability to procure vehicles and demand remains below
pre-pandemic levels.
The group's strategy of diversifying our offering and increased efforts to drive subscription products continues to pay
off. Year-on-year revenue grew by 7.3% due to sustained demand for subscription offerings, a solid base of insurance
business (replacement) and the recovery in domestic and corporate travel.
Operating profit increased by more than 110% ahead of the comparative period and expanded its EBITDA margin by
8.2ppt to 26.0%. Fleet utilisation averaged 80% (3ppt above the prior comparative period) due to process efficiencies
and stringent out of service vehicle management. The used car business continued to maximise profit margins driven
by the constraints in new vehicle supply.
Leasing
Whilst trading conditions remain challenging, there are areas of growing demand, particularly in the corporate and
SMME segments. This signals improved business confidence for the medium-term economic outlook. The performance
was underpinned by market share gains in the corporate sector and the diversifying strategy into heavy commercial
fleet. The group has driven a strong top line turnaround in the second half of 2022, swinging the reported H1 2022
decline of 6.7% to a year-to-date total revenue of a positive 1% movement year on year.
Operating profit increased by more than 10% compared to the comparative period, attributable to strong contract
management and a focus on the health of the fleet. This led to EBITDA margin expanding by 2.1ppt to 49.6%. Used
vehicle margins continued to benefit from leveraging common infrastructure, strategic disposal channels and systems.
Logistics
The group successfully concluded its exit from all of the businesses related to the Transport division, as previously
communicated. Further to this the group took a decision to close the non-profitable Global Solutions business (which
was a division within the Supply Chain Solutions business) with the process on track for completion by 30 September
2022.
Following the intended closure of the Global Solutions division, the Supply Chain Solutions business will only comprise
of Warehousing and Distribution. The group is pleased to inform shareholders that it is in the process of obtaining
regulatory approvals to complete for the sale of the Warehousing and Distribution business to a strategic player in the
supply chain sector. The completion of the sale is subject to regulatory and other approvals that are customary for a
transaction of this nature. Following the completion of the sale of the Warehousing and Distribution business the group
will have completed its exit from all its investments in the Logistics business.
Funding and cash preservation
The group has been successful in its strategy of allocating capital by investing cash in projects that yield returns that
are higher than its cost of capital, cash distributions to shareholders and paying down debt as part of ongoing efforts to
maximise shareholder value. A special dividend to the sum of R2.3 billion was paid to shareholders in January 2022. In
addition, the group managed to de-risk the group from the UK defined benefit obligation paying an amount of R1.97
billion. The group reviewed its current facilities, including committed and non-committed facilities, as well as headroom
on the existing medium-term note programme and remains satisfied with the positive state of the headroom, gearing
and liquidity.
The group remains within its target debt; and gearing levels remain well within our covenants, with net debt to EBITDA
at 1.0 times (group target is < 3.0 times), whilst EBITDA interest cover is at 7.9 times (group target is > 3.0 times).
Progress on our strategy
Preparatory work to structurally separate the group's investment in its car rental and leasing business, Avis Budget
Southern Africa ('Avis'), is now far advanced. As previously announced, the group has been evaluating the exit of Avis
through either a sale or an unbundling and separate listing. To date, none of the proposals received from third parties
interested in acquiring Avis have been sufficiently accretive to shareholder value to be progressed. Accordingly, the
group continues to progress preparatory work for an unbundling and separate listing of Avis in parallel. The group
remains committed to its stated intention of separating the Avis business this calendar year.
A further update regarding the intended path to exit Avis will be made at or around the time of the release of Barloworld's
year-end results in November 2022.
Conclusion
The board will release a trading statement once a reasonable degree of certainty exists concerning the group's results
for the twelve months ended 30 September 2022. Barloworld expects to release its annual financial results on or
about Monday, 21 November 2022. Management will host a conference call at 15:00 today to address any questions
from investors. Shareholders and analysts are to please use the following link to register:
https://services.choruscall.za.com/DiamondPassRegistration/register'confirmationNumber=8694988&linkSecurityStrin
g=126aa05d2c
Shareholders are advised that the information related to our eleven months' performance to 31 August 2022, has not
been audited, reviewed, or reported on by the group's external auditors. This update does not constitute a forecast.
Sandton
28 September 2022
Equity and Debt Sponsor:
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Enquiries:
Nwabisa Piki
Group Investor Relations
Tel: +27 11 445 1819
E-mail: nwabisap@barloworld.com
Date: 28-09-2022 07:05:00
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