Industrial processing, distribution and services company Barloworld reports that its industrial equipment and services division performed well in the six months ended March 31, despite challenges.

Barloworld’s Equipment Southern Africa division delivered a solid performance despite lower mining and construction production levels, largely owing to this division’s management focus on cost reduction and enhancement of invested capital.

The group’s Equipment Eurasia division exceeded expectations with strong results, largely owing to the continuation of robust mining activity and growth in the gold sector.

Barloworld notes that the order book for both divisions remains strong.

Group CEO Dominic Sewela says that, despite the challenging operating environment, Barloworld’s commitment to its “fix, optimise, grow” strategy and managing for value approach has resulted in cash generation exceeding its expectations.

The overarching strategy, active shareholder operating model and austerity actions taken in the wake of the Covid-19 pandemic have improved Barloworld’s continuing operations’ revenue and operating profit by 13% and 44%, respectively, bolstered by the significant contributions from Ingrain and Equipment Mongolia.

“The group’s performance during the period has been bolstered by better-than-expected performances from Ingrain and Equipment Mongolia, the swift implementation of austerity measures aimed at cash preservation, maintaining a focused balance sheet management strategy and focused working capital management,” he says.

Sewela adds that, while macroeconomic uncertainty remains a concern, the actions the group has taken over the past two years have positioned Barloworld to adapt and grow through the cycles.

The group’s consumer industries division, consisting of Ingrain, made R305-million in operating profit for the five months ended in March 31, benefiting from an improvement in operating margins and sales mix, and a recovery in sales volumes.

As the uncertain macroeconomic outlook continues to prevail, with the potential impact of a third wave of Covid-19 infections and the possibility of further associated lockdowns, Barloworld says it is confident Ingrain’s diverse customer base will provide support to sales in the domestic market.

VEHICLE DIVISIONS

Sales volumes for the remainder of the financial year are expected to benefit from reduced restrictions on economic activity and further increases in sales of powdered glucose and modified starches as the benefits of investment in capacity commissioned in the latter part of 2020 are realised, the company states.

In terms of its car rental and leasing businesses, Barloworld benefited from synergies from the integration of the car rental and Avis Fleet businesses, cost containment and the exploration of new growth areas.

In addition, the group notes that the car rental business was repositioned towards off-airport business by expanding into mobility subscription offerings.

Combined with the agility to de-fleet, strict cost containment measures and the bullish used-vehicle market, Barloworld states that the car rental business produced positive results despite severely subdued local and international travel.

The car leasing business continued to be resilient, despite the ongoing market challenges, by performing ahead of expectations, with the operating results being positively impacted by restructuring and cost containment efforts, enhanced used-vehicle contributions, as well as improved practices around managing the maintenance fund, resulting in an operating margin of 18.8%.

Other segments, which include the corporate office and Digital Direct Solutions (including SMD), were up 20% compared with the prior comparative period mainly owing to higher recovery ratios in SMD and increased online trading revenue.

STRATEGY & OUTLOOK

Barloworld’s strategy, based on a clear ambition and outcome to double the group’s intrinsic value every four years, has led to its focus on industrial equipment and services and consumer industries, which are defensive, relatively asset-light and cash generative.

Supported by the active shareholder model and commitment to managing for value, the group successfully executed two significant acquisitions in 2020 – Equipment Mongolia and Ingrain, with the integration of these into the group progressing well and delivering ahead of initial expectations.

Barloworld also exited its motor retail and logistics businesses during the period under review in order to enhance capital deployment and extract full value from investments.

The group reports that its outlook for the full-year remains positive as key markets recover, commodity prices improve, its customers increase capital expenditure and government stimulus spending supports infrastructure projects.

Over the short- to medium-term, Barloworld will focus on aspects within its control and maintain its reduced fixed cost base to ensure an agile organisation by executing on the completion of its corporate actions through the disposal of logistics and continuing to integrate its recent acquisitions.

However, the group notes that there remains uncertainty about the macroeconomic environment and, therefore, says it is too early to provide any guidance.