Barloworld Limited Barloworld Interim Results (5302Z)

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RNS Number : 5302Z

Barloworld Limited

20 May 2019

Media Release:

20 May 2019

Strong operational performance across divisions supports Barloworld's solid interim results

Strategy implementation well on track

Highlights:

-- "Khula Sizwe" B-BBEE transaction approved by shareholders and gaining traction

-- Equipment southern Africa generates strong results

-- Automotive division generates good operating performance in a weak local market

-- Equipment Russia remains resilient

-- Strategy implementation well on track

-- Group return on invested capital of 11.3% (H1'18: 11.0%)

-- Normalised headline earnings per share at 521.4 cents up 14.1% (H1'18: 457.1 cents)*

-- Interim dividend per share of 165 cents up 13.8% (H1'18: 145 cents)

Commenting on the results, Barloworld CEO Dominic Sewela said:

"I am pleased with the progress that we are making on our stated strategy. Despite the challenging trading conditions, the Group delivered strong results driven by the underlying divisional performance, in particular from Equipment southern Africa and Motor retail. The Group is currently involved in negotiations and due diligence to acquire a contiguous Equipment territory.

During the first half of the year the Group launched its B-BBEE scheme which we believe will enable Barloworld to play a role in changing the transformation landscape through enabling employees and the black public to participate in a first-class property backed B-BBEE scheme, Khula Sizwe"

Performance Highlights

 
                     Revenue (R'm)             Operating           Operating margin            ROIC (%) 
                                              profit/loss                 (%) 
                                                 (R'm) 
                      Six months              Six months              Six months              Six months 
                         ended                   ended                   ended                   ended 
                ----------------------  ----------------------  ----------------------  ---------------------- 
                  31 Mar      31 Mar      31 Mar      31 Mar      31 Mar      31 Mar      31 Mar      31 Mar 
                     19          18          19          18          19          18          19          18 
                  Reviewed    Reviewed    Reviewed    Reviewed    Reviewed    Reviewed    Reviewed    Reviewed 
                ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  EQUIPMENT*      13 270      12 436       1 120       1 044 
--------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
   Equipment 
    Southern 
     Africa       10 033       8 670        806         734         8%         8.5%        12.6%       12.4% 
--------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
   Equipment 
     Russia        3 237       3 766        314         310        9.7%        8.2%        19.8%       19.4% 
--------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  AUTOMOTIVE 
  & LOGISTICS 
--------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  Automotive      14 188      15 372        885         883        6.2%        5.7%        11.2%       11.6% 
--------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
   Logistics       2 889       2 989         68         99         4.9%        4.5%        6.4%        3.3% 
--------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
     GROUP        30 400      30 900        187         195        6.2%        6.3%        11.3%       11.0% 
--------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 
 

*Excludes handling

Operational Performance

The performance of Barloworld's divisions has been largely driven by a combination of the underlying economic and geopolitical headwinds and good execution of our strategy. Whilst the South African economy remains constrained by low business and consumer confidence, the mining and equipment performance in Southern Africa saw strong performance driven by positive market sentiments due to favourable commodity fundamentals and a strong preference towards contract mining. In Russia, the business continues to generate robust results and the impact of increased tariffs on US manufactured products was less than initially anticipated.

Equipment

-- Equipment southern Africa delivered a strong performance for the period, driven by good demand for mining equipment and machine deliveries for large surface and underground mining to Mozambique, Zambia and South Africa. Similarly, the new products introduced as well as more competitive financing given the challenging environment saw growth in construction equipment sales. Looking forward, the division has a firm order book and is well positioned to take advantage of the robust demand from the regions.

-- Equipment Russia continues to benefit from robust mining activity and stabilising commodity prices, particularly in the gold sector. Revenue for the period was lower than the comparative period as large package mining machine deals in 2018 were not repeated. The imposition of increased duties for US manufactured products had a lesser effect than previously thought. The decline in revenue was somewhat offset by a strong increase in after-market sales, which boosted profits. The outlook for mining activity in Russia remains positive, with a strong pipeline for major projects in the region.

Automotive & Logistics

-- The Automotive division generated a good operating performance in a weak local market with the operating profit slightly up on the prior period at R885 million and the operating margin improving from 5.7% to 6.2%. Revenue, however, was down by 7.7% to R14.2 billion (H1'18: R15.4 billion) due mainly to the change in revenue recognition for Mercedes-Benz passenger vehicle sales in the prior period.

o The Car Rental business delivered reasonable results. Despite the car rental industry seeing a 2% decline in rental days over the period, the business increased its daily rate and managed vehicle fleet costs. The business is aligning its cost base to the current trading environment to improve performance and counter the impact of external factors.

o Avis Fleet delivered a good result. Whilst, revenue was down 4.8% the operating profit was up by 6.8% to R329 million and the operating margin increased to 20.0% compared to 17.9% in 2018. Total fleet under management grew by 2.7% on the prior period. The business is exiting its loss-making operation in Tanzania.

o Motor Trading was impacted by consumer confidence, resulting in 9.7% lower revenue. Due to cost containment efforts the business was still able to improve its operating profit, resulting in a 3% margin compared to 2.7%. New vehicle sales are expected to remain constrained in the second half of the year. Management will continue to focus on improving the profitability and returns of each dealership to ensure resilience in the short to medium term.

-- The Logistics business continues to make strides on its turnaround. Revenue for the period was mainly impacted by reduced revenues in the Supply Chain Management business following a decision to close the KLL business. Logistics is expecting a stronger second half performance and the disposal of SmartMatta and Middle East, remains a priority and is expected to be finalised at the end of the second half.

Dominic Sewela concludes: "Capital allocation and driving returns remain at the forefront of management's agenda, and we continue to strive towards achieving our ROIC hurdle rates. We have made steady progress on reviewing potential growth areas for the group with active searches in both the local and targeted international markets."

The Barloworld "Khula Sizwe" broad-based black economic empowerment transaction has been lauded as a pioneering scheme that presents a unique opportunity for black people to participate in a truly inclusive and broad-based black empowerment scheme. To date, interest in the scheme has gained traction. The scheme is expected to be fully implemented by October 2019.

Ends

Issued for and on behalf of Barloworld by Brunswick South Africa

_________________

About Barloworld

Barloworld is a distributor of leading international brands providing integrated rental, fleet management, product support and logistics solutions. The core divisions of the group comprise Equipment and Power (earthmoving equipment and power systems), Automotive and Logistics (car rental, motor retail, fleet services, used vehicles and disposal solutions, logistics management and supply chain optimisation). We offer flexible, value adding, innovative business solutions to our customers backed by leading global brands. The brands we represent on behalf of our principals include Caterpillar, Avis, Budget, Audi, BMW, Ford, General Motors, Jaguar Land Rover, Mazda, Mercedes-Benz, Toyota, Volkswagen, Hyster, Massey Ferguson and others.

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May 20, 2019 06:59 ET (10:59 GMT)