Barloworld’s automotive arm spurs profit
The global group plans to focus on its core business and is disposing of Iberian and Middle East assets
Barloworld squeezed a record operating profit from its automotive division amid overall flat revenue and operating profit from continuing operations in the year to September 2017.
Better mining conditions drove southern Africa and Russian equipment operations, but this was not enough to prevent an overall 11% fall in profit for the year to R1.76bn.
This was not helped either by a 54.7% plunge in operating profit in the logistics division. Headline earnings per share from continuing operations rose 16%, but overall headline earnings per share rose only 5%, mainly from a R269m loss in the group’s Iberian business.
The result was largely as expected, Avior Capital Markets analyst Mark Hodgson said on Monday. “The outlook for equipment in southern Africa and Russia appears favourable. The logistics division is under review with a planned turnaround including cost base rationalisation,” he said.
A stronger rand had a net R1.1bn negative effect on revenue from continuing operations in the period. Meanwhile, the group had decided to close its Iberian and Middle East operations. About R3.2bn of Iberian business assets were held for sale amid interest from prospective European buyers.
CEO Dominic Sewela said the bulk of the losses had come from the Iberian operations. “But the South African environment is also very bad. Automotive and equipment have done well, and we have done well in managing capital,” he said.
Barloworld had tightened its belt as cash inflow before financing activities of R2.6bn was mainly driven by a R1.5bn fall in working capital and lower cash from investment activities. This was underpinned by the weak South African economy.
Return on equity from continuing operations of 10.5% was slightly better than in financial 2016, but was still far from the group’s 15% target, Sewela said. However, group net debt was slashed to R5.8bn in financial 2017 from R8bn in 2016.
“New management appears to be proactive in turning around an old-style conglomerate via a progressive selling of low-margin businesses, cost cuts and divisional streamlining,” Cratos Capital portfolio manager Ron Klipin said. “In addition Barloworld is reducing the focus of operations to those of its core operations — namely equipment, logistics and automotive.”
Klipin said the equipment business had benefited from an up-tick in minerals commodity prices, with Russian operations raising operating profits in US dollar terms by 7%. Meanwhile, equipment southern Africa had made a strong contribution to operating profit, with new mining projects likely to be rolled out in 2018, he said.
But the group’s logistics division faced “major headwinds in an extremely competitive industry”. However, a large-scale restructuring, including a cut of 800 staff, should help the division become more cost-competitive, Klipin said.