Barloworld driving intrinsic value, says CFO Nopasika Lila

Barloworld has more than doubled its operating profit for the financial year and resumed its dividend payments.

In the last year, Barloworld’s operating profit has more than doubled to R4.3 billion. CFO Nopasika Lila says this is a result of and validates the decisions the group has taken, whether in terms of its portfolio or the decisive actions and austerity measures carried out in the year.

“As a group, we are extremely proud of this set of results in its entirety, and what we have achieved in the last 12 months, despite the challenging operating environment,” Nopasika says.

She explains that the results have benefitted from the acquisitive growth provided by Equipment Mongolia and Ingrain, the “exceptional” performance from the southern Africa and Russian equipment business (profiting from robust mining activities), as well as the impressive turnaround of the car rental business.

“We have successfully accelerated the execution of our strategy since FY2020 by integrating two new businesses into the group, namely Equipment Mongolia and Ingrain, both of which have performed remarkably well and exceeded our expectations.”

Nopasika says that the group’s revenue increased 22.5 percent, including a combined revenue contribution of R6.6 billion from the newly acquired businesses.

In addition to the strategic acquisitions, Barloworld sold its motor retail assets in its quest to pivot the group’s portfolio into relatively asset light and defensive business, and it has now commenced with the sale of the logistics business. “We are in the process of negotiating the piecemeal disposal of various sections of Logistics in response to the high levels of interest we have received in smaller business units,” Nopasika adds.

“In line with our focus on optimally deploying capital within the group, we continuously review and improve businesses with low operating performance and implement any identified disposal actions intended to further simplify the group’s portfolio,” Nopasika explains, adding that, for this reason, Barloworld has indicated its intention to exit its car rental and leasing business in the medium term.

“Similarly, our focus remains on sales transactions that continue to support our customer requirements and protect value for the group. We are considering a complete exit from automotive and transport in the longer term, which would essentially result in the disposal of our 50 percent shareholding in the NMI-DSM associate.”

Lower losses
Barloworld saw some losses in associate and joint ventures of R13 million, which is significantly lower than the prior year of R43 million.

Nopasika says that the group’s joint venture in the Katanga province of the Democratic Republic of Congo, Bartrac, remained under pressure and generated a loss of R112 million. “This was due to low activity, once-off restructuring costs and impairments included in non-operating and capital items. But we are confident that the efforts made to fix and optimise the business have positioned it for future growth.”

The BHBW joint venture also recorded a reduced loss of R15 million for the year from the turnaround strategy currently underway.

She adds that the losses were partially offset by the results of NMI Durban South Motors (an associate in which Barloworld holds a 50 percent interest), that managed to generate an “impressive” R104 million profit.

Resuming dividends
Despite the losses, Nopasika explains that the group has maintained a solid balance sheet and continues to practise strong working capital management. “Given the strong balance sheet, our healthy cash generation and proceeds from the disposals, we have resumed payment of a dividend this year.”

The group approved a final dividend of 300 cents per share (cps), bringing its total ordinary dividend to 437 cps, as well as a special dividend of 1,150 cps, bringing its total special dividend to 1,350 cps for the financial year ended 30 September. This, Nopasika adds, is in line with the group’s stated dividend cover ratio of 2.5 to 3.0 times normalised headline earnings. “We are delighted to be rewarding our shareholders in such a manner, as a token of our appreciation for sticking with us and supporting us along the way.”

Driving intrinsic value
Nopasika explains that Barloworld’s leadership team was often confronted with making difficult decisions, but that she is pleased they were the right choices. “Not only has it been value accretive to our shareholders, but it also positioned us to remain agile to our changing operating environment.”

She adds that the group’s strategy is based on a clear and ambitious outcome of doubling its intrinsic value every four years, directly translating into the need to be forward-looking in how it approached the business. “We are confident in the strategic direction we are steering Barloworld towards, supported by our ‘managing for value’ model, and believe we have built a resilient and agile business that will help us navigate an uncertain cycle of an operating environment that’s clearly changing.”

Nopasika says that the group’s outlook for the 2022 financial year remains positive, encouraged by the performance of its industrial equipment and services business and the opportunities in the year ahead. “For Ingrain, maize prices are expected to trade closer to international prices, which will support margins going forward. We also expect international starch and glucose prices to remain high, following increases on the back of Covid-19 supply chain constraints, increased freight rates and higher energy costs.”