TIDMBWO
RNS Number : 7737A
Barloworld Limited
01 October 2020
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)
(JSE ISIN: ZAE000026647)
(Bond issuer code: BIBAW)
(Namibian Stock Exchange share code: BWL)
("Barloworld" or the "Group" or the "Company")
PRE-CLOSED PERIOD VOLUNTARY OPERATIONAL UPDATE
Highlights
-- Resilient Group performance, under an unprecedented trading
environment impacted by the COVID-19 pandemic
-- Decisive measures taken in response to ensure the long term value creation by the Group
-- Impressively strong balance sheet at 31 August 2020 with a
robust and solid liquidity position, cash balance of R8.0 billion
was maintained with the net debt position increasing marginally to
R1.4 billion and in line with the closing balance as at 30
September 2019
-- Low Group gearing levels at 31 August 2020, with the
financial position well within our covenants
-- Even after taking into account the acquisitions being
progressed, significant headroom is maintained within covenants,
with Net Debt to EBITDA expected to still remain below 2.0 times,
target being below 3.0 times
-- Excellent progress made in the implementation of the mergers
and acquisition strategy with the closure of the Wagner Asia
Equipment (Mongolia) transaction, the Tongaat Hulett Starch
transaction is expected to close by 31 October 2020
Shareholders are advised that the financial information
contained in this announcement has not been audited, reviewed or
reported upon by Barloworld's external auditors.
Operational Review for the eleven months to 31 August 2020
Equipment southern Africa's activity was resilient despite the
lockdown restrictions as a result of COVID-19. While revenue was
down on prior year, activity levels have been steadily improving
driven mainly by a resilient mining sector with revenue in recent
months close to 2019 levels. Gross margins were in line with the
prior period boosted by the sales mix. Operating profit was down on
the prior period due to lower sales activity and once off
restructuring costs; the impact was partially offset by the well
contained operating costs in line with previously communicated
austerity measures. The steep currency devaluations mainly in
Angola and Zambia resulted in losses on financial instruments being
higher than the prior year and this also had a negative impact on
the effective tax rate as a result of IAS 12.41. Losses on
exceptional items were realised due to Covid-19 related
impairments. Bartrac, our Joint Venture in the Katanga province of
the DRC, remained under pressure generating losses during the
period. Encouragingly, the DRC has seen some improvement in
activity levels over July and August contributing to improved
second half performance compared to the first half. The cash
position was very strong on the back of a focused balance sheet
management strategy.
Equipment Russia grew revenue compared to the prior period
mainly due to strong large mining prime sales, particularly to the
gold sector. Still notable is that Russia, did not apply hard
lockdown on the mining sector in the country and therefore this
business was able to operate at capacity for 12 months. The
operating profit was also up with continued cost containment and
mix driving the sustained margin, showing resilience. Management
continued the focus on cash preservation, lowering operating costs
and ensuring the business is well positioned for the future. Russia
is heading into the winter months and the risk of a second wave of
COVID-19 infections remains, creating uncertainty in the trading
environment.
The Automotive businesses are down on the prior period on a
comparable basis. From the month of June, activity levels in
Automotive Trading bounced back and the successful de-fleeting in
Car Rental contributed positively to the overall performance. Used
car sales, new car sales as well as much stronger servicing and
parts were higher than expected as pent-up demand was activated on
the back of relaxations in lockdown restrictions. Motor trading
(excluding NMI) revenue was down for the period, however a
significant all-round recovery in August resulted in increased
activity compared to August 2019. The car rental industry remains
under significant pressure across all sectors with declines in
billed days of between 65% (Corporate) and 87% (Inbound tourism).
Car Rental revenue for the period was down with used car gross
profits remaining strong. In car rental, the reduction in revenue
has been offset by efforts to right size the fleet and travel
restrictions will continue to impact this business for the
foreseeable future. Used car sales were very strong, with August
sales up compared to August 2019. Avis fleet revenue and operating
profit were down due to reduced key customer volumes, as well as a
reduction in used vehicle sales.
Logistics reflected higher than anticipated internal forecasts
but down on the prior period significantly impacted by the reduced
business activities. The supply chain management business recovered
well after COVID-19 restrictions whilst transport is still under
pressure.
Financial position, gearing and liquidity
The Group's balance sheet as at 31 August 2020 remained
impressively strong considering the challenging environment. A
robust and solid liquidity position with cash balance of R8.0
billion was maintained with the net debt position increasing
marginally to R1.4 billion and in line with the closing balance as
at 30 September 2019. The headroom on committed facilities remained
substantial at R9.5 billion. These facilities exclude the ring
fenced R5.3 billion of committed funding for the Tongaat Hulett
Starch acquisition. The funding capacity of the Group remains
healthy as management continues to focus on actively reviewing and
monitoring all facilities on an ongoing basis and remain confident
of the good liquidity position.
At the end of 31 August 2020, the Group's gearing levels
remained low and our financial position was well within our
covenants. It is important to note that, in April 2020, the EBITDA
to interest covenant was renegotiated based on an unpredictable
future that was forecasted at the time. We find ourselves not only
meeting the renegotiated covenant but also remaining well within
our old covenant targets even post acquisition of the Mongolia
caterpillar business. Management interventions during the lockdown
period have sown positive results in managing our assets and
liabilities. The old target was at 3.5times whilst the new target
is at 2.5 times.
Debt covenants August 2020
EBITDA: Interest Cover >2.5 times 5.0 times
------------
Net Debt:EBITDA <3.0 times 0.3 times
------------
Even after taking into account the acquisitions being
progressed, we retain significant headroom within our covenants,
with Net Debt to EBITDA expected to still remain below 2.0 times,
target being below 3.0 times.
Caring for our employees
The health and safety of our employees, customers and
communities remains of paramount importance to management and the
board. The Barloworld COVID-19 policy and the Barloworld Crisis
Committee in place assists the Group in monitoring, managing and
containing the impact. Relevant contingency plans are in place to
ensure continued operation should any senior leaders and/or
executives be affected by the pandemic. As at the end of August
2020, there were 132 active employee cases and 342 recoveries.
Regrettably there have been six deaths and the Company has provided
support to the bereaved families and our people during this
difficult time. Over and above ensuring that we adhere to all
workplace regulations announced by the Governments of the countries
we operate in, we implemented additional measures to assist
employees navigate this uncertain, changing and stressful
period.
Supporting our people, particularly those impacted by the
implementation of s189, has been at the centre of the Group
Employee Wellness program. Various support avenues have been made
available including Emotional Impact Sessions, availability of
psychologist support services and transition management programs
are on the go throughout the Group.
Update on Cost-saving measures
The austerity measures and cost saving initiatives aimed at
reducing and containing costs in an effort to preserve cash in the
immediate period already implemented by the Group are expected to
yield savings during this financial year and most importantly, the
results will greatly impact the 2021 year as implementation costs
had to be borne in 2020.
Tongaat Hulett Starch (THS) acquisition
Shareholders are referred to the SENS announcement issued on 22
September 2020 that provided the independent accountant's
determination on the previously communicated Material Adverse
Change (MAC) process. Barloworld is pleased that the THS business
has shown remarkable resilience in the face of the economic
challenges posed by the COVID-19 pandemic. The business is a highly
cash generative, asset light and defensive investment with a
leading market position and a strong client base of highly regarded
and well established multi-national companies. These
characteristics have underpinned the resilience of the business
through the current economic challenges, validating Barloworld's
stated strategy of entering into the defensive consumer foods
sector and serving industrial customers as a long term strategic
pivot of its portfolio.
Barloworld continues to perform its obligations in terms of the
SPA with the following significant approvals achieved:
-- Approval of the transaction by the Competition Commission of
the Common Market for Eastern and Southern Africa (COMESA) was
obtained without conditions on 8 June 2020.
-- Approval of the transaction without conditions by the
Competition Tribunal of South Africa, on 6 July 2020.
Suspensive conditions to the transaction that remain to be
fulfilled are anticipated to be satisfied before the Longstop Date
of the transaction, being 31 October 2020.
Mongolia acquisition
Shareholders are referred to the SENS announcement issued on 02
September 2020 that communicated that the last remaining condition
precedent was fulfilled and the transaction closed on 1 September
2020. An amount of USD168.1 million (R2.8 billion) in cash was paid
to Wagner Asia Equipment on the closing date, funded from existing
offshore cash balances. The integration of the two businesses is
going well.
Looking Ahead
The Group will continue on its strategic path to improve
efficiencies and performance by adapting and transforming to align
with the changing trading environment in line with our stated
goals. The assessment of the long-term fundamentals of businesses
is a focus area in ongoing portfolio review. In light of the
current COVID-19 pandemic, the board and management are committed
to ensuring that all of the Group's operations are managed
responsibly and in compliance with risk mitigating regulations.
The Group expects to release its financial year results for the
12 months ended 30 September 2020 on or about 30 November 2020.
Please refer all investor relations queries to:
bawir@barloworld.com
+27 11 445 1000
Sandton
30 September 2020
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank
Limited
About Barloworld
Barloworld is a distributor of leading global brands with
corporate offices in Johannesburg (South Africa) and Maidenhead
(United Kingdom), providing integrated rental, fleet management,
product support and logistics solutions. Established in 1902 in
South Africa, we are one of the country's oldest companies.
Inspiring leadership, a reputation for ethical conduct, innovation
and a commitment to giving back have ensured Barloworld's longevity
over the past 117 years. The core divisions of the Group comprise
Equipment (earthmoving equipment and power systems), Automotive
(car rental, motor retail, fleet services, used vehicles and
disposal solutions) and Logistics (logistics management and supply
chain optimisation). The brands we represent on behalf of our
principals include Avis, Audi, BMW, Budget, Caterpillar, Ford,
Mazda, Mercedes-Benz, Toyota, Volkswagen and others.
Forward-looking statements
Certain statements in this document are not reported financial
results or historical information, but forward-looking statements.
These statements are predictions of or indicate future events,
trends, future prospects, objectives, earnings, savings or plans.
Examples of such forward-looking statements include, but are not
limited to, statements regarding volume growth, increases in market
share, exchange rate fluctuations, shareholder return and cost
reductions. Forward-looking statements are sometimes, but not
always, identified by their use of a date in the future or such
words as "believe", "continue", "anticipate", "ongoing", "expect",
"will", "could", "may", "intend", "plan", "could", "may", and
"endeavour". By their nature, forward-looking statements are
inherently predictive, speculative and involve inherent risks and
uncertainties, because they relate to events and depend on
circumstances that may or may not occur in the future.
If one or more of these risks materialise, or should underlying
assumptions prove incorrect, our actual results may differ
materially from those anticipated. There are a number of factors
that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to: changes
in economic or political conditions and changes to the associated
legal, regulatory and tax environments; lower than expected
performance of existing or new products and the impact thereof on
the Group's future revenue, cost structure and capital expenditure;
the Group's ability to expand its portfolio; skills shortage;
changes in foreign exchange rates and a lack of market liquidity
which holds up the repatriation of earnings; increased competition,
slower than expected customer growth and reduced customer
retention; acquisitions and divestments of Group businesses and
assets and the pursuit of new, unexpected strategic opportunities;
the impact of legal or other proceedings against the Group;
uncontrollable increases to legacy defined benefit liabilities and
higher than expected costs or capital expenditures. When relying on
forward-looking statements to make investment decisions, you should
carefully consider these factors and other uncertainties and
events. Forward-looking statements apply only as of the date on
which they are made, and we do not undertake any obligation to
update or revise any of them, whether as a result of new
information, future events or otherwise.
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END
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