Diversified industrial conglomerate Barloworld says its simplification strategy is paying off as it slashed debt 86% in the year to end-September and paid an improved dividend despite tough operating conditions.
The R14.8bn JSE-listed group reported on Monday that its net debt reduced to R668m from R4.6bn, thanks to its R2.7bn reported free cash inflow and the unbundling of the Avis car rental and leasing business.
The board approved a final dividend of R3 a share, bringing the total dividend to R5, up 8.7% from the previous year.
“We’ve implemented a deliberate and determined strategy to try to trim the business to make sure that we are able to build a business on a solid foundation in terms of what we wanted to see of the assets we have,” said CEO Dominic Sewela.
“We have delivered in terms of the strong balance sheet, which was achieved through prudent management that has enabled us to take advantage of opportunities.”
Since 2017, Johannesburg-based Barloworld has been implementing its “fix, optimise and grow” strategy, resulting in a leaner company focusing on two verticals: industrial equipment and services, and consumer industries.
The strategy included disposals in noncore areas such as exiting Iberia in 2019 and selling its motor retail business in 2021, as well as this year’s unbundling of Avis and the sale of its logistics division.
Sewela said that by making strategic decisions to exit certain markets and simultaneously acquiring profitable businesses, about R15.5bn was returned to shareholders from 2017 to 2023 — R9.7bn through ordinary and special dividends, R2.6bn through share buybacks and R3.2bn through normal dividends.
The group reported that its earth-moving equipment business in Southern Africa delivered record results in the 12 months to end-September, despite lingering concern about the shape of the global economy.
Machine sales growth, aftermarket-sales revenue, favourable mining production — particularly in coal, diamonds and manganese — and fleet replacement by customers underpinned a strong performance by its Southern Africa equipment division.
As a result, revenue in the segment rose 35% to R29.5bn, while operating profit grew 19.1% to R2.5bn.
Barloworld is the official dealer of Caterpillar equipment and has operations in 16 countries.
While external factors that affect the industry are expected to linger for the foreseeable future, the CEO is confident the group has proved the agility of the business to navigate risks.
Sewela was upbeat about prospects at Barloworld’s Southern Africa equipment division, saying its profit mix would improve and change in favour of the aftermarket segment in time.
The company also increased investment in working capital in its local equipment division amid rising demand for machinery from a buoyant mining sector.
Its Mongolian business is touted to keep improving despite the effect on the Russia operations, which are hindered by sanctions.
The group’s Equipment Eurasia had mixed fortunes, with revenue falling 23% to R8.2bn but operating profit from core trading activities rising 21% to R1.4bn, supported by mining activity in Mongolia.
Revenue from its food procurement businesses, Ingrain, rose 11% to R6.5bn, supported by growth in exported starch volumes and favourable exchange rates. But operating profit fell to R593m from R709m last year.
“Our geographic focus on the emerging markets has enabled us to weather the tough macroeconomic backdrop characterised by geopolitical tension and unstable commodity prices,” said Sewela. “Overall, we have seen strong trading across our operations as the businesses remained agile to external risks.”
At group level, revenue from continuing operations was up 14% at R45bn and group operating profit from core trading activities rose 19% to R4.3bn. Headline earnings per share from continuing operations rose marginally to R11.56 from R10.96.
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