- In 2020, Barloworld acquired Mongolia-based Caterpillar dealer Wagner Asia for R3.6 billion, adding it to its Equipment Eurasia business, which includes its Russia and UK operations.
- Barloworld's other new business Ingrain, that it acquired from Tongaat in November 2020, also performed well, exceeding its revenue and earnings forecasts
- Although the two businesses are performing well, its automotive and logistics portfolios continue to be a challenge.
Industrial processing, distribution and service company Barloworld's new equipment and consumer goods businesses have come into the group on a high note, but it's soon-to-be-sold motor retail and logistics portfolios continue to be a challenge.
Last year, the Covid-19 pandemic forced Barloworld to write down millions of rands in goodwill and intangible assets on the back of lower cash flows that Covid-19 threatens to bring about. The group said it has recognised R1.7 billion in impairments because of Covid-19 and the slowdown in economic growth in the territories in which it operates. It also rolled out retrenchments, postponed non-essential investments in the business and froze employment of new people.
However, in 2020, the group - which owns brands such as Avis and Manline Freight and operates leading motor franchise dealerships such as Audi and BMW - acquired Mongolia-based Caterpillar dealer Wagner Asia for R3.6 billion, adding it to its Equipment Eurasia business, which includes its Russia and UK operations.
"Demonstrating the benefit of the acquisition, the inclusion of Mongolia's revenue saw Eurasia exceed the prior year by 23.4% and operating profit is well above the prior year," said Barloworld in a trading update for the five months to February 2021, on Wednesday.
Its other new business, Ingrain, which it acquired from Tongaat in November 2020, also performed well, exceeding Barloworld's revenue and earnings forecasts. Ingrain, which was formerly Tongaat Hulett Starch, is Africa's biggest starch, glucose and related products maker. And its products are used in the food and beverages, paper manufacturing, pharmaceuticals, building materials and adhesives industries.
"Ingrain continues to benefit from its diverse customer base, supported by increased demand in the coffee creamer, paper converting, canning and prepared foods sectors," Barolworld said.
The group added Ingrain has also benefitted from the resilience of the liquor industry that is recovering quickly after a series of sales bans in the past year, has also been of benefit for the business.
Although these two businesses are performing well, Barloworld's automotive and logistics portfolios continue to be a challenge, with the group's Avis Budget Group car rental business' operating profit falling by 61.5%, compared to the same reporting period in 2020, due to the impact of local and international lockdowns.
However, the group said the business was seeing some recovery, following a restructuring process and austerity measures.
"The business has further benefitted from the resilient used vehicle market," said Barloworld.
Its Avis fleet business has also seen its operating profit decline by 5.7% from 2020.
Exit from motor retail and logistics
Its motor retail business, which it is in the process of selling to NMI Durban South Motors, has had a 9.8% revenue decline. The logistics business - which is listed as a discontinued operation together with motor retail - has performed "below expectations". Although it hasn't disclosed a buyer, Barloworld said the formal sales process will begin next month.
Zaid Paruk a portfolio manager and analyst at Aeon Investment Management, said the group had performed in line with expectations and forecasts.
However, he said he was surprised that its southern Africa equipment business' revenue was down despite stronger commodity prices. In southern Africa, Barloworld is a licensed Caterpillar dealer in the local market and its footprint extends to countries like Namibia, Mozambique, the Democratic Republic of Congo, Lesotho, Eswatini and Botswana. That business has had a 4.9% decline in revenue, compared to the 2020 reporting period.
"It actually was a little bit underwhelming, considering that the order book isn't even growing. So, it is a little bit surprising for us there," Paruk said.
He added that businesses performance in Russia had done well due to given its strong order book and good cost controls, while the Mongolia acquisition also seemed to be performing well.
"Ingrain … did well as expected, it would have been very poor if they had bought it and then it didn't do well, so it seems to be doing okay, which is fine, it's going to be margin improving," he said.