Integrated Report 2021

Strategic review

Strategic review

Our continued commitment to using our three strategic levers: fix and optimise, active shareholder operating model and acquisitive growth, combined with our approach to managing for value, has resulted in Barloworld pivoting its portfolio towards defensive, relatively asset-light and cash generative industrial sectors, based on a business-to-business operating model. Notwithstanding the challenging environment, Barloworld delivered an impressive set of results. I am pleased that the decisions we have made in the past have been value accretive to shareholders and have positioned us to remain agile to the changing operating environment.

Group Chief Executive Officer

Group Chief Executive officer's review

The group delivered an exceptional set of results during the year under review, despite the challenges we had to withstand. The acquisitive growth provided by Equipment Mongolia and Ingrain, the exceptional performance from our southern African and Russian Equipment businesses, and the impressive turnaround of the Car Rental business, all contributed to this result. Our group HEPS for the year under review was a pleasing 1 195 cents, compared to the 268 cents loss in the previous year.

We have also been able to successfully accelerate the execution of our strategy since FY2020. We integrated two new businesses into the group, Equipment Mongolia and Ingrain, both of which have done far better than we anticipated; we sold our Motor Retail assets in our quest to move to relatively asset-light and defensive businesses; and commenced with the sale of the Logistics business.

Revenue from continuing operations grew 22.5% to R41.6 billion during the period, with Mongolia and Ingrain combined contributing R6.6 billion to revenue, while revenue from our existing businesses grew by 2.6%. Group revenue, which only includes eight months of Motor Retail, was R53.8 billion for the year, up 8.4% from the prior period.

Operating profit showed a 119% improvement year on year to R4.3 billion, with our growth supported by the decisive actions we took to cut costs out of the business without negatively impacting future growth prospects; and our operating margin increased by 450bps to 10.3%.

The group has maintained a solid balance sheet and continues to practice strong working capital management, with free cash flow for the period, excluding acquisitions and disposals, positive at R6.6 billion (compared to the prior year inflow of R3.3 billion).

We approach liquidity management prudently with a clear focus on cash preservation, supported by a careful and agile funding strategy.

The group's net borrowings decreased to R2.3 billion as at 30 September 2021 (R2.7 billion at 30 September 2020) after acquiring Ingrain. When taking into consideration the R5.3 billion Ingrain acquisition, the group's cash generation was exceptional, resulting in a 13% reduction in net debt year on year.

Given the strong balance sheet, healthy cash generation and proceeds from the disposals, the group resumed payment of a dividend this year. The board has approved a final dividend of 300cps, bringing our total dividend to 437cps, as well as a special dividend of 1 150cps. This is in line with the group's stated dividend cover of 2.5 to 3.0 times normalised headline earnings.

The group is focused on capital allocation and therefore one of the group's key measures is return on invested capital (ROIC). This improved to 11.3% compared to 1.0% generated in the prior year.

We prioritise the safety of our people and we continue to monitor the effects of Covid-19 on our employees, encouraging them to get vaccinated with more than 40% of our employees vaccinated. Sadly we had one work-related fatality in our Logistics division, where we lost our driver Silindelo Alfred Sikhakhane.

Strategy review

We have set certain milestones for ourselves. In line with our focus on optimally deploying capital within the group, we exited our Motor Retail business during the period under review and are in the process of selling our Logistics businesses. Attempts to optimise and fix the Logistics business proved futile, leading to the decision to exit the business. We have signed a sales and purchase agreement for the 51% share of our Aspen business, as well as for the sale of Barloworld Transport.

We have also indicated that we will exit our Car Rental and Leasing business in the medium term. We will start this process in the coming year and aim to conclude the transaction by year end.

In addition, it was important to us to be forward-looking in our business approach, specifically in terms of growth and the defensive nature of the group, which resulted in the acquisitions of Mongolia and our starch business. Both of these have successfully been integrated into the group during the year and are delivering ahead of our initial expectations.

Our active shareholder operating model ensures the deliberate way in how we approach management deployment at various levels.

As part of shifting our portfolio to relatively asset-light and defensive businesses, our focus remains on reviewing and improving businesses with low operating performance and on implementing the identified disposal actions intended to simplify the group's portfolio.


Our focus will remain on value extraction from our new acquisitions, with programmatic bolt-on mergers and acquisitions focused on our Industrial Equipment and Services and Consumer Industries verticals.

We continue to be concerned about the effects of Covid-19, particularly in supply chain constraints experienced globally and for our Car Rental business, which remains the most affected by constraints to travel and the impact of lockdowns.

We remain encouraged by the performance of our Industrial Equipment and Services businesses and their opportunities in the year ahead. Equipment southern Africa's firm order book remains strong, supported by a positive outlook for mining. The construction industry is also expected to recover as infrastructure and energy projects gather momentum.

Equipment Eurasia's outlook for 2022 also remains positive as the recovery in the coal market is expected to continue and we expect to realise further benefits from the integration of Mongolia into the Eurasia division.

In Ingrain, the outlook is for maize prices trading closer to international prices, which will support margins going forward, with international starch and glucose prices remaining high. Given the impact of the purchase price allocation on pre-acquisition comparatives, it is better to focus on EBITDA numbers when looking at the comparatives against the prior year.

Our outlook for FY2022 is therefore positive.