JSE-listed BarWorld has lost R1 billion in its equipment business in Eurasia as it produced strong results in the last six months of March, despite a limited outlook following Russia’s invasion of Ukraine.
Weaknesses were based on low estimated cash flows with high discount rates.
Read: BarlowWorld ‘Hanker Down in Russia’ – CEO
Dominic Sevela, CEO of Barlowworld Group, said Monday that he expects the trend to limit the growth of the group’s medium-term top line.
Shortly before the end of the reporting period, the group warned that the Eurasian equipment business would have to look at a weakness, as the longer the disputes and sanctions remain in place, the harder it will be for the group’s business to trade.
Shares of Barlowworld fell nearly 7% to close at R97.34 on Monday.
Equipment Eurasia grew 11.8% to R5.7 billion to R5.7 billion.
However, Barlowworld warned on Tuesday that trade in Russia was becoming increasingly difficult as the full effect of the embargo began to be felt.
Sevela said the group would be able to recoup some of the weaknesses, such as the value of property assets, if the environment in Russia improves.
“My view is that in the case of disruption it will not get worse so in the short term we, at an operating level, will be fine until September and it will start biting in 2022, 2023 and 2024 because even if the war is over by the end of this year, sanctions will not go away on their own. The effects will be felt for a long time to come, “he said.
Read: More multinationals want to distance themselves from Russia
Sevilla says that unless new sanctions are imposed, the group will still be able to supply some equipment to Russia, valued at R100 million in about 4 months.
Other units are doing well
In addition to the financial performance of the Eurasia equipment business, BurlowWorld Equipment has benefited from the strong performance of Southern Africa, the resilience of its English business and the exceptionally strong results of the car rental and leasing business during this period.
The group’s revenue from continued operations increased 13.6% to R18.4 billion while operating profit increased 34.7% to R2.8 billion as operating margin increased from 7.3% to 12.2%.
Group headline earnings per share rose 109% to 756 cents from the previous 362 cents.
The group’s return on investment (ROIC) has increased from 3.8% to 14.1%.
An interim general dividend of 165 cents per share has been declared.
Equipment South Africa’s revenue grew 7.7% to R9.4 billion, driven mainly by machine sales and rentals and exceptional growth in the greater African region.
Ingrain, Barloworld’s Consumer Industries business, saw its revenue rise 45.7% to R2.9 billion over the previous year, which was only five months after Ingrain’s incorporation on 1 November 2020.
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Car rental and leasing business revenue fell 5.8% from R4.17 billion to R3.9 billion but operating profit increased 88% from R378 million to R709 million.
Sevela said Barlowworld’s exit from the logistics business was largely complete and that it ended most business sales within the transportation sector while Supply Chain Solutions (SCS) is in talks with an interested party to sell the business.
Exit from car rental and leasing
The board of Barlowworld has previously approved the sale or unbundling and exit of the group’s car rental and leasing business through a separate listing.
Sevela says significant progress has been made in preparing the business to operate on an individual basis, and this calendar year is nearing completion.
He said BarlowWorld has only received one serious offer for the car rental leasing business, which “serious trade buyers have enjoyed for some time, along with other expressions of” chance-takers “interest, because of the challenge in their jurisdiction.” .
Rowan Goeler, an analyst at Chronox Research, says Russian businesses have had to deal with sanctions, but all other group businesses have done really well.
“They are not leaving Russia and have not completely damaged the business but are batting under the hatch to bypass everything,” Goeler said.
“It simply came to our notice then.
“The elements of business can continue, even under the current sanctions regime, but at a level of less than 50% of what was before them. In that situation, it is going to be difficult to make a profit from a business, “he said.
Goeler said equipment is doing well in South Africa and there is a lot of interest in minerals flowing into the renewable energy quality chain.
He said there are unusual market conditions for car rental and lease business, which is very favorable and the business is doing well now but not sustainable.
“The possible departure from Imperial looks like an unbundling and separate list like Motas so Barlowworld doesn’t necessarily pay cash.
“But their current balance sheet focusing on food and food ingredients could support further acquisitions in the consumer industry business,” he said.
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