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2020 Interim results for the 6 months ended 31 March 2020 30 JUNE 2020
FORWARD LOOKING STATEMENTS
Barloworld may, in this document, make certain statements that are not historical facts that relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies. Examples of such forward-looking statements include, but are not limited to, statements regarding exchange rate fluctuations, volume growth, increases in market share, return on invested capital, growth opportunities, capital distribution and cost reductions, including in connection with our business performance outlook. Words such as “believe”, “anticipate”, “expect”, “intend", “seek”, “will”, “plan”, “could”, “may”, “endeavour”, “target”, “forecast” and “project” and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and there are risks that the predictions, forecasts, projections and other forward-looking statements will not be achieved. If one or more of these risks materialise, or should underlying assumptions prove incorrect, our actual results may differ materially from those anticipated. You should understand that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements.
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.
All references to years refer to the financial year 31 March 2020.
Comprehensive additional information is available on our website: www.barloworld.com
2
PRESENTATION OVERVIEW
3
Opening and welcome Zanele Salman, Head Investor Relations
Highlights Dominic Sewela, Group CEO
Financial overview Nopasika Lila, Group FD
Automotive and Logistics update Kamogelo Mmutlana, CE Charl Groenewald, CE
Barloworld Equipment Russia update Quinton McGeer, CE
Barloworld Equipment snA update Emmy Leeka, CE
Strategy Update and Group Outlook Dominic Sewela, Group CEO
Questions and answers
Group highlights
DOMINIC SEWELA GROUP CEO
4
BUILDING A SUSTAINABLE FUTURE FOR OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
Continued focus on zero harm across the Group, no work-related fatalities in the period
To date 38 employees have tested positive for COVID-19, 29 are recovering while nine have recovered, no deaths
R129 million paid in salaries to employees who were not able to work from home during lockdown in April and May
Barloworld Siyakhula small and medium enterprise beneficiaries receiving COVID-19 relief 0% interest loan repayment holiday for 6 months, R1.8 million deferred R22.4 million six month relief fund, 41 beneficiaries and 454 jobs saved
South African Solidarity fund partnership: goods and services worth R8.8 million
Khula Sizwe BBBEE transaction, 49 of the 64 properties transferred for R2.2 billion
Non-renewable energy consumption down 15%, greenhouse gas emissions (scope 1 and 2) down 17%
5
TRADING IN A COVID-19 WORLD
Challenging trading conditions Challenging trading conditions exacerbated
by COVID-19 Low activity in key industries Lower average commodity prices and
subdued demand Severe business interruption through lockdowns
and supply chain interruptions Job losses and pressures on all industries
to impact post–crisis recovery Steady improvements as lockdown measures
are lifted
Proactive mitigating measures implemented COVID-19 Policy and Crisis Committee in place
to manage and mitigate impact on employees Active reduction in operating costs 12 month remuneration sacrifice plan implemented
on 1 May 2020 Group-wide retrenchments (including early
retirement) Moratorium on external appointments Deferment of non-essential capex OEM extended payment terms and additional
counter measures to contain invested capital Expected 2020 overhead cost containment of
between R 700 million and R720 million before implementation costs
6
GROUP HIGHLIGHTS
7
Robust balance sheet remains key strength in these times Group Net debt-to-EBITDA* ratio of 0.9 times (FY19: 0.2 times) Group EBITDA to gross interest cover* ratio of 5.5 times (1H’19: 5.7 times)
Business structure and leadership driving strategy implementation and culture change
*excludes IFRS 16 impact
Group normalised HEPS
354 cents Down from
(1H’19: 521 cents)
Revenue
R25.2bn Down 12%
(1H’19: R28.7bn)
Committed funding capacity of
R8.1bn
Share Buy Back to enhance shareholder value
R1.6bn (8.6% in issue at 1 October 2019)
Return on Invested Capital
9.2% (1H’19: 11.3%)
Operating profit excl. B-BBEE
R1.2bn Down 27%
(Mar 2019: R1.6bn)
ROIC%
12.4
19.4
14.4
9.9
3.3
11.0 12.7
20.6
13.7
9.1 6.4
11.3 8.6 14.2
9.2 8.0
-4.0
9.2
Equipment southernAfrica
Equipment Russia Motor Trading Car Rental Logistics Group
Mar-18 Mar-19 Mar-20
8
AVERAGE INVESTED CAPITAL (R million)
Mar 2018 10.9 2.6 2.9 4.4 2.7 29.1
Mar 2019 11.9 2.9 2.8 4.3 2.1 28.7
Mar 2020 12.1 3.8 3.2 4.1 1.9 28.3
13.0%
Financial overview
NOPASIKA LILA GROUP FINANCE DIRECTOR
NEW ACCOUNTING STANDARDS IMPACTING THE FINANCIAL STATEMENTS – IFRS 16 LEASES
10
The accounting policies applied in the preparation of the interim financial statements, 31 March 2020 are consistent with those applied at 31 March 2019 except for the adoption of IFRS 16 Leases effective 1 October 2019.
The adoption of IFRS 16 impacts the following: Operating profit/HEPS; Finance costs Operating and Investing cash flows; Right of Use (ROU) Asset and Lease Liability.
TRANSACTIONS IMPACTING THE FINANCIAL STATEMENTS
11
OPERATIONAL CHANGES: AVIS FLEET AND NMI-DSM
1H'20 1H’19 Income statement
Avis Fleet Held for sale (discontinued operation) It was treated as a continuing operation and therefore 2019 March has been restated
NMI-DSM Equity accounted for (50% shareholding and loss of control)
Fully consolidated: (51.18% shareholding)
Statement of financial position
Avis Fleet Assets and liabilities held for sale Assets and liabilities consolidated in group
NMI-DSM Investment in associate Subsidiary
Statement of cash flows
Avis Fleet Consolidated in the statement of cash flows Consolidated in the statement of cash flows
NMI-DSM From 1 September 2019 dividends received included in dividends from associates
Cashflows consolidated for 12 months.
FINANCIAL OVERVIEW MARCH 2020
12
A CHALLENGING SIX MONTHS
Normalised Headline Earnings#
354 cents Down from
(Mar 2019: 521 cents)
Net profit after tax impact of IFRS 16:
R58m (reduction in net profit)
Effective 1 October 2019
Khula Sizwe transaction
(R132m) Up from
(Mar 2019: R24m)
Non-operating and capital items
(R1 737m) Up from
(Mar 2019: R68m loss)
Profit from Avis Fleet
R201m Down from
(Mar 2019: R 262m)
Effective tax rate
(33%) Down from
(Mar 2019: 38%)
# Group excluding IFRS 16 and B-BBEE transaction charges
Rm 1H’20
(Not reviewed) IFRS 16 impact
1H’20 Excl.
IFRS 16 1H’19
Restated
Change % Incl.
IFRS 16
Revenue 25 212 25 212 28 727 (12%) EBITDA 2 269 (294) 1 975 2 468 (8%) Depreciation and amortisation of intangibles (1 024) 201 (823) (898) 14% Operating profit before B-BBEE transaction 1 245 (93) 1 152 1 570 (21%) B-BBEE transaction charge (132) (132) (24) > 100% Operating profit 1 113 (93) 1 020 1 546 (28%) Fair value adjustment on financial instruments (84) (84) (70) 20% Net finance cost (551) 137 (414) (479) 15% Profit before non operating capital items 478 44 522 997 (52%) Non-operating and capital items (1 737) (1 737) (68) > 100% (Loss)/profit before taxation (1 259) 44 (1 215) 929 (> 100%) Taxation (415) 14 (401) (357) 16% (Loss)/profit after taxation (1 674) 58 (1 616) 572 (> 100%) (Loss)/Income from Associates and JVs (63) (63) 116 (> 100%) (Loss)/profit – Continuing operations (1 737) 58 (1 679) 688 (> 100%) Profit from discontinued operations 201 201 262 (23%) (Loss)/profit for the period (1 536) 58 (1 478) 950 (> 100%)
EPS (862.2) 313.9 DEPS (862.2) 313.0
STATEMENT OF COMPREHENSIVE INCOME
Revenue: On a comparable basis revenue decreased by 6% from 1H’19 considering the inclusion of R2bn in 1H’19 from NMI now classified as an associate.
Non-operating and capital items largely impacted by goodwill impairments (R685m),investment write-offs (R317m) and Impairment of intangible assets (R728m).
Included in the Fair value adjustment on financial instruments are forex losses of R72.7m which were incurred in the Equipment business in Angola due to the currency devaluation.
The results of Avis Fleet (discontinued operation) were impacted by lower used sales margins, lower maintenance profits and increased provisions for estimated credit losses.
13
A CHALLENGING SIX MONTHS
CONTINUING REVENUE SEGMENTAL
14
TOUGH TRADING CONDITIONS PREVAILED IN 1H’20; 1H’19 INCLUDED MOTA DEAL AND NMI
Equipment southern Africa
Equipment Russia
Automotive Trading
Rent A Car
Logistics
Rm 1H’20 IFRS 16 impact
1H’20 Excl. IFRS 16
1H’19 Restated
Change % (incl. IFRS 16)
Revenue 25 212 – 25 212 28 727 (12%)
10.0
3.2
9.3
3.3 2.9
28.7
8.9
3.8 7.2
3.2 2.1
25.2
Equipmentsouthern Africa
EquipmentRussia
AutomotiveTrading
Rent A Car Logistics Total Group
REVENUE (R billion)
1H'19 1H'20
Includes R2.0bn NMI Revenue.
Includes R2.0bn NMI Revenue.
1H’19 in Automotive Trading includes 2bn NMI revenue
35
15 29
13 8
1H’20 (%)
36
11 33
11 9
1H’19 (%)
OPERATING PROFIT SEGMENTAL ROBUST RUSSIAN RESULT AND AFRICAN RESULTS UNDER PRESSURE
15
806
314 275 281 68 (198)
1 546
722
370
85 194 (30) (240) 12
1 113
Equipmentsouthern
Africa
EquipmentRussia
AutomotiveTrading
Rent A Car Logistics Corporate Khula Sizwe Total Group
OPERATING PROFIT (R million) 1H'19 1H'20
Includes R63m NMI Operating profit.
Includes positive R93m IFRS 16 impact.
Automotive Trading 1H’19 includes R63m NMI Operating profit
Total group 1H’20 includes R93m IFRS 16 impact
Rm 1H’20 IFRS 16 impact
1H’20 Excl. IFRS 16
1H’19 Restated
Change % (incl. IFRS 16)
Operating profit 1 113 (93) 1 020 1 546 (28%)
53
27
6
14
1H’20 (%)
46
18
16
16 4
1H’19 (%)
Equipment southern Africa
Equipment Russia
Automotive Trading
Rent A Car
Logistics
FAIR VALUE ADJUSTMENTS OF FINANCIAL INSTRUMENTS IMPACT OF FOREIGN EXCHANGE MOVEMENTS WELL MANAGED
16
Higher fair value adjustments of financial instruments was due to weakening local currencies against the USD offset by hedging gains in our Equipment business.
Rm 1H’20 IFRS 16 impact
1H’20 Excl. IFRS 16
1H’19 Restated
Change % (incl. IFRS 16)
Fair value adjustment on financial instruments (84) – (84) (70) 20%
NET FINANCE COSTS NET FINANCE COSTS CONTAINED THOUGH IMPACTED BY IFRS 16
17
Higher finance costs against 1H’19 were driven by IFRS 16 (R137m finance cost impact).
Whilst debt levels are higher in the group there was some relief from marginally lower funding costs in SA.
Rm 1H’20 IFRS 16 impact
1H’20 Excl. IFRS 16
1H’19 Restated
Change % (incl. IFRS 16)
Net Finance cost (551) 137 (414) (479) 15%
NON-OPERATING AND CAPITAL ITEMS
18
COVID-19 AND ECONOMIC DOWNTURN IMPACT FUTURE EXPECTATIONS RESULTING IN IMPAIRMENTS
Rm 1H’20 IFRS 16 impact
1H’20 Excl. IFRS 16
1H’19 Restated
Change % (incl. IFRS 16)
Non-operating and capital items (1 737) – (1 737) (68) >100%
Non-operating and capital items largely affected by impairments: 1H’20 1H’19
Car Rental Goodwill 619 –
Equipment Botswana, Zambia, Angola, Mozambique, Malawi Goodwill and indefinite life intangibles 765 –
BHBW Investment in JV 187 –
NMI Investment in Associate 124 –
Other impairments and losses 42 –
Non-operating and capital items 1 737 68
TAXATION
19
EFFECTIVE TAX RATE IMPACTED BY LOCAL CURRENCY DEVALUATIONS AND TAXES INCURRED ON THE KHULA SIZWE PROPERTY DEAL
28
-33 +0 +3
-3 -3
-22
-1 -3 -23
-9
-45
-35
-25
-15
-5
5
15
25
35
Group tax rate Prior year taxes Foreign rate differential
Permanent differences Tax losses of prior periods
Tax losses not utilised Rate change adjustment
Withholding tax Exceptional tax Deferred tax recognised in terms of
IAS12 para 41
Tax as a percentage of Profit before tax
SA tax rate
%
Rm 1H’20 IFRS 16 impact
1H’20 Excl. IFRS 16
1H’19 Restated
Change % (incl. IFRS 16)
Taxation (415) 14 (401) (357) 16%
LOSSES FROM ASSOCIATES AND JOINT VENTURES
20
RESULTS UNDER PRESSURE
Rm 1H’20 IFRS 16 impact
1H’20 Excl. IFRS 16
1H’19 Restated
Change % (excl. IFRS 16)
(Loss)/Income from Associates and JVs (63) – (63) 116 (>100%)
Rm 1H’20 1H’19
Bartrac (DRC) (38) 134
NMI (DSM) 20
BHBW (Agriculture) (39) (1)
Other (6) (17)
Total (63) 116
20
-38
-39 -6 0
134
-1 -17
-60
-40
-20
0
20
40
60
80
100
120
140
160NMI Bartrac BHBW Other
Associate and JV income (Rm)
1H20 1H19
HEPS AND NORMALISED HEPS ANALYSIS
21
CHALLENGES PERSIST; AVIS FLEET IS AN ACCOUNTING ANOMALY; KHULA SIZWE RENTALS ELIMINATE ON CONSOLIDATION
475
354
268
+199
+90 +34 +1 +22 -38
-83
-18 -74
-81
-42 -21
-39 -16 -40 -16 -58
-28
-20
40
100
160
220
280
340
400
460
520
580
640
700
760
820
880
STATEMENT OF FINANCIAL POSITION MARCH 2020
22
FINANCIAL POSITION REMAINS STRONG AGAINST SEPTEMBER 2020 (1H’19 NOT RESTATED FOR NMI DECONSOLIDATION AND AVIS FLEET HELD FOR SALE)
Commentary
Avis fleet was treated as a continued operation in 1H’19 and it is a discontinued operation in 1H’20. Impairments and JV losses offset by right of use assets recognised (IFRS 16)
Investments in working capital were offset by a decrease in cash
1H’20: Avis Fleet and Smart Matta; Barlow Park; BWE snA properties (1H’19 excl. Avis Fleet and BWE snA properties and included Logistics Middle East)
Losses were generated to 1H’20 and the special dividend of R500m and share buy back of R1.6bn has also contributed to lower equity
Higher borrowings together with lease liabilities (IFRS16) partially offset by lower Pension Fund Deficit (GBP37m contributions paid in together with lower deficit valuation)
Higher borrowings together with lease liabilities (IFRS 16) and contract assets (IFRS 15) partially offset by lower trade and other payables
1H’20: Avis Fleet and Smart Matta; Barlow Park; BWE snA properties (1H’19 excl. Avis Fleet and BWE snA properties and included Logistics Middle East)
R million 1H’20
(not reviewed) 1H’19
reviewed Sept 2019
audited
Non-current assets 14 996 19 469 14 540
Current assets 26 525 27 968 26 871
Assets classified as held for sale 5 606 311 5 780
Total assets 47 127 47 748 47 191
Equity 21 315 23 127 23 895
Non-current liabilities 9 300 9 480 7 336
Current liabilities 14 214 15 082 13 738
Liabilities classified as held for sale 2 289 59 2 222
Total equity and liabilities 47 127 47 748 47 191
CASH FLOWS AND NET DEBT (EXCL. IFRS 16)
23
HIGHER OPERATING CASH OUTFLOWS; DIVIDENDS; WC OUTFLOWS AND SHARE BUY BACK HAVE INCREASED NET DEBT
8 369
-
5 115
9 764
1 066
+2 444 +116 +41
+1 562
4 649
7 303
-114
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
Opening debt Opening cash Opening net debt Net cash applied tooperating activities
after dividends
Net cash used ininvesting activities
Effect of USDdenominated cash
Share-buy back Other financingactivities
Closing net debt Closing Cash Closing Gross Debt
Rm
NET DEBT, EBITDA/ INTEREST COVER
24
1 066
5 115
5.7 [VALUE]
0
1
2
3
4
5
6
-
1 000
2 000
3 000
4 000
5 000
6 000
Sep-19 1H'20
Net debt EBITDA/interest cover
R million times
Net debt/ EBITDA 0.9 x (2019: 0.2 x)
Covenants excl. IFRS 16: Net debt/ EBITDA <3 times, EBITDA/Interest > 3.5 times
SUBSEQUENT EVENTS
Avis Fleet is no longer held for sale (discontinued operation) and will form part of continuing operations
The DMTN programme increased from R10bn to R15bil in line with strategy
Our covenants have been relaxed from all of the banks for the next cycle
Our cash flow forecasts have been adjusted for COVID-19
Austerity measures applied to other expenses resulting in savings
25
MANAGING THE IMPACT:
26
COST CONTAINMENT MEASURES
Cost savings on retrenchments in FY2020 to the amount of R125m
Total savings on salary sacrifices and pension holiday (FY2020) R276m
Property operating leases savings on of R13m
Capex spend significantly reduced resulting in a saving of R597m
Restructuring and consolidating subsidiaries
Travel, consulting and events cancelled resulting in a saving of R53m
Cancelled all non-essential training
Austerity applied to other expenses resulting in a saving of R204m
CURRENT INITIATIVES
DEALING WITH COVID-19
CONCLUSION
Strong Balance Sheet
Healthy gearing positions
Comfortable liquidity position
Cost containment measures
27
Divisional overview
KAMOGELO MMUTLANA CE AUTOMOTIVE AND LOGISTICS
AUTOMOTIVE
29
1H’20 HIGHLIGHTS
Operating environment
YTD February NAAMSA SA dealer market down -2.1% on prior year, with sharp decline of 33% in March Challenging economic conditions and recent developments in COVID-19 impacting new vehicle sales Volume brands decline and margins under pressure SAVRALA car rental market, marginal growth on prior period – positive monthly growth to February, double
digit decline in March
Financial performance
ROIC at 9.1% impacted by lower operating results Strong cash generation supported by sale of properties Improved results from our NMI-DSM Joint Venture In line with uncertainty, division considered fair value of assets, investments and expected credit losses Goodwill and investment impairments of R743 million Newly acquired BMW Centurion contributed positively to results
Enhancing returns
Accelerated BBS implementation Centralised Strategic Sourcing achieved 70% of realized savings target Fit-for-purpose operating model and structure in place Countermeasures in place to safeguard sustainability of business
FINANCIAL PERFORMANCE
Revenue and operating profit down on comparable basis 1.4% and 43% respectively Deconsolidation of NMI-DSM Initial impact of COVID-19 Depressed activity levels in Motor Trading and impact in rental days in March
Impact of strategic investment in Khula Sizwe Lower ROIC mainly due to lower operating result, across all businesses
30
AUTOMOTIVE (CONTINUING OPERATIONS)
Revenue (Rbn) Operating profit (Rm) ROIC (%)
12.6 10.4
-17% 556
279
-50% 11.2
9.1
-1.8 bps
1H’19 1H’20 1H’19 1H’20 1H’19 1H’20
FINANCIAL PERFORMANCE
On a comparable basis revenue down 0.2% and operating profit down 60% Depressed South African dealer market, down 7.9% Volume brands decline with lower margins
Impact of strategic investment in Khula Sizwe Provision for COVID-19 related expected credit losses and net realisable value of used vehicle stock Lower SMD contribution due to reduced volumes
31
MOTOR TRADING
Revenue (Rbn) Operating profit (Rm) EBITDA (Rm)
1H’19 1H’20 1H’19 1H’20 1H’19 1H’20
9.3 7.2
275
85
316
[VALUE]
-22% -69% -38%
FINANCIAL PERFORMANCE
Operating profit impacted by negative rate per day and rental days decline in March Used vehicle operating profit contribution up on prior period despite lower revenue Vehicle damage expenses lower than prior period assisted by implemented technology COVID-19 related provisions for expected credit losses and estimated decline in net realizable value of rental fleet Goodwill impairment of R619 million
32
CAR RENTAL
Revenue (Rbn) Operating profit (Rm) EBITDA (Rm)
3.3 3.2 281 194
649 644
1H’19 1H’20
-4% -31% -2%
1H’19 1H’20 1H’19 1H’20
AUTOMOTIVE (CONTINUING OPERATIONS)
33
BUSINESS GEARING UP FOR IMPROVED ACTIVITY
Utilisation
New and used vehicles sold After sales revenue
Billed days
Limited growth Disposable income under pressure Buying down trend expected to continue Oversupply expected to impact margins
Quicker recovery Expected to reach 80% of prior activity levels by year end
Alternative revenue streams New value propositions Customer move to private transportation instead of ride hailing services
Off-airport growth Limited domestic and international travel Increased activity Local and Replacement segments
February March April May
Current year Prior year
February March April May
Current year Prior year
February March April May
Current year Prior year
February March April May
Current year Prior year
AUTOMOTIVE OUTLOOK AND STRATEGIC FOCUS AREAS
Division to execute on fix and optimise strategy following impact of COVID-19 and depressed economic conditions
Fit-for-purpose business operating model and structure
BBS: Disciplined focus to value extraction
Avis Fleet will remain a fully owned subsidiary
Focus on cash generation, turning fleet into cash
Motor Trading
Review dealership Portfolio, growth in aftersales and used vehicles
Estimated 30% reduction in cost base, including retrenchments
Rationalisation of leased and owned facilities
Car Rental
Estimated 40% to 60% reduction in cost base, including retrenchments
Rationalise branch network by about 30%
Review value added services and regional countries
Divisional overview
CHARL GROENEWALD CE LOGISTICS
35
LOGISTICS
Good progress made on turnaround strategy Middle East sale concluded, SmartMatta exit Contract retention rates remained high despite volume and margin pressures Balance sheet management supported through revised funding model for on-balance sheet vehicles and trailers
Revenue impacted by KLL, Middle East exit and non-renewal of non-profitable Managed Solutions contracts in the prior year
Operating results impacted Early onset of COVID-19 on global freight and transport volumes in February, worsened by start of lock-down in March High fixed costs and increased fleet running costs Impact of strategic investment in Khula Sizwe
EBITDA and invested capital impacted by IFRS 16
36
FINANCIAL PERFORMANCE
Revenue (Rbn) Invested Capital (Rm) EBITDA (Rm)
1H’19 1H’20
2.9 2.1
146 158 -28% +8%
1 751 2 008 +15%
1H’19 1H’20 1H’19 1H’20
LOGISTICS
37
OUTLOOK: RECOVERY PROMISING, BUSINESS GEARING UP FOR THE NEW NORMAL
Industry will continue to be impacted by COVID-19 and related economic effects Variations in volumes due to significant changes in demand patterns including boarder/port restrictions Expiring contracts given short term extensions related to uncertainties in the Market SARS Import Duty Deferments granted in June
Gradual improvement in activity levels to support cash generation
Oct Apr May Nov Dec Jan Mar Feb
Global Freight Transport
Oct Nov Dec Jan Feb Mar Apr May
Prior year Current year
LOGISTICS
38
CONTINUES FIX STRATEGY
Fix-for-purpose operating model and significant rationalisation at Head Office Support levels in 2020/2021
S189, estimated 21% to 25% employee costs reduction
Consolidated business unit management whilst strengthening business development
High contract renewals for 1 to 5 years coupled with new 2 to 5 year contracts in targeted segments
Further invested capital reduction anticipated as we leverage Avis Fleet for vehicle financing and management
Austerity measures in place, fixed/variable ratio to reduce in the future Accelerating Digital
transformation, including efficiencies stemming from the new operating system in Freight Forwarding
Leveraging capability and capacity of divisional shared services and strategic sourcing
FIX STRATEGY
Divisional overview
QUINTON MCGEER CE EQUIPMENT RUSSIA
39
FINANCIAL PERFORMANCE
Revenue up 15% due to robust mining activity, particularly in the gold Operating profit up 17% driven by revenue growth Aftermarket business remains active but impacted by the slowdown in the coal sector Good operating margins but slightly influenced by sales mix Positive cash flow generated USD2.5 million driven by profitable results and working capital management ROIC of 15.8% well above the group threshold of 13%
40
STRONG RESULTS
Revenue (Rbn) Operating profit (Rm) Operating margin ((%)
1H’19 1H’20 1H’19 1H’20 1H’19 1H’20
3.3 3.8 315 370 9.5 9.7
+15% +17% +0.2bps
25% 29% 36% 28% 27% 33% 46% 61% 51% 51% 37% 51%
50% 43%
-
100
200
300
400
500
600
700
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1H'19 1H'20
Product support Equipment sales OP Margin
3.4% 5.6%
9.6% 9.1%
8.7%
10.5% 11.2%
12.1% 11.0% 10.2%
6.1%
Global Financial
Crisis
Crimea Crisis and Sanctions
Sanctions and Retaliatory
Duties Oil drops to ~USD30
Revenue mix: product support vs equipment sales USDm
11.6% 85%
7% 4% 4%
Mining Infrastructure Power Other
1H’20 New equipment revenue (%)
Mining segment remains the main contributor to equipment sales
AFTERMARKET CONTRIBUTION REMAINS HEALTHY
41
9.5% 9.7%
DIVERSIFIED COMMODITY EXPOSURE DEFENDS AGAINST CYCLICALITY
42
35%
29%
8%
4%
8%
16%
1H’19 Revenue (%)
43%
17%
15%
3% 6%
16%
1H’20 Revenue (%)
Gold Coal Copper/nickel/aluminium Diamond Construction
Other
43
Norilsk
Mirniy Yakutsk
Nerungry Omsk
Barnaul
Novosibirsk Kemerovo
Achinsk
Mezhdurechensk Krasnoyarsk
Chita Ulan-Ude
Irkutsk
Magadan
Anadyr
Petropavloysk- Kamchatskiy
Greenfields/Major Projects Firm order (March 2020) YTD March 2020
Polyus Existing Projects
USD56.2m USD36.4m
Norilsk Nickel
USD28.6m USD21.0m USD30.7m
Alrosa
USD9m USD3.4m
Pavlik
USD7.3m USD16.2m
Udokan
USD51.9m USD9.3m
NordGold
USD3.5m USD2.1 USD10.1m
KazMinerals (2023-2025)
USD300m
Polyus Sukhoi Log
USD325m
MINING ACCOUNTS
DIVISIONAL STRATEGY
44
KEY INITIATIVES REMAIN RELEVANT
OVERALL OUTLOOK
Russia remains key market with growth potential, despite geopolitical uncertainties Current trading trajectory expected to continue, mining sector and commodity outlook remaining stable Cash preservation remains a key focus area Tight control on expenses and working capital management Strong aftermarket revenues contribution expected in H2, supporting overall profitability ROIC expected to remain above 13% hurdle rate
45
Strong Order book (USD million)
114
84
62
1H'19
FY'19
1H'20
+4% 56
Divisional overview
EMMY LEEKA CE EQUIPMENT SOUTHERN AFRICA
46
FINANCIAL PERFORMANCE
47
OPERATIONAL REVIEW
806 722
1H'19 1H'20
OPERATING PROFIT (Rm)
Revenue down 11.1% vs. prior year due to tough trading conditions and a once off Mota Engil deal in 1H’19
Operating margin in line with prior year at 8.1% driven by cost reduction measures
Invested capital before IFRS 16 down by 8.5% to R10.9 billion (1H’19: R12.0 billion)
Positive cash generation of R738 million (1H’19: R331 million)
8.0 8.1
1H'19 1H'20
OPERATING MARGIN (%)
1 077 [VALUE]
1H'19 1H'20
EBITDA(Rm)* -10.4% +0.1 bps
-4,9%
* Rental Fleet Depreciation of R113 million (1H’19 R123 million)
NEW EQUIPMENT SALES BY MARKET SEGMENT
Mining Construction Energy & Transportation
1H’20
49%
12%
24%
15%
1H’19
48
Contract Mining
CONTRACT MINING IMPACTED BY ONCE OFF DEAL IN 1H’19; MINING RESILIENT
Construction includes agriculture & forestry
24%
6% 40%
30%
48 52 43
14
19
24
2
2 9 17 7 8
5 7 8 7 5 5 5 4 2 3 3 2
2019 1H'19 1H'20
Coal Platinum Gold Diamonds Copper Iron Ore Manganese Other
Other refers: Uranium, zinc, Gemstone and mineral sands
Mining machines sales split by commodity (%)
COMMODITY MIX
49
DIVERSE COMMODITY EXPOSURE DEFENDS AGAINST CYCLICALITY
SALES MIX
50
RESILIENT AFTERMARKET CONTRIBUTION TO TOTAL REVENUE
33%
41% 43%
50% 56% 57% 52%
54%
53% 58%
9.4% 8.7%
9.0% 9.0% 8.5%
9.8% 9.1% 9.0%
8.0% 8.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
R-
R5 000
R10 000
R15 000
R20 000
2012 2013 2014 2015 2016 2017 2018 2019 1H'19 1H'20
Sales in R million
Aftermarket Equipment Sales Operating margin
FINANCIAL RETURNS (ROIC%) BY COUNTRY
51
Average invested capital (R million)
RSA Namibia Mozambique Zambia Malawi Botswana Angola Southern
Africa 1H’19 7 311 419 935 785 85 503 1 659 11 843
1H’20 7 435 365 1 238 845 104 396 1 665 12 118
17.4
%
24.0
%
19.9
% 6.5%
10.0
%
-12.
1%
-3.4
%
12.6
%
11.8
%
25.1
%
7.8%
-3.8
%
7.8%
2.4%
-0.7
%
8.6%
RSA Namibia Mozambique Zambia Malawi Botswana Angola SouthernAfrica
1H'19 1H'20 Hurdle rate
Group hurdle rate 13,0%
RETURNS BELOW HURDLE RATE AS ACTIVITY LEVELS REDUCE
BARTRAC JV
Lower returns due to a significant reduction in activity levels at key customers operations
Weakening global demand on the back of falling commodity prices
Investment delays due to uncertainties
Share of income expected to remain low for the remainder of current financial year
52
DISAPPONTING RESULTS DUE TO LOWER ACTIVITY LEVELS
268
134
-38
2019 1H'19 1H'20
Associate income from Bartrac (R million)
DIVISIONAL STRATEGY
53
COVID19 HAS SET US BACK: FOCUS ON FIXING THE BUSINESS
Reduce Costs
Optimise invested capital
Improve performance in
regions below our hurdle rate
Grow Services revenue
Enhance processes and
efficiency through Barloworld
Business System
MINING PROJECTS OUTLOOK
54
Vale USD15m USD15m
ANGOLA ZAMBIA
MOZAMBIQUE
NAMIBIA
RSA
ZIMBABWE
BOTSWANA
Assmang
USD30m
Seriti
USD60m
Mogalakwena
USD80m USD23m
Greenfields/Major Projects Replacements
Boikarabelo
USD100m
Orapa
USD100m
Maravi Copper
USD17m
FQM
USD20m
Tshukudu
USD50m
Gamsberg II USD67m
Glencore
USD10m
Sasol
USD103m
Mafube
USD23m
Imvula
USD50m
Husab
USD23m
B2Gold
USD12m
Tshipi
USD30m Kapstevel
USD80m
PROJECT DEMAND REMAINS
Swartberg
USD23m
OUTLOOK
55
CHALLENGING OUTLOOK FOR REST OF 2020 AND PART OF 2021
MINING
CONSTRUCTION
Activity levels expected to improve as lockdown restrictions are eased in many countries In the medium term, a slowdown in the global economy expected Reduced activity levels in the DRC to continue
Infrastructure projects significantly impacted and unlikely to turn in the near term Regional economies forecasting negative growth rates and redirecting public spend
to healthcare
CONTRACT MINING Contract Mining operating model expected to remain CATFin to continue supporting emerging contractors and contract miners
GENERAL Growth in machines market share and services growth remains a priority Executing on identified austerity measures to minimize the impact of COVID-19 Leveraging BBS to support our strategic priorities
R2 394 million
R 2 377 million
Order book
1H’20
1H’19
Strategy update and outlook
GROUP PRESENTATION
56
DOMINIC SEWELA GROUP CEO
STRATEGY UPDATE
57
Equipment southern Africa rightsizing and streamlining Botswana and Angola, improved ROIC
Automotive and Logistics business review
Fix and optimise Shareholder active model Growth
Goal: create centres of excellence, provide strategic direction and collaboration for Group strategy delivery
Corporate centre measures implemented to reduce costs and streamline functions
BBS roll-out: significant improvement in employee engagement and ways of working
Opportunities to unlock value and improve efficiencies leveraged
180 Katherine Street precinct redevelopment
Goal: value creation balanced against sustainable development framework
Acquisition of Mongolia CAT dealership October 2020
Acquisition of Tongaat Hulett Starch October 2020
Due consideration of the current fluid macroeconomic environment
LOOKING AHEAD
Trading environment impacted by the negative short term outlook for recovery and growth Business confidence in some regions down significantly and average consumer expected to remain under pressure
A strong balance sheet and mature business platforms are key strengths to navigate current challenges
Key focus areas cash preservation, lowering operating costs and ensuring business well positioned for recovery strategic path to improve efficiencies and performance assessment of long-term business fundamentals in ongoing portfolio review accelerate customer solutions in the current environment
58
Thank you GROUP PRESENTATION
BARLOWORLD INVESTOR RELATIONS TEL: +27 11 445 1000 E-MAIL: [email protected]
Supplementary Information
60
ANNEXURE 3.1: FOCUS AREAS GOING FORWARD MARCH 2020
61
METRICS FOCUSED ON RETURNS
STRATEGY IMPLEMENTATION
(EXCL IFRS 16)
STRATEGY IMPLEMENTATION
(INCL. IFRS 16)
MANAGING FOR VALUE TARGETS
(EXCL. IFRS 16)
HEPS* 354 cents 268 cents
GEARING** 24% 35% 40 – 60%
ROIC* 9.5% 9.6% >13%
EP* (R1 018m) (R1 134m) Positive delta
FCF* (R1 270m) (R1 443m) Cash conversion >50% EBITDA
* Group. ** Net debt:equity.
Definitions ROIC: Return on Invested Capital EP: Economic Profit FCF: Free Cash Flow
ANNEXURE 3.2: IMPACT OF CURRENCY
62
(EXCLUDING THE FAIR VALUE IMPACT OF THE USD CASH HELD IN THE UK)
Closing rate Average rate
Rand Mar 2020 Mar 2019 Mar 2020 Mar 2019
Exchange rates
United States Dollar 17.86 14.42 15.10 14.10
British Sterling 22.15 18.79 19.50 18.28
R million
Increase/ (decrease) in
revenue
Increase/ (decrease) in
operating profit
Headline earnings improvement/
(decline) due to exchange rates
Equipment southern Africa 148 9 -15
Equipment Russia 251 27 9
Automotive 17 2 1
Handling
Logistics 1
Corporate Office -3 24
Total Group 416 35 20
ANNEXURE 3.3 IFRS 16 IMPACT ON NUMBERS
63
31 March 2020 Rm
Right of use asset 1 769
Lease liability 2 345
Cash (utilised in)/generated from operations (175)
Net cash (used in)/from financing activities 175
Depreciation 201
Operating profit 93
Finance costs 137
Profit before tax 44
Tax 14
Profit after tax 58
ANNEXURE 3.4: SEGMENTAL IMPACT OF IFRS 16 AND KHULA SIZWE RENTALS
64
Rm Group
Equipment Southern
Africa Equipment
Russia Motor
Trading Car
Rental Logistics Corporate Khula Sizwe
Operating result before B-BBEE charges 1 245 736 370 99 203 (16) (224) 77
Impact of IFRS 16 – excluding Khula Sizwe 123 61 6 45 18 110 (37) (79)
Impact of Khula Sizwe 78 41 29 6 2 0
IAS 17 lease expense (294) (116) (8) (168) (41) (161) 15 184
Operating result before B-BBEE charges and IFRS 16 1 152 722 369 5 185 (65) (246) 183
Proforma Avis Fleet as a continuing operation Rm Avis Fleet
Operating result before B-BBEE charges 683
IFRS 5 impairment reversal (413)
Impact of IFRS 16 – excluding Khula Sizwe 2
Impact of Khula Sizwe 0
IAS 17 lease expense (4)
Operating result before B-BBEE charges and IFRS 16 268
ANNEXURE 3.5 INVESTMENT IN WORKING CAPITAL MARCH 2020
65
CASH INVESTED IN WORKING CAPITAL ACROSS ALL BUSINESSES WITH THE EXCEPTION OF EQUIPMENT SOUTHERN AFRICA
Rm Mar 2020 Sep 2019
Working capital
Inventories – movement (339) 686
Receivables – movement (251) 244
Payables – movement (1 780) (165)
Total working capital – (increase)/decrease (2 370) 765
Rm Mar 2020 Sep 2019
Segmental
Equipment southern Africa 246 733
Equipment Russia (251) (7)
Automotive (1 222) 501
Logistics (72) (129)
Other (1 071) (333)
Total working capital – (increase)/decrease (2 370) 765
Days Mar 2020 Sep 2019
Working capital days 53 23
ANNEXURE 3.6 DEBT MATURITY PROFILE
Ratio of long-term to short-term debt 62:38 R950 million bonds issued in May 2020 R16.3 billion (committed R13.5 billion) unutilised bank
facilities at 1H’20 Cash and cash equivalents R4.6 billion (1H’19 – R6 billion) Moody's downgraded Barloworld to Ba1 from Baa3
in line with the South African sovereign downgrade
66
BALANCE FUNDING PORTFOLIO AND STRONG BORROWING CAPACITY
3 970
1 005
2 699
715
89 121
1 164
38%
11%
29%
8%
1% 1%
12%
0%5%10%15%20%25%30%35%40%45%
- 500
1 000 1 500 2 000 2 500 3 000 3 500 4 000
FY20 FY21 FY22 FY23 FY24 FY25 FY26 onwards
MATURITY PROFILE OF DEBT ON BALANCE SHEET
Debt Repayment
Rm
18
82
RATE (%)
506
8 909
CURRENCY (Rm)
Fixed Variable
RATE (%)
South Africa Offshore
CURRENCY (Rm)
ANNEXURE 3.7 B-BBEE ‘KHULA SIZWE’ TRANSACTION CHARGE
67
IFRS 2 and Implementation Charges 31 March 2020 Rm
Total Barloworld
Group
Barloworld operating segments
Khula Sizwe segment
IFRS 2
Management trust* 19 11 8
Employee trust** 55 43 12
Black public*** 45 – 45
Total IFRS 2 charge 119 54 65
Implementation charge 13 13 0
Total B-BBEE transaction charge 132 67 65 *Incurred over 5 years **incurred over 2 years ***once-off charge
ANNEXURE 3.8: EXPLAINING NET DEBT
68
AVIS FLEET: GROUP VS EXTERNAL FUNDING
R million
1H’19 Balance sheet
as disclosed Avis Fleet
(held for sale)
2019 Balance sheet including held
for sale
2019 Balance sheet including held
for sale
Cash 4 578 71 4 649 7 303
Gross debt 9 235 529 9 764 8 369
Net debt 4 657 458 5 115 1 066
REGIONAL UPDATE
69
RSA
Mining remains resilient with some reduction in commodity prices offset by weaker rand
Construction sector unlikely to recover in the near term
MOZAMBIQUE
LNG project secures funding but project activity impacted by COVID-19
Coal mining operations not running at full capacity due to COVID-19
DRC
New mining code continues to negatively impact the industry
Lower production volumes
ZAMBIA
Recent rally in copper price positive but unclear if this is sustainable
Changes in the mining regulatory environment
ANGOLA
Lower Oil prices resulting in lower activity
Low diamond prices also negatively impacting mining activity
Currency devaluation continues to impact economic growth
BOTSWANA
Weak diamond prices and sharp decline in sales impacting mining activity
NAMIBIA
Strong gold prices to support mining activity Country likely to end 2020 with a 4th
consecutive year of recession Planned investment in power
generation and transmission expected to boost construction
MALAWI
Construction market remains subdued
Political uncertainty ahead of new presidential elections
ZIMBABWE
New policy regulation to protect foreign and local investors
Hyperinflation fueled by weak exchange rate and lack of liquidity
MYRIAD OF CHALLENGES AND OPPORTUNITIES ACROSS OUR TERRITORIES