Barloworld Group has reported a challenging trading environment for the first five months, characterised by continuing low business confidence, volatile commodity prices and depressed consumer demand. The company said it initiated management business contingency protocols to manage the adverse impact of COVID-19, with a Barloworld Crisis Committee set-up and the implementation of immediate austerity plans.
The roll-out of the Barloworld Business System is reported to be progressing well across the Group. Barloworld believes that the BBS will continue to enhance its business value and create a platform for integrating businesses.
The challenging trading conditions are expected to intensify in the second six months of the 2020 financial year. A strong balance sheet remains a key strength for the Group in these times, with a committed funding capacity of *ZAR7,2bn on February 29, 2020.
Before the finalisation of its acquisitions, the Group maintained a very solid cash balance of ZAR5,1bn, as of February 29, 2020. The Group’s net debt position (excluding IFRS 16) has increased to ZAR4,4bn in line with operational cycles. Its headroom on committed facilities for both the local and off-shore operations is at ZAR7,2bn.
Its strategy implementation is focused on three important strategic levers, namely to fix and optimise existing business portfolios; to implement active shareholder operating model; and pursuing acquisitive growth in vertical sectors.
The acquisitions of Wagner Asia and Tongaat Hulett Starch are said to be in line with the Group’s growth strategy, and are expected to further strengthen and diversify the Group.
The transaction was expected to close on April 1, 2020. The long-stop date is now October 31, 2020. This equipment acquisition is hoped to demonstrate the continuing expansion of Barloworld’s footprint in emerging markets and will provide a strong platform for on-going growth in the region. The business is expected to benefit from the recent capital invested into aftermarket service and repair capability, which is expected to enhance parts and service revenue.
Tongaat Hulett Starch
The transaction remains subject to the fulfilment and/or waiver of objective conditions precedent. It is anticipated that the transaction will close in the fourth quarter of 2020. This acquisition of THS will create a fully integrated and scalable food, beverage, and industrial ingredient solution vertical within Barloworld. THS will allow Barloworld to take advantage of the defensive nature of the consumer food ingredient sector and will diversify the Group’s business mix positively alongside the capital-intensive businesses in the rest of the Group.
Management and the board also continue to evaluate the portfolio in line with global trends and will consider the changes required to ensure long-term sustainable value creation.
Barloworld CEO Dominic Sewela said, “Notwithstanding this immense challenge, we continue to make good progress on our growth strategy and remain focused on sustainably doubling the intrinsic value of the Group every four years. […] The five months under review have seen good progress in driving operational efficiencies and improved capital management. […] Commodity prices and our key market economies are being impacted.”
Source: Barloworld Group
*€:ZAR19.26 / $:ZAR17.71
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