Barloworld ‘to hunker down in Russia’ – CEO

Barloworld is “going to hunker down and continue to support customers in Russia” group CEO Dominic Sewela said on Tuesday, adding that he hopes the conflict with Ukraine is resolved soon.

Sewela said Barloworld would have to look at an impairment in its Eurasia equipment business because the longer the conflict and the sanctions remain in place, the more difficult it will be for the group’s business to trade.

Read: More multinational companies look to distance themselves from Russia

“It is difficult to predict what the next six months is going to be like. At the moment we haven’t taken a view that we will be loss-making, but we do believe if we don’t have clear visibility of the numbers we will have to take an impairment,” he said.

“At the time of finalising the results in May, we will know the impact … [and] what type of impairment we might be taking in this space.”

Barloworld Equipment Eurasia CEO Quinton McGeer said that in the five months to end-February, it was a “record result” in the Russian environment on both a revenue and operating level.

“We managed to grow our firm order[s] from [an] already solid $224 million to $314 million … It’s a very well balanced diversified firm order book, with all commodities presented – gold, coal, diamonds, copper, nickel and also a very strong construction and power order book,” he pointed out.

McGeer said quite a number of sanctions were implemented since the Russian-Ukraine conflict started in February and the business is now focused on understanding and interpreting these sanctions and then complying with them.

“I think the next few months will be challenging but I’m sure we will work through it … We have been through this before and we will focus on what we can control for now,” he said.

Shares in Barloworld rose 9.24% following the trading update on Tuesday, closing at R117.

In the update, the group reported achieving double-digit growth in revenue and operating profit in the five months to end-February.

However, worth noting is that Barloworld shares closed at R133.31 on February 23, the day before Russia invaded Ukraine.

Double-digit growth

Sewela said Barloworld group’s double-digit growth in both revenue from continuing operations and operating profit in the five months to end-February 2022 compared to the prior five-month period was driven by the robust performance from Equipment Southern Africa, Equipment Eurasia and Ingrain, together with the strong results from the car rental and leasing business.

He noted that the Equipment South Africa business achieved a turnaround in the DRC and the order book is at an all-time high.

Sewela said by all accounts and by looking at the five-month period, this could have been one of the greatest years for Equipment Eurasia.

“But given the challenges of sanctions, things will evolve over time and it might be a challenging six months from here on,” he conceded.

In its voluntary trading update, Barloworld noted that the group had previously indicated that it intended to exit its investment in its car rental and leasing business, Avis Budget Southern Africa, by the end of 2022.

However, the group said that it is now investigating potential options to separate Avis Budget Southern Africa by way of a sale or a separate listing via an unbundling.

“The market will remain updated on this process and a decision is anticipated on or before the release of Barloworld’s interim results for 2022,” he said.

Sewela added that the reason it is now also investigating a separate listing of this business via an unbundling is to speed up the process.

“We have received bids from potential buyers but I guess a lot of people tend to want to take advantage because of Covid-19. We won’t take any price [for the Avis business].

“But the business has done phenomenally well to the extent that we are running this as dual processes.

“When we sell the business we will have to get approval from Avis and similarly get clearance with an unbundling,” he said.

“But we have to get to a point where we say what is in the best interests of the shareholders in terms of these two processes to get the right value.”

The operating profit of the car rental improved by 205% in the five-month period compared to the prior period and by 17% compared to pre-Covid 2020 levels and at a record earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 27.1%.

Avis Fleet’s operating profit was 17% higher than the prior comparative period and 10% higher than the same period in 2020 pre-Covid.

It also achieved record Ebitda margins of 54% compared to 48% in the prior period.