Barloworld looking to diversify its portfolio

BARLOWORLD, the listed distribution group, plans to look at opportunities outside of its existing equipment and automotive businesses after fixing under-performing businesses.

This follows a comprehensive strategic review and new strategy that was approved by Barloworld’s board in March.

Dominic Sewela, the chief executive of Barloworld, said yesterday the key initiatives included fixing and addressing under-performing businesses, optimising the existing portfolio and pursuing high-growth opportunities.

“Overall, you can expect over the next five years that we will still remain very strong from a portfolio point of view with our equipment business.

“But clearly, when you look at the mix, we are looking at other opportunities, and there will be additional operations that we have above automotive and equipment,” he said.

Segments

Sewela said he was not at liberty at this stage to disclose the segments the group would be targeting. But he said that some of the segments were in line with Barloworld’s capabilities, and the group would not be veering far from its core capabilities.

Sewela believed it would take between 18 and 24 months for the existing portfolio to be fixed, which would either generate or release cash and enable the group to build up a “war chest”.

He indicated that it was impossible to say that people in specific divisions would not lose their jobs the under-performing businesses were being fixed, but overall Barloworld was likely to generate additional jobs over the next five years.

The major under-performing businesses that need to be fixed are the group’s equipment business in Iberia and logistics.

Sewela said Spain last year generated negative returns and it had made a profit in only three of the past 10 years.

He stressed the group’s businesses needed to get closer to a return of 15 to 16 percent, which was the group’s cost of capital.

Equipment business

Sewela said Barloworld’s equipment business was very strong in terms of its capabilities in emerging markets and where it was exposed to mining.

He said a predominant business was generating returns of about 30 percent at the height of the equipment cycle, but in September made a return of 9 percent, which in his view was unacceptable.

He said the automotive business as a collective was generating returns of about 30 percent, but automotive retail was an area the company needed to focus on in terms of its returns.

Sewela said the logistics business had made acquisitions, but they had been unable to derive synergies from them and needed to take cost out of the business and improve the returns.

Barloworld yesterday reported 9-percent growth in headline earnings a share, to 365c, in the six months to March, from 335c in the previous corresponding period.

Revenue increased 2 percent, from R31.9bn to R32.5bn, largely driven by the automotive and logistics businesses.

Operating profit improved 5 percent, from R1.75bn to R1.85bn.

Cash generated from operations declined from R1.7bn to R929m.

An interim dividend a share of 125c was declared, which was 9 percent higher than the 115c in the previous corresponding period.

Shares in Barloworld rose 5.09 percent on the JSE yesterday, to close at R119.99