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LEVERAGING OUR SCALE AND ASSETS AND MAINTAINING LEADING BRANDS |
Equipment Eurasia |
DIFFERENTIATING CAPABILITIES
Extensive facility footprint with modern repair centres in key locations throughout the territory
Highly skilled, purpose trained workforce
Full alignment with and support from Caterpillar
Rebuild and salvage capabilities
Strong focus on digital service offering including e-commerce, machine health, predictive analytics and niche technologies to support effective and efficient customer operations
OUR OPERATING CONTEXT IN 2020
Equipment Eurasia represents our combined Russian and Mongolian Caterpillar operations. The Mongolia transaction closed on 1 September 2020 and the Eurasia numbers include one month of trading in the Mongolian territory. The region is a key market for Barloworld, with a diverse customer base including large mining houses, junior and contract miners, infrastructure, forestry and oil and gas. Our resources portfolio covers a range of commodities including gold, copper, nickel, diamonds, and coking and thermal coal among others.
Mongolia's average GDP growth from 2017 to 2019 was close to 6%, but the economy is expected to contract by 2.6% in 2020.
Russian GDP is expected to contract by 4.1% for 2020 as the economy has been hit hard by COVID-19 together with the drop in energy prices. This has resulted in the Rouble devaluing significantly and ending the year at a rate of 79.7 to the dollar.
Possible future risks and headwinds for the Russian economy include a prolonged COVID-19 outbreak with resultant lockdowns and an extended period of low energy prices. Given the resilience shown by the Chinese economy during 2020, a recovery in trading activity is possible.
2020 HIGHLIGHTS
Revenue was up 22% (+8% in USD) due to robust mining activity, particularly in gold and other metals, while the oil price and the COVID-19 pandemic have produced a severely negative impact on construction as well as the oil and gas segment.
The region continued to perform well - the resilience of our people in difficult circumstances enabled us to deliver pleasing results across all areas.
We capitalised on our facility footprint and repair capabilities to produce solid aftermarket performance for the year, although this was impacted by a slowdown in the coal segment.
Margin realisation was good in both prime and aftermarket products. This, linked with good cost management, resulted in a strong operating margin.
Operating profit was up 16% (+1.8% in USD), driven by revenue growth in Russia and one month's revenue in Mongolia.
The business generated positive cash flow of USD53 million (2019: USD36.6 million) through profitable results and good working capital management.
The development of dealership capabilities, growth in installed machine population, and expansion of parts and service business remain cornerstones of our Eurasian operations.
ROIC 14.0% (17.7% normalised).
MANAGING FOR VALUE IN 2020
Our medium term strategy is to optimise and grow in order to continue exceeding targeted group return on invested capital of 13%.
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OPTIMISEWe continue to improve our aftermarket capabilities and the digital aspect of the business with a view of offering fit-for-purpose solutions to our customers. Aligned to this are several ongoing strategic initiatives:
As one of the leading dealers in the digital space, we have the capability to pilot new technologies and customise these to the needs of our customers and our dealership as they evolve. |
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GROWTo build on our outstanding performance over the last three years we:
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PERFORMANCE OVERVIEW
Mongolia's first month of trading produced a pleasing result and we remain optimistic that this new acquisition will contribute positively to the Barloworld result. A lack of clarity on the evolution of the COVID-19 pandemic is the major short term risk.
Russia produced good results for the period to September 2020, driven by an active mining industry and good growth in the gold sector in particular. The impact of COVID-19, the slower coal segment, as well as the economic impact of the lower oil price, stifled topline growth. The Rouble devaluation further negatively impacted returns.
At a Eurasia level, revenue at USD467 million was up 8.0% on the prior period and operating profit at USD51 million was up 1.8%. However, the operating margin dropped from 11.6% to 10.9% due to the change in the sales mix. Despite the decreased operating margin, the result is industry leading due to continued cost containment and good margin realisation in both prime product and aftermarket.
The aftermarket contribution remains healthy but was negatively impacted by the slower coal sector due to reduced thermal and coking coal prices. Operations generated positive cash flow driven by profitable results and working capital management. The Russian ROIC of 14.0% was retained above the Group threshold of 13% despite the negative impact of a deferred tax charge due to the weakening of the Rouble.
With respect to the COVID-19 pandemic, the division continues to implement Barloworld's required safety measures and best practice, also following the guidance issued by respective country and regional authorities to protect the health and safety of all citizens.
The total firm order book was USD105 million at the end of September, with further firm orders to the value of USD37 million secured after 30 September 2020.
OUTLOOK
- Mongolia is a key market for Barloworld, with good opportunities in expanding construction and mining sectors.
- The mining sector will benefit from a significant railroad expansion that will increase commodity export capacity to China.
- The Russian mining sector and commodity outlook are expected to remain stable.
- Our continued focus on aftermarket solutions tailored to customer requirements will bear fruit.
- Enhanced operational excellence will be driven through the BBS.
- The firm order book shows pleasing growth.
- Improved performance is expected in component rebuild and salvage activities.
TRENDS
The short to medium term impact of COVID-19 is uncertain.
Sanctions/duties are expected to remain unchanged in the short to medium term.
Geopolitical uncertainties globally and in the region are expected to continue, with the US/China trade war ongoing (high correlation between the Russian and Chinese economies).
Commodity prices should remain stable or improve.
Several greenfield projects are in the exploration and bankable feasibility study stages, boosting future opportunities.
Environmental concerns are becoming increasingly important and may impact funding availability.
Mining customers are moving towards larger equipment, providing greater aftermarket opportunities.
EQUIPMENT RUSSIA REVENUE PROFILE BY LINE OF BUSINESS (%)
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SALES BY INDUSTRY (%)
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DIVISIONAL KEY PERFORMANCE INDICATORS
| EURASIA | ||
| 2020 | 2019 | |
|---|---|---|
| FINANCIAL | ||
| Revenue (Rm) | 7 540 | 6 185 |
| Operating profit (Rm) | 834 | 719 |
| Operating margin (%) | 10.4 | 11.6 |
| Net operating assets (Rm) | 5 272 | 3 170 |
| Invested capital (Rm) | 5 594 | 3 398 |
| ROIC (%)§ | 14.0 | 17.7 |
| HUMAN AND SOCIAL | ||
| Employee headcount | 1 686 | 1 055 |
| LTIFR* | 0.18 | 0.28 |
| Work-related fatalities | 0 | 1 |
| NATURAL | ||
| Petrol and diesel (ML) | 0.99 | 1.07 |
| Grid electricity (MWh) | 4 668 | 3 495 |
| Non-renewable energy (GJ)+ | 52 169 | 50 618 |
| GHG emissions (tCO2e)# | 4 177 | 3 868 |
| Water withdrawals (ML)^ | 11 | 12 |
| § | In terms of United States dollar |
| * | Lost-time injury frequency rate = (Number of lost-time injuries x 200 000)/hours worked |
| + | Excludes energy from rental fleets |
| # | Scope 1 and 2 |
| ^ | Municipal sources |
LOOKING FORWARD
INDUSTRY FOCUSMining sector outlook |
BUSINESS
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FUTURE FOCUSCapitalise on the |
OPPORTUNITIESMining customers moving |
