Group financial review

The results for the year ended 30 September 2013 have been restated to reflect changes in accounting policies as well as discontinued operations resulting from the disposal of our Australian motor retail business. The group applied IAS 19 revised (employee benefits) and IFRS 10 (consolidated financial statements), resulting in a restatement of the prior year results on a comparable basis.

Revenue for the six months increased by R1.3 billion (5%) to R29.9 billion mainly due to increased revenues in Equipment southern Africa in the extended mining product range (EMPR) and Automotive and Logistics (R1 558 million), offset by lower revenues in Equipment Russia and Iberia. The weaker rand increased revenue by R919 million.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 17% to R2 800 million while operating profit rose by 18% to R1 639 million on the comparable restated number for last year. The increase in the company’s share price since September 2013 resulted in a R43.8 million charge for the six months (1H’13: R5 million) in respect of the cash-settled Share Appreciation Rights previously awarded to employees.

In Equipment southern Africa, operating profit increased by 17% despite weaker demand in the mining sector, largely due to a strong contribution from EMPR. Losses in Equipment Iberia increased from R5 million last year to R32 million, as construction and public works activity remained subdued despite the improving economic conditions in Spain. Operating profit in Equipment Russia was in line with last year in rand terms but declined by 18% in dollar terms due to the current slump in mining.

The Automotive and Logistics division continuing operations recorded substantially improved profits of R775 million, up by 26% owing to increased earnings in all business segments.

Financial instrument costs were significantly up on the prior year and mainly relate to the forward points on forward exchange contracts expensed in Equipment SA.

Net finance costs of R525 million are R37 million higher than last year owing to the increased cost of debt and some increase in average net debt in the first half.

The exceptional charge of R49 million includes the impairment of goodwill in the logistics sea air transport business in Germany and the Middle East, offset by profits from foreign currency translation reserves realised from disposals of offshore businesses in automotive, handling and logistics.

Taxation increased by R41 million to R345 million. The effective taxation rate excluding prior year adjustments and exceptional items was 34.5% (1H’13: 34.4%). This was impacted by unrelieved losses in Spain and deferred tax charges arising out of exchange rate movements in foreign operations.

Income from associates of R95 million was R31 million higher than last year and arose mainly from the equipment joint ventures which continued to perform strongly.

Minorities share of profit increased by R37 million to R86 million due to higher levels of profitability in the Mercedes-Benz joint venture and Barloworld Transport Solutions operations.

Headline earnings per share (HEPS) including discontinued operations increased by 10% to 336 cents (1H’13: 304 cents) on the comparable restated earnings from last year, while HEPS from continuing operations increased by 9% to 316 cents (1H’13: 291 cents). Basic earnings per share (EPS) including discontinued operations is 71% higher than the restated basic EPS of 289 cents in the prior period due to the exceptional profit generated on the disposal of the Australian motor retail operations.

Cash flow and debt

Improved activity levels resulted in increased investment in working capital of R3 234 million (1H’13: R2 405 million). Equipment SA increased working capital by R2 373 million and Automotive and Logistics by R399 million.

Total interest-bearing debt at 31 March 2014 of R13 008 million represents a debt to equity ratio of 79% (September 2013: 65%). In December the company issued three senior unsecured notes totalling R1 541 million under the South African Domestic Medium Term Note programme. R714 million matures in 2018 and R827 million in 2020. In addition a R700 million bank term facility was extended for a further five years. The funds raised were utilised to fund short-term working capital requirements and to improve the maturity profile of group debt.

At March short-term debt represents 37% of total debt. In South Africa, short-term debt includes commercial paper totalling R1.5 billion (September 2013: R1.2 billion). This market has remained liquid and we expect to maintain our participation.

Cash balances of R1.8 billion are available to meet short-term commitments. In addition unutilised banking facilities at March amounted to R5.5 billion.

Net interest-bearing debt at 31 March 2014 of R11 198 million represented an increase of R3 640 million on September 2013 and a net debt to equity ratio of 68% (September 2013: 48%).

Total assets employed by the group increased by R2 450 million in the six months to R43 057 million mainly due to increased working capital, with the weaker rand adding
R752 million.

Going forward

Based on forecast deliveries in the second half in Equipment southern Africa and Russia, we are forecasting a significant reduction in working capital and gearing by year end. In addition the receipt of the final proceeds from the disposal of Motor Retail Australia received in April will further favourably impact net debt levels.

DG Wilson
Finance director