Barloworld optimistic about equipment division prospects

Having completed the simplification of its portfolio by exiting noncore businesses, Barloworld says it is upbeat about prospects for its Southern Africa equipment division with its after-sales unit expected to grow its contribution.

In a conference call following the company’s trading update for the 11 months to August on Thursday, the CEO of the diversified industrial conglomerate Dominic Sewela said after two years of high machine equipment sales, the group was expecting a moderation.

However, he said the Southern Africa equipment business was poised for growth amid a lift in construction and sustained mining activity, with after sales geared to benefit most. The recent boost in machinery sales, mainly to miners, was a result of favourable commodity prices, which have now fallen.

Equipment Southern Africa CFO Stephen Mahlare said the outlook for 2024 is positive.

“We definitely do still see that a lot of our customers will continue working their fleets, and the commodity prices have been favourable enough to support production to keep going in some of our major customers on the mines,” he said.

Barloworld reported doubledigit operating profit growth in the 11 months to the end of August, following an improved trading performance across all its businesses and a better-thanexpected result in Russia, despite it being affected by the war in Ukraine.

Revenue from continuing operations increased 15%, resulting in an 18% rise in operating profit from core trading activities to R3.8bn. “The group’s core businesses continued to perform resiliently, despite the headwinds presented by the operating environment,” Barloworld said in a statement.

Equipment Southern Africa reported a rise in profit of 17%, while in Mongolia equipment sales were boosted by the reopening of the Chinese borders.

The group said domestic sales volumes of Ingrain were flat compared to the prior period as “challenges in various domestic sectors have persisted as a result of economic pressures on the SA consumer, manufacturing customers affected by water challenges and high levels of load-shedding”.

Revenue for Ingrain rose 12% to R6bn despite challenges, which included operating efficiency losses, increased maintenance costs following unplanned plant breakdowns and investments in critical skills that resulted in an operating margin of 8.2%, compared with the prior period’s 12.4%.

While Ingrain saw lower volumes in the agri and alcoholic beverages sectors, among others, these were offset by higher commodity prices and a growth in export volumes.

The group, with a market cap of R16bn, listed on the JSE in 1940 and has two primary areas of focus: industrial equipment and services and consumer industries.

Barloworld said its Eurasia equipment division was supported by better-than-expected results in Russia and Mongolia and improved cost controls. The former was, however, affected by sanctions. “Equipment Russia remains affected by the war in Ukraine resulting in reduced product lines and a constrained supply chain,” Barloworld said.

However, it is optimistic that the Russian business continued to be self-sufficient in terms of funding requirements, adding that expected improvement in cash generation was also realised in recent months.

“The business continues to make good progress in restructuring its cost base in line with existing trading levels,” it said. “We continue to manage our risks and exposures while remaining agile and adaptable to ensure compliance with an ever-changing regulatory environment.”

Barloworld said net debt on August 31 was R6.3bn from R7.5bn in the prior period.

“The key exits out of noncore businesses have been completed to simplify our portfolio,” Sewela said. “Our acquisitive growth strategy remains focused on programmatic M&A within our core verticals of industrial equipment and services and consumer industries.”

Barloworld s share price closed 2.13% higher at R85 on Thursday.

The group expects to release its annual results on or about November 20.

THE KEY EXITS OUT OF NONCORE BUSINESSES HAVE BEEN COMPLETED TO SIMPLIFY OUR PORTFOLIO

Dominic Sewela CEO, Barloworld