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Barloworld weathers SA mining pressures

The group’s share price rises by 0.25%.

Logistics and equipment group Barloworld continues to weather South Africa’s mining sector pressures, as it takes a more optimistic approach to trading conditions in relation to company operations.

Amid global uncertainty, lower commodity prices and the mining sector scaling back on capital expenditure,   Barloworld managed to report a rise in revenue of 3% to R30.7 billion for the six months to March 31.

To survive the domestic downturn in the commodity cycle, Barloworld will focus on driving operational efficiencies and tight cost control measures.

These operational efficiencies will be largely focused on the after-market sales business of heavy equipment parts, as this helped Barloworld post a 6% operating profit rise to R1.7 million.

Barloworld – with a market capitalisation of R22.5 billion – is taking a glass-half full approach; with group CEO Clive Thomson saying the business will continue to remain resilient.   

“We are well placed to benefit in the medium term once the mining and construction cycles move into a recovery phase,” Thomson says.

Despite the optimism, its logistics business continues to be impacted by low demand in the mining and construction industry. The business unit saw revenue grow by a marginal 2.9% to R2.2 billion, with transport and supply chain management showing growth while freight management and services fell under pressure.   

Barloworld says a number of supply chain contracts are in the process of being finalised, which might turn the fortunes of this business.

The company also saw headline earnings per share increase by 16% to 367 cents, compared with 316 cents a year earlier. An interim dividend of 115 cents per share was declared during the period.

Barloworld is not only feeling the pinch in the domestic market, but also within its global operations. Its equipment and handling business in Southern African markets such as South Africa and Angola was weighed down by the slow rollout of public sector infrastructure spend. In the latter country, the government is scrambling to secure funding for infrastructure, after Angola’s oil dependent economy was hit by the slump of the international oil price.

Despite macroeconomic pressures, it managed to report revenue of R9.9 billion, up by 3% and operating profit rose to R826 million for its equipment business in Southern Africa.

The order book for the business rose to R2.3 billion from R1.9 billion following orders from mining company Vale SA and construction company Mota Engil – both for their operations in Mozambique.

In the company’s equipment business, the Achilles heel is the Russian economy. The country’s increasing international sanctions and lower commodity prices are making it “more difficult for local companies to access external funding”. This is evident in the company’s revenue stream which was knocked by $55 million (R651 million) to $129 million (R1.5 billion).  

The resilience of this business unit is driven by strong aftermarket sales. Barloworld is betting the growth of region’s unit on opportunities in Russia’s Power of Siberia, a natural gas pipeline project under construction.  

Barloworld’s cost cutting measures for its Iberia (Spain)-focused business unit is starting to pay off, as it reported an operating profit of €0.8 million (R10 million), compared to a loss of €2 million (R32 million) last year. It also trades in a country where the economic recovery has been two years in the making following the 2007/8 global economic crisis.

Barloworld’s handling division generated revenue of R982 million compared with R947 million in the previous year.

Automotive and logistics business

The automotive and logistics division traded strongly thanks to strict cost control and operating efficiency, generating revenue of R14.2 billion, representing growth of 9.6%.

Barloworld’s car rental business grew revenue to R2.7 billion, driven by an increase in rental days of vehicles and rental revenue. Its motor retail business also followed suit, with revenue growth of 6.3%, which is attributed to the growth in used vehicle and parts sales and Barloworld’s recent acquisition of General Motors Ferndale in the Cape.

The Avis Fleet business operated in a competitive market, despite this it also grew revenues by 7.8%.

“The outlook for new vehicle sales for the balance of this financial year shows a slightly negative trend with consumers under pressure and the requirements of consumer regulations likely to further constrain access to credit,” Barloworld says.

The company’s net debt grew to R11.6 billion from R11.2 billion in the previous year.

Barloworld’s share price was up by 0.25% to R98.05 during Monday’s trade. 

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