Having completed the simplification of its portfolio by exiting noncore businesses, Barloworld says it is upbeat about prospects at its Southern Africa equipment division with its after-sales unit expected to grow its contribution.
In a conference call after the group’s trading update for the 11 months to August on Thursday, Dominic Sewela, CEO of the diversified industrial conglomerate, said that after two years of high machine equipment sales the group expects a moderation.
But he said the Southern Africa equipment business is poised for growth with 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 next year remains 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 double-digit operating profit growth in the 11 months to the end of August after an improved trading performance across all its businesses and a better-than-expected result in Russia, despite being affected by the Ukraine war.
Revenue from continuing operations rose 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 17% rise in profit while in Mongolia the reopening of the Chinese borders boosted equipment sales.
The group said domestic sales volumes of Ingrain were flat compared with 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”.
Ingrain revenue rose 12% to R6bn despite challenges, which included operating efficiency losses, higher maintenance costs after plant breakdowns and investments in critical skills in the business that resulted in an operating margin of 8.2%, compared with the prior period’s 12.4%.
While Ingrain had lower volumes in sectors such as agri and alcoholic beverages, 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,” said Barloworld.
However, it was optimistic that the Russian business continued to be self-sufficient in its funding requirements. Expected improvement in cash generation was 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 previously.
“The key exits out of noncore businesses have been completed to simplify our portfolio,” said Sewela. “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 was 2.13% higher at R85 at close of trade.
The Johannesburg-based group expects to release annual results on or about Monday November 20.
Update: September 28 2023
This story has been updated with additional information.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.