Equipment Southern Africa and Russian unit weigh on Barloworld

The contraction in Barloworld’s Equipment Southern Africa and Russian unit Vostochnaya Technica (VT) has weighed on Barloworld's first half.

Despite a “robust performance” from its Mongolia unit, Barloworld’s revenue declined 4.9% to R14.8bn in the first five months of the financial year compared with the previous year. Group earnings before interest, tax, depreciation and amortisation (ebitda) fell 12% to R1.6bn and operating profit from core trading activities declined by 20.5% to R1.1bn.

Releasing a voluntary trading update, Barloworld said its results were weighed down by the markedly lower activity levels at VT as the business traded towards break-even at the profit level. Excluding VT, the group’s revenue was 2% lower and ebitda was 3% higher.

Its Industrial Equipment division, which consists of Equipment Southern Africa and Barloworld Mongolia (as Caterpillar equipment distributors), reported revenue of R10.9bn. This was 2.3% below the prior period due to a 9.2% revenue reduction in Equipment Southern Africa, which was offset by the 44% increase in Barloworld Mongolia revenue in rand terms.

Equipment Southern Africa’s results reflected the slow recovery in the mining sector and the business disruption arising from the unrest in Mozambique, Barloworld said.

Mining customers remain cautious in terms of capital reinvestment while the construction industry recovery has not fully gained momentum. As a result, the business continued to generate growth in rental revenue while machine and aftersales revenue was lower.

Barloworld Mongolia continued to generate strong revenue growth and the aftermarket contribution remained strong at 48% of the total revenue mix.

VT’s revenue of $60.6m is 25.3% below the year-earlier period due to lower activity levels after the curtailed inventory supply and the reducing addressable market due to the evolving sanction regime.

“We expect VT to continue to trade at break-even levels as we optimise the structure in accordance with the lower activity levels. VT remains self-sufficient in terms of its funding requirements,” Barloworld said.

The independent investigation into potential export control violations was under way, it said. In light of the complexities involved, the Bureau of Industry and Security has granted an extension of the deadline for Barloworld to complete its investigation and submit a final narrative account of voluntary self-disclosure to June 2.

Barloworld was reviewing various options to preserve shareholder value in respect of its investment in VT, it said.

Despite constrained trading conditions, Ingrain showed improvement in its operational results after the turnaround plan that was instituted in the second quarter of the 2024 financial year.

Ingrain generated revenue levels consistent with the prior period at R2.7bn, 11.4% growth in ebitda and operating profit growth of 15.5% to R232.4m.

Though overall sales volumes were lower than the year-earlier period, the greater contribution of higher-value products resulted in stable overall revenue.

Domestic revenue held up while export market volumes were under pressure as a result of global competition and some local production challenges.

Exports to the Australian and Deep-Sea markets recovered, delivering double-digit volume growth, while regional export volumes were subdued, Barloworld said. The recovery was supported by more stable global shipping schedules compared to the year-earlier period.

The group expects to release its interim financial results on May 26.

mackenziej@arena.africa