Diversified industrial group Barloworld, which reported a 25% drop in operating profit to R1,9-billion for the year to September 30, 2009, said on Monday that it expected 2010 to be "another challenging year".

Group revenue declined by 10% to R42,2-billion from over R46-billion in 2008, despite being 6% higher at the half-year stage. Net profit fell to R739-million from R1,2-billion in 2008.

However, the JSE-listed company - which has operations in 41 countries and manages the Caterpillar brand in Southern Africa, Iberia and in joint venture in Siberia - said that it was well placed to capitalise on "the expected upturn when it occurs".

The group reported that cash generated from operations rose 20% to R4,5-billion during the year.

"The recovery in world economic growth should result in an increase in the demand for commodities, while the prevailing low interest rate environment should favourably impact new mining projects," CEO Clive Thomson said.

He also noted, though, that the group's mining order book for its key equipment unit, whose operating profit fell by 37% to R1,3-billion in 2009, was considerably lower than it had been a year ago.

"We do see further declines into the first half of 2010," Thomson said, noting that the order backlog had been whittled away.

But there could be a commodity-led recovery in the second half, which would stabilise demand, "with growth beyond that date".

Coal and iron-ore demand had remained firm in 2009, while copper, platinum and diamond related sales had fallen sharply as commodity prices retreated from their 2008 highs.

The group remained bullish about coal-related demand, while Thomson saw iron-ore remaining relatively "resilient".

The infrastructure pipeline, which contributed some 50% of the equipment division's revenues, remained robust in Southern Africa and would provide an underpin for the overall construction-related demand, which would "slow into 2010".

However, prospects in Iberia, where the construction equipment industry had shrunk by 70% in 2009, remained poor, with only 2 800 construction machines likely to be sold in Spain in 2009.

But Thomson said that its order books also reflected the fact that lead times for mining and construction equipment had decreased from over two-and-a-half years at the peak of the resources boom to less than four months.

"So, mining companies that may be thinking of implementing projects in May next year are not required to place those orders on us as early as was the case a year ago.

"So, there is some artificiality to the movement in the order books," Thomson avers, adding that it was likely that many mining projects were back in the money at current commodity-price levels.

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