Eqstra Holdings on Tuesday reported a 14.7% jump in revenue, to R4.94-billion, for the six months ended December 31, compared with the same period in 2012.

Operating profit, however, declined 13.5%, to R461-million.

Eqstra CEO Walter Hill said last year’s three-week nationwide construction and civil engineering sector strike negatively impacted on earnings at its Contract Mining and Plant Rental division.

Hill said South Africa had to deal with the social issues underlying increasing labour action in the country. He believed much of the current unhappiness came from a lost generation who grew up during the turbulent 1970s, missing out on crucial educational opportunities.

While they earned salaries that were “materially not bad”, their income were more suitable to entry-level jobs, and not those of 45-year-olds to 55-year-olds wishing to educate their children.

“They are not going anywhere, because they can’t go anywhere. How do we reinvent this?”

Hill said it was becoming increasingly clear that striking workers were being joined in the picket lines by their sons, daughters and even grandchildren.

Hill also had some bad news for the local retail and manufacturing sectors, noting that South African forklift sales continued to decline sharply.

He regarded sales in this sector as an important economic indicator, as “forklifts move things to be manufactured, things already manufactured and things to be consumed”.

South African total forklift sales declined 25% in the period under review compared with the same period in 2012, while January 2014 sales were down 55% on January 2013 sales.

“I am not an alarmist, but this is a reality.”

Hill said Eqstra had moved to reduce its reliance on the South African forklift business, with its overhead costs also aligned to a declining market.

Eqstra managed Toyota forklifts in South Africa.

Total interest-bearing borrowings at Eqstra increased by 5.2% in the period under review, to R7.99-billion, up from R7.6-billion.

“We are well in control in this area,” said Hill.

MORE BALANCED BUSINESS NEEDED
Eqstra earned 46% of its revenue in the six months ended December 31 from the Contract Mining and Plant Rental division, but only 11% of its profit after tax.

Hill wanted to move to a business where the revenue was shared equally among the three divisions, spreading any risk more evenly in the group.

The Industrial Equipment division grew operating profit for the period to R145-million, up from R109-million.

The UK operations increased earnings on the back of a recovering economy and weaker rand.

This business unit had secured the UK distributorship rights for Kone cranes and Mafi terminal tractors.

The Terex crane distributorship ended on December 31, but the distribution of Terex trucks would continue, despite Volvo Construction Equipment’s acquisition of Terex’s trucks business, as Eqstra had a five-year agreement on local truck distribution.

Eqstra’s Fleet Management and Logistics business unit saw operating profit inch up from R172-million to R183-million.

The division reported revenue growth in its core leasing and logistics business units, while operating margin was impacted by nonrecurring rationalisation costs and lower overall margin in vehicle remarketing activities.

Profit contributions from value-added products continued, in particular GPS Tracking Solutions.

The leasing fleet reflected marginal growth as a result of selective capital allocation to new business to ensure measured growth.

An empowerment deal was concluded with Nozala to position the division to compete for future government and parastatal tenders.

The Contract Mining and Plant Rental division’s turnaround made a U-turn as operating profit for the six months ended December 31 plummeted to R130-million, down from R246-million for the same period in 2012.

Eqstra said the division's turnaround was negatively impacted by a R135-million loss in earnings owing to industrial action.

Increased volumes at Tharisa mine and the successful start-up at Mogalakwena mine contributed positively to revenue.

The dollar-based Benga project, in Mozambique, performed in line with expectations and divisional results benefitted from the weaker rand.

As part of a strategy to exit loss-making contracts, the Wolvekrans contract was concluded at the end of January, and the Nkomati contract would not be renewed in August.

Equipment from the loss-making contracts would be redeployed to accommodate increased volumes on existing and new contracts, noted Hill.

He added that 32% of the division’s revenue was now earned in platinum group metals mining, compared with 63% in the 2010 financial year. He noted that surface platinum mining was showing a rapid increase in demand as it was the cheapest, least labour intensive way to mine the commodity, which was facing continued strike action in South Africa.

Eqstra’s only exposure to labour unions was through the Contract Mining business, noted Hill. Despite a call to join the current platinum mine strikes, Eqstra staff had not done so, he added.

Looking ahead to the rest of the financial year, Hill said the group’s strategy to remain invested in the UK would benefit earnings as the British economy improved.

The drive to continually improve efficiencies had resulted in ongoing cost reductions that would position the group for an anticipated weaker South African economy.

The mining sector, more specifically the Benga project, was expected to remain challenging, with Rio Tinto wishing to exit the project, noted Hill.