For the first time in four years some green shoots are starting to appear in the mining industry, says Barloworld CE Clive Thomson.
Discussing the JSE-listed group’s financial results for the year ended September 30, in Johannesburg, he said he believed the current cycle had reached its bottom.
Barloworld, which represents brands such as Caterpillar, Avis and Hyster, on Monday reported a 6% jump in revenue compared with the previous financial year, to R66.5-billion. A weak rand aided this number to the tune of about R2.7-billion.
Operating profit was up 4% to R4.1-billion. However, net profit inched up from R1.8-billion to R1.97-billion, owing to lower income from associates – in particular a struggling joint venture (JV) in the Democratic Republic of the Congo (DRC).
Looking at the different divisions, Thomson said Equipment Southern Africa saw a 16% drop in operating profit, to R1.6-billion.
He said the company’s delivery of equipment into the mining sector was at its lowest since 2010. This weakness also impacted aftermarket sales. However, with the average age of mining equipment fleets in Southern Africa at around eight years – out of an average lifespan of ten years – it meant that the market was nudging ever closer to a replacement cycle.
With large machines also requiring major component replacements every four to five years, it meant that the trucks sold during the mining peaks of 2008 and 2012 were now due for some major repairs, which boded well for the parts and service business in the next year or so, said Thomson.
Around 44% of this division’s revenue came from the mining industry in the 2015 financial year, dropping to 33% in 2016. New equipment sales dropped from 39% of revenue to 31%. In contrast to this, product support grew from 50% of revenue in the previous financial year to 56% of revenue for the year ended September 30.
Barloworld’s JV in the DRC saw income drop from R265-million last year to R13-million for the year ended September 30, owing to a weak copper price and the temporary suspension of mining by Glencore following a pitwall collapse at one of its operations.
Thomson remained positive of the JV’s future, noting that there had been an uptick in the copper price in recent weeks, and that the DRC had the second largest high-quality copper reserves in the world, after Chile.
The order book for Equipment Southern Africa stood at R1.3-billion in September 2016, compared with R1.7-billion in 2015.
Equipment Russia saw operating profit jump 51%, to R599-million.
Equipment Europe saw operating profit drop by 23%, to R55-million.
Thomson expected this division’s major markets of Portugal and Spain to show some macro-economic improvement in 2017.
Barloworld’s Automotive division showed a record operating profit for the year under review, at R1.65-billion, which was an 8.2% improvement on the previous year.
Used vehicle sales made a strong contribution to this number. New unit sales were down 6.4% as consumers were left with little disposable income in a tough economic environment.
Thomson was positive this division could increase its revenue in the 2017 financial year.
The Logistics division saw a 40% jump in operating profit, to R223-million.
Dominic Sewela, appointed as deputy CE on March 1, will take over from Thomson in February next year.
Thomson said he would remain at the company in an advisory capacity for a short period thereafter to ensure an effective transition.