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Barloworld expects construction sector to rebound in coming months

Barloworld CEO Dominic Sewela

Barloworld CEO Dominic Sewela

22nd May 2023

By: Darren Parker

Creamer Media Contributing Editor Online

     

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Industrial processing, distribution and services company Barloworld expects the construction industry in Southern Africa will recover in the coming months as infrastructure and energy projects gain momentum, with mining remaining robust and stable for the remainder of the year.

Upon the release of its interim results for the six months ended March 31, the group said its Equipment Southern Africa business, which provides business-to-business sales, servicing, rebuilding and salvaging of earthmoving equipment, industrial services and power systems, largely benefitted from improved operational activity and, to a lesser extent, the weaker rand/dollar exchange rate, despite the higher interest rate environment.

Barloworld said that activity in the mining sector, fleet replacements, and a significant 48.5% contribution from the Bartrac joint venture saw the division deliver a 38.4% and 31.5% increase in revenue and operating profit to R13.1-billion and R1.1-billion, respectively.

This was headlined by machine sales which were up 60% at R6-billion on the back of fleet replacements in the mining sector. Services revenue was also stronger in the period under review, with parts revenue up 28.4% and rental revenue up 11.3%.

The company said that South Africa, in particular, had recorded exceptional revenue growth of 48%, while the other greater Africa regions recorded a combined revenue growth of 23% compared to the prior period.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) in Southern Africa also rose by 22.7% to R1.5-billion.

Overall, Barloworld reported robust results for the interim period, driven by an improvement in trading activity across most business segments and supported by a continued focus on stringent cost-containment measures.

Barloworld reported a 12.9% increase in revenue from continuing operations to R20.8-billion. The company's operating profit from core trading activities also saw a notable improvement, rising by 16.5% to reach R2.1-billion. Further, Barloworld achieved a 9.8% increase in the operating profit margin from core trading activities, reaching 10.1%.

In terms of earnings, the company experienced a substantial growth in headline earnings a share from continuing operations, which reached R5.78 a share, indicating a 29.3% increase compared to the previous period. The company also showed a 0.2% improvement in terms of its return on invested capital above the cost of capital, reaching 14.3% during the period under review compared to 14.1% in the first half of the 2022 fiscal year.

Additionally, the company declared an interim ordinary dividend of R2 a share, representing an increase from the R1.6 declared in the first half of the 2022 financial year.

“The performance cements the decisions we have made with respect to our strategy and our focus on the core verticals of industrial equipment and services and consumer industries,” Barloworld CEO Dominic Sewela said on May 22.

The Equipment Eurasia division had a solid first half of the year, supported by demand for aftermarket products in Russia, and good performance in Mongolia, which benefited from the opening of the borders with China, spurring prime product sales.

Overall revenue of $224-million was 39% lower than the prior period, buffered by the improved contribution margin of Mongolia as Russia’s revenue decreased by 53% to $147.5-million.

Meanwhile, a 10.5% lower operating profit of $38.6-million, down from $43.2-million a year ago, resulted in a strong operating profit margin of 17.2%.

In Barloworld’s consumer industries segment, Ingrain remained a solid contributor to the business supported by higher commodity prices and growth in export volumes, despite macroeconomic headwinds. In this regard, revenue increased by 15.3% to R3.3-billion, with operating profit coming in at R331-million. Meanwhile, cash generation improved to R127-million from R76-million.

The operating margin in the consumer industries division decreased from 12.9% to 10.1%, which was attributable to lower contribution margins and increased overheads, on the back of investments in plant maintenance and critical skills.

Following the successful unbundling and listing of mobility solutions provider Zeda on the JSE on December 13 last year, and the conclusion of the disposal of the remaining logistics business effective March 31, Barloworld reported that the key exits out of noncore businesses have been completed.

The company has realigned itself with its growth agenda, with both an organic and acquisitive growth strategy focused on investing within its core verticals of industrial equipment and services and consumer industries.

To enable the continued delivery of its strategic priorities, the company assured stakeholders that it has in place clear succession planning both at a board level and within key roles in its various operations.

Barloworld reported that its total Equipment Southern Africa order book was strong at R5.7-billion, compared to R4.8-billion on September 30 last year. However, the Eurasia order book was impacted by sociopolitical challenges in Russia, although the business remains self-sufficient in terms of its funding requirements.

In the short term, the company reported that Ingrain’s efforts were focused on growing domestic sales volumes in response to changing market dynamics and improving operating efficiencies while managing the expected impacts of the El Niño phase of South Africa’s climate cycle through disciplined cash management and commodity price exposure.

“We believe that part of our role is to enable growth and progress in society. We have been able to create jobs for young people both internally at Barloworld and externally through our social entrepreneurship fund Mbewu and Siyakhula. I also look forward to seeing the benefit derived from our contribution towards the land and 50% of the equity at Barlow Park, which seeks to provide access to adequate, safe and affordable housing in the Sandton precinct,” Sewela said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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