JSE-listed capital equipment and leasing firm Eqstra’s Construction & Mining Equipment Distributorships (CMED) division is recovering well.
CMED joint MD Bradley Mansfield says the division has turned the corner during the last financial year, which ended June 30.
The division’s revenue increased by 23.8% as a result of increased activity in the mining sector. The increase in revenue flowed through to the bottom line where profit before taxation amounted to R40-million, a significant improvement com- pared with a loss of R272-million in the previous year.
CMED joint MD Henk Maree, who is close to retirement, says that the global financial crisis had a significant impact on the division, but that timely executive intervention has resulted in a sustainable turnaround.
“We are pleased with the year’s result and it is good to be profitable again,” says Mansfield.
He explains that the division had to drastically reduce its inventory levels and overhead costs to stabilise itself. Only high-volume, fast-moving product ranges were retained and excess slow-moving equipment and parts returned to suppliers.
Further, the parts logistics and supply chain process has been realigned to ensure optimal parts stockholding levels and maintenance of high-first pick ratios.
General economic uncertainties and the weak construction market pose some challenges as the public sector is not investing in infrastructure developments and projects, and the private sector is also not recovering from the high level of investment on previous construction projects, says Mansfield.
“Everyone is still waiting for government to make some heavy investments in infrastructure and, since the completion of the 2010 FIFA World Cup projects, large construction projects have slowed down,” he adds.
The division does not expect conditions in the construction sector to improve in the short term.
Even though the construction industry is down, the market for construction equipment grew by 63% year-on-year to June. CMED reports that growth is off a very low base, with sales mainly into the mining sector.
“We have benefited from increasing activity in the mining sector as more queries come in, but supply lead times on heavy equipment is increasing,” he says.
Mansfield expects the sale of equipment into the mining sector to remain firm.
However, Eqsta recently issued a JSE cautionary announcement indicating that it is in negotiations with multidisciplinary equipment manufacturer Caterpillar to dispose of its Mining Services business unit (relating to its Bucyrus distributorship agreement), which accounts for about 40% of the division’s revenues. If the transaction were to be concluded, the division would continue to distribute Terex rigid and articulated dump trucks to the mining industry, as well as the New Holland construction and Paladin attachment range.
Distribution and support of the Terex cranes range were recently transferred to Eqstra’s industrial equipment division.
He adds that, despite the challenges, the division is focused on creating a sustainable business by increasing its income from aftermarket sales.
“We will be paying extra attention to support- ing our existing customer base by ensuring we have the right parts at the right prices available on demand,” he notes.
The division, which started out as an equipment distributor, is in the process of becoming an integrated aftermarket service provider as well.
This development is in line with Eqstra’s value-added business model.
Mansfield explains that the division now provides a full service offering to support the products it distributes and already has R180-million in assets on long-term leases to clients.
Value-added services include leasing and rental, full service and maintenance, on site consignment stores and technical support facilities, which can be erected on location at the customer’s site.
Further, to support the growing services offering, the division is employing more technically skilled staff and investing heavily in regional support, which entails identifying and establishing various parts-holding facilities in different regions to ensure parts are within a reasonable distance from clients.
“We are building sustainable relationships with our clients to become a core part of their businesses, thereby growing their businesses and ours,” notes Mansfield.