Barloworld ups profit 5%, keeps wary eye on mining slump, Ukraine

19th May 2014

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Anyone willing to call the timing of any potential uptick in the mining cycle would be “very brave”, said Barloworld CEO Clive Thomson on Monday.

“We are at a cyclical low – the question is, when will it improve?”

The JSE-listed Barloworld group distributed Caterpillar construction and mining equipment in a number of regions worldwide, among other business interests.

Thomson said large mining truck sales at US equipment manufacturer Caterpillar were down 80% off the global peak reached in 2012.

“That is a pretty low point. The question is, how much longer can mines defer spending? We know they are deferring spend on new projects and expansion, but that they are also working their existing fleets harder.

“We believe there is a backlog on the replacement of these existing fleets. We think we might see a lift in orders in 2015, which will only have an impact in 2016.”

As for construction equipment, Thomson was hopeful the implementation of the South African government’s National Development Plan would gain traction post the May 7 election, building on the improvement already seen in the Southern African construction industry.

This improvement, however, had largely been restricted to midtier projects with a shorter time-span.

The order book of Barloworld Equipment Southern Africa stood at R2.8-billion at the end of March, compared with R3.5-billion at the end of September last year.

Thomson said this decline could be attributed to a struggling mining sector, significant deliveries having been completed, as well as a shortening of lead times on Caterpillar equipment from 18 to 24 months at its peak, to between three and six months. This meant customers no longer ordered their required yellow metal as far in advance as had been the case in recent years.

The Equipment Russia division had also seen a decline, although only marginally, in its order book over the same period.

Here weak commodity prices delaying investment in mining projects were dimming the division’s prospects, along with political tension around Ukraine and Russia and the disputed Crimea territory.

Thomson said the situation would have a bearing on Barloworld’s results in the next six months and into 2015.

International sanctions targeted only individuals in Russia, as well as the companies under their control, and had little direct impact on Barloworld’s operations. However, the sanctions were slowing Russia’s economic growth, with large investments in the region being placed on hold.

Equipment Iberia found itself in a tough spot too, with the construction industry lagging the uptick seen in the Spanish economy, said Thomson.

Barloworld had last year hoped to achieve a breakeven position in its European equipment division, but instead saw a R32-million loss for the six months ended March 31, compared with a R5-million loss for same period in the previous financial year.

Equipment Southern Africa recorded an operating profit of R768-million for the six months, up 17% on the comparable six months.

Equipment Russia remained stable, with an operating profit of R156-million.

Barloworld’s Automotive and Logistics business suffered none of the Equipment division’s difficulties, and operating profit increased 26%, to a record R775-million.

Barloworld as a whole reported a 5% jump in revenue for the six months ended March 31, to R29.9-billion. Operating profit increased by 18%, to R1.64-billion.

Barloworld disposed of its Australian motor retail operations during the period, for a price tag of R1.3-billion.

Barloworld finance director Don Wilson said the weaker rand aided the group’s revenue for the six months, to the happy tune of R900-million.

The continued strikes within the platinum sector, however, cost the group’s logistics business around R1.5-million in lost operating profit a month.
 

Edited by Creamer Media Reporter

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