Challenging trading environment weighs on Barloworld’s earnings

Industrial group Barloworld has reported lower earnings for the 11 months to end-August due to the complex and diverse trading environment in which it operates.

Revenue for the period was down 7,4 percent to R37,4bn from a year ago, while earnings before interest, tax, depreciation and amortisation (ebitda) declined by 14,3 percent to R4,2bn, the group said in a statement on Thursday.

The ebitda margin declined to 11,1 percent from 12 percent before, and the operating profit margin fell to 8 percent from 9.4 percent.

The effect of the challenging trading environment on the Southern African portfolio was countered by the expansionary environment in Mongolia, where the government-led expansion of transport infrastructure and external demand for its minerals and resources, primarily from China, had driven growth, it said.

The group’s local mining customers have been under pressure to manage their cost of production, with limited scope to expand their fleets. Its Russian unit, Vostochnaya Technica (VT), still faces a decline in revenue due to the prolonged sanctions and the contraction of its market.

Despite tough trading conditions, its consumer industries unit, Ingrain, was starting to realise the benefits of the turnaround plan, which was instituted in the second quarter of the 2024 financial year, it said.

The group managed to reduce net debt from R6,3bn in the prior period to R3,5bn, by focusing on cash generation and gross debt reduction.

Revenue in the Equipment Southern Africa division fell 13 percent for the 11-month period. A decrease in machine sales was bolstered by aftersales revenue, it said. The firm order book ended lower at R2,4bn from R2,9bn a year ago, in line with the mining cycle.

Equipment Eurasia delivered a 4,5 percent rise in revenue to $443,2m. This was primarily driven by a 61 percent growth in Barloworld Mongolia’s revenue, which was partially offset by a 25 percent drop in VT’s revenue. The firm order book grew to $79,6m from $6.6m, largely attributable to Barloworld Mongolia.

Barlowolrd said its Russian business continued to trade above break-even and remained self-sufficient in terms of its funding requirements.

Barloworld said earlier in September that it had commissioned an investigation of potential export control violations at VT and had engaged the services of independent firms to conduct this investigation on its behalf.

The US Bureau of Industry and Security (BIS) was notified of this investigation on a voluntary basis. Barloworld has 180 days to finalise the investigation and submit a full report to the BIS.

Ingrain generated revenue of R6bn which was in line with the prior period.

Ingrain’s overall sales volumes declined by 2,5 percent driven by lower domestic demand.

Notwithstanding this, the nonalcoholic beverage sector, including spray drying, showed pleasing growth, it said.

Export volumes remained stable, with exports into Southern Africa showed pleasing growth, offset by lower volumes in the Deep Sea Markets due to supply chain constraints as a result of the ongoing Red Sea conflict.

Local port challenges eased in the second half of the financial year. Agri product volumes were flat relative to the prior period.

The business had showed marked progress in performance in the latter half of this financial year after management turnaround efforts, Barloworld said.

The group, valued at R15,6bn on the JSE, expects to release its annual financial results on November 25. – BusinessDay