X

This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.



Please create a password or click to receive a login link.


Please enter your password or get a login link if you’ve forgotten


Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

We'd like our readers to start paying for Daily Maverick

More specifically, we'd like those who can afford to pay to start paying. What it comes down to is whether or not you value Daily Maverick. Think of us in terms of your daily cappuccino from your favourite coffee shop. It costs around R35. That’s R1,050 per month on frothy milk. Don’t get us wrong, we’re almost exclusively fuelled by coffee. BUT maybe R200 of that R1,050 could go to the journalism that’s fighting for the country?

We don’t dictate how much we’d like our readers to contribute. After all, how much you value our work is subjective (and frankly, every amount helps). At R200, you get it back in Uber Eats and ride vouchers every month, but that’s just a suggestion. A little less than a week’s worth of cappuccinos.

We can't survive on hope and our own determination. Our country is going to be considerably worse off if we don’t have a strong, sustainable news media. If you’re rejigging your budgets, and it comes to choosing between frothy milk and Daily Maverick, we hope you might reconsider that cappuccino.

We need your help. And we’re not ashamed to ask for it.

Our mission is to Defend Truth. Join Maverick Insider.

Support Daily Maverick→
Payment options

Barloworld management is confident, but shareholders le...

Business Maverick

COMPANIES

Barloworld management confident despite potential impact of Russian sanctions, but shareholders less so

(Photo: e-architect.com)

Barloworld, one of South Africa’s oldest industrial companies, celebrates its 120th anniversary this year. It has enjoyed something of a revival of late with the share rising to R152 in December. However, concerns about the impact of the Russian invasion of Ukraine have seen the price come off in recent months — with some justification, as it turns out.

Industrial equipment and Caterpillar reseller Barloworld has delivered a strong set of results across all its businesses in the six months to March 2022, despite supply chain constraints such as the global semiconductor shortage and the impact of Russia’s invasion of Ukraine which triggered higher fuel prices, global inflationary pressures and slower economic growth. 

The star of the show was Equipment Eurasia, which grew revenue by 11.8% to R5.7-billion compared with the prior period, thanks to buoyant mining activity and good growth in aftermarket revenue in Russia. 

This was despite lower revenue generated from Mongolia due to supply chain challenges on the border of Mongolia and China as a result of Chinese lockdown measures. 

Equipment southern Africa also performed well, with revenue growing by 7.7% to R9.4-billion during the period under review, driven largely by machine sales and rentals ex-South Africa. 

ANC’s policy document wish list may yet alter South Africa’s future for the better

Ingrain, the starch business acquired from Tongaat in October 2020, saw revenue grow by 45.7% to R2.9-billion when compared with the prior period’s five months’ revenue — so bear in mind the comparison is flattering.

Earnings of R2.5-billion were up 20.6%, while operating profit of R1.9-billion was up 25.8%, positively impacted by the increase in revenue, improved gross margins, particularly in Europe, and cost containment measures put in place. 

However, there are storm clouds brewing, as indicated by the R1-billion impairment of its 25-year-old Russia business. Sanctions are beginning to bite and while the group expects this business to deliver a positive financial result in the 2022 financial year, the same cannot be said for 2023. 

“Our Russian business shot the lights out over the last six months, but we have no certainty that this will continue — we are seeing orders being cancelled, revenue is slowing down and in the next financial year we could make a loss. So we can’t justify holding the value of the investment at this level,” says Barloworld CEO Dominic Sewela.

The company’s total order book at the end of March stood at a record $269-million (1H21: $177-million). 

However, the estimated impact of sanctions implemented by countries across the world is likely to reduce the firm order book, with coal orders likely to fall by 45%, gold by 22% and copper/nickel/aluminium by 17%. 

The company warns that revenue and profitability in this region will be significantly lower over the next five years. 

However, disinvestment is not an option. 

“The bulk of our business is in tough areas that are geo-politically challenging,” says Sewela. “We do not want to disinvest at the slightest challenge, so we will look after our people and will run the business frugally.”

The benefit of running a business that is diversified — in this case geographically — is that when one region is down, another is up. 

“We have a crisis in one area, but the southern Africa order book is at a historic high,” he says. 

This may be the case, but Gryphon Asset Management CIO Reuben Beelders believes the war in Europe creates material uncertainty in a part of the business that is meaningful to the group. 

“I would be cautious,” he advises. 

While the southern Africa Equipment business is performing well, the South African leg is lagging, dependent as it is on gross fixed capital formation, which is low at present. 

“Does one buy in anticipation of our president’s infrastructure spending plans? I’m not sure. Construction activity is still muted.” 

He is also concerned that current commodity prices will not hold at these elevated levels, forcing miners to shift to cash-conservation mode. 

Also, the weaker rand is going to impact on the cost of importing “yellow equipment”. 

“While this may result in owners of equipment spending more on maintenance, which is good for Barloworld,  it will also force some prospective customers to consider cheaper alternatives.

Sewela says he remains “cautiously” optimistic. 

“Our balance sheet is strong and the business remains cash generative,” he says. In addition, management is encouraged by the performance of its industrial equipment and services businesses, with the reliance on southern Africa to maintain the division’s momentum. 

In addition, the process of restructuring to simplify the business and return it to its “roots”, as Sewela explains it, is almost complete. 

The group has previously announced its intent to exit from its car rental and leasing business by the end of 2022, but offers to date have not been satisfactory. If a suitable suitor is not found, a separate listing via an unbundling will be investigated. 

An ordinary dividend of 165 cents per share was declared, after paying a special dividend in January.

That said, the share ended the day down 6% at R97.34. BM/DM

 

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted