Barloworld restructuring will lead to job cuts at Ingrain
Industrial major Barloworld has entered consultations with organised labour and affected stakeholders to restructure parts of its local Ingrain operations that could lead to dozens of job losses.
A cocktail of global and local headwinds including a commodity downturn, electricity shortages, port bottlenecks and high interest rates have affected the operations of the industrial firm.
In its five-month pre-close update on Tuesday Barloworld reported that Ingrain’s revenue was down 5.2% due to lower overall volumes, reduced export pricing and agri-product recoveries.
Exports into Australia and the deep-sea markets were negatively affected by port challenges at Durban harbour and the competitive global pricing of starch throughout the period under review.
CEO Dominic Sewela said the performance of its consumer industries company Ingrain — one of Africa’s largest producers of unmodified and modified starch, glucose, and other related products — reflected consumer confidence, which is particularly challenged in SA.
He said that as Ingrain customers were subsequently reducing their volumes while port bottlenecks were further compounding the delivery of exports, the weak consumer sentiment and high interest-rate environment had spurred the management to implement a plan to structurally lower the fixed cost base in the business.
“To that extent, we have declared a section 189 [process] in the Ingrain business,” Sewela said, adding that the process began in February.
“An organisational restructure has commenced as part of a broader turnaround plan to right-size Ingrain in line with its trading activity. This will position the business to deliver acceptable target returns,” he said.
About 920 people are employed. The process is expected to take up to six months.
Sewela could not give further details on the number of people that would be affected, saying negotiations with unions were continuing.
Bought from Tongaat Hulett in 2020 for R5.3bn, Ingrain has a diverse customer base supporting sales in the domestic market including the alcoholic beverages sector, confectionery and prepared foods sectors.
Ingrain, which produces a wide range of products using maize as raw material, reported good demand within the region as export volumes into neighbouring countries improved despite port and rail challenges caused by Transnet’s dysfunction. Agri-product volumes were flat compared with the previous period.
Barloworld said its revenue for the five months to endFebruary was down 5.5%, reflecting “the diverse and complex economic environments” in which it operates.
The group, which operates in Southern Africa, Russia and Mongolia with a market capitalisation of R11.5bn on the JSE, said revenue for the period declined to R15.6bn from R16.5bn in the previous period.
Earnings before interest, taxes, depreciation, and amortisation (ebitda) declined 2.5% to R1.9bn, while the ebitda margin improved to 11.9% from 11.5%. The operating profit margin weakened to 8.7% from 8.9% in the year-earlier period.
Equipment Southern Africa generated revenue of R9.7bn, down 4.9% from a year ago, as machine sales fell by 17.8% due to lower demand from mining customers. This was partially offset by 13.2% growth achieved from parts sales.
Investment into net working capital has reduced and is expected to further unwind in the second half of the financial year.
The firm order book ended at R3bn from R5.7bn a year ago, reflecting reduced trading activity.
Equipment Eurasia’s revenue was 11.1% lower than the previous period due to a 30% decrease in its Russian business Vostochnaya Technica’s revenue, which was partially offset by the 24% growth in Barloworld Mongolia’s revenue.
High margin realisation, increased aftermarket contribution and cost control contributed to a 17% growth in operating profit from core trading activities to $33.5m.
The firm’s order book grew from $15.9m to $119.8m.
As the group remains focused on cash generation and capital allocation, the matured term debt of R1.3bn was repaid from free cash flow generated from operations and an ordinary dividend of R569m was paid in January.
Barloworld shares were trading 0.53% lower at R59.74 on Tuesday having slipped 17% over the last three years.
INDUSTRIAL GROUP CITES REDUCED VOLUMES, PORT BOTTLENECKS, WEAK CONSUMER SENTIMENT AND HIGH INTEREST RATES