Bar­loworld eyes min­ing up­swing from 2016

Finweek English Edition - - INSIDE - BY JACO VISSER ed­i­to­rial@fin­week.co.za

Bar­loworld, Africa’s largest seller of Cater­pil­lar equip­ment, fore­cast an up­swing in the mininge­quip­ment mar­ket from 2016 as it man­aged to con­tain costs amid a lack­lus­tre rev­enue per­for­mance.

“Sales to the min­ing com­pa­nies have ac­tu­ally dropped off in both 2013 and 2014 and we ex­pect a fur­ther drop-off into 2015,” said Clive Thom­son, CEO of Bar­loworld. “We think there will be three years of con­trac­tion in new sales to the min­ing in­dus­try. At this stage we are fore­cast­ing the be­gin­ning of the re­cov­ery only in our 2016 fi­nan­cial year.”

EQUIP­MENT SALES IN SOUTH­ERN AFRICA WERE DRIVEN BY AF­TER­MAR­KET SALES, AND THIS UNIT SAW REV­ENUE GROW BY 9.3% TO R20.9BN, THE SEC­OND-BIG­GEST CHUNK OF BAR­LOWORLD’S OVER­ALL TURNOVER OF R62.1BN DUR­ING THE FI­NAN­CIAL YEAR END­ING SEPTEM­BER.

South Africa’s min­ing sec­tor has been hit by labour dis­rup­tions, a de­cline in com­mod­ity prices a nd en­erg y con­straints. Af­ter­mar­ket rev­enue grew 17% over the pe­riod.

The company’s Rus­sian equip­ment-sale di­vi­sion in­creased sales by 23% to $382.7m de­spite the sharp de­cline in the oil price and po­lit­i­cal ten­sion with Ukraine, and sanc­tions im­posed by the US and Euro­pean Union.

In Spain, where a prop­erty boom be­fore the re­ces­sion of 2009 drove the econ­omy, Bar­loworld cut more than R1bn of costs from its equip­ment di­vi­sion in a bid to set it up for ex­pan­sion once the coun­try’s econ­omy starts to grow again. Rev­enue de­clined 21% to €290m in the year end­ing Septem­ber.

Bar­loworld has f aced a t ough en­vi­ron­ment in Ibe­ria for the last six or seven years and spent a lot of money re­struc­tur­ing the business, ac­cord­ing to Thom­son.

“It would be ex­actly the wrong time to look at ex­it­ing this business,” he said. “We’re very com­mit­ted to this business. When the mar­ket re­cov­ers, we be­lieve we will make good money again in Spain.”

The company’s au­to­mo­tive unit, the sec­ond-largest contributor to rev­enue, saw sales in­crease by 9.8% to R19.2bn even as South African con­sumers buckle un­der high inf la­tion, ris­ing ad­min­is­tra­tive prices and high house­hold in­debt­ed­ness. New ve­hi­cle sales at Bar­loworld’s deal­er­ships de­clined 1.1% in the f inan­cial year, ac­cord­ing to Thom­son.

“That is a bit bet­ter than the over­all mar­ket,” he said. “That’s per­haps be­cause we’re more skewed to­wards the pre­mium brands, which have been a bit more re­silient. Mercedes-Benz had a very good year for us in 2014, with some in­ter­est­ing model in­tro­duc­tions.”

The unit saw the sale of parts in­crease by 15% over the pe­riod, Thom­son said. The company cut costs in its au­to­mo­tive di­vi­sion re­sult­ing in a 29% jump in op­er­at­ing profit to R542m. It bought a Toy­ota deal­er­ship in Ku­ru­man, close to the boom­ing min­ing town of Kathu in the North­ern Cape, and a Jaguar/Land Rover deal­er­ship in Wit­bank.

Bar­loworld’s share price re­turned 5.4% over the past 12 months.

Bar­loworld is the of­fi­cial Cater­pil­lar dealer in 11 African coun­tries, Spain, Por­tu­gal and a sig­nif­i­cant por­tion of Rus­sia.

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