JSE-listed Barloworld reported a 7% year-on-year decline in revenue to R41.9-billion for the 12 months ended September 30.

Barloworld group CEO Dominic Sewela said at its financial year-end results presentation on November 25 that this decline was primarily driven by subdued trading results from the group’s Equipment Southern Africa business, which was down 12.7% from the previous year, along with a year-on-year decline in activity from its Russian Vostochnaya Technica (VT) business.

While underwhelming, he emphasised that these results were not unexpected.

“In 2023, I did caution against an expected slowdown in business activity, driven not only by the cyclicality of the Equipment Southern Africa business, which is exposed to the mining sector, but also by other factors which led to the constrained trading environment,” Sewela said.

However, he asserted that the company’s results for 2024 represented the effectiveness of the company’s focus on a fixed, optimised growth strategy.

“In navigating these challenges, our portfolio diversification and strategy execution through the parallel business system has enabled us to weather the volatile macroeconomic backdrop,” Sewela said.

While earnings before interest, taxes, depreciation and amortisation (Ebitda) declined by 7% to R5.1-billion, Barloworld managed to maintain an Ebitda margin of 12.2%, in line with that of the prior year.

Operating profit from core trading activities also saw a significant year-on-year decline of 12.6% to R3.8-billion.

The company said these results took into account a $10-million provision related to an earnout structure for the acquisition of Barloworld Mongolia, which outperformed expectations, as well as a $26.7-million provision related to inventory obsolescence and restructuring costs for VT.

Barloworld group FD Nopasika Lila explained that, on a normalised basis before these extraordinary items, Ebitda had increased by 9% over the prior year and that operating profit from core trading activities had increased by 3%.

The company reported that it had managed to pay down a significant portion of its debt, reducing gross debt by 29% from R11.1-billion to R7.9-billion. Barloworld also made a final payment of R632-million, finalising the derisking of the UK pension fund.

“There's certain specific events that are not going to be repeating in the following year. As such, I'm confident in our liquidity position and positive that the consistent execution of our strategy will be sustainable going forward,” Sewela stated.

Barloworld achieved a return on invested capital of 15.7% compared with the 17.7% generated in the prior year, which is still above the threshold of 14%.

Sewela announced the board’s decision to declare a final ordinary dividend of R3.10 a share, bringing the total dividend to R5.20 a share. The total dividend is therefore 4% higher than last year and is in line with the group’s stated dividend policy cover of 2.5 to 3 times normalised headline earnings.

OPERATIONAL PERFORMANCE
“We were able to counter the [decline in] revenue from some of the geographies with a significant improvement in others and this is demonstrating the resilience of our geographic diversity,” Lila explained.

Despite the decline in domestic earnings, Sewela characterised Barloworld’s Equipment Southern Africa's results for the year as “resilient performance amid softer global economic recovery and geopolitical uncertainties”.

The business’s revenue ended 12.7% behind the prior year, at R25.7-billion, down from R29.5-billion in the 2023 financial year, mainly driven by a 27% drop in machine sales ending at R10.7-billion, compared with R14.7-billion a year prior, coming off the previous fleet replacement cycle.

“The revenue reduction in Southern Africa is attributable to the soft sales volumes amid a weak global economy, as well as mining activities,” Lila explained.

However, the aftersales segments traded ahead of 2023, with the Parts and Rental businesses both contributing favourably to the sales mix.

Barloworld’s Eurasia business was supported by strong growth in Barloworld Mongolia. As such, Eurasia's revenue of $490-million was 8.6% higher than in 2023 at $451-million, with Mongolia generating revenue of $261-million, up from $157-million in the previous year.

Barloworld’s VT business reported a decline in revenue of 22% to $229-million in the face of the prolonged sanctions environment and the contraction of its addressable market.

“We are disappointed to learn of the potential export control breeches in our division at VT. We filed a notification of self-disclosure to [the US Bureau of Industry and Security] on a voluntary basis. We expect to complete this filing by March 3, 2025,” Sewela said.

In rand terms, Eurasia generated R9.1-billion in revenue, which was 10.5% higher than the previous year's R8.2-billion. The improvement in rand terms was assisted by a 1.7% weakening of the rand to the dollar against the preceding year.

In terms of Barloworld’s consumer industries business, Ingrain’s performance was supported by deliberate turnaround actions initiated in the first half of the year to optimise business structures and rebase fixed costs in line with revenue growth.

Therefore, the business generated revenue of R6.5-billion, slightly down from R6.6-billion in 2023, with lower volumes offset by increased selling prices.

Ingrain’s Ebitda, at R787-million, was down 8.4% year-on-year. However, this was an improvement on the 20% year-on-year decline recorded at the interim reporting period.

Ingrain’s operating profit also saw a decline to R498-million from R593-million a year ago, which Sewela attributed to rising fixed costs in line with the initially anticipated growth in the first half.

OUTLOOK
Sewela said geopolitical risk had overtaken inflation as the primary risk factor looking ahead into 2025.

Nonetheless, he said Barloworld expects consumer and business confidence to be boosted by lower global headline inflation and the ensuing monetary policy easing.

In South Africa, Sewela said he was hopeful that trading conditions would improve somewhat, driven by a revival in consumer and business sentiment stemming from the lower interest rate environment, the Government of National Unity, and progress made in reforming the electricity and logistics sectors.

Sewela stated that the company would remain cautiously optimistic about future prospects despite current challenges.

However, he emphasised that the business was navigating a downturn owing to several factors, including climate effects on consumer operations, geopolitical instability in regions such as Russia, Ukraine, and Mozambique – where recent riots have disrupted employee safety and service delivery – and persistent inflationary pressures over the past two years.

Sewela expressed hope that recent developments in the US could bring some stability and noted that the company had weathered the impact of the pandemic in 2020 and 2021.

“While we expect some growth in 2025, this could be undermined by the geopolitical tensions and flash points, which continue to present potential headwinds. The potential levies that could be levied by the US against China could be inflationary in the US and the retaliations could be problematic.

“However, we expect activity in the domestic environment to pick up, driven by a lower interest rate and inflationary environment, which would decrease in South Africa,” Sewela said.