THE BOTTOM LINE
Barloworld says thank heaven for Russia, not so much Spain
Some worries about US-led sanctions, but for now equipment sales in that part of the world are booming
Barloworld’s self-proclaimed “solid” first-half results to March 2018 have been underpinned by addressing underperformance, mainly in the group’s logistics operations where plans to exit the small Middle East business are underway.
Meanwhile, the sale of the long depressed Iberian operations is nearly complete and should bring in billions of rands to offset rising debt.A stronger rand caused a big forex loss in the interim period, but this also benefits the purchase of dollar-based equipment in rising mining markets. But a new mining code in the Democratic Republic of Congo has brought uncertainty, while South Africa’s mining charter continues to pose downside risks.
Then there are some worries that sanctions being imposed on Russia by the US might hurt profits in what has become a booming part of the world for the company. However, for now, equipment and after-market sales in that country continue to be star performers.
Working capital requirements shot up on a big jump in inventory levels driven by buoyant mining sales, but this should fall back by year-end in September 2018 as equipment deliveries start to generate cash.
This should help reduce group net debt which rose by R3.8-billion from September 2017 to R9.6-billion in March 2018, along with Iberian inflows of about R2.3-billion.However, allied to improvements in contract mining equipment sales and rental hire in southern Africa, things are set to get better. Russian greenfield and brownfield mining projects and the recovery in commodity prices drove record US dollar revenues and operating profit for Barloworld in that part of the world.