Diversified industrial company Barloworld has reported a 7.4% decline in group revenue from R40.4-billion to R37.4-billion for the 11 months ended August 31, compared with the same period last year.

In a voluntary trading update published on September 26, Barloworld revealed that earnings before interest, taxes, depreciation and amortisation (Ebitda) for the period dropped by 14.3%, from R4.9-billion to R4.2-billion. The Ebitda margin decreased from 12% to 11.1%, while the operating profit margin fell from 9.4% to 8%.

The company, however, saw a significant reduction in net debt, down 44% year-on-year from R6.3-billion to R3.5-billion, reflecting its focus on cash generation and gross debt reduction.

Despite the decline in performance, Barloworld described its results as "resilient" amid the diverse and complex trading environments in which it operates.

“It's been a very challenging year from a trading environment perspective, particularly in Southern Africa, where the commodity cycle and the interest rates are challenges. These were really negative to our two business here in South Africa,” Barloworld group CEO Dominic Sewela said on September 26.

The group highlighted ongoing macroeconomic challenges in Southern Africa during the period, countered by growth in Mongolia driven by government-led infrastructure expansion and external demand for minerals, particularly from China.

Barloworld said mining customers in South Africa faced cost pressures, limiting fleet expansion.

Meanwhile, the group’s Russian subsidiary Vostochnaya Technica continued to experience revenue declines owing to prolonged sanctions and market contraction.

“When it comes to Russia from a trading perspective, sales have been impacted, likely due to the sanctions imposed on the addressable market. Year-on-year and month-on-month, these stringent sanctions have significantly affected the market. However, the group has remained focused on strengthening the balance sheet. This approach ensured that, as we navigate through this down cycle, we were able to release capital and reduce the group's net debt over this 11-month period,” Sewela explained.

However, Barloworld's starch and glucose subsidiary Ingrain started to benefit from a turnaround plan implemented in the second quarter of the 2024 financial year.

Barloworld’s Equipment Southern Africa division experienced a 13% drop in revenue to R22.7-billion over the period, down from R26-billion the previous year, attributed to the end of the mining replacement cycle. Despite this, aftersales revenue remained steady.

Operating profit from core trading activities decreased by 9% year-on-year to R1.9-billion, down from R2.1-billion in 2023, while Ebitda remained stable at R2.7-billion, with an improved margin of 11.8%.

Meanwhile, the group’s UK tractor dealership Bartrac’s performance remained largely unchanged. The firm order book ended at R2.4-billion, down from R2.9-billion a year ago.

Ingrain generated R6-billion in revenue for the period under review, in line with the previous year. Sales volumes declined by 2.5%, primarily owing to lower domestic demand across several sectors.

However, the non-alcoholic beverage sector showed growth, and regional exports into Southern Africa increased, offsetting lower volumes in the deep-sea markets caused by supply chain disruptions owing to the ongoing Red Sea conflict.

“We concluded our Section 189 restructure [of Ingrain] in the third quarter. We managed to reduce our salary bill in the business. Through that restructure, we've also been able to reorganise our shifts in the plants and are lowering our overtime build as well. So I think we're seeing our fixed cost base come down quite pleasingly, compared to the same five months in the prior year. I think the biggest improvement that we have seen, though, is on the plant efficiency losses,” Barloworld consumer industries CEO Chris Wierenga explained.

Agriculture product volumes were flat compared with the prior period, the group reported. However, Ingrain's Ebitda was down 4.1% year-on-year to R704-million, supported by a lower fixed cost base resulting from the turnaround plan.

Barloworld said its overall turnaround efforts yielded improvements in key areas such as volume recovery, operational performance and fixed cost discipline.

As such, export volumes increased by 8.8% year-on-year, while operational efficiencies led to gains of R1.3-million over five months, compared with a loss of R62-million for the first six months of the financial year. Fixed cost escalation remained below inflation at 3.7%.

In terms of funding and liquidity, Barloworld said it had strengthened its balance sheet, reducing gross debt by 29% year-on-year and settling a bond debt of R714-million.

The next bond maturity, amounting to R730-million, is set for the second half of 2025.

The group reported that it had maintained a positive liquidity position, with headroom of R17.5-billion, including R6.5-billion on committed facilities. Moreover, Barloworld said its financial covenants remain well within limits.