Johannesburg - Barloworld remains extremely bullish about the prospects for its joint venture in the Democratic Republic of Congo (DRC) despite the business denting the listed distribution group’s financial performance in the year to September.
Chief executive Clive Thomson this week said the long-term outlook for this business remained “extremely positive”.
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“To put it into perspective, we started this business in 2007 with no revenue, no people and no profits and within a very short period of time without paying anything for that business our share of after tax profits last year was R265 million.
“We have gone into a cyclical downturn in this business, but the long-term outlook remains very positive,” he said.
Barloworld this week revealed that its share of the profit from its DRC associate slumped to R13m in the year to September from R265m in the previous year.
The group reported a 3 percent increase in headline earnings a share to 838c in the year to September.
However, excluding the impact of the broad-based black economic empowerment (BBBEE) charge in the previous year, headline earnings a share on a like-for-like basis were 9 percent lower.
Thomson said the movement between group profit before non-operating and capital items, previously called exceptional items, and headline earnings was largely in the income from associates line in its financial results, which was its joint venture in the DRC.
He said they had a very high customer concentration in this joint venture, with two customers making up 85 percent of the business.
The venture also had a high commodity concentration, with its revenues linked 100 percent to copper/cobalt.
Thomson said the substantial downturn in the copper price had led to a curtailment in activity among some of the joint venture’s mining customers in the DRC, but the biggest single impact was the temporary suspension of mining activity by the venture’s largest customer, Glencore.
In March this year a cliff wall at Glencore’s operations in the DRC collapsed into the pit, resulting in about six fatalities.
Thomson said this resulted in Glencore extending the temporary suspension of its mining activity and it was now building a new copper processing plant, which was expected to be commissioned in the second half of next year.
He said that this had a major impact on the joint venture with Barloworld also having low new capital equipment sales in the DRC in the past financial year.
It also had a significant after-market impact on Barloworld, because most of the machinery at the Glencore site was physically parked up and not working, resulting in a loss in parts and service revenue, he said.
Thomson said it had undertaken a significant internal restructuring of the joint venture to reduce the cost base, with the about 350-strong headcount reduced by about 33 percent over the past 12 months.
This restructuring resulted in Barloworld’s R27m share of the loss by the business in the first half of its financial year being turned around into a profit of R40m in the second six months.
Thomson said if it was able to keep the trajectory in the second half of the financial year into Barloworld’s 2017 financial year, it should show some turnaround in performance.
He added that the DRC had the second-largest high quality copper reserves globally after Chile and Barloworld also took some comfort from the uptick in the copper price in the last few weeks.
“If that uptick is maintained, there is no doubt we will see a recovery in activity in that region going forward,” he said.
Shares in Barloworld rose 2.67 percent yesterday to close the day’s trade at R96.49.
BUSINESS REPORT