Barloworld Equipment’s performance tells a tale of two industries
- Author: Andile Ntingi
- Published: Monday, 12 December 2016 07:39
The mining industry has been in the doldrums since the economic recession that swept globe seven years ago, but Emmy Leeka has not lost hope that the industry will claw its way back into profitability.
At the beginning of October this year, the veteran mining executive took over the reins as chief executive officer of Barloworld Equipment Southern Africa from Dominic Sewela, who has been appointed CEO-designate of JSE-listed distribution group Barloworld, the equipment division’s 114 year-old parent company.
Sewela will take over from Clive Thomson in February next year as part of Barloworld’s structured succession plan. As the chief of Barloworld Southern Africa, Leeka is responsible for 11 southern African countries where the company does business, including South Africa.
Barloworld makes the bulk of its money by supplying Caterpillar’s earthmoving machines to the mining and construction industries, thus the downturn in the commodities market has had a knock-on impact on the company, resulting in a significant reduction in its contribution to group earnings.
“The mining industry is currently in a trough, but I believe it will bounce back and increase its contribution to our earnings,” predicts Leeka.
Since 2012, Barloworld Equipment has experienced a decline in equipment deliveries to the mining industry, as companies cut capital expenditure and postpone new investments and brownfield operations, due to weak commodity markets.
However, sales to the construction sector have kept Barloworld Equipment Southern Africa afloat, thanks to steady investment in infrastructure by governments in the region, particularly in South Africa, where the state is spending more than R800 billion over the next three years upgrading the country’s roads, railways, ports and telecommunications networks.
In South Africa, Barloworld Equipment’s largest market, the mining industry has experienced a yo-yo performance since taking a hammering at the height of the global economic crisis, when mining shrank by 5.3% in 2008 and 5.1% 2009. From 2010, it moved in and out of recession before recovering to 3% last year.
In contrast to the mining sector’s performance, the construction industry leaped 9.9% in 2008 and 8.5% in 2009. The construction industry has held steady in the aftermath of the global recession, growing at 4.6% in 2013 and 3.6% in 2014, before slowing to 1.6% last year.
Barloworld Equipment Southern Africa’s latest financial results reflect the decline of mining and ascendance of construction when it comes to revenue generation.
“We are starting to see green shoots that point to a recovery at the tail-end of 2017 and 2018, going forward. The recovery in the US will assist in driving demand for commodities”
In the 12 months to end September 2016, the company generated R18.5 billion in revenue, which was 8.7% lower than last year, dragged down by the continued weakness in the mining sector.
New equipment sales contributed 31% to revenues, product support (after-sale maintenance services) 56%, while rental of equipment contributed 5% and sales of used machines 8%. The share of new equipment sales to the construction sector was 52% of the company’s total sales, while 29% came from sales to the mining sector, 15% from power and 4% from contract mining. The share of new equipment sales to the mining industry was 40% in 2015 while that of construction was 43%..
Leeka, who joined Barloworld Equipment Southern Africa in 2012 after more than 20 years in the mining industry, believes that the global economy is poised for sustainable recovery, laying the groundwork for a rebound in sales to mining companies.
“In the meantime, we are not waiting for mining to recover and we are working hard to grow our construction, power and maritime businesses,” he reveals.
The company also sells Caterpillar-made power generators and solar PV panels to the power-generation industry, as well new and used engines in the marine, petroleum, rail and industrial markets.
Despite the current gloomy picture in the commodities market, Leeka is seeing signs of a turnaround.
“We are starting to see green shoots that point to a recovery at the tail-end of 2017 and 2018, going forward,” he projects.
“The recovery in the US will assist in driving demand for commodities. The previous boom in the commodities market was driven by China and to an extent by India, and Africa benefitted by exporting minerals to those countries,” argues Leeka.
Since its clients, particularly in mining, are tightening their belts, Barloworld Equipment has also been forced to contain costs to remain profitable.
When Leeka speaks about mining, his face lights up. After all, he cut his teeth in the mining industry and it would be fair to describe him as a mining encyclopaedia. His vast knowledge of the sector stems from more than two decades of experience working for some of South Africa’s largest mining companies.
“I can dig for minerals underground,” says the Wits University-trained metallurgical engineer, who started his professional career in 1993 at gold producer Anglo Gold.
Leeka once used heavy earthmoving machines such as drill rigs, draglines, bulldozers, hydraulic excavators to dig for minerals, but now is supplying the mines and construction companies with the machines. As a mining executive, he has worked across Africa, including for Iscor’s mining division (now Kumba Resources) in the Democratic Republic of Congo (DRC) in 1997, where he was part of a team that was developing copper cobalt mines.
“I was in Kinshasa, DRC, when the civil war started in 1998. We had to be evacuated out of the country for our safety,” he reveals.