Barloworld extends investigation into Russian subsidiary

An independent investigation into potential export control violations by JSE-listed Barloworld related to sales of certain goods to its Russian subsidiary Vostochnaya Technica (VT) has been further extended to September 2025.

The investigation was launched in 2024, with Barloworld informing shareholders that it submitted an initial notification of voluntary self-disclosure to a US Commerce Department agency, the Bureau of Industry and Security (BIS), on 5 September 2024 regarding the potential export control violations the company was investigating.

Barloworld Group CEO Dominic Sewela said on Monday the company was disappointed to learn last year of the potential export control breach in its VT division and the investigation is ongoing.

“As announced this morning [Monday], BIS has granted a further extension from 2 June to 2 September, and we will keep you updated as we progress with that investigation.”

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‘Complex’ investigation

Barloworld head of legal Sandile Langa said the extension is purely a function of the complexity of the investigation.

Langa said the investigation is being conducted by an independent forensic firm, which is working under the guidance of US legal counsel that had requested the company apply for the further extension on the basis of where “we are in the progress of the investigation”.

“You must appreciate that the US authorities are not likely to have agreed to this further extension unless they were satisfied that the company was taking all the correct steps in the investigation,” he said.

Langa’s comments were made during a briefing on Barloworld’s interim financial results for the six months to 31 March 2025.

Barloworld is still the subject of a proposed buyout by a consortium led by Saudi Arabia’s Zahid Group, which if successful will result in Barloworld delisting from the JSE.

Sewela said Barloworld’s VT business has been significantly reduced by sanctions and the prolonged geopolitical environment, largely because the addressable market has shrunk in that area.

“At the current rate, we expect our operations in VT to trade towards break-even levels and to remain self-sufficient.”

Sewela said VT is close to break-even but the business is basically selling parts, which are not impacted by export control, and therefore the discipline is that you are able to sell these parts.

He said Barloworld is embarking on initiatives to try and make sure it does not lose its people in VT but stressed “it is difficult to sell labour in a smaller addressable market”.

“Therefore, I’m not saying we will always remain profitable and hence we are giving guidance that as soon as we dip below that level, we will unfortunately be forced to take people out [of the business].

“The business is self-sufficient in terms of funding and there is more cash in that business than I would like us to have given – you can’t take the cash out,” he said.

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Interim results

Barloworld on Monday reported that group revenue declined by 5.8% to R18.1 billion in the six months to 31 March 2025, driven by a 36.8% decrease in revenue at VT and a 6% decline in Barloworld Equipment Southern Africa.

Operating profit from core trading activities improved by 1.3% to R1.48 billion from R1.46 billion, with the group operating margin deteriorating to 8.8% from 9.7%.

Excluding VT, the operating margin expanded by 0.3% to 8.8% from 8.5%.

Headline earnings per share slumped by 20.5% to 423 cents from 532 cents, largely because of the expected decrease in VT’s trading activities from the impact of continuing sanctions in Russia.

Normalised headline earnings per share, which excludes VT, remained flat at 356 cents.

An interim dividend per share of 120 cents was declared, which is 42.8% lower than the interim dividend of 210 cents declared in the previous corresponding period.

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Operating environment

Sewela said 2025 has been typified by volatility, uncertainty, complexity and ambiguity, with the world changing faster than ever in terms of economic shifts, global politics and climate changes.

“In such a dynamic environment, businesses such as ours, especially those in cyclical industries, need to look beyond short-term gains and prepare for long term resilient strategies,” he said.

Sewela said the trading conditions Barloworld operated in during the period were indicative of the market entering a lower cycle where commodity prices are subdued.

He said Barloworld’s Southern African mining clients remain cautious about investment and are preferring to rent equipment from the group than to buy while the recovery in the construction sector is still in progress.

Sewela added that in Zambia, the copper mines in particular, have been spared by favourable copper prices.

He said Barloworld’s equipment business in Mongolia continued to grow but at a slower pace.

Sewela said the 2024 optimisation actions at Ingrain are yielding the desired benefits, resulting in a lower fixed cost base and improved operating efficiencies.

He said Ingrain generated stable revenue, with lower overall volumes offset by inflationary price increases.

Turning to the outlook for the group, Sewela said the future effects of tariffs on Barloworld’s business remain uncertain and the group is actively assessing the medium to long term implications of these tariffs.

“That said, we have consistently demonstrated our ability to successfully navigate volatility in the past by leveraging our key endowments and having a firm grip on what we can control,” he said.

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Buyout update

The initial buyout offer by the Newco via a scheme of arrangement was overwhelmingly rejected at a general meeting in February this year, triggering a standby offer that, among other things, is subject to at least 90% of eligible shareholders accepting the offer.

However, Newco has the right to waive the 90% threshold and proceed to acquire less shares from shareholders who have accepted the standby offer, with any decision on the waiving of the threshold extended and now expected by no later than 30 June 2025.

The Public Investment Corporation, which owns 22% of Barloworld’s ordinary shares, in April this year announced that it had accepted the standby offer.

This article was republished from Moneyweb. Read the original here.