Eqstra’s Contract Mining & Plant Rental division was a heavy drag on the company’s results for the year ended June 30.

Group revenue increased by 9.8%, to R10-billion, compared with the previous financial year, while operating profit dropped by 9.6%, to R938-million.

Headline earnings per share decreased by 26.3%, to 76.7c a share.

Eqstra’s interest-bearing borrowings increased by 5%, to R8-billion.

CEO Walter Hill says Eqstra’s Fleet Management & Logistics and its Industrial Equipment divisions demonstrated the resilience of their business models by increasing revenue and profitability, despite tough economic conditions.

However, Contract Mining & Plant Rental delivered a disappointing performance, mainly as a result of three weeks of industrial action during August and September last year, abnormally high rainfall during February and March this year, closure costs and a general slowdown in mining and infrastructure activity in South Africa.

The combined impact of these events is estimated at R225-million.

The group’s profit after taxation was further negatively impacted on by the impairment of Eqstra’s R63-million investment in Protech Khuthele, following the company’s voluntary liquidation order, notes Hill.

Eqstra’s Industrial Equipment division increased revenue by 12.1%, to R3-billion, with operating profit up 20.5%, to R311-million.

Hill says the division was able to take proactive action against a slowing South African forklift market and scale back orders placed with the factory.

Sales in the total local forklift market were down 20% year-on-year as at June 30.

The division’s ability to maintain a solid performance during this year was supported by the strategy to reduce its dependence on South African forklift sales to below 50%, says Hill.

The division re-signed the Toyota and BT distribution agreements for South Africa for a further three years.

The Heavy Equipment business benefited from a solid performance from Konecranes and an improvement in the Terex Trucks business unit.

The Fleet Management & Logistics division increased revenue by 18.4%, to R2.8-billion, with operating profit up 17.7%, to R366-million.

The division returned to normalised earnings after the closure of underperforming operations in 2013.

The division also became increasingly selective about its customer base.

Hill expects further efficiency improvement as a result of the implementation of an enterprise resource planning system, slated for 2015. Until the implementation of the system, the group will continue to carry excess overheads.

Mining Division in Turmoil
The Contract Mining & Plant Rental division saw revenue for the year ended June 30 increase by 6.9%, to R4.5-billion. Operating profit, however, dropped by 49.5% to R239-million.

Seventy per cent of the division’s revenue was generated by contract mining in South Africa.

The underperforming Wolwekrans and Nkomati Nickel contracts ended in January and June respectively.

The division secured new contracts at the Aganang, Karowe and Rockwell operations towards the end of the financial year, adding commodity and geographic diversification.

Hill says the Eqstra board has approved a reduction of the division’s contribution to revenue to 30% of the business, down from the 43%, by growing the other divisions.

This decision was partly driven by ratings agency Standard & Poor’s downgrading Eqstra’s long-term credit rating in April to zaBBB+ based on its view that the group is exposed to a cyclical mining sector and labour instability, he notes.

Contract Mining & Plant Rental CEO Erich Clarke will leave the company on October 1, with Hill taking over until a suitable candidate has been found.