Barloworld Extends Export Control Probe into Russian Subsidiary as Sanctions Bite

JSE-listed Barloworld has confirmed that its investigation into potential export control violations involving its Russian arm, Vostochnaya Technica (VT), will continue until at least September 2025. The probe, first launched in 2024, centers on whether the group violated US export laws in transactions with VT—an issue the company voluntarily reported to the US Bureau of Industry and Security (BIS).

Compliance Under Scrutiny

Group CEO Dominic Sewela said Barloworld was dismayed to learn of the potential breach last year and immediately initiated an independent forensic investigation, now being carried out under US legal guidance. The company was recently granted an extension by US authorities to continue the probe, a sign Sewela says reflects their trust in Barloworld’s cooperation and transparency.

“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,” said Barloworld Chair Neo Langa.

Sanctions Shrink the Russian Business

Barloworld’s VT operations have been severely impacted by ongoing international sanctions and the broader geopolitical fallout from the Russia-Ukraine conflict. While the company says VT is nearing break-even thanks to a focus on parts sales that aren’t affected by export controls, the addressable market has shrunk significantly.

“We’re doing our best to retain jobs there, but we’re honest about the limits,” said Sewela. “If we dip below sustainability, we’ll be forced to cut back.”

Notably, VT remains self-funded, and although it holds significant cash, repatriating that money remains a challenge due to Russian financial restrictions.

Profits Down as Sanctions Bite

The impact on Barloworld’s bottom line is clear. In its interim results for the six months ending 31 March 2025, the company reported:

• A 5.8% drop in group revenue to R18.1 billion.

• VT revenue declined nearly 37%, while Southern African equipment sales dropped 6%.

• Headline earnings per share fell 20.5% to 423 cents.

• Operating margin dropped to 8.8%, but excluding VT, it saw a slight improvement.

Barloworld also announced an interim dividend of 120 cents, sharply down from 210 cents last year.

Market Conditions and Strategic Outlook

Sewela described the current business climate as one of “volatility, uncertainty, complexity and ambiguity,” citing cautious behavior among mining clients and subdued commodity prices. He noted that clients are now more likely to rent equipment rather than purchase, reflecting a risk-averse investment climate.

On a more positive note, operations in Mongolia continue to grow, and the group’s food ingredients business, Ingrain, has benefited from cost-cutting and efficiency improvements despite lower sales volumes.

Buyout Still in Play

The backdrop to all of this is an ongoing buyout attempt by Saudi Arabia’s Zahid Group, which aims to delist Barloworld from the Johannesburg Stock Exchange. The initial scheme was rejected earlier this year, but a standby offer remains on the table—pending at least 90% shareholder approval, although this threshold could still be waived.

South Africa’s Public Investment Corporation (PIC), which holds 22% of Barloworld shares, has already accepted the offer. A final decision on the buyout terms is expected by 30 June 2025.

Barloworld is navigating one of its most challenging periods in recent history, juggling a high-stakes export control investigation, declining profits, and geopolitical headwinds in Russia—all while a major buyout hangs in the balance. The company says it remains committed to transparency and resilience in the face of global uncertainty.

{Source: The Citizen}

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