Heavy machinery and industrial equipment manufacturer Barloworld, which beat difficult conditions in South Africa and Russia to post an 18% increase in operating profit for the 11-month period to August 31, is shifting from short-term bank debt to longer-term bond financing as it handles increased demand for funding for its operations.
In the 11 months to end-August, Barloworld lifted operating profits by 18% to R3.2 billion compared to the same period last year. This was after the company grew revenues by 15% over the same period, it reported in a voluntary trading update yesterday.
The growth in revenues and operating profits for the period has been attributed to “better trading performance” across its businesses. This had also translated to a 13% firming in Ebitda (earnings before interest, taxes, depreciation and amortisation), which amounted to R4.9bn for the period under review.
The company has also reduced its net debt position from R7.5bn a year ago to the current R6.3bn as at the end of August 2023. Shares in Barloworld rose 2.44% yesterday to R85.2 in midday trade.
Barloworld’s South African short-term debt includes bonds maturing in the next 12 months amounting to R1.5bn, term debt of R572 million and other uncommitted facilities amounting to R500m.
“As part of the ongoing process to reduce finance costs through the renegotiation of the current facilities, Barloworld repaid R400m of the short-term bank debt in July 2023. We expect to maintain our participation in the bond market to the extent that we can achieve funding rates that are competitive,” Barloworld said.
Of its R15bn domestic medium-term note programme, as much as R4.6bn is held in long-term bonds.
In December, Barloworld repaid its bonds amounting to R252m, while earlier this year it extinguished as much as R700m.
“The group has a target gearing ratio of 60% / 40% in the proportion of debt to equity. During the current period, the focus has been to optimise our debt and equity balances, maximising the returns to shareholders, while maintaining our strict capital discipline,” the company said.
Under its equipment business for the southern Africa region, Barloworld delivered “strong results” while navigating “challenging” macro factors. Machine sales, after-sales and machine rentals for the region attained similar growth momentum since the interim period in March, bumping up a contribution of R26bn in revenue, which represents a 34% increase over the prior year period.
Despite the headwinds of high inflation and volatility in the rand, the operating profit for the southern Africa region raced 17.3% ahead of the prior period at R2.1bn. This was attained against the backdrop of soaring demand for working capital as Barloworld managed long lead-order-to-delivery cycles while supporting growth in trading activity.
Of its consumer industry division, Barloworld said: “Challenges in various domestic sectors have persisted as a result of economic pressures on the South African consumer, manufacturing customers affected by water challenges, and high levels of load shedding, resulted in overall domestic sales volumes being flat compared to the prior period.”
Under this category, volumes in the alcoholic beverages sector were flat on a period-on-period basis, although the confectionery segment exhibited continued growth. There were some offsets though, from continued decline in volumes in the coffee creamer sector.
In Russia, Barloworld’s equipment business has continued to be affected by the war in Ukraine, a situation that has resulted in reduced product lines and a constrained supply chain.
Revenue for the period from the Russian unit sagged 46% to $277.3m (R5.3bn) while operating profit from core trading activities was down 8.7%. In Russia, Barloworld is restructuring its cost base in line with existing trading levels.
BUSINESS REPORT