Shares in Barloworld, the industrial conglomerate with interests ranging from industrial equipment and services to consumer industries, leapt after it advised shareholders it had entered into discussions, which, if concluded successfully, may have a material effect on the share price.
The company did not elaborate on the nature of the discussions that prompted the cautionary announcement, but advised shareholders in a statement on Monday to exercise caution when dealing in the company’s securities until a full announcement was made.
Barloworld’s share price rose as much as 11.23% in intraday trade before ending the day up 10.26% at R79.54, its biggest one-day gain since September 2021.
In 2022, the board of the diversified industrial group decided to simplify its portfolio by exiting noncore businesses.
In line with its focus on optimally deploying capital within the group, Barloworld exited investments in logistics at the end of March 2023. It also completed the unbundling of its car rental and leasing business, Zeda, in December 2022.
This left the company, which is the official dealer of Caterpillar equipment and has operations in 16 countries, with the capacity to focus its energies on its industrial equipment and consumer industries sectors.
However, its Ingrain division, which supplies local and multinational customers in key sectors with ingredients essential for the manufacturing of food and beverages, has been having a tough time amid a weak economic environment.
The company said in March that it had entered consultations with organised labour and affected stakeholders to restructure parts of its local Ingrain operations that could lead to dozens of job losses.
A cocktail of global and local headwinds, including a commodity downturn, electricity shortages, port bottlenecks and high interest rates, have affected the operations of the industrial firm.
In its five-month pre-close update released on March 26, Barloworld reported that revenue from Ingrain, was down 5.2% due to lower overall volumes, reduced export pricing and agri-product recoveries. Port challenges at Durban harbour and the competitive global pricing of starch throughout the period under review had a negative effect on exports to Australia and the deep-sea markets.
CEO Dominic Sewela said then that the performance of Ingrain — one of Africa’s largest producers of unmodified and modified starch, glucose, and other related products — reflected consumer confidence, which is particularly challenged in SA.
He said that as Ingrain customers were subsequently reducing their volumes while port bottlenecks were further compounding the delivery of exports, the weak consumer sentiment and high interest rate environment had spurred management to implement a plan to structurally lower the fixed cost base in the business.
“To that extent, we have declared a section 189 [process] in the Ingrain business,” Sewela said, adding that the process began in February.
“An organisational restructure has commenced as part of a broader turnaround plan to right-size Ingrain in line with its trading activity. This will position the business to deliver acceptable target returns,” he said.
About 920 people are employed and the process is expected to take up to six months.
Barloworld said in the March 26 update that its revenue for the five months to end-February was down 5.5%, reflecting “the diverse and complex economic environments” in which it operated.
The group, which operates in Southern Africa, Russia and Mongolia, said revenue for the period fell to R15.6bn from R16.5bn previously.
Earnings before interest, taxes, depreciation, and amortisation (ebitda) were down 2.5% to R1.9bn, while the ebitda margin improved to 11.9% from 11.5%. The operating profit margin weakened to 8.7% from 8.9% in the year-earlier period.
With Monday’s gain Barloworld’s share price closed at its highest level in more than five months, giving it a market cap of R15.1bn.
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