UPDATE 2-Barloworld says rand knocks earnings


(Rewrites with outlook, adds CEO comment, analyst, share)

By Jodie Ginsberg

JOHANNESBURG, May 20 (Reuters) - South African industrial brand-management company Barloworld said a strong rand and adoption of a new accounting method hit half-year earnings on Tuesday, but that it hoped for improvement in the second half.

The world's largest independent dealer in lift trucks said headline earnings, which strip out exceptional items and their tax effects, dropped 22 percent to 211 cents a share in the six months to March from 270 cents in the same period last year.

But operating profits rose 41 percent to 1.7 billion rand ($214.6 million) despite marginally higher revenues compared with the first half of 2002.

Barloworld, whose brands and businesses include Caterpillar earth-moving machines, Avis car hire and PPC Cement, maintained its interim dividend at 90 cents per share.

"Overall, a good set of results, focusing on the operations," said one analyst. However, others cautioned that a cloudy outlook for earnings -- given an uncertain outlook for the global economy and rand -- could weigh.

Barloworld shares were down 1.8 percent at 53.15 rand by 0830 GMT in a firm broad market .

The group, which cautioned in April headline earnings for the period would be lower than the previous year, said it looked forward to reporting better earnings in the second half compared to the first, subject to exchange-rate stability.

Chief Executive Tony Phillips later added that a cut in interest rates would also help the group, whose businesses include motor dealerships and vehicle hire.

"I am personally very concerned about the high interest rate regime in South Africa," Phillips told Reuters in an interview. "It is absolutely choking our businesses."


South Africa hiked interest rates four times in 2002 to combat the inflationary effect of a sharp drop in the value of the rand the previous year. Phillips said he was encouraged by reports on Tuesday that inflation may have been incorrectly calculated and might actually be lower than has been thought.

"If the consequence of getting the calculator out again was that the (Reserve Bank) governor was moved to start bringing down interest rates, I would be very enthusiastic," he said.

Phillips said the group continued to look at expanding its business through acquisitions that, on average through the business cycle, would exceed the firm's hurdle for returns on investment.

He said Barloworld was discussing a number of proposals that were currently in a "sensitive stage" as well as looking to expand in areas such as western Siberia.

The profit contribution from operations outside South Africa rose in the period despite the strength of the rand and accounted for 58 percent of the total, Barloworld said.

Phillips said U.S. and UK markets were tough at present but that the group was well-placed to cope with what he said was apparent pent-up demand once the economic environment improved.

Barloworld said it took a hit of 313 million rand under a new accounting standard against a 36 million rand gain last year, largely from the marking-to-market of financial instruments taken out to cover exposure to foreign currency denominated imports.



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