Diversified trading firm Car & General #ticker:CGEN increased its reliance on borrowing in the year ended September, with the company saying it is betting on improved profitability to lessen the debt burden in the coming years.
The ratio of its net debt to shareholder funds, technically known as gearing ratio, rose to 93 percent in the review period from 88 percent the year before.
Total borrowings meanwhile rose to Sh4.9 billion from Sh3.6 billion, meaning that the Nairobi Securities Exchange #ticker:NSE listed firm is relying more on debt than shareholder funds to run its operations.
C&G took loans worth Sh13.1 billion in the year ended September and repaid Sh12 billion in the same period, continuing the previous year’s large-scale refinancing activities.
“The directors are aware of the adverse gearing ratio due to import financing in form of letters of credit and unsecured borrowings arising from the purchase of inventory,” C&G said in a statement.
“Management is working on initiatives to expand volumes and improve margins. The directors are therefore of the view that as the group’s and company’s profitability continues to improve, the adverse gearing ratio will reverse.”
The company imports and distributes motorcycles and tuk-tuks, among other machinery and equipment.
C&G’s finance costs dropped to Sh503.5 million in the review period from Sh612.8 million a year earlier the larger borrowings, indicating that it obtained cheaper financing on the new credit facilities.
The company reported strong earnings growth in the year ended September 2021, helped by higher revenues. It more than tripled its net income to Sh887.2 million as revenue surged 41.4 percent to Sh17.1 billion.
The performance saw it quadruple its dividend payout to Sh3.2 per share besides proposing a one-for-one bonus share.
The company had paid a dividend of Sh0.8 per share for the prior year. The new proposed distribution will be made on March 24 to shareholders on record as of February 25. ekivuva@ke.nationmedia.com