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Operational review

 
  Handling
Handling
   
 

Areas of operation

   
Handling Handling Handling
USA Europe southern Africa
Hyster dealership: Hyster dealership: Hyster dealership:
South Eastern Belgium Angola
United States The Netherlands Botswana
  United Kingdom Malawi
  (including Northern Mozambique
  Ireland) Namibia
    South Africa
    Zambia
    Zimbabwe
    Agricultural distribution:
    Massey Ferguson
    Claas (Southern Africa)
   
  Barloworld Handling is the world’s largest independent Hyster lift truck dealer, offering our customers a full range of lift trucks and warehouse/handling equipment in the south-east United States of America, United Kingdom, including Northern Ireland, the Netherlands, Belgium and South Africa. We have represented the market-leading Hyster brand for 79 years and have leveraged the strength of the brand by leading the market in the introduction of innovative solutions for our manufacturing and distribution industry customers’ materials handling needs.
   
 

Leadership team

 
     
John Blackbeard (51) Alwyn Smith (43) Geoff Tucker (57)
Chief executive officer President: Barloworld Handling Managing director: Barloworld Handling
BSc Eng (Hons), Dip Bus Man United States of America United Kingdom
12 MPhil, B.Accountancy CA (Zim)
  13 27
Lex Knol (53)    
Managing director: Barloworld Handling Eugene Smith (47) Godfried Heydenrych (35)
Europe Finance director Director: Barloworld Handling
BEng MA (Cantab), ACMA South Africa
8 26 7
     
  Rob Tennant (51)  
  Chief information officer  
  BSc, MSc, CPIM  
  28  
     
  Note: The figure after each name (in brackets) is their age at date of publication of this report.
  Second figure is the number of years’ service that they have with Barloworld or businesses we have acquired.
   
 

Operating performance

        
 

Revenue

Operating profit

Net operating assets
 

Year ended 30 Sept

Year ended 30 Sept

30 Sept
R million
2008  
2007  
2008  
2007  
2008  
2007  
– Southern Africa^
1 027  
765  
124  
54  
259  
470  
– Europe
3 193  
2 690  
8  
55  
636  
687  
– North America
1 849  
4 330  
40  
72  
638  
579  
Trading
6 069  
7 785  
172  
181  
1 533  
1 736  
Leasing*
76  
164  
  
6  
76  
107  
 
6 145  
7 949  
172  
187  
1 609  
1 843  
Share of associate income
  
  
3  
  
  
  
   
  ^ The southern African materials handling operation has been included under the handling segment as from the current year. Comparatives have been reclassified accordingly.
* Net operating assets after deducting interest-bearing borrowings.
   
 

Overview
  The handling businesses in Belgium, the Netherlands and South Africa and the agriculture business all produced good results. The overall result was depressed by poor results from the handling businesses in the USA and the UK and ended slightly below last year at R172 million operating profit.
   
  While there are pockets of excellence in all businesses, many business systems and processes and the ERP computer systems in the USA and UK and to a lesser extent Belgium and the Netherlands are outdated and need to be upgraded to include world class practices and processes. A project called Form the Future (FTF) has been launched to address these problems. A team of 16 of the best people, drawn from all countries, has set about finding the best practices internally. They also visited leaders from other industries to learn from them how we can leverage their best practices. Customers have also been polled to get their input. All this information has been used to define a detailed vision of what systems and processes are necessary to build a globally competitive business. The same team has now been tasked to do the detailed design and oversee the implementation of the blueprints. Once completed, it will provide a competitive advantage in the market place by enabling the business to provide excellent service to our customers and it will also contribute significantly to improved business profitability.
   
 

USA
 

The market
  The USA economy has experienced one of its more difficult years with many sectors in recession. Construction and building related activities, where most of our customers are concentrated, have been particularly hard hit. Orders in the South East decreased by 14% from 40 265 units in 2007 to 34 518 units in 2008. Counterbalance units declined by 15% and warehouse by 13%.
   
  While our aggregated market share dropped from 8.7% to 7.3%, we grew share in warehouse from 4% to 6%.
   
  Overall the business produced a disappointing operating profit of US$5.1 million, significantly down from last year.
   
 

Integrated solutions
  The business was restructured into four geographic regions to improve customer focus through integrated handling solutions consisting of customised combinations of new, used and rental machines, parts and maintenance.
   
 

People
  The development and selling of integrated customer solutions and customer intimacy are also at the core of our internal training programmes and skills assessment tools have been adopted to define the gaps. Based on the results, comprehensive sales training has commenced and sales managers have been trained in effective leadership. Our technician apprenticeship programme has been revitalised and the number of new intakes increased from 6 to 26. This will increase further to 40 in 2009 to ensure a globally competitive technical customer support base.
   
  The Individual Perception Monitor (IPM) to gauge employee satisfaction improved from 3.0 to 3.1, but also highlighted many issues that are now being addressed to better engage, motivate and empower our people.
   
  Employee Value Creation (EVC) is being revitalised throughout our 30 branches to encourage employee ownership, commitment and job satisfaction. All employees have contributed to improving the company’s safety record from an OSHA Incident Rate (OIR) of 5.3 in 2007 to 3.3 in 2008. This has resulted in direct financial benefits through a material reduction in our workers’ compensation premiums.
   
  We are taking steps to increase diversity by attracting more minority group employees. A partnership is being planned with Clark Atlantic University, a predominately African-American university in Atlanta, GA, to help populate our management/sales trainee programmes.
   
  Alwyn Smith was transferred from the Barloworld Logistics division and appointed as President in July. Scott Alexander, ex Hyster, was appointed as Vice President for Sales and Marketing. These and several other new appointments to the executive team are bringing the required focus and change to restore the business to success.
   
 

Profitable growth
  The rental fleet was reduced in size to shore up utilisation, resulting in a solid performance for the short-term rental business.
   
  Much work was done to reduce our cost base. Employee numbers were reduced and savings extracted in many areas, the most notable being a reduction of some $2.5 million in medical insurance costs through a restructure and lower claims as a result of better awareness.
   
 

United Kingdom
 

The market
  After a modest first half year, the UK has suffered from a decline in demand in all segments of the business. Recession is evident in several sectors such as chemicals, motor, retail, construction, road transportation and 3PL, while wholesale storage and warehousing have reflected some growth.
   
  The market decreased from 29 841 units in 2007 to 27 778 units in 2008. Counterbalance units decreased by 8% and warehouse by 12%.
   
  New unit orders were adversely affected by several price increases from Hyster based on higher iron, copper, steel and oil prices and the increased cost of funding the lease fleet arising from the worldwide credit squeeze. This has resulted in our aggregated market share declining by almost 1%. However this trend started to improve in the last quarter as more major competitors introduced price increases above inflation, strengthening our competitive position.
   
 

Integrated solutions
  Our organisational structure has been revised to offer national contract solutions while retaining regional customer intimacy and accountability. This will help to improve customer service and reduce costs through the introduction of standard ‘best practice’ across all regions. Our sales teams have also been realigned to match our key customers more effectively, which should improve both coverage and conversion to grow sales and market share. These steps are expected to translate into increased profitability and improved asset and cash management in the next year.
   
  The integrated new, used and rental model was rolled out to offer customers individual, customised equipment and support solutions. An alliance was formed with Barloworld Logistics to provide integrated lift truck and logistics solutions. This is becoming a source of competitive advantage as customers seek additional savings from their supply chains. Hyster’s new warehouse simulation model is also being used to optimise solutions.
   
  Fleet management is now offered to larger customers as an additional service to assist in optimising their Hyster fleets for effective warehousing and materials movement.
   
 

People
  Several senior managers were replaced to improve focus and strengthen our skills base. Comprehensive sales process and product training was provided to all sales staff and leadership training to sales managers.
   
  The apprentice programme was revived and the number of apprentices was increased from 9 to 27. It is planned to further increase this to 45 next year and to maintain this level of intake in future to ensure sustainable competence in customer service.
   
  While the Individual Perception Monitor (IPM) scores showed an overall improvement in employee satisfaction, several areas are receiving attention based on the results.
   
 

Profitable growth
  During the year, a great deal of work went into improving our control and processing of new and used unit orders, the performance and age of our short-term hire fleet and the control and billing of our contract fleet.
   
  In addition we have successfully introduced the 6 Sigma process improvement methodology to reduce waste and improve delivery to our customers.
   
  A problem arose largely as a result of trucks having been leased in previous years with residual values which are proving to be unrealistically high in current market conditions. When returned at the end of their leases, these trucks could not be sold at the residual values. Some £900 000 was written off as a result and it was necessary to provide £2 million to cover shortfalls that may occur in future years. More conservative residuals and improved processes have been installed.
   
  Whilst these issues contributed to the business sustaining an overall loss, improved procedures and processes are being put in place to prevent a recurrence and to enhance performance. It is thus anticipated that the business will return to profitability next year.
   
 

Rest of Europe
 

The market
  The combined Netherlands and Belgium market grew from 26 095 units in 2007 to 26 785 units in 2008. While our aggregated share dropped from 5.5% to 5.2% we grew share in the warehouse sector. The market was fairly robust in the first half, however, it has slowed significantly in the second in line with the economies in Europe.
   
  Revenue grew by 26% with operating profit more than doubling to set a new record.
   
 

Integrated solutions
  The Barloworld Handling operations are centralised in Vianen in the Netherlands and Brussels in Belgium, where the main offices and service centres are located. Hoogeveen and Harelbeke are the used equipment centres in the respective countries.
   
  In Belgium the service department was restructured into three new regions, enabling us to focus better on customer needs through dedicated service teams in closer proximity to customer sites. This structure also enables us to strengthen our position in the French speaking regions.
   
  Our FleetFlex offering allows us to deliver tailor-made solutions to customer needs. An important component is ‘Fleet Monitor’, which enhances our long-term customer relationships through regular review of our services.
   
 

People
  A new human resource manager was appointed in Belgium and all employee positions are being graded to ensure that remuneration packages are market related. Employee engagement, retention and motivation are being addressed in line with IPM survey feedback.
   
  Due to the large number of new Hyster models, we increased our investment in sales and technical training. Three members of the executive team participated in the Barloworld leadership development programme in South Africa and Spain.
   
 

Profitable growth
  Belgium and the Netherlands were operated under combined management for the first time in 2008, enabling us to focus on synergies between the two countries. Marketing development was also restructured with a new marketing manager responsible for both markets. Co-operation in the big truck and warehouse markets has facilitated a number of cross border accounts, providing competitive advantage.
   
  Our focus on growing the big truck segment has been successful, particularly in Rotterdam. The Uniport container terminal took delivery of five reach stackers while the Rotterdam Short Sea Terminal (RST) ordered four reach stackers and three empty container handlers. Further growth in the big truck business is expected in the years ahead.
   
  We also anticipate increased market share in the smaller truck sector next year with the launch of Hyster’s new electric truck models in our markets.
   
 

South Africa
 

The market
  The market started the year strongly but slowed towards year end as higher interest rates and the credit squeeze started to affect orders. The lift truck market in South Africa reduced from 7 474 units in 2007 to 7 238 units in 2008. Counterbalance units decreased by 3% and warehouse units by 2%.
   
  A great performance from our team enabled us to more than offset these decreases as we grew market share from 13% to 17%.
   
 

Integrated solutions
  During 2008 Handling SA focused on implementation of the Barloworld telemetry device (BTD), with full integration into our in-house developed centralised call centre system. With 586 of our 3 400 units in the field now live on the system, we are able to take remote hour meter readings to help improve productivity and billing. We have also included impact sensors to assist customers in monitoring and improving operator standards.
   
 
Hyster Our sales teams have also been realigned
to match our key customers more effectively,
which should improve both coverage and
conversion to grow sales and market share.
   
 
Hyster Strong growth was also achieved in
the short-term rental market, again
through highly motivated staff with
clear goals.
   
  We can now receive error codes via the BTD, which will give us the ability to diagnose problems and communicate proactively with customers regarding breakdowns instead of reactively via customer calls logged at the call centre.
   
  Fleet reports were also introduced for key customers including utilisation, servicing, maintenance and uptime/downtime reporting by unit. Detailed monthly reviews advise customers on utilisation and cost of ownership.
   
  Hyster has also developed and introduced software to simulate a customer’s current or planned warehouse operations to provide relevant advice on product specifications and applications. Our warehouse specialists are now able to leverage this technology to provide logistics consultants and customers with the best possible solutions in terms of cost and productivity.
   
 

Transformation
  Handling SA made good progress on transformation in 2008. We increased our human resource development score by 37%, with improved ratios in senior, middle and junior management and strong progress on skills development. Indirect empowerment also improved from an already high base in 2007.
   
 

People
  We achieved an improved IPM score for the third year in succession. The aggregate score improved from 3 (out of 4) in 2005 to 3.3 in 2008. Good alignment with the divisional strategy has been achieved by all teams and individuals using balanced scorecards, contributing to significantly improved financial performance. Handling SA was able to grow revenue by 37% and to more than double operating profit with no increase in headcount.
   
  Significant improvements were made in performance management and intellectual capital review through formal review sessions with all staff and monthly team performance reviews based on scorecards. All positions were re-graded using Watson Wyatt to ensure market related remuneration and improve staff retention and succession planning.
   
 

Profitable growth
  Profitable growth was achieved through a number of strategic initiatives.
   
  A joint balanced scorecard has been implemented with Hyster. Mutually agreed strategic goals were matched to specific action plans to improve product and service delivery, enabling us to close a number of larger deals.
   
  Also working closely with Hyster, we improved availability and performance of the big truck range. A dedicated resource was appointed to provide focused solution offerings to container handling customers in this high utilisation and demanding segment of the market. Year on year big truck sales grew by more than 200%, significantly improving overall revenue and profitability due to the high value of these machines.
   
  Recognising aggressive growth in the South African warehouse product segment, we also appointed a dedicated warehouse and logistics sales representative to provide value adding applications advice to key logistics consultancy companies, including Barloworld Logistics, and their customers.
   
  Availability of key warehouse products was also improved with support from Hyster. Sales of warehouse trucks grew 150% and Handling SA received an award from Hyster for the highest market share internationally in this product range.
   
  Dedicated customer service and technician teams were put in place with clear targets to improve market share on parts and service for the large active Hyster truck population. This resulted in more than 25% growth in our after sales business.
   
  Strong growth was also achieved in the short-term rental market, again through highly motivated staff with clear goals. More warehouse and big truck units were added to the rental fleet to satisfy increased demand and revenue grew 33%, with fleet utilisation above 85%.
   
  Implementation of the BTD telemetry devices and clear scorecards for all technicians enabled us to increase productivity and profitability of our maintenance contracts. Not only were 100% of preventative maintenance services completed on time, but the number of trucks per technician was increased. While high inflation and fuel cost countered some of the benefit, we expect to improve further as more BTD units are installed.
   
  The long-term rental book was sold at the end of the year, reducing the asset base by some R385 million.
   
 

Agriculture
 

The market
  South African agriculture enjoyed a strong year driven by high commodity prices and favourable weather conditions. Retail tractor sales grew from 6 339 in 2007 to 7 579 units in 2008. Combines grew from 197 to 350 units and bailers from 498 to 604 units. Our market share for tractors and combines dropped from 22% to 18% and from 21% to 13% respectively as a direct result of stock shortages caused by the surge in global demand. Our bailer market share grew from 22% to 26%.
   
 

Integrated solutions
  Our focus in the past two years has been on implementing technology solutions to grow customer profitability. With internationally based commodity pricing and no subsidies, the only variables that can be managed by South African farmers are cost control (particularly with regard to diesel, fertiliser and seed) and yield.
   
  We have introduced several high technology mechanisation products to provide our dealers and their customers with solutions to manage these variables through more accurate planting and application of fertilisers, seed and pesticides as required by different soil types and qualities. A product specialist has been introduced to train dealers and educate customers on these exciting developments.
   
  ‘Mechplan’, a software tool, has been introduced to enable our dealers to calculate a customer’s full mechanisation requirement based on inputs from the type of soil to the type of farming. This assists with the correct application of mechanisation solutions and improves production and cost efficiency.
   
 

Transformation
  Good progress has been made in transformation, particularly employment equity where our score has improved by 90%. Scores also increased in skills development and procurement. Overall we achieved a 17% improvement on the scorecard.
   
 

People
  Agriculture continues to achieve high ratings in its IPM survey and customers are benefiting from good alignment of employees with company strategies as well as good teamwork. A new technical training facility was opened for our own and dealer staff to ensure sustainability of skills to support our customers.
   
 

Profitable growth
  The agricultural sector benefited from high international commodity prices, low input costs (prior to the increase in the oil price) and good rainfall. This enabled many South African farmers to replace old tractor and combine fleets with new equipment, creating a buoyant market. Despite losing some market share due to lack of inventory, revenue grew by more than 35%.
   
  Pleasingly, we grew revenue significantly in technology for the combine, tractor and sprayer sectors.
   
  We also increased our footprint for both the CLAAS and AGCO (Massey Ferguson) brands, with 15 outlets now operating for CLAAS and 49 for Massey Ferguson.
   
 

Outlook
  It is anticipated that trading in all geographies will be difficult in the new financial year in line with the economic declines in these countries.
   
  However, the FTF project and numerous other interventions discussed above are ensuring that the division is in better shape than before and that we are able to provide excellent service to our customers.
   
  Sales training and improved sales systems and management, together with a greater focus on solutions selling, should enable growth in market share.
   
  Costs are being reduced in several areas and this should contribute to the bottom line.