Chairman's review
Introduction In a number of South African cities we see state-of-the-art stadiums rising from the ground, and transport infrastructure being expanded and improved. I am proud to say that I see Caterpillar machines in numbers on sites and on the roads, airports, the massive Gautrain project and the bus rapid transit system (BRT), an integrated public transport system that is being rolled out in major cities. Our motor dealerships retain excellent visibility as they battle for supremacy in a greatly reduced market. Avis retains its status as the leader in car rental, and our logistics division continues its growth in supply chain management. Several high profile infrastructure projects have received a boost leading to 2010, but life will go on when the FIFA Soccer World Cup is over. Only one leg of the Gautrain will be operational by June next year. The BRT has a long way to go, and the South African government is committed, despite the squeeze on funding, to provide homes and infrastructure. Economic challenges will continue, but there will be opportunities for companies like Barloworld that can offer sustainable solutions. The Soccer World Cup itself also brings with it a measure of expectation for us. Avis, for example, now occupies an entire floor of the parkade at OR Tambo International Airport in anticipation of next year’s tourism boom. However, we need skills to turn our expectations for the future into reality. Barloworld’s continued dedication to skills development has found expression in the development of our R120 million Technical Training Centre, opened on 29 October 2009 by Mr Jim Owens, chairman and CEO of Caterpillar Inc. and Mr Membathisi Mdladlana, South African Minister of Labour. We will train 2 000 learners a year at this facility. It is a clear demonstration of our commitment not only to our customers but to the future of our country. While other capital projects were put on hold in all our operations in the past year, we are confident that continued investment in technical skills to support our customers is the right thing to do. Strong, empowered leadership is critical to steer us through
these turbulent times. Our new Leadership Development Centre
was officially opened at Barlow Park in November 2008 and here
our managers at all levels are being challenged by world class
training programmes used to help them lead with confidence,
conviction and empathy. Some thought South Africa would be immune to the global economic crisis. However, this was not the case and we too have been hit, albeit somewhat later than elsewhere, and perhaps not as hard as the US and Europe. Spain, in particular, suffered a substantial decline which impacted government spending on infrastructure programmes. The sudden fall-off in the southern African mining industry as commodity prices dropped and mining capex scaled down resulted in the cancellation of equipment orders and a ripple effect on the regional economies. Mining activity also slowed considerably in Siberia. Construction held up in South Africa on the back of infrastructure development projects leading up to the Soccer World Cup and in the power sector, but has started to decline in recent months. Despite lower interest rates, new vehicle sales declined in 2009 due to constrained consumer spending and more stringent lending criteria from the banks. Demand for domestic and inbound car rental was also lower, though the second hand car market showed some buoyancy. While uncertainty prevails, an encouraging economic levelling off is now being seen in materials handling in US and Europe. Group performance Our automotive and equipment divisions performed well in South Africa, excelling in comparison with other industry players. While we have tried to minimise the impact of the downturn on our people, this has not always been possible and there have regrettably been some retrenchments in the past year. On the positive side, our geographic and market diversity allowed us to redeploy a significant number of people who might otherwise have been retrenched. In Iberia, temporary suspensions helped to reduce operating expenditure in the short term, while ensuring the availability of technical skills when workload increases. Balance sheet, cash flow and dividends We declared interim and final dividends amounting in total
to 110 cents, indicating the confidence we have in our
performance, both in the past year and in the future, and our
commitment to our shareholders.
Divisional overview Stringent cost reductions and restructuring enabled us to generate a small profit in Iberia despite steep declines in the equipment market. Revenue and profitability suffered at Vostochnaya Technica (VT), our joint venture Cat dealership in Siberia, however mining revenue continued close to 2008 levels. The automotive division showed its resilience by significantly outperforming the beleaguered industry in all its markets. The southern African and Australian motor retail operations increased their market share, Avis Rent a Car maintained its margin in difficult conditions, and our fleet services operations increased their total fleet under management. Discussions continued with interested parties for the disposal
of the Scandinavian car rental operations and 50% of Subaru
Southern Africa was sold to Toyota Tsusho Corporation.
The logistics division increased revenue, mainly due to the Swift acquisition in the previous year, and the southern African operations continued to perform satisfactorily in a declining market. Losses were incurred in Europe, the Middle East and Asia, but the rate of loss slowed in the last quarter following restructuring initiatives. In all our businesses we focused successfully on generating cash and reducing expenses, a strategy that has impacted positively on our bottom line and positions us well to meet the challenges of the coming year. BEE and transformation We have also engaged with our new BEE partners during the year to keep them informed of business developments and they, in turn, have provided insights and skills to certain key operations. I have seen strong commitment to transformation both at board level and within our divisions, in South Africa each of the directors has a comprehensive plan in place to achieve steady improvement on the Department of Trade and Industry’s Broad Based Black Economic Empowerment (BBBEE) scorecard. Our greatest challenge now is employment equity within our South African operations, which is exacerbated by the current moratorium on new employment. However the great strides we are taking in skills development will assist us in meeting our employment equity targets in a sustainable manner. A number of the SMEs in which we have invested through Barloworld Siyakhula, our enterprise development fund devoted to the development and support of selected BEE enterprises, are growing, creating wealth and adding value back into Barloworld. Corporate social investment
During 2009 we have placed particular focus on upgrading and improving access to education as well as leadership development. However, corporate initiatives and programmes spearheaded by our employees have covered empowerment of women, HIV education and care for HIV orphans, sports initiatives for previously disadvantaged youth, awareness of disabilities, and countless others. The environment Our internal structures for the monitoring and recording of the consequences of our business activities on the environment are well entrenched and constantly developing. I am happy to confirm that Avis Rent a Car South Africa this year achieved CarbonNeutral® accreditation for the offset of its internal fuel and energy usage CO2 emissions. By committing to reduce its internal business CO2 emissions of 11 000t to net zero, Avis has set the benchmark within the industry. This, we hope, will encourage others to start taking responsibility for their own carbon footprint. Board and governance I also welcome the tightening of the fiduciary duties of both executive and non-executive company directors. Individuals who accept directorships must accept the responsibilities that go with their appointments. We continue to give cognisance to the size, balance and composition of our board relative to the smaller size of the company since the unbundling two years ago. The board should continue to represent South African society as well as our international business interests. I would like to extend a warm welcome to two new members on our board: Johnson Njeke was appointed as an independent non-executive director and a member of the audit committee with effect from 16 September 2009. Johnson is a chartered accountant with a wealth of commercial experience. Peter Bulterman joined the board as an executive director on 1 October 2009. He is CEO of Barloworld Equipment Southern Africa and sits on the board of our Siberian Caterpillar equipment joint venture. I wish to thank Mike Levett, who retired in January 2009, for his 23 years of committed service on our board. Outlook
Our strategy will be to excel in areas where we have shown resilience and to survive the crisis in others where we have been more severely impacted. In all cases we are putting the building blocks in place for the upturn that will follow. Our leaders, with the assistance of all employees, have succeeded
admirably in rightsizing and preserving cash to see this company
through the severe recession. At the same time we have invested
wisely in the future through skills and leadership development.
When the much expected recovery takes place, we will be ready. The guidance and support of the Barloworld board has been invaluable over this difficult period. I am grateful for their insightful contributions and my thanks are extended to each member of the board.
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