CHAIRMAN AND CHIEF EXECUTIVE’S REPORT
Future direction of the group
Barloworld has been repositioned as a distributor of
leading international brands providing integrated rental,
fleet management, product support and logistics solutions.
The group will comprise businesses that fit this strategic profile, meet strict performance criteria,
and demonstrate good growth potential.
Following the completion of our announced strategic actions the restructured Barloworld group
will consist of the following core divisions:
- Equipment (earthmoving and power systems)
- Automotive (car rental, fleet services and motor trading)
- Handling (forklift truck distribution and fleet management)
- Logistics (logistics and supply chain management)
Strong trading performance
The trading performance is based on the results from continuing operations and include,
equipment, automotive, handling, logistics and the coatings division.
Revenue from continuing operations increased by 23% to R43,2 billion, impacted by favourable
trading conditions in most of the businesses.
Operating profit from continuing operations rose by 24% to R2 741 million driven by strong
growth in the southern African equipment business and a pleasing result in Spain. The
automotive division continues to perform well, with a significant contribution from Avis Rent
a Car Southern Africa. The turnaround of motor retail Australia continued with the business
more than doubling its operating profit. In southern Africa new vehicle sales slowed in the last
six months of the year. We have seen continued improvements in our handling business in the
UK and Europe while the marked slowdown in the US economy impacted the US handling
business. The logistics division is beginning to make a meaningful contribution to group profits
with strong organic growth from the business in Africa.
PPC and scientific have been disclosed as discontinued in the current year. Coatings produced a
good performance for the full year and will be disclosed as discontinued in 2008 following its
unbundling and listing.
A significant downsizing of the corporate office is substantially complete. Redundancy costs
amounting to R92 million have been provided against operating profit. Estimated annualised
savings from these initiatives amount to approximately R100 million, certain of which have already
been realised in 2007.
Headline earnings per share (HEPS) from continuing operations increased by 13% to 811,7 cents
per share. This was impacted by the R125 million secondary taxation on companies (STC) charge
provided on the R5 per share special dividend paid on 2 April 2007. Adjusting for this STC charge,
HEPS increased by 21%.
In addition to the special distribution of 500 cents per share the board declared a final dividend of
200 cents per share. The final dividend is not directly comparable to the prior period due to the
unbundling of PPC. The ordinary dividends of 175 cents (interim) and 200 cents (final) declared in
respect of the current year’s earnings, plus the final dividend of 166 cents declared by PPC
(equivalent to 308 cents per Barloworld share) represent, in total, an improvement of 14% over
the dividends paid to shareholders last year.
Strategic actions to unlock shareholder value
Unbundling of PPC and Coatings
The unbundling of Pretoria Portland Cement Company Limited (PPC) was completed in line with
our stated timeline on 16 July 2007. This represented a distribution to shareholders of shares in
PPC with a market value of R19,3 billion.
A decision was also taken to list the coatings division as Freeworld Coatings Limited on the JSE
Limited and unbundle its shares to Barloworld shareholders. The shareholder general meeting to
approve this transaction will be held on 23 November 2007 and, subject to the necessary
approvals, the company will be listed on 3 December 2007 and its shares distributed to
shareholders on 10 December 2007.
PPC and coatings will have a successful future as independent listed companies and we wish the
respective companies, boards and management teams well for the future.
Disposal of businesses
The sale of the steel tube division to a management and BEE consortium was finalised in
November 2006 as was the sale of the major part of our UK leasing book in the handling division.
As stated at the half year, a decision was taken to exit the Finaltair biomass energy joint venture
in Spain.
Within the handling division, we sold DitchWitch of Georgia in April 2007 and Barloworld
Vacuum Technology and the Freightliner Truck Center operations in July 2007.
A substantial part of the coatings Australia assets were sold at net asset value to PPG Industries in
July 2007.
The decision to dispose of the scientific division is being implemented in line with our stated
timeframes. Melles Griot was sold in July 2007 for a consideration around tangible net asset
value. The laboratory business has been sold for approximately £75 million, subject to certain
regulatory requirements being met. The transaction is expected to be concluded before the end
of December 2007.
Where applicable, impairment provisions have been made to write down goodwill or assets to
their estimated recoverable amounts.
BEE and transformation
The process to finalise the details of the group's broad-based black economic empowerment (BEE)
transaction is on track. Whilst the transaction will lead to approximately 10% empowerment at
holding company level, it is anticipated that it will result in an effective 25% empowerment of our
South African operations.
Participants in the transaction will include employees, current and future black management,
community-based corporate social investment (CSI) partners, black non-executive directors, as well
as a number of strategic equity and black business partners. The transaction is expected to be
implemented in the first half of 2008.
We have made good progress on the transformation of our South African businesses during the
year. We have appointed black CEOs within equipment (Dominic Sewela), motor retail (Litha
Nkombisa) and logistics (Isaac Shongwe).
Isaac Shongwe, Dominic Sewela and Sibani Mngomezulu (Executive – Governance and Corporate
Affairs) were appointed to the group executive committee during the year.
Board and other management changes
Clive Thomson was appointed as Chief Executive Officer (CEO) of Barloworld Limited effective
from 18 December 2006.
Dumisa Ntsebeza was appointed interim Chairman on 25 January 2007 and confirmed as
Chairman on 6 June 2007.
Isaac Shongwe was appointed as an executive director and CEO of Barloworld Logistics Africa,
while Hixonia Nyasulu, Gordon Hamilton and Trevor Munday were appointed as independent non-executive
directors effective 26 January 2007.
Warren Clewlow, Tony Phillips, John Gomersall, Mike Coward, Lester Day and Eddie Theron retired
from the board in the current year. We would like to thank them for their valuable contributions
to the company over many years.
In other executive management moves, John Blackbeard has taken over as CEO of the handling
division on 1 October 2007. Peter Bulterman has been appointed as CEO of equipment southern
Africa and to the board of our Siberian joint venture, while Viktor Salzmann has taken over as the
Managing director of equipment Iberia.
Outlook
Within our equipment division in southern Africa, growth in the mining and construction sectors is
expected to result in a further increase in activity. We have entered into a joint venture in the
mineral-rich Katanga province of the Democratic Republic of Congo, which will provide us with
further growth opportunities. In Angola, we expect increasing demand with a number of significant
infrastructure projects underway.
In Iberia, we are seeing solid demand for equipment in Spain and expect conditions to remain
stable for the short to medium term. Conditions in Portugal, however, are expected to remain weak
in the short term.
In the automotive division we expect sustained growth in the car rental business, however
increased interest rates and the National Credit Act are impacting the sales of passenger vehicles
within motor retail. In the fleet services business, we are delivering vehicles into new fleet
contracts and are in a good position to further grow our fleet under management.
Our handling business in Europe is benefiting from the streamlining of its operating structure. In
the US, slowing economic conditions will carry through to the business. Overall we expect to show
good profit improvement next year as a result of the restructuring undertaken.
Growth in the logistics division is expected to continue at a rapid pace in southern Africa and
various international expansion opportunities are being explored.
The implementation of our BEE transaction in the first half of 2008 is an exciting development
which is expected to deliver significant benefits to the group.
We are in a strong position to capitalise on favourable trading conditions across most of our
chosen business segments. The outlook for the refocused group is very positive and, based on the
currently prevailing economic climate, we expect continued growth in all of our businesses in the
year ahead.
DB Ntsebeza
Chairman |
CB Thomson
Chief Executive Officer |
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