GROUP FINANCIAL REVIEW

Revenue from continuing operations increased by 23% to R43 238 million. Good growth was delivered in the equipment division, particularly in southern Africa where demand was bolstered by mining and infrastructural projects.

Operating profit from continuing operations rose by 24% to R2 741 million and the operating margin was maintained at 6,3% (2006: 6,3%). The margin, and operating profit, benefited in 2006 from a R149 million gain arising from the reduction in UK pension obligations.

Included in favourable fair value adjustments on financial instruments of R287 million (2006: R233 million) is a gain of R312 million arising from the marking to market of PPC shares. The shares are held as a hedge against the company’s liability to share option holders arising from the unbundling of PPC in July 2007. Prior year fair value adjustments include R141 million gains in equipment southern Africa which mainly arose prior to the implementation of hedge accounting and a foreign currency gain of R54 million.

Finance costs increased by R274 million to R816 million. This was mainly due to higher interest rates and increased working capital required to support the growth in revenue.

Income from investments increased to R272 million (2006: R202 million) largely as a result of the financing of growth in the Avis Fleet Services business by the central treasury.

Exceptional charges of R160 million includes the impairments of the Finaltair investment (R140 million), goodwill in Avis Scandinavia (R101 million) and Truck Center (R59 million), less the release of R197 million from the foreign currency translation reserve following the disposal of offshore assets and businesses in the handling division.

Taxation rose by 4% to R658 million (2006: R633 million). Secondary Taxation on Companies (STC) increased to R151 million (2006: R27 million) mainly due to the charge of R125 million on the special R5 per share dividend paid in April 2007. The effective taxation rate (excluding exceptional items, STC and prior year taxation) was 29,0% (2006: 28,7%).

Income from associates and joint ventures declined to R68 million (2006: R72 million) due to slightly lower earnings in the automotive joint ventures.

Headline earnings per share (HEPS) from continuing operations increased by 13% to 812 cents (2006: 720 cents).

HEPS from discontinued operations for the current financial year amounted to 370 cents (2006: 451 cents).

The consolidated cash flow statement for 2007 includes the cash flows of all divisions and businesses while they were subsidiaries of the Barloworld group.

Net cash inflows before financing activities amounted to R379 million (2006: R698 million).

Total assets declined by 14% to R30 655 million. The decline arose mainly due to the unbundling of the cement division and the disposals of the UK lease assets, steel tube division, Melles Griot, Freightliner dealerships and most of coatings’ Australian assets.

The currency effect on translation of offshore net assets resulted in a decrease of R229 million following the appreciation of the rand at 30 September 2007 when compared with 30 September 2006.

The vehicle rental fleet increased to R3 902 million (2006: R3 441 million).

Assets classified as held for sale of R1 447 million (2006: R2 840 million) comprise the laboratory business (R972 million) and vehicles and equipment rental fleets (R475 million).

Total interest-bearing borrowings of R9 066 million reduced by R1 460 million in the year. The reduction was mainly attributable to the unbundling of PPC (R194 million) and the disposals referred to above.

Borrowings in the three segments utilised in the group for gearing purposes, are all within the defined target ranges as follows:

The total debt to equity ratio for the group of 81% compares to 73% last year.

The maturity profile of the group’s borrowings is weighted in favour of the short-term component (52%). The group is planning to implement a BEE transaction early in 2008 and it is expected that this will result in the replacement of existing short term debt with longer term borrowings.

Cash and cash equivalents totalled R1 201 million (2006: R2 134 million). Reserving requirements in the company’s captive insurance operations restrict the use of cash balances of R235 million (2006: R405 million).

Dividends totalling 375 cents per share were declared in respect of this year’s earnings (2006: 600 cents).

The company paid a special 500 cents per share dividend on 2 April 2007.

The year ahead

The group's balance sheet remains strong and further reduction in debt will result from the expected disposal of the laboratories business and the repayment of intercompany debt on the unbundling of coatings. The group has committed £55 million (R773 million) to address the funding deficit in the UK defined benefit pension funds.

The focus in 2008 will be on concluding the unbundling of coatings, the disposal of laboratories, implementing the proposed BEE transaction and increasing the long term component of our debt. In terms of International Financial Reporting Standards the BEE transaction will lead to a once-off, non cash, charge to the income statement.

DG Wilson
Finance Director