OPERATIONAL REVIEWS

In the case of the leasing businesses, the operating profit is net of interest paid. Income from associates, which includes our share of earnings from joint ventures, is shown at the profit after taxation level.

Net operating assets comprise total assets less non-interest-bearing liabilities. Cash is excluded as well as current and deferred taxation assets and liabilities. In the case of the leasing businesses, net assets are reduced by interest-bearing liabilities.

Comparatives have been re-classified as per note 9.

Equipment

This division offers customers new, used and rental Caterpillar equipment solutions and support in 11 southern African countries as well as Spain, Portugal and Siberia.

In southern Africa, record commodity prices continue to fuel expansion of mines and development of new mining projects, boosting results for the mining business in terms of both new machine sales and product support.

Our joint venture in the DRC’s Katanga province received its first major equipment orders from two new mining ventures. The Katanga operation dovetails well with the growing opportunity in the adjoining Zambian copper belt.

Accelerated infrastructural spend, particularly in South Africa and Angola, has increased demand for Caterpillar construction machines and the allied Metso crushing and screening product. Activity in the used equipment joint venture increased, with machines sourced from the rental fleet providing an attractive alternative to competing brands.

The Iberian business reported increased level of activity, driven by growth in public works construction and some market share gains. Indicators show that infrastructure spending by government remains strong in Spain. Construction activity is slow in Portugal with infrastructure investment dampened by government spending constraints.

New marketing strategies have been introduced in both the machine sales and after sales segments in Iberia and these are expected to continue to yield benefits.

The Siberian joint venture, Vostochnaya Technica, posted pleasing results based on continued growth and diversification in mining, coupled with a number of significant power generation orders. The after sales business also performed well.

The formal Common Goals agreement between Barloworld Equipment and Caterpillar is ensuring alignment on key strategies. The issues of lead times and machine availability due to global demand remain a challenge.

In order to sustain the equipment business through the current growth phase, we will continue to make considerable investments in people, skills and facilities.

The equipment division entered the new financial year with a healthy order book amounting to R5,4 billion (2006: R4,8 billion).

Automotive

* Net operating assets after deducting interest-bearing borrowings.

Our integrated motor vehicle usage solutions strategy continued to yield benefits, with an improved 4,6% (2006: 4,5%) operating margin for the division.

Avis Rent a Car Southern Africa increased profitability by 30% through firmer rates, higher rental days and improved utilisation, as well as benefits being derived from a number of focused strategic initiatives. Our Scandinavian car rental business, which includes both Avis and Budget brands, reported an improved operating profit, driven by a strong performance in Norway and our ongoing operational and profitability initiatives. The Swedish operation has been successfully turned around after last year’s change in the vehicle pricing strategy of a major supplier. A significant number of assets have been removed from the balance sheet across the region by converting corporate rental stations into licensees, the benefits of which will be realised going forward.

In southern Africa, the record growth in new vehicle sales over the past three years has slowed in the last six months. Rising interest rates and the introduction of the National Credit Act have been the major factors causing the slowdown. In spite of this, our dealership network, including associate operations held up well. Notwithstanding an increase in Subaru units sold, the depreciation of the rand against the yen placed severe pressure on margins which negatively affected our importation and distribution business and hence significantly impacted our southern African trading result. Our Australian operation more than doubled its operating profit following the strategic repositioning of our represented brands, against a background of an 8% growth in Australian industry sales.

Our fleet services business reported a 20% increase in profitability due to interest rate margin improvement and a number of new contracts secured, both of which will continue to positively benefit profitability into the future.

NMI-DSM, our DaimlerChrysler empowerment joint venture, delivered positive results for the year. However, the start-up costs in Phakisaworld Fleet Solutions, our fleet services empowerment joint venture, and our exit from Auric Auto early in the year negatively impacted the associate result when compared to the prior year.

Handling

* Net operating assets after deducting interest-bearing borrowings.

At the January 2007 Barloworld AGM it was announced that we would substantially restructure the group in order to bring about a more focused business entity. It was decided to focus activities within the division on its core materials handling business, Hyster forklifts and related product. All other businesses have been exited. This included the US and UK leasing businesses, the Freightliner operation, DitchWitch and the Vacuum Technology business in the UK. Consequently the reported results above are not comparable and have been restated below to reflect the core handling operations only and show a 14% operating profit growth off a much reduced revenue level.

The total UK market showed good growth of 8% despite the manufacturing sector declining significantly in line with the strong currency position. Our progress was impacted by the process change required in new equipment contract financing as a result of the sale of the leasing business. The operating profit of the European businesses includes redundancy costs of €600 000 depressing its strong trading performance. The total European open order book remains strong at a value of £44,3 million reflecting 1 834 units against 1 461 units last year.

There was a marked slowdown in the US economy during the year and this carried through to our business. In 2007, the south eastern US industry declined by 20%, while our sales decreased by 10% to 3 502 units. Despite the reduced market we finished the year strongly and the order book grew by 239 trucks over last year to 1 078 units at a value of $39 million.

Logistics

*Excludes intergroup revenue of R747 million (2006: R666 million).

Since its formation during 2002, Barloworld Logistics has grown into one of the leading logistics and supply chain management businesses in southern Africa with complementary operations in Iberia, the UK, USA and UAE, a staff complement of 1 700 and approximately R5 billion annual logistics activity under management.

What was particularly pleasing this year was the coming of age of Barloworld Logistics Africa who continued to lead the local industry through strong organic growth and BEE transformation. Our business in Iberia had to digest the loss of a major client whilst at the same time implementing new systems and procedures to bring them more in line with the southern African logistics business model.

Reported revenue up 52% excludes approximately R747 million (2006: R666 million) of intra-company revenue. We have experienced strong organic growth through our blue-chip client base inside and outside the Barloworld group. Our ability to achieve such growth while keeping the net asset base constant highlights the asset efficiency of our logistics business model as well as tight working capital management.

We expect the logistics industry to continue as one of the world’s most dynamic and exciting industries for the foreseeable future. During next year this should translate into continued,
strong organic growth in Africa, especially southern Africa. At the same time we will be exploring a number of international growth opportunities for the division.

Coatings

The division will be unbundled from Barloworld, subject to attaining the required approval, before the end of 2007.

The year was characterised by further strong performances from the African-based operations. We reported last year that the investment in the Australian operations would be reduced. In line with this, the division sold a substantial part of the Australian investment which resulted in a significantly lower asset intensive presence in Australia, but leaving the division potential to take up future opportunities in the Asia Pacific region. Operating profit, including our Australian operations up to the date of sale to PPG Industries, was up 26%.

We were also pleased to implement our first BEE transaction in the automotive business with our partners Izingwe Holdings taking a stake in the Prostart refinish operations.

Cement

* Net operating assets include goodwill arising on PPC shares purchased by Barloworld.

PPC was unbundled from Barloworld on 16 July 2007 and resulted in a distribution to Barloworld shareholders of PPC shares with a market value of R19,3 billion.

The group provided another solid performance on the back of continued growth in cement volumes. Operating profit for the nine months to end June was 12% higher than last year. Buoyant market conditions necessitated the import of cement, to meet customer demand. The imported cement was produced abroad to PPC specifications and sold at negligible margin. We focused on maximising our efficiencies, though this was not without its challenges due to increased energy, logistics and maintenance costs.

The Batsweledi (Dwaalboom) capacity expansion project is progressing within budget and on time. Plant commissioning is expected in April 2008 bringing 1,25 million tons per year additional capacity.

Higher plant maintenance activity at our major customers impacted local sales volume of lime. Notwithstanding this decline there was a significant increase in operating profit largely due to the impact of renegotiated long-term supply agreements.

Scientific

The Melles Griot business was sold to CVI Laser during the year with completion of the sale taking place in July 2007.

Melles Griot started the year strongly with recoveries in Japan and Europe. While the sales run rate was lower than the previous year, the operating profit run rate for the 10 months of the financial year to July 2007 was 11% higher.

Nova Capital Management has signed an agreement to purchase the laboratory business for approximately £75 million and the transaction is expected to be complete by the end of December 2007.

The laboratory group continued to show good improvement in operating profit despite revenue being flat. This has been achieved through better control of the cost base and growth in the higher margin scientific equipment businesses. Demand grew in Spain, France, Germany and the US but trading conditions in the UK and Italy remained difficult.

Corporate and other

In southern Africa, results were adversely affected by redundancy and related costs of R81 million associated with the downsizing of the South African corporate office and the closure of the Botswana and Namibia corporate offices.

In Europe, the downsizing and relocation of the London office to Maidenhead incurred costs of R11 million (£0,8 million). In 2006 a pre-tax gain of R149 million (£10,5 million) arose due to a reduction in the defined benefit pension liabilities in the United Kingdom.

Net operating assets increased in southern Africa mainly due to the PPC shares held to cover the company’s liability to share option holders. The PPC shares are carried at market value.

As a result of the redundancy initiatives, annualised cost savings of approximately R100 million is expected to be achieved.