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CHAIRMAN AND CHIEF EXECUTIVE’S REPORT

Strong operating performance

Following the completion of the strategic actions announced last year, the trading performance of the group, reflected as continuing operations in the income statement, comprises the results of the Equipment, Automotive, Handling and Logistics divisions.

Revenue from continuing operations rose by 8%, while operating profit increased by 30% to R1 279 million.

The Equipment division performed well with operating profits up by 41% to R864 million. This was driven by strong revenue growth coupled with improved margins in South Africa, Angola and Zambia. In Spain, housing construction slowed, however public, works activity was affected to a lesser extent. Siberia continued with strong revenue and profit growth.

The Automotive retail business experienced difficult trading conditions in South Africa where a sharp drop in new vehicle sales and lower margins resulted in reduced profits. The turnaround in the Australian business was cemented by a further rise in profits. Results from car rental operations in southern Africa were satisfactory, but trading conditions were difficult in Scandinavia in the low volume winter months.

In the Handling division, good growth in southern Africa was tempered by the slowdown in the US economy. The UK Handling business was flat, while Belgium and Holland showed good growth.

The Logistics division continued to grow with profits rising by 71% in southern Africa.

Headline earnings per share from continuing operations increased by 105% to 345,2 cents. The growth in earnings was driven by a strong operating performance and the fact that last year's earnings included a charge for secondary tax on companies of R125 million on the special dividend paid in April 2007.

The board declared an interim dividend of 100 cents per share, which represents the first interim dividend for the restructured group excluding the disposed and unbundled operations.

Corporate activity

The strategic actions announced last year to reposition the group were completed in the first quarter of this financial year. The sale of the Laboratory business was concluded and the sale proceeds of R1 077 million (£75 million) were received in November 2007.

The shares in Freeworld Coatings Limited (formerly the Coatings division of Barloworld) were listed on the JSE Limited on 3 December 2007 and were distributed as a dividend in specie to shareholders on 10 December 2007.

We were also pleased to announce the acquisition of the Dubai-based Swift Group and Flynt International in Hong Kong, including a number of their affiliates in the Far East, India, United Arab Emirates, Africa and Germany. These businesses provide niche services and logistics activities in their markets and will enhance the solutions offered by our growing Logistics division. The acquisitions will be included in our results from April 2008.

BEE and transformation

The process to finalise the details of the group’s broad-based black economic empowerment transaction is largely complete and an announcement in this regard will be made shortly. 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 South African based employees, current and future black management, community based partners, current black non-executive directors, an education trust, as well as a number of strategic equity and black business partners. In terms of IFRS, a significant non-cash charge will be incurred on implementation of the transaction in the second half of the financial year.

Board and other management changes

Messrs Brandon Diamond and André Lamprecht retired from the board during December 2007. Messrs Trevor Munday and Robert Tomkinson retired from the board during January 2008. The board appreciates the valuable contribution they have made to the group, the board and board committees in various capacities over the years.

Ms Khanyisile Kweyama was appointed Group Executive – Global Human Resources and Transformation in February 2008.

Outlook

Growth in the mining and construction sectors in southern Africa is expected to ensure continued high levels of demand for our Caterpillar equipment products and solutions. The electricity shortage in South Africa is also creating increased demand for our power generation products. The Siberian equipment business is expected to grow strongly.

In Spain, the construction industry is slowing considerably. Housing construction has been most affected, while the public works segment, which represents the majority of our revenues, has been affected to a lesser extent. Power systems demand remains strong and there are signs of increased activity in Portugal.

Motor vehicle retail sales are expected to remain depressed in South Africa following the recent increases in interest rates, while conditions in Australia should remain favourable. Increased vehicle utilisation in southern Africa and the high season in Scandinavia are expected to produce improved profits from car rental in the second half of the year.

In the Handling division we expect the strong contribution from the southern African businesses to continue. We anticipate modest growth in Europe, while trading conditions in the US are likely to remain very difficult with the economy potentially entering a recession.

The Logistics division will be boosted by the international acquisitions and continued organic growth in Africa.

We look forward to the finalisation of the broad-based BEE transaction and the benefits it will bring to the company, our employees in South Africa and our empowerment partners.

The group’s operating performance is expected to remain strong, driven by the Equipment business in southern Africa. Headline earnings per share from continuing operations for the full year will not match the growth achieved in the first half due to the expected non-cash charge for the BEE transaction and the financial instrument gain earned in the second half of last year from the marking to market of the PPC shares.

DB Ntsebeza CB Thomson
Chairman Chief Executive Officer