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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.
Comparative numbers have been restated as per note 18.
| Equipment | ||||||||
| Revenue | Operating profit | Net operating | ||||||
| 6 months | Year | 6 months | Year | assets | ||||
| ended | ended | ended | ended | |||||
| 31 Mar | 31 Mar | 30 Sept | 31 Mar | 31 Mar | 30 Sept | 31 Mar | 30 Sept | |
| R million | 2008 | 2007 | 2007 | 2008 | 2007 | 2007 | 2008 | 2007 |
| Southern Africa^ | 4 920 | 3 732 | 8 568 | 532 | 321 | 918 | 3 714 | 2 270 |
| Europe | 4 262 | 3 511 | 7 422 | 332 | 292 | 612 | 5 587 | 3 738 |
| 9 182 | 7 243 | 15 990 | 864 | 613 | 1 530 | 9 301 | 6 008 | |
| Share of associate income | 11 | 6 | 36 | |||||
^ The southern African materials handling operation has been included under the Handling segment as from the current year. Comparatives have been reclassified accordingly.
The southern African Equipment business continued its growth trajectory, driven by robust demand from the mining and construction sectors and increasing power generation requirements. The sustained high level of commodity prices and the infrastructure programmes in South Africa, Angola and Zambia have underpinned the market for earthmoving equipment.
The global skills shortage and long equipment lead times remain the key challenges in the industry and both issues are being addressed with the assistance of Caterpillar.
In Iberia, revenues ended up on the prior period despite a weaker second quarter due to the uncertainty created by the Spanish general election and a slowdown in housing construction. The re-elected government has announced its intention to accelerate public works to mitigate the impact of the drop-off in the property sector. Our drive to gain market share across all sectors continues and our power systems business remains strong, particularly in marine engines. We are in the process of disposing of our Mitsubishi lift truck business and net assets of R414 million (Euro 32 million) have been reclassified as held for sale.
Conditions in Portugal have improved and there are some important long awaited infrastructure projects finally adjudicated. We also benefited from Portuguese contractors securing local equipment to work abroad, although these export sales are at lower margins.
The results of the Siberian and Democratic Republic of Congo (DRC) joint ventures are included in associate income. The Siberian venture is experiencing rapid growth in both the earthmoving and energy sectors while the DRC is trading well with strong future prospects.
The total customer order book has grown to R8,5 billion (Sept 07: R5,4 billion) and we have $1,6 billion (Sept 07: $1,2 billion) of orders placed on Caterpillar, which together with equipment inventory on-hand, positions us well to meet our future customer commitments.
| Automotive | ||||||||
| Revenue | Operating profit/(loss) | Net operating | ||||||
| 6 months | Year | 6 months | Year | assets | ||||
| ended | ended | ended | ended | |||||
| 31 Mar | 31 Mar | 30 Sept | 31 Mar | 31 Mar | 30 Sept | 31 Mar | 30 Sept | |
| R million | 2008 | 2007 | 2007 | 2008 | 2007 | 2007 | 2008 | 2007 |
| – Southern Africa | 826 | 664 | 1 209 | 172 | 194 | 325 | 3 193 | 2 820 |
| – Europe | 508 | 577 | 1 134 | (33) | 5 | 81 | 2 762 | 2 427 |
| Car rental | 1 334 | 1 241 | 2 343 | 139 | 199 | 406 | 5 955 | 5 247 |
| – Southern Africa | 5 410 | 4 916 | 9 948 | 72 | 96 | 184 | 1 962 | 1 363 |
| – Australia | 1 403 | 1 134 | 2 448 | 33 | 23 | 48 | 1 031 | 743 |
| Trading | 6 813 | 6 050 | 12 396 | 105 | 119 | 232 | 2 993 | 2 106 |
| Leasing Southern | ||||||||
| Africa* | 451 | 364 | 701 | 33 | 34 | 76 | 362 | 346 |
| 8 598 | 7 655 | 15 440 | 277 | 352 | 714 | 9 310 | 7 699 | |
| Share of associate income | 6 | 4 | 17 | |||||
* Net operating assets after deducting interest-bearing borrowings.
The benefits of our integrated motor vehicle usage solutions offering contributed to a 12% increase in revenue, however, strong competition in a tough trading environment negatively impacted margins.
In Avis Rent a Car southern Africa, higher rental days and firmer rates were offset by reduced utilisation and a lower used vehicle profit contribution. The prior period included a favourable depreciation adjustment of R22 million. Our focused strategic initiatives, which include a substantial investment in infrastructure and people during the period, will positively impact results into the future.
Our Scandinavian car rental business, which operates both Avis and Budget brands, posted a disappointing result for the period. However, the seasonal earnings pattern results in substantially all of the profits being earned in the European summer. We are applying considerable focus and resources to this business and we anticipate improved results into the future.
The southern African Motor Retail operations are bearing the brunt of a slowdown in vehicle sales, after nine interest rate increases and the introduction of the National Credit Act. Notwithstanding this, our well structured dealership network is continuing to hold up well. Lower vehicle sales have been partly compensated by a strong performance from our after-sales business. The Subaru importation and distribution business suffered from a weaker rand. Our Australian Motor Retail business is strategically well positioned and grew profits strongly.
Avis Fleet Services continues to secure large new contracts and this, together with an improvement in interest rate margin, have benefited the business. However, weakness in the used vehicle market has negatively impacted profitability.
Associate income includes our Daimler Chrysler, Phakisaworld and Sizwe BEE joint ventures.
| Handling | ||||||||
| Revenue | Operating profit/(loss) | Net operating | ||||||
| 6 months | Year | 6 months | Year | assets | ||||
| ended | ended | ended | ended | |||||
| 31 Mar | 31 Mar | 30 Sept | 31 Mar | 31 Mar | 30 Sept | 31 Mar | 30 Sept | |
| R million | 2008 | 2007 | 2007 | 2008 | 2007 | 2007 | 2008 | 2007 |
| – Southern Africa^ | 507 | 352 | 765 | 45 | 15 | 54 | 615 | 470 |
| – Europe | 1 574 | 1 307 | 2 690 | 26 | 30 | 55 | 830 | 687 |
| – United States | 909 | 2 627 | 4 330 | 16 | 49 | 72 | 699 | 579 |
| Trading | 2 990 | 4 286 | 7 785 | 87 | 94 | 181 | 2 144 | 1 736 |
| – Europe | 71 | 81 | 164 | 11 | (4) | 6 | 56 | 107 |
| Leasing* | 71 | 81 | 164 | 11 | (4) | 6 | 56 | 107 |
| 3 061 | 4 367 | 7 949 | 98 | 90 | 187 | 2 200 | 1 843 | |
^ The southern African materials handling operation has been included under the Handling segment as from the current year. Comparatives have been reclassified accordingly.
* Net operating assets after deducting interest-bearing borrowings.
From 1 October 2007, all the Hyster materials handling businesses are in one division enabling greater focus and synergies.
Trading in southern Africa for the first half has been good, although higher interest rates are starting to have some impact. Market share has grown and the order book is far stronger than last year. We are looking to dispose of long-term rental assets of R354 million to a financial institution.
In Europe, the prior period included the Vacuum Technologies business sold in April 2007. Belgium and Holland have seen good improvements in trading. There has been some slowdown in the UK and while prospects remain positive, customers appear reluctant to commit to new orders in the current economic climate. Systems and procedures are being revamped to improve efficiency and effectiveness.
In the United States, the prior period included the Freightliner and Ditchwitch businesses sold in July 2007. The slowdown in the US economy has had a direct impact on our materials handling operations resulting in poor trading results and a weaker order book. The customer base is being diversified away from construction related industries and additional resources have been deployed to boost sales. As in the UK, systems and procedures are being revamped to improve efficiency and effectiveness.
The UK leasing business continues to be wound down with the addition of an alternative funder in the UK. The UK Ministry of Defence and some residual customers will remain on our books.
| Logistics | ||||||||
| Revenue | Operating profit/loss | Net operating | ||||||
| 6 months | Year | 6 months | Year | assets | ||||
| ended | ended | ended | ended | |||||
| 31 Mar | 31 Mar | 30 Sept | 31 Mar | 31 Mar | 30 Sept | 31 Mar | 30 Sept | |
| R million | 2008 | 2007 | 2007 | 2008 | 2007 | 2007 | 2008 | 2007 |
| Southern Africa | 631 | 520 | 1 088 | 41 | 24 | 76 | 519 | 400 |
| Europe | 186 | 181 | 371 | 5 | 12 | 19 | 54 | 67 |
| 817 | 701 | 1 459 | 46 | 36 | 95 | 573 | 467 | |
Our African operations continued to show impressive organic growth and operating profit increased by 71%. We also concluded significant new business that will maintain our momentum. Following global trends, there is a growing customer awareness of the benefits associated with our integrated logistics business model in the region. This positive trend has been reinforced by the reorganisation of our team and activities into specialised industry sectors.
Our European operations experienced a slower start to the financial year. The software business in the UK has been impacted by customers delaying projects in the face of economic uncertainty. Our warehousing and distribution operations in Iberia are being reorganised and refocused, including the implementation of an ERP system, to bring the business more in line with our integrated logistics model.
With effect from 1 April 2008, we acquired Swift Freight in Dubai and Flynt International in Hong Kong, plus a number of their associates in Germany, India, China and the African continent for a total consideration of $83 million. This initiative will catapult Barloworld Logistics into the global logistics arena, especially with regard to freight movements from south-east Asia into Europe and Africa.
| Corporate and other | ||||||||
| Revenue | Operating profit/(loss) | Net operating | ||||||
| 6 months | Year | 6 months | Year | assets | ||||
| ended | ended | ended | ended | |||||
| 31 Mar | 31 Mar | 30 Sept | 31 Mar | 31 Mar | 30 Sept | 31 Mar | 30 Sept | |
| R million | 2008 | 2007 | 2007 | 2008 | 2007 | 2007 | 2008 | 2007 |
| Southern Africa | 33 | 35 | 53 | 2 | (68) | (111) | 565 | 633 |
| Europe | (8) | (36) | (57) | (222) | (807) | |||
| 33 | 35 | 53 | (6) | (104) | (168) | 343 | (174) | |
The downsizing of the corporate offices in southern Africa and UK is complete and we are on track to realise R100 million in annualised cost savings. The prior period includes redundancy costs of R60 million in respect of this corporate restructuring. The current period includes a benefit of R27 million relating to a reduction in the residual liability to share option holders following the unbundling of Pretoria Portland Cement Limited (PPC), as a consequence of movements in the PPC share price.
Net operating assets in southern Africa include R233 million relating to PPC shares held against the option liability. In Europe, the reduction in net operating liabilities is mainly due to a payment in December 2007 of R759 million (£55 million) to eliminate the actuarial deficit following the merger of our two UK pension funds.