Chairman's letter

Investing in sustainable growth

We have demonstrated our ability to invest into the future sustainability of the organisation over decades, and with the increase in urbanisation and growth of the middle class, particularly in Africa, we are well-placed to take advantage of the opportunities presented.

Dear stakeholders

As chairman I am often asked what happened to the Barloworld of old. Did we do the right thing in 2007 when we decided to adopt a leaner business model in which we focus on distributing leading international brands and add value to these brands through integrated rental, fleet management, product support and logistics solutions?

Since I became chairman, in the same year, I have not seen a reason why we should abandon this strategy. On the contrary, our financial results continue to impress me against the backdrop of global and local uncertainty in many of our territories and communities. I am satisfied that our very talented executive team has managed the risks and opportunities optimally to keep us on a stable and pleasing growth path. We are maximising our earnings out of a very tight ship.

As we enter the fifth year of our 20153 vision, I am also satisfied that our strategic focus areas – profitable growth, people, integrated customer solutions, sustainable development, empowerment and transformation, and financial returns – are all in a state of very good health and contributing to our overall sustainability.

Value Based Management has played a key role in who we are today. Whether they are in Russia, Middelburg or the Democratic Republic of Congo, our leaders understand our values of integrity, excellence, teamwork and commitment and they take pride in the Barloworld brand. People say Barloworld is a good company. We have earned that reputation over 112 years and have demonstrated our ability to invest into the future sustainability of the organisation over decades.

We are working hard at finalising our Vision 2020, which will build on our current business model, taking into account trends and opportunities unearthed by those trends and the innovation of our people. We will continue to generate sustainable profits as a result of our focus in the segments where we operate.

Strength of Caterpillar relationship

We have shown repeatedly that we can and do succeed in managing risks and opportunities in challenging territories and our Equipment business representing the leading Caterpillar brand is testimony to this.

The acquisition of the southern African and Russian operations for the former Bucyrus mining products in our Equipment business two years ago has proven to be an excellent strategic decision. The extended mining product range (EMPR) that resulted from this acquisition has substantially exceeded our expectations for the second consecutive year in 2014 despite a general lack of investment in the mining sector.

The Equipment business has managed to achieve good growth in its southern African territories and there are exciting opportunities ahead. A potentially difficult political situation in Mozambique seems to have been resolved and it is imperative that we keep our finger on the pulse to play a leading role as infrastructure starts to develop around the new gas and oil discoveries.

The initiatives by our Russian Cat dealership to form strong, enduring customer relationships based not only on sales but also after-market support are critical in view of the current Ukraine crisis. I trust that our relationships will endure through this uncertain period due to the trust and loyalty we have established with our customers in this vast territory.

The balance created by our geographic diversity and total solutions offering in the Equipment division has also been evident looking at the six-year economic drought in Iberia where we have had to cut costs and, unhappily, carry out retrenchments. We remain the market leader in Spain and Portugal, however, and this remarkable staying power will show in the financial results when the economy turns, as it must. Over this difficult period we have optimised our profits in other geographic locations to cushion the losses in Iberia.

Dumisa Ntsebeza Chairman

The vast potential of the marine power business on the Iberian peninsula is worth a special mention. The business model that has worked so well for us in Iberia will be emulated by our Global Power business to capture opportunities in our southern African and Russian dealership territories.

The Handling division, particularly the agricultural component, has the advantage of the Equipment footprint as it explores lucrative opportunities in southern Africa following the exit of the Lift-truck business from the lower return markets in the US, UK, Belgium and Holland.

My sense is that if there is a growth point anywhere, it is in Africa. We are on the right track.

New growth opportunities

I am eagerly anticipating a more Africa-focused future for the Automotive and Logistics division, which continues to deliver consistently excellent results across the board. The management team must be commended as they have not only grown the motor retail, car rental and fleet management businesses admirably but also turned around the Logistics business in 24 months.

Our divestment from the Australian motor retail business allows us to look for opportunities with better returns. From what I have seen personally, the potential in Africa is significant, in particular for car rental and fleet services – which already has some high-level contracts won through partnerships with government departments in South Africa.

As I mentioned in the last report, I have very high hopes for the future of our home-grown Logistics business unit. We have made further prudent investments to improve the potential offered by this business and in the Vision 2020 period I believe we will see great things coming out of it.

There is significant scope on the African continent to move things more efficiently physically and through using technology to optimise transport solutions. In our Logistics business we have the intellectual property to develop integrated transportation solutions and the physical means to put them into practice.

Stakeholder relationships

The key to sustainability is to develop appropriate, effective relationships with stakeholders in all our territories. We need to engage with governments to understand their short and long-term policies and where we can play a role. In an uncertain world it is through these stakeholder relationships that we will get a view of what is important for our business now and in the future.

We have the skills, talent and experience to play a meaningful role in public sector projects, but the relevant authorities can also extract value from us by using us as a sounding board. This mutually beneficial engagement is not only constructive but necessary.

Skills and talent management

As a South African head-quartered company with 75% of our employees in this country, the current stagnation of the South African economy is of great concern to us. The corollary to that is unemployment, particularly of young people. Our education system has not done us proud and is churning out job seekers who are underqualified.

Yet every year Barloworld’s training facility in Johannesburg trains hundreds of artisans, not only from South Africa but from the whole SADC region. What we are doing to develop skills is significant and aimed not only at sustainability within our company, but also within our communities across southern Africa.

The South African authorities should be paying more attention to what companies like Barloworld are doing to produce critical skills that we need to build our economy.

Our skills programmes provide much needed opportunities for young people in South Africa and contribute to localisation in every country where we operate. There is nothing better for business than a country seeing its own people in positions of influence.

Diversity and localisation

It is of interest to me that the lessons we have learned through the transformation process in South Africa have enabled our approach to other territories. Barloworld has long accepted that employment equity requires diversity in terms of race and gender at all levels. While this is demanded by both the law and the constitution in South Africa, we are very conscious of not ticking boxes but striking a humane balance between a workforce that has been predominantly white and absorbing new talent from previously disadvantaged groups without disrupting our skills mix or our business objectives.

We are proceeding at a reasonable pace and I do think bold moves are being taken. It is worth noting that in 2007 we had three black African non-executive board members. Today three of our 10 non-executives are white and they are all foreign based. Of the seven black members, four are women.

In our African territories we are keenly aware of demographics and gender with regard to job opportunities and skills development. In Russia and Iberia we have seen growing recognition of the role of women in all spheres of our business.

We can take this even further. The African continent provides us with good opportunities to invest in and form partnerships with local businesses that are a strategic fit. It is incumbent on us as good corporate citizens to play a role in the success of local business to break barriers. It also makes good business sense, entrenching our own position in the territory.

The environment

I believe that climate change is a global issue that needs to be addressed and environmental stewardship is central to our approach. We are mindful of our role in propagating environmental awareness through our value chain and are committed to aligning with leading global principals, providing solutions that assist our customers in achieving their sustainable development objectives and a range of internal initiatives aimed at minimising the environmental impact of our operations.

Technology

Technology is becoming an increasing factor in the competitiveness of our customer solutions. This is tremendously exciting in terms of how much more we can offer all our customers through technology-enabled solutions. But it is also about what we can do for our employees and our environment.

Health and safety

Tragically, we had three fatalities; one in Logistics, one in Avis Rent a Car and one in Equipment southern Africa from motor vehicle accidents during the year. Our thoughts go out to their loved ones. We are using technology to avoid accidents and further loss of life as far as possible in environments where, unfortunately, such tragedies are all too common.

We are committed to entrenching a culture of safety and in this regard we remotely monitor every truck in our logistics fleet on the road, where and when it stops, how fast it travels, how our drivers behave behind the wheel.

In the Equipment division we track machines in the field not only to ensure their productivity and health, but also the safety of their operators. It will not be long, in fact, before autonomous Cat mining machines become the order of the day. The safety of our technicians assembling enormous mining machines on remote sites is also under the spotlight and we have been doing very well in this regard.

The cars sold and supported by our Automotive division incorporate the latest diagnostic and safety technology and our role includes understanding this technology so we can ensure that it does its job properly.

I have engaged with my board on responses to the risks posed by the Ebola virus. As a continent and, indeed globally, we need to be investing in containing the virus and finding a cure. As a company it is our responsibility to educate our employees and try to safeguard them and their families from exposure to this deadly disease as far as possible. Let us hope that it will be quickly contained and controlled.

Vote of thanks

Ms Hixonia Nyasulu retired by rotation from the board at the annual general meeting on 29 January 2014 after having served on the board for seven years and I would like to thank her for her valuable contribution.

We welcomed two new board members during the year. They are Dominic Sewela (CEO of Barloworld Equipment southern Africa), who was appointed as an executive director, and Ngozichukwuka (Ngozi) Edozien, as an independent non-executive director, both with effect from 19 March 2014. The board looks forward to their valuable input and insights.

Thank you to every member of our board for their tireless commitment to the oversight of our company. All the hard work that comes out of the committees governing various aspects of our activities is clearly evident in our pleasing results, in our steady growth and, above all, in staying true to our vision and values.

It remains for me to thank our chief executive, Clive Thomson, and the executives for their continued dedication to Barloworld’s success and sustainability. As each year passes I find myself grateful to be working with a CE who shares my value system and vision for the future, with the result that we are always pulling in the same direction. Clive infuses a positive energy in his whole team and creates an environment in which talent and potential can blossom.

Dumisa Ntsebeza
Chairman