Creating value for our shareholders
Value created and material themes
| Value for our shareholders | SFAs addressing value for our shareholders | Material themes addressed by SFAs | |
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| Impact on the capitals |
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| Impact on our shareholders |
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| Engaging with our shareholders |
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Key sources of financial capital
Barloworld sources capital from debt providers and shareholders. Debt providers include banks, listed bonds and asset managers. Our capital structure is maintained in an optimal range for the industry taking into account the risk-related return expected by the providers of capital. We use the debt to equity ratio to monitor that the sources of capital remain within our target range for the three business segments.
Deployment of financial capital priorities
In an ever-changing and volatile business environment strong cash generation, disciplined capital allocation and earning financial returns above our cost of capital are essential elements in delivering long-term shareholder value.
The Barloworld executive team recognises that in order to meet our return and value creation objectives, we need to understand our financial and operational value drivers and measure our financial performance against clear targets. These targets emphasise the importance of improving returns on capital, not just increasing profits.
Our integrated financial value model (IFVM) assists in identifying our businesses’ most important value drivers, developing meaningful financial and operational targets, determines our progress through the application of key financial metrics and measuring the value created over the strategic plan period.
Shared value creation supports Barloworld’s business philosophy of sustainable value creation for all stakeholders.
This philosophy has resulted in the evolution of our IFVM which aims to provide the tools to model and measure long-term shareholder value creation.
| Sources of value and benefits for investors | Benefits for Barloworld |
| Revenue growth is driven by increased volume, price realisation, product mix and changes in currency in the geographies in which we operate. | Implementation of our integrated financial value model is designed to:
We expect a minimum financial performance for each business unit to exceed after tax return on economic capital above our weighted average cost of capital and return on equity that exceeds our cost of equity on average through the cycle. |
| Operating margin measures the efficiency of fixed and variable cost controls to continuously improve processes and adapting to market changes. | |
| Working capital management requires optimal and continuous focus on the cash to cash cycle of inventory, receivables and payables. | |
Asset efficiency to optimise capital expenditure is measured against revenue and depreciation. Optimal cost of capital structuring by adapting gearing to changes in cost of debt and cost of equity. |
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Financial returns |
Strategic intent
To achieve financial returns above our weighted average cost of capital (WACC) and cost of equity on average through the cycle in each of our strategic business segments.
Key highlights and achievements in 2016
- Revenue growth up 6% to R66.5 billion
- Operating profit up 4% to R4 135 million
- Profit before non-operating and capital items up 14% to R2 693 million
- Cash generated from operations of R7 827 million
- Headline earnings per share up 3% to 838 cents
- Total dividend per share maintained at 345 cents
- Return on net operating assets (RONOA) of 15.9% (2015: 17.0%)
- Return on equity (ROE) of 9.2% (2015: 10.9%)
Key financial return trends
Our performance against our RONOA target of 20% and ROE target of 15% was adversely impacted by the downturn in mining activity in Equipment southern Africa and the delay in recovery in Equipment Iberia. We remain committed to taking the necessary actions to achieve targeted return levels in the medium term.
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Profitable growth |
Strategic intent
To double revenue and achieve targeted growth in total shareholder returns (TSR) over the next five years to 2020.
Corporate action supporting shareholder value creation
Over the period the group undertook significant corporate activity to enhance the quality of returns, achieve our growth ambitions and position the group for organic and acquisitive growth. These included:
Acquisitions and growth initiatives
- Two Mercedes-Benz passenger and commercial dealerships in Mpumalanga and KwaZulu-Natal to profitably expand our motor trading operations with a leading automotive franchise
- Toyota and Volkswagen dealerships in the Northern Cape to expand motor retail operations in this future growth node
- A majority share in Salvage Management and Disposals (SMD), a vehicle salvage company, to broaden our automotive offering in the extended value chain and optimise synergies with existing businesses
- Two niche logistics businesses to provide a platform for growth in the refrigerated transport segment, namely the entire equity of KLL Group and a 51% controlling stake in Aspen Logistic Services
- A further 28.8% of the minority shares in Barloworld Transport increasing our ownership to 79% in support of Logistics’ growth objectives
- Formed joint venture in Zambia with BayWa AG and, subsequent to year-end, finalised a South African joint venture with BayWa incorporating South African materials handling and agriculture operations to leverage both companies’ resources to optimise growth prospects.
Disposals aimed at optimally allocating capital and resources
- Disposed of our non-core logistics supply chain software business in the UK and signed a long-term partnership agreement with Llamasoft to provide ongoing access to world-class logistics software solutions for our client base
- Disposed of Logistics Crane business
- Exited the Metso mobile crushing and screening business due to inadequate financial returns and limited growth prospects.
Aspects supporting growth
- Focused working capital management resulted in cash generated from operations of R7.8 billion in the current year
- Strong balance sheet and a well-managed debt maturity profile
- Adequate unutilised borrowing facilities available.
Key financial indicator trends
Growth matrix
Barloworld has identified the following industries and regions as central to our growth strategy. Due to our strategic profile, the OEMs and brands we represent, and our regions of activity, we are well positioned to realise opportunities in these growth industries.
| Industry | Growth driver | Geography |
| Mining | Emerging market industrialisation driving long-term demand for commodities | Southern Africa, Russia |
| Infrastructure | Infrastructure backlogs and rapid urbanisation in developing economies | Southern Africa, Russia, Iberia |
| Power | Increasing demand in electricity, marine, petroleum and industrial power segments | Southern Africa, Iberia, Russia |
| Agriculture | Importance of food security, growing demand for biofuels and rich agricultural potential across southern Africa | Southern Africa |
| Automotive | Increasing need for flexible vehicle usage solutions in private, corporate and government segments, and exposure to the growing tourism market | Southern Africa, East Africa, West Africa |
| Logistics | Growing international trade and trend to outsource supply chain management activities | Southern Africa, Middle East |
2017 outlook
The focus will remain on:
- Ongoing growth in total shareholder returns (TSR)
- Improving financial returns
- ›› return on equity target ≥15%
- ›› return on net operating assets target ≥20%
- Increasing group operating profit by executing turnaround and growth strategies
- Releasing capital from underperforming assets
- Increasing asset turn by reducing assets utilised and improving working capital efficiency
As part of our ongoing strategic planning process we are conducting a detailed strategic review of our operations aimed at achieving our Vision 2020 objectives, improving our returns and purposefully growing the group into the future beyond 2020. Supporting this objective we have appointed a group executive with specific strategy and M&A accountability.
Barloworld Logistics has expanded its service offering into multi-temperature food logistics through acquiring 100% of KLL distributors and a controlling share in Aspen Logistic Services.
The acquisitions are in line with our strategy of servicing a growing market need for multi-temperature, multi-product, multi-principal and multi-drop network solutions, driven by client and consumer demand.
KLL is a leading multi-temperature secondary storage and distribution provider in South Africa mainly into the convenience sector and top-end retailers. It operates nationally through seven branches, 100 temperature-controlled delivery vehicles and employs over 400 skilled staff.
KLL’s competitive edge lies in its flexibility and agility in servicing its customers. KLL provides speed to market through frequent small drops, an ability to integrate easily with national retailers’ ERP systems, a national network and depth of distribution and its independence.
Aspen Logistic Services is a leading primary refrigerated road transport service provider operating a state-of- the-art fleet comprising in excess of 120 truck and trailer combinations nationally and cross-border operations. It offers comprehensive integrated temperature controlled transport solutions to the FMCG market.
The transactions provide the opportunity to scale for growth in this sector, leverage our capabilities, and offer more holistic supply chain solutions to a broader customer base thereby extracting greater value for the market.
The management and skills of these businesses have been retained for continuity and the integration of the businesses into Barloworld Logistics will position the company well for its growth into the future.
Why invest in Barloworld
| Clear vision | Strategic focus | |||
To inspire a world of difference by creating shared value through building world-class businesses, generating superior shareholder returns and delivering sustainable societal outcomes. |
Group alignment in the implementation of strategy driven by the key strategic focus areas that are cascaded to our divisions – Equipment, Handling, Automotive and Logistics. |
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| Leading international brands | Profitable growth opportunities | |||
| Caterpillar, Hyster, Avis, Budget, Massey Ferguson, Challenger and leading automotive brands. | Exposure to mining, infrastructure, power, agriculture, automotive and logistics sectors with above-average, long-term growth potential particularly in southern Africa, Russia and other emerging markets. |
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| Business and geographic diversity | Strong financial position | |||
Operations in over 20 countries, as well as business diversity and exposure to mix of commodities, brands and sector opportunities, underpin and enhance resilience through the business cycle. |
Limited reliance on short-term funding facilities.
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| Experienced leadership team | Responsible corporate citizenship | |||
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