Equipment Equipment
Southern Africa

Medium-term strategy: Optimise

REACH FULL POTENTIAL AND EXCEED GROUP RETURN ON INVESTED CAPITAL OF 13%
Actions in managing for value   Highlights  
  • Improve returns in underperforming businesses above group hurdle rate
  • Reduce business process complexity and cost to serve through operational and digital transformation
  • Reduce rental book size from R2.5 billion to R2 billion and seek equity partner to double the rental business
  • Focus on growth in profitable product range and segment
  • Roll out operational excellence programme to sustain new discipline
 

Cash flow
R99 million outflow

(2017: R1 337 billion)
 

Return on invested capital at
12.7%

(2017: 12.8%)
 

Economic profit at
R47 million

(2017: R46 million)
 

Operating profit at
R1 790 million

(2017: R1 785 million)
 

Operating margin at
9.1%

(2017: 9.8%)

 

Zero

Work-related fatalities

Our focus on safety continues to keep safety awareness up and create a zero harm environment

DRC JV (Bartrac) delivers solid performance: R251 million in associate income in 2018 compared to R97 million in 2017

Full year revenue increased by 8.1% to R19.8 billion primarily due to higher new equipment and rental revenues. Machine revenue was up 21% in 2018 compared to the same period in 2017, driven by growth in mining sales and market share growth in the construction sector. Operating profit remained flat at R1.8 billion. Operating margin reduced to 9.1% (2017: 9.8%), largely due to changes in the sales mix and exchange rate translations.

Policy uncertainty in South Africa around the Mining Charter that was gazetted at the end of September 2018 resulted in curtailment of some mining investments in the region. Nonetheless, demand in underground machines and deliveries to Mozambique and Zambia boosted overall mining machine sales.

Reduced demand in public works and investment in infrastructure constrained the construction sector, but aided by competitive machine offerings and financing solutions, we were able to grow market share in the construction machinery market and introduced new product lines into the sector. Also launched during the period, with Caterpillar, was the local Caterpillar financial services.

The Energy and Transportation segment was also constrained over the period, reflecting a depressed Genset and Engine market and deferral/cancellation of major projects.

Aftermarket revenue for the year was down 2%, due to reduction in MARC and Service revenues, which was also impacted by the ramp down of the DeBeers Voorspoed mine in the Free State in preparation for closure. Service revenue generation dropped by 8.6% due to low service activities in South Africa, Mozambique and Botswana.

Managing for value driving operational performance

 

Revenue (Rm)

   

Operating profit (Rm)

   

Operating margin (%)

  Revenue (Rm)     Operating prot (Rm)     Operating margin (%)

Ongoing cost management efforts resulted in a 2% decrease in net expenses, despite inflationary increase in employment costs. We invested R111 million towards IT and digital infrastructure in support of our operational transformation programme.

Bartrac JV, in the Democratic Republic of Congo (DRC), delivered a solid performance, reflecting higher commodity prices and ramp up in production, delivering R251 million in associate income compared to R97 million in 2017. This is notwithstanding the unstable regulatory environment and legal battles involving our key customer which have since been resolved.

Capital allocation

Important to our managing for value principle is deploying strategies to better manage our working capital, and we are exploring options for alternative funding for the growth in rental solutions.

Looking forward

Firm order book stood at R2.4 billion (2017: R1.5 billion).

 

Order book (Rbn)

 
  Order book (Rbn)  

 

Looking forward

Industry   Business transformation focus   Trends

Industry

Commodities fundamentals to
remain favourable

The South African government’s
economic recovery plan is expected
to boost the construction and energy
and transport sector with a pledge
of R400 billion to infrastructure
development over the next three
years

 

Business
transformation focus

Focus on improving regional and
segment profitability

Delivering operational
transformation and process solutions
for organisational effectiveness and
efficiency

Embedding a culture of continuous
improvement through Barloworld
Business System (BBS) to harness
value opportunities

 

Trends

Move from pure product demand
to solutions offering

Adoption of protectionism policies
in southern Africa

Chinese contractors and state-owned
entities exert influence in Rest of
Africa

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