Logistics Logistics

Medium-term strategy: Fix

ADDRESS UNDERPERFORMANCE TO MEET TARGET FOR GROUP RETURN ON INVESTED CAPITAL OF 13% BY 2020
Actions in managing for value   Highlights  
  • Turn around the financial and operational performance:
  • Fit-for-purpose Selling General & Administration (SG&A) costs – align SG&A costs with the size and profitability level of the business
  • Optimal operational performance – improve the operational efficiency of the business
  • Procurement rebates/savings
  • Implement lean and customer-focused operating model to support future growth
 

Cash flow of
R520 million cash generated

(2017: R260 million)
 

Return on invested capital at
8.7%

(2017: 2.5%)
 

Economic profit at
(R73 million)

(2017: (R238 million))
 

Operating profit at
R262 million

(2017: R101 million)
 

Operating margin at
4.4%

(2017: 1.6%)
MANAGING FOR VALUE HIGHLIGHTS
A reduction of SG&A costs
Successful integration of the Transport and SCM businesses
Reduction in operational costs and unlocking efficiencies to streamline operations
Consolidating procurement activities across the business with better win/win value exchange
A more customer responsive operational model and an optimised business portfolio

During the reporting year, ongoing currency fluctuations, as well as recessionary growth forecasts and escalating fuel costs, placed pressure on customers and eroded margins across the industry.

Despite this overall constraining economic environment Barloworld Logistics produced significant improvements in business performance, driven by focused transformational turnaround plans creating value uplift during the reporting period. The business recorded total revenue of R5.9 billion, a decline of 4% from 2017, primarily due to lower trading in our supply chain management business as well as a key contract that ended during the reporting year. However, our transport business experienced revenue growth of 6% compared to the prior year driven by improved trading in the mining and Fast-Moving Consumer Goods (FMCG) sectors, as well as new business that was secured. We achieved an operating profit of R262 million for the year, a 160% improvement compared to the prior year.

We achieved a significant improvement against all our key performance indicators, including return on invested capital (ROIC), economic profit and free cash flow, demonstrating that the turnaround is yielding results. A critical part of the turnaround was to improve our asset efficiency. We achieved notable increases in profitability, while at the same time reducing our net operating assets by 26%.

We set ourselves value-uplift targets, with the first step being the successful integration of the transport and supply chain management businesses following the buy-out of minorities in the transport business towards the end of 2017. Based on an in-depth assessment of the business, key levers were identified to deliver on the group's managing for value principles. These were:

  • Fit-for-purpose SG&A costs – align SG&A costs with the size and profitability level of the business
  • Optimal operational performance – improve the operational efficiency of the business
  • Procurement rebates/savings
  • New lean, customer-focused operating model to support future growth

The positive outcomes of the operational and financial transformation plans have created a firm foundation for the business to pursue and consolidate the gains accrued, while redefining and repositioning the value proposition and growth beyond 2018.

102-15

Managing for value driving operational performance

 

Revenue (Rm)

   

Operating profit (Rm)

   

Operating margin (%)

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

 

Divisional key performance indicators

  Logistics Southern Africa EMEA
Financial capital 2018   2017   2018   2017   2018   2018   
Revenue (Rm) 5 924   6 171   5 807   6 011   117   160   
Operating profit/(loss) (Rm) 262   101   255   102   7   (1)  
Net operating assets (Rm) 1 538   2 082   1 445   1 970   1 093   112   
Social capital
Employee headcount 4 395   4 780   4 305   4 671   90   109   
LTIFR 0.85   0.77   0.85   0.78   0.96   0.00   
Work-related fatalities 0   3   0   3   0    
B-BBEE rating 2   2   2   2   N/A   N/A   
Natural capital
Petrol and diesel (ML) 57.73   58.49   57.67   58.44   0.06   0.05   
Grid electricity (MWh) 19 557   19 953   17 959   18 088   1 598   1 865   
Non-renewable energy (GJ) 2 269 827   2 300 034   2 261 923   2 291 740   7 904   8 294   
GHG emissions (tCO2e) (scope 1 and 2) 173 231   175 552   172 012   174 196   1 219   1 356   
Water withdrawals^ (ML) 138   152   134   148   4    

Lost-time injuries multiplied by 200 000 divided by total hours worked.

^ Municipal sources.


102-7

Looking forward

Industry   Car Rental   Avis Fleet

Industry

Given the prevailing macro-economic conditions, significant organic growth is not anticipated

The operating environment over the next 12 months is expected to be challenging as the legislative environment continues to evolve

Customers will focus heavily on cost reduction, which may place pressure on margins

Skills shortages will continue to burden the local supply chain industry with challenges ranging from filling qualified artisanal and driver roles to experienced non‑technical skills

 

Business transformation focus

Continue to focus our efforts on consolidating the gains of the turnaround strategy

Perform a further review of our portfolio to enhance and optimise returns

Explore new markets to unlock highvalue profit pools

Enhance our business models through the use of technology

Renew existing contracts with customers while maintaining margins

Relocating our corporate and business operations to a new location in Irene, Pretoria

 

Trends

Competition
Local players are shifting business and operating models, while international players are entering the local market

The digitisation of supply chains lowers the barriers of entry to technology companies and other non-traditional competitors

4th Industrial Revolution is expected to have a profound effect on our customers in the next 36 months

This presents opportunities for supply chain and logistics where we are investing in industry-leading digital solutions

This will enable co-creation and innovative partnerships with our customers to derive differentiated value

OPPORTUNITIES
Logistics plays a crucial role in the agriculture sector in South Africa, with opportunities to build viable, sustainable and collaborative route-to-market solutions for emerging farmers
Partnering with government and parastatals in the mapping, planning, movement and delivery of critical resources to facilitate continuous supply in a manner that is cost effective
The government’s efforts to resuscitate the rail transport system for goods as an alternative means to road freight transport offers another good opportunity