INTEGRATED ANNUAL REPORT 2011 GRI RESPONSES  

Chairman’s letter to stakeholders

Dumisa Ntsebeza Summary

> We have made excellent progress in implementing a number of key strategies
> We apply the principles of King III in our governance practices
> Barloworld Limited achieved an overall B-BBEE Level 2 rating from Empowerdex
> We affirm our stated ambition to raise awareness of key environmental issues and to lead in sustainability

Dumisa Ntsebeza

Chairman
14 November 2011
 

Dear Stakeholder

Overview

I am pleased to share my review of the year as Barloworld’s Chairman, and to report on the considerable progress we have made throughout the group this year, which culminated in a 120% increase in headline earnings per share from continuing operations.

This is my fifth report and I am proud of the fact that we have made excellent progress in implementing a number of key strategies including the acquisition of the remaining 50% of our Russian Caterpillar dealership. This, together with many other initiatives, will provide an excellent platform for growth over the next few years.

After a difficult period during 2009 and 2010 in the aftermath of the global financial crisis, the company emerged from the recession stronger than ever. During those challenging times we honed our management practices, improved asset efficiency and focused on implementing our core strategies.

We continued to deliver market leadership gains in most businesses through providing differentiated customer solutions which will serve as the foundation for sustainable, profitable growth and solid financial returns.

To achieve our strategic objectives, the company continues to build relationships with all its stakeholders and ensure alignment of our business objectives with those of our stakeholders, including the Government’s growth strategy for South Africa.

The corporate vision to which we have committed is encapsulated in the term “20153”. While dependent to some extent on global economic growth and the strength of commodity demand, this vision aspires to create significant incremental value for all our stakeholders by 2015 from a 2010 baseline year.

This goal is clearly aligned with our philosophy of stakeholder value creation. Our vision has clear and specific operational objectives and the goals are aligned with our Key Performance Indicators. With dedicated leadership and the strong will of all our employees I have no doubt we will achieve the demanding targets we have set.

Economic environment

Eurozone uncertainty has hampered global economic recovery and has heightened the risk of a double-dip recession. This impacted activity levels in Iberia in particular.

Economic growth in South Africa, while positive, was slightly below expectation and resulted in a slightly less favourable environment for our local businesses.

While southern African mining activity recovered strongly during the year, construction sector demand remained relatively muted. The territories with significantly increased mining revenues included South Africa, Mozambique, Zambia and Botswana.

Economic growth and mining activity in Russia was strong, with increasing revenues also in construction, power systems and forestry.

We declared a total dividend for the year of 155 cents, a 107% increase. This indicates our commitment to shareholders and the confidence the board has in sustaining the group’s strong performance into 2012.

Dividend

In line with our policy of 2.5 to 3 times dividend cover, we declared a total dividend for the year of 155 cents, a 107% increase. This indicates our commitment to shareholders and the confidence the board has in sustaining the group’s strong performance into 2012.

Divisional overview

The Equipment division performed well and is positively positioned for future growth across our existing territories in southern Africa and Russia. The Iberian industry has suffered through the Eurozone crisis, but action is being taken to reduce the cost base and position the business for profitability as the cycle turns. We are also growing our global power systems business from the strength of our Iberian base.

The Automotive and Logistics division, coming off a record year in 2010, performed well in a competitive trading environment. The logistics business was integrated into the Automotive division and this is progressing well. There is still considerable opportunity for the expansion of our logistics business in southern Africa, including territories such as Mozambique, and plans are in place to achieve this.

The Handling division generated a significant positive turnaround during the current year. Southern Africa delivered a good performance in agriculture in particular, while the European and United States handling businesses delivered substantially improved results.

Skills and people

Our primary competitive advantage is generated through our people. It is therefore very important that we respond to our business strategy by creating an aligned human resources (HR) strategy that focuses on delivering the right HR skills, structure and priorities to achieve our objectives. We are committed to maintaining this through skills
development and training as well as high employee engagement scores.

We have delivered numerous successes since opening our Leadership Development Centre at Barlow Park in 2008 and also continue to invest heavily in technical skills training across the group. Barloworld Equipment’s Technical Training Centre provides around 2 000 learnership interventions every year for the southern African region.

Corporate citizenship

Barloworld has historically played a central role in providing business acumen, leadership and facilitation in relation to broader societal and government initiatives in South Africa. As a proactive organisation, we would like to continue to elevate this corporate citizenship role in the years ahead.

It is our ambition that Barloworld should assist government organisations in the areas in which we operate, by transferring much-needed skills and knowledge. More specifically, we would like to see the transfer of technical and commercial skills in order to uplift systems and maximise effectiveness in addressing key challenges. With the necessary will on both sides, we can cultivate a partnership with government with a view to our assisting with job creation, commercial management techniques for state-owned enterprises, and infrastructure project management.

Our South African operations target 1% of their profits after tax for corporate social investment. We continue to focus on upgrading and improving access to education, as well as supporting corporate initiatives and programmes that are spearheaded by our employees. These include empowerment of women, HIV education and care for HIV orphans, sports initiatives for previously disadvantaged youth, and awareness of disabilities.

Our enterprise development initiative, Barloworld Siyakhula, continues to identify entrepreneurial projects to support and we expect to initiate a number of new projects in the year ahead.

BEE and transformation

For the past few years our commitment has been to lead in empowerment and transformation. I am pleased to report that as a group we have achieved the target we have set ourselves of becoming a Level 2 or 3 contributor under the dti Broad-Based Black Empowerment (B-BBEE) Codes. For 2011, Barloworld Limited achieved an overall Level 2 rating from Empowerdex which was extremely pleasing.

Barloworld Limited achieved an overall B-BBEE Level 2 rating from Empowerdex.

In terms of the new Companies Act, we have established a Social, Ethics and Transformation Committee with expanded terms of reference to cover statutory and various other functions, such as stakeholder engagement, socio-economic development, corporate citizenship and consumer relations. This Committee will assist the board in adopting a holistic approach to transformation and complying with relevant legislation and best practice in territories where we operate. Transformation both at board level and within our divisions has made steady progress, with each of the divisions having a comprehensive plan to achieve their internal targets and make further improvements from year to year.

Sustainable development

We affirm our stated ambition to raise awareness of key environmental issues and to lead in sustainability. Additionally, we are mindful of our role in propagating environmental awareness throughout the value chain and outside of our organisation. This means, not only supplying sustainable solutions to our customers but also encouraging best practice and embedding environmental policies with all our stakeholders.

We have made good progress against our aspirational energy and emission efficiency improvement targets during the year, and also focused on water conservation. Avis Rent a Car South Africa continued with its CarbonNeutral® accreditation and has secured this status for a further two years.

Barloworld takes a proactive stance with regard to the global sustainable development agenda. We have hosted two briefing sessions on climate change and the negotiations in the build-up of COP 17 in Durban and will sponsor a meeting facility at the venue. We are also participating in the COP 17 CEO Forum and initiatives.

Having been a signatory to South Africa’s Energy Efficiency Accord in 2005, Barloworld will sign the NBI’s Energy Efficiency Leadership Network Pledge which includes driving improvement of energy efficiency in our company aligned with appropriate government policies and strategies.

Board and governance

We have applied the principles of King III and continue to further entrench the recommended practices into our governance systems. In light of this, while the overall board composition remains unchanged, a number of appointments have been made to bolster the various board committees.

The new Companies Act came into effect in May 2011 and we have taken appropriate steps to ensure compliance with its requirements.

We will continue to consider the size, balance and composition of our board in the context of both appropriately representing South African society as well taking account of our international business interests.

Outlook

We will continue to work towards our 20153 vision and are confident of the strategic plan which has been put in place to achieve our targets.

Barloworld has historically played a central role in providing business acumen, leadership and facilitation in relation to broader societal and government initiatives in South Africa. As a proactive organisation, we would like to continue to elevate this corporate citizenship role in the years ahead.

We have practised prudent management of our businesses during the downturn which has strengthened our financial position, reduced our cost base and positioned us well for the future.

As a consequence, we are well positioned to enhance the value of our product and service offerings into our chosen segments and expect to maintain the positive momentum into the new financial year.

Appreciation

My sincere appreciation goes to the group CEO, Clive Thomson, and his executives who I believe are the highest calibre management team any leader could wish for. They have worked tirelessly to achieve the company’s goals and position the group for even greater success in the years ahead.

My sincere thanks also go to the Barloworld board and committees for their guidance, support and commitment.

Finally, I wish to express my appreciation to our shareholders for putting their faith in us, and for supporting the company. I would also like to thank our other stakeholders, including customers, principals, employees and communities where we operate, without whose partnership we would not have achieved our success to date. We look forward to continuing to work with you to create sustainable value for all.