INTEGRATED ANNUAL REPORT 2011 GRI RESPONSES  

       
  From left to right
Peter Bulterman (55)
Chief executive officer:
Southern Africa and Russia

HND Mech Eng
36 years’ service
Viktor Salzmann (64)
Chief executive officer:
Iberia

Eidg Dipl Kaufman
43 years’ service
Dominic Sewela (46)
Chief executive officer:
South Africa

BSc Chemical Engineering
4 years’ service

Operating performance

  Revenue
Year ended 30 September
  Operating profit/(loss)
Year ended 30 September
  Net operating assets
30 September
Economic 2011
Rm
  2010
Rm
  2011
Rm
  2010
Rm
  2011
Rm
  2010
Rm
 
Southern Africa 12 578   8 379   1 228   725   3 395   2 990  
Europe 3 574   3 854   (102)   (69)   2 496   2 626  
Russia 2 535       226       1 049      
  18 687   12 233   1 352   656   6 940   5 616  
Share of associate income         59   8          

  Petrol and diesel (ML)
Year ended
30 September
  Electricity (MWh)
Year ended
30 September
  Energy (GJ)
Year ended
30 September
  Emissions (CO2e tons)
Year ended
30 September
  Water (ML)
Year ended
30 September
Environmental 2011   2010   2011   2010   2011   2010   2011   2010   2011   2010  
Southern Africa 6.27   6.36   17 723   14 314   300 993   289 816   34 854   34 141   228   242  
Europe 2.22   2.45   7 150   9 743   106 664   123 281   9 517   11 771   9   14  
Russia 0.55       932       21 413       1 731       13      
  9.04   8.81   25 805   24 057   429 070   413 097   46 102   45 912   250   256  

  Employee headcount
Year ended
30 September
  LTIFR
Year ended
30 September
  Fatalities
Year ended
30 September
  B-BBEE rating*
Year ended
30 September
Social 2011   2010   2011   2010   2011   2010   2011   2010  
Southern Africa 4 560   4 167   0.69   1.06   2       2   2  
Europe 1 753   1 954   4.06   4.07       1          
Russia 535       0.87                      
  6 848   6 121   1.37   1.80   2   1          

*B-BBEE rating for South Africa only.

Leadership team

Southern Africa  
Peter Bulterman (55) Chief executive officer: southern Africa and Russia. HND Mech Eng. 36
Dominic Sewela (46) Chief executive officer: South Africa. BSc Chem, Eng. 4
Fergus Macleod (59) Financial director. CA(SA), BCom. 31
Terry Dearling (52) Human resources director. BA Psychology. 16
Shane Fitzpatrick (49) Executive director. BSc Mech Eng. 7
Kenny Gaynor (53) Executive director: Power. CA(SA), HND Elec Eng. 19
Charles Nell (54) Chief information of cer. BSc (Hons) Computer Science, MBA. 31
John Polykarpou (51) Executive director: After sales. CA(SA). 26
Charl Groenewald (42) Executive director: Contract Mining, Construction, Rental and Used. CA(SA). 16
Gerhard Vorster (43) Executive director: Mining Southern Africa. CA(SA). 15
Gavin Knight (47) Executive director: Power Southern Africa. HND Mech Eng. 22
Sibani Mngomezulu (39) Executive director: Risk, strategy and governance. LLM FCIS. 7

Iberia  
Viktor Salzmann (64) Chief executive of cer: Iberia (Spain and Portugal). Eidg Dipl Kaufman. 43
Carlos Morales (42) Operations director. Industrial engineer. 15
Victor Arnold (48) Global Power, Exec Oil and Gas Line of business and strategy director. BCom, MBA, DBA. 13
Vasco Santos (40) General manager: Portugal. Bachelor of Mechanical Engineering. 14
Jorge Beltran (42) Power systems director. Electronics engineer. 15
Francisco Carrillo (52) Commercial director. Bachelor Chemistry. 36
Alberto Garcia Perea (60) Strategy, purchasing & training director. Bachelor Marketing/Degree in Law. 39
Clyde Griffin (40) Finance director. BCom, BAcc, CA(SA). 8
Ildefonso Villar (50) IT Director. Degree in History. 35
Ramon Gonzalez (39) Human resources director. Degree in Labour Relations & Human Resources. 4
Isabel Vicente (53) Product support director. Degree in Physics. 36
Graziano Cassinelli (44) Used machines director. Diploma in Chemical-Biological Analysis. 3
   
Russia  
Tony Diggeden (57) General director. 35
Quinton McGeer (47) Deputy general director. CA(SA). 19
Anton Globus (33) Finance director. BCom (Hons) Accounting, CA(SA), CISA. 6
Peter Tapson (49) Regional director: Russian Far East. 30
Jackson McAdam (44) Power systems director. Bachelor in electronic and electrical engineering. 8 months
Irina Sukhoveeva (42) Construction, Oil & Gas director. Degree of planning engineer in machine industry. 12
Darren Kurtz (42) IT director. Master in business administration. 13
Elena Karpova (39) HR director. Degree in HR management. 4
Anton Gulichev (35) Forestry and Regional director. Degree in information processing systems. 7
Simon Garfath (49) Aftermarket director. Degree in engineering. 7

Note: The first figure after each name (in brackets) is their age at date of publication of this report. The second figure is the number of years’ service they have with Barloworld.

Operational review

Southern Africa

Overview

Equipment southern Africa produced record results driven mainly by mining and contract mining. Both machine sales and the after-sales business improved dramatically on the back of the commodities boom, generating a significant increase in revenue and operating profit over the prior year.

Revenue increased by 50% to R12 578 million (2010: R8 379 million) and operating profit 69% to R1 228 million (2010: R725 million). Net cash from operations was R913 million for the year.

Revenue has returned to the peak recorded in 2008 given the resurgence of mining across all commodities and without the benefit of the pre-World Cup construction spike that contributed to the 2008 results. Our R5.2 billion order book is also a record, signifying another strong year ahead.

Expenses increased in line with renewed business activity but the base remained well managed, reflecting longer-term economies achieved by the strong focus on expense reduction throughout the recession. A strategy of continual improvement in operational efficiencies meant that increased headcount could be limited largely to skilled technical people to support mining growth. Contained expenses contributed to a healthy operating margin of 9.8%.

Machine sales, after-sales revenues and rental income improved in all regions. Parts and service revenue outstripped previous results as after-sales demand grew to support the large and growing installed Cat machine population.

All our African territories recorded improved performance, with Angola returning to profitability after two difficult years and exceptional results from Zambia and Mozambique due to strong involvement in copper and coal mining, respectively.

Barloworld Equipment continued to enjoy firm market leadership in mining machines and improved market share in most earthmoving machine families, despite the decline in construction sector activity.

Caterpillar’s acquisition of Bucyrus was concluded in July 2011 and preliminary confidential discussions have been held with Caterpillar in relation to the possible acquisition of Bucyrus distribution rights in our territories. Finality is expected by mid-2012.

The Power division recorded disappointing results due to low levels of demand and difficulties in disposing of generator stock that have impacted the business. However, the stock situation has now improved and the power business is now recording increased activity. A significant improvement is expected in the year ahead.

Good progress was made on several new facilities designed to accommodate growing customer demand. We moved into our new facility near Maputo in Mozambique in September 2011 and land has been acquired in Tete for another branch specifically to service new coal mines in the province. Our new facility in Kitwe, Zambia, to service the copperbelt will also be completed in the new financial year. Development of our new facility in Luanda, Angola, will start in 2012.

The Barloworld Reman Centre (BRC) in Boksburg, being developed at a cost of R240 million, is our largest investment on a single project and will be one of the biggest dealer rebuild facilities in the world. It will double our component rebuilding capability when it opens in mid-2012.

Based on the principle of Seed – Grow – Harvest, this new facility, together with the Technical Academy on our Isando campus, will provide opportunities to develop sustainable skills to support our customers well into the future.

Our Great People Management philosophy revolves around creating a safe, inspiring and enabling environment that provides job satisfaction and encourages discretionary effort from employees.

We have achieved pleasing results from our initiatives to reduce electricity, fuel and water consumption. Our ongoing “war on waste” campaign has significantly improved awareness and employees are contributing to our environmental sustainability efforts.

Stakeholder value creation

Vision: To be the market leader by providing customers with the lowest total owning and operating cost over the life of the machine.

We will achieve our vision by:

> Developing globally competitive, diverse, empowered and passionate people
> Delivering quality products
> Providing equipment management services and cost-effective integrated solutions.

Mining

Barloworld Equipment has increased its market leadership in the supply of earthmoving equipment to the southern African mining sector.

Substantial equipment orders, accompanied by comprehensive maintenance agreements awarded by new and expanding mines as well as mining contractors, have contributed significantly to our rapid recovery in the mining sector.

Our Great People Management philosophy revolves around creating a safe, inspiring and enabling environment that provides job satisfaction and encourages discretionary effort from employees.

These agreements, which give us a significant role in the overall productivity of mining fleets, confirm our ability to provide customers with unequalled technical expertise. Our teams in this sector have earned us the reputation as one of Caterpillar’s flagship mining dealers worldwide.

A potential shortage of mining stock has been pre-empted by good planning, allowing us to place orders well in advance for deliveries as far ahead as 2013. Caterpillar is investing significantly in expanding its mining equipment factories to reduce the long lead times that characterised the previous commodities boom in 2007 and 2008.

Parts and service revenue, the mainstay of Barloworld Equipment throughout the downturn, continued to grow in all territories and outstripped revenue from new machine sales in Zambia.

Our joint venture with Tractafric Equipment in the Katanga province of the Democratic Republic of Congo (DRC) also produced an excellent result, due to increased copper mining activity.

Our teams in Mozambique have been working in difficult conditions to assemble large fleets for Vale’s Moatize coal mine and Riversdale Mining’s adjacent Benga site. Included in the Moatize fleet will be 10 Cat 797 mega mining trucks, together with a customer support agreement. These will be the first 797s, the biggest mechanical drive trucks in the world, to enter Africa. Workshops and haul roads at Moatize have been developed with input from Barloworld to accommodate the 797s and our assembly team for Moatize completed training in Brazil ahead of the arrival of the first two mega mining units in Mozambique.

The safety achievements on our MARC contracts at BHP Billiton’s Wessels and Mamatwan manganese mines in the Northern Cape are notable for continually exceeding expectations and breaking records.

Delivery has started of a fleet of Cat machines and Atlas Copco drills to Majwe Mining, the mining services contractor for the Cut 8 Phase 2 expansion project at Debswana’s Jwaneng diamond mine in Botswana.

A spread of commodities is proving attractive for our Namibian business and orders have been placed by diamond, zinc, gold and uranium mines in the past year, all with after-sales support agreements.

The safety achievements on our MARC contracts at BHP Billiton’s Wessels and Mamatwan manganese mines in the Northern Cape are notable for continually exceeding expectations and breaking records.

Construction

The construction sector continued to decline in 2011, with construction companies across southern Africa battling the slowdown. However we improved market share in most machine families, despite this negative market.

The Angolan government continued to make arrear payments to construction contractors and the benefit of these payments could be seen after March 2011 when there was a modest increase in machine sales and a substantial increase in parts sales.

The Metso crushing and screening solutions business exceeded expectations and we expanded our dedicated team from 6 to almost 30 people to support Metso products in all the regions in which we operate. We also made substantial investments in machine stock and parts inventory.

Metso closed some pleasing sales to construction customers – despite the depressed market – and achieved strong growth in mining. Successes included a set of machines delivered to Tata Steel in the Northern Cape and an LT140 unit, the largest mobile crusher in Africa, ordered by Tenke Fungurume copper mine in the DRC.

Rental and used equipment

The rental business remained buoyant, with benefits accruing from our policy of focusing on longer-term, higher-utilisation rentals, particularly into contract mining. We continued our strategy of exiting allied equipment to concentrate on the core business of renting Cat fleets with Cat-certified operators.

Sales of ex-rental fleet as Cat Certified Used (CCU) with warranty remained strong as customers sought lower-cost, quality equipment options. Satisfactory margins were achieved by moving trade-ins as fast as possible to avoid tying up capital.

Power

Barloworld Power’s profitability remained depressed due to low demand, and the ongoing impact of excess generator stock on working capital levels. However, stock was significantly reduced during the year, albeit at lower margins, and we have returned to our normal stock-ordering cycle from Caterpillar.

There was an encouraging increase in activity in the latter part of the year, coverage has improved and current workloads are positive. Product support in the form of service and parts business grew by a very pleasing 76% on 2010.

While the retail business remains slow in line with the sluggish construction sector, mining demand has improved and power business is particularly pleasing in Angola, where we are playing an increasing role in marine, oil and gas. In Namibia and Mozambique, power supply is in demand from emerging mining ventures.

In May, Barloworld Power began final commissioning of the R250 million Anixas power station at Walvis Bay for Nampower, adding 22.5MW of electricity to Namibia’s national grid. This is the most significant project undertaken by Barloworld Power and provides a strong platform on which to build a portfolio of similar complex turnkey projects in future. Many opportunities are expected to arise from power constraints facing southern Africa.

Our Engineering Centre of Excellence in Boksburg now boasts significant engineering skills for design, project management, installation and commissioning of large turnkey power projects.

The slower market provided an opportunity to upgrade the Power rental fleet, incorporating Cat generators and Allight lighting masts, and our comprehensive rental solution for the annual Sasol Synfuels shutdown in Secunda was a high point in the year.

Barloworld’s Global Power Systems, established a year ago under the leadership of Viktor Salzmann, has made significant progress in assembling a multi-skilled team from the group’s power businesses in southern Africa, Iberia and Russia and has started to implement an aggressive and sustainable growth strategy for the future.

Our Engineering Centre of Excellence in Boksburg now boasts significant engineering skills for design, project management, installations and commissioning of large turnkey power projects.

Sustainable development

In our approach to sustainability we align closely with Barloworld Limited, and our principal, Caterpillar.

People

Demand for technical expertise continued to rise on high activity levels associated with assembly, maintenance and repair of mining fleets across southern Africa. We are actively ensuring skills availability in all territories.

Classes in our Technical Academy at Isando are fully booked a year in advance and a second shift is being introduced to increase throughput. The instructor complement will also be doubled. Annual learner intake in South Africa alone has doubled to two intakes of 150 learners each.

At least 60 more beds are being provided by upgrading the accommodation facility for learners and the purchase and refurbishing of an adjacent property.

Building on the success of our NQF Level 4 qualification focusing on troubleshooting for Cat engines, hydraulics, power train and electrical systems, our training development team is working on an NQF 5 qualification which will prepare candidates for management positions.

In May 2011, three operator trainers at the Barloworld Equipment Operator Academy became the first Caterpillar Dealer Instructors in Africa, joining a select group of only 188 worldwide.

R58.3 million was spent on courses involving 3 715 employees from all southern African territories in our Leadership Development Centre in Johannesburg, excluding accommodation and travel costs, and a significant portion was dedicated to internal bursaries. The ongoing focus on developing our employees has resulted in 84% now having development action plans.

Transformation

We continually review and evolve our comprehensive transformation policies in building a corporate environment that values and promotes equity and inclusion.

Diversity management workshops were again held around South Africa; building work is under way to accommodate people with disabilities in our facilities; a mentorship programme has been launched, and our talent management initiatives are starting to produce results. Our South African business achieved level 2 on the dti B-BBEE scorecard in 2010 and 2011.

Recruitment in 2011 was largely focused on technical skills, from learners to qualified artisans. The external recruitment moratorium on non-core skills impacted on our ability to meet employment equity targets at more senior levels.

However, during the past two years, the percentage of black representation at management level has risen from 51% to 58%. The number of black senior managers increased from 18% to 25% and junior management from 33% to 41%.

In the past two years, the number of women employed by Barloworld Equipment has risen from 9% to almost 20% and, in 2011, the number of women in management moved from 12% to 14%.

In the coming year, we will undertake an audit of all employment equity forums, review succession planning processes and launch learnerships for people with disabilities, together with a disability awareness campaign.

The corporate budget for socio-economic development in South Africa was allocated to projects assisting children and adults with disabilities and to improve science, mathematics and other skills among previously disadvantaged learners.

Many departments within Barloworld Equipment, and individual employees, have contributed to improving the quality of life for others. They have given their time and effort, collected funds and donated items from food to computer hardware and software to a number of causes during the year.

Safety

Safety is one of Barloworld Equipment’s core values. In 2011 we embarked on an intensive campaign to improve workplace health and safety. Safety training was broadened by introducing a specific safety awareness course aimed at zero harm. This has been attended by over 270 employees to date.

Tragically we recorded two fatalities this year, at our Isando campus and Jwaneng diamond mine in Botswana. We acknowledge that any accident is one too many and fatalities are not acceptable. Our safety teams, with active support from the executive, are doing all they can to prevent further fatalities on our sites.

We are, however, pleased to report that the lost-time injury frequency rate (LTIFR) at Barloworld Equipment has fallen by 71% over the last six years.

Occupational health medical surveillance is also firmly entrenched, with 2 682 medical examinations conducted during the year.

The environment

Our sustainable development vision is based on representing OEMs such as Caterpillar that have sustainability principles entrenched in their research and development and manufacturing processes. We sell machines that incorporate regulated emissions and rebuildability; in our support of these machines, we take stringent steps to limit emissions, fuel, electricity and water use, and contamination. We are also aligned with the Barloworld group approach and objectives.

Our aspirational sustainable development goals include 12% non-renewable energy and emissions efficiency improvements and a 30% efficiency improvement in water use by 2014 (2009 baseline). We are also committed to realising R50 million in incremental profitability or cost savings through sustainability initiatives by 2015.

As part of these overall targets, our targeted efficiency improvements in electricity, and fuel (petrol and diesel) consumption for the two financial years ended 30 September 2011 was 5% off a 2009 baseline. Against these targets we achieved an absolute 17% reduction in electricity, 9% reduction in water and 6% reduction in fuel over this period. In light of increased business activity, these are excellent achievements and exceed the targeted efficiency improvements. We will continue to develop these initiatives, particularly water-recycling. We will also focus on achieving the inherent cost benefits.

Safety is one of Barloworld Equipment’s core values. In 2011 we embarked on an intensive campaign to improve workplace health and safety. Safety training was broadened by introducing a specific safety awareness course aimed at zero harm.

To meet the cumulative R50 million targeted saving by 2015, including recovering our related investment, we need to exceed our targets in each of the next three years. One area that will receive focused attention is diesel consumption, currently at 104% of 2009 levels, although well ahead of our efficiency improvement targets.

To assist in this drive all Barloworld Equipment’s new facilities are designed to be environmentally friendly.

6 Sigma

Since its inception in 2004, Equipment’s 6 Sigma process improvement programme has delivered 210 projects with financial benefits of R140 million to the company. The 38 projects completed in the past financial year generated benefits valued at R10 million.

Waste

Our “War on Waste” campaign started in 2009 and has delivered significant cost reductions in business processes through the efforts of employees to reduce wasteful activities and increase customer value.

In the past financial year, employees generated and implemented 160 ideas related to process improvements in their business areas.

Outlook

Barloworld Equipment begins the new financial year with a record order book of R5.2 billion (R3.4 billion in 2010). Strong results are forecast for 2012 and beyond, given rising demand for commodities to fuel urbanisation and industrialisation in high-growth nations such as China and India.

Further growth is expected in the owner and contract mining sectors, and parts and service revenues will continue to rise in support of the rapidly growing active Cat population. Barloworld Equipment’s reputation for maintaining the high fleet availabilities critical to meeting mining targets stands us in good stead to continue improving market share and revenues.

Activity in Angola is expected to improve strongly and our strong performance in South Africa, Zambia, Mozambique, Botswana and Namibia is expected to continue.

While Barloworld’s role in the sale and support of the Bucyrus product line-up now owned by Caterpillar will be clear only in the latter part of the new financial year, this relationship is expected to have a positive impact on our mining business. It will significantly broaden our opportunities to provide equipment management solutions for both opencast and underground mines.

The new Barloworld Reman Centre will allow us to double present component rebuild throughput and improve turnaround times. It will accommodate components for Cat 797 trucks as well as the new Cat electric drive trucks, top-of-the-range 2-4MW Cat C175 generator sets, as well as growing industrial, marine and electric power opportunities. In partnership with Caterpillar an oil sampling laboratory, linked to our Reman Centre will be operational by September 2012.

Backlogs in Cat machine deliveries remain a challenge but we are confident that Caterpillar’s investment in additional manufacturing capacity will produce results in the next three years.

Skills remain our key differentiator. Continual steps are being taken to ensure we have the skills to provide consistent value for all our customers.

Generally another flat year is expected in construction in all territories. Investor uncertainty points to continued weakness in the commercial building sector.

Continued strong demand for Metso products and support is anticipated in both the construction and mining sectors. All Barloworld Equipment’s southern African territories now have revenue targets for Metso and dedicated skilled resources will be allocated to each country to follow up on these plans.

The rental and used equipment businesses are expected to remain profitable, driven respectively by long-term rentals of larger machines into mining-related sectors and demand for reliable used machines at lower prices.

Barloworld Power starts the year with a strong order book and the growth of this business into a significant contributor to Barloworld Equipment’s profitability remains a strategic focus. Ambitious targets have been set for accelerated growth in parts and service sales.

Key growth drivers for Barloworld Global Power remain positive. These include growing populations and urbanisation requiring more electricity, increasing oil and gas exploration, and growth in shipping over the longer term.

We will continue with our strategic focus areas aligned to both Caterpillar and the Barloworld group.

Iberia

Overview

The Iberian operations continued to trade amid significant economic turmoil in the Eurozone.

Financial markets lost confidence in the region’s ability to service its sovereign debt and this led to Ireland and Portugal following Greece into accepting bailout funding from European and International Monetary Fund sources.

Severe austerity measures implemented by the Spanish government in the past two years saved the country from being forced to access bailout funds. The cost of these actions was continued contraction of the local economy, growth in unemployment and a decline in economic confidence. Portugal faced similar issues as the government was dissolved, an early election called and the new government forced to implement harsher austerity measures as part of its agreement in accessing bailout funding.

The construction industry bore the brunt of fiscal tightening measures and again contributed negatively to GDP in both territories as spending continued to fall. Accordingly, the region faced its fourth consecutive year of machine market contraction.

Equipment Iberia’s result reflected this ongoing contraction, with revenue down 10% to R3.4 billion and an operating loss of R102 million. In local currency, net operating assets were again reduced by 7%, or €16 million, following ongoing efforts around working capital management, including reducing the net book value of the rental fleet by some R110 million during the year. Disciplined financial management ensured that the region ended the year in a net cash position.

Unfortunately the business was forced to reduce headcount to counter the contraction in the market and ensure financial sustainability. The cost of this programme across the Iberian group was €7.5 million (R71 million) and this is expected to equate to future annualised savings of €11 million (R106 million). In addition, the business also reduced its footprint in the region by closing unprofitable locations, specifically in the rental division, and further enhancing synergies between rental and dealership operations. This included sharing facilities and technical support staff, as well as back-office operations.

Stakeholder value creation

Vision: To be recognised by our customers as the market leader in providing integrated solutions for Caterpillar products, rental and product support.

Effective management of long-term relationships with global principals and customers is the cornerstone of our division’s strategic profile.

We will continue to concentrate on our strategic focus areas, which are aligned to those of the Barloworld group.

The key objectives of optimising asset utilisation, managing working capital, reducing costs and growing our share of the shrinking market remained central to minimising the impact of the ongoing economic contraction on our business. These measures, together with a strong product offering and focus on key customers, have ensured a strong core business that can be leveraged for growth when economic conditions improve.

We have retained and extended our market leadership by continually expanding our presence in all market segments. Equipment Iberia’s approach of providing comprehensive integrated solutions to fulfil specific customer requirements differentiates us from our competition. It has also resulted in three significant equipment deals, the benefits of which will be evident in 2012 and 2013, while our capabilities in the marine segment allowed us to secure a large prime product order to be delivered in 2012 and 2013.

Both dealerships operating in the region remain within the top tier of dealers in Europe, based on Caterpillar key performance indicators. The relationship with our principals remains strong and they continue to support business development in the region despite the depressed economic climate.

Our focus on people continued through employee value creation, which has been stepped up with the introduction of an enhanced programme. The ongoing investment in our employees through Caterpillar’s various dealer training programmes was rewarded when we were recognised by our principal for service excellence and training capability.

Equipment Iberia met the required electricity, fuel and water targets during the period to align with medium-term Barloworld group efficiency improvement targets. Environmental compliance and improving facilities to create better working conditions for our people have been major focus areas.

Our largest branch in Arganda del Rey, Madrid, obtained ISO 140001 certification and this will be expanded to other branches in the coming year.

Programmes were initiated to replace hazardous materials such as asbestos roofing and to revamp and re-equip some workshops. Heating and cooling systems were replaced by more environmentally friendly units.

Construction

The construction segment continued to bear the brunt of austerity measures in Spain and Portugal, severely impacting our customers who are increasingly seeking work outside our traditional territories. This led to further declines in local markets, while presenting new opportunities to provide solutions for existing customers further afield.

In our bid to increase market share while maintaining gross margins, we focused on specific product segments such as paving and compaction, where we achieved good growth. We continued to sustain our customer partnerships to ensure a strong platform for the future.

Power systems

Weakening market conditions also affected the power business, but we began to see the fruits of our efforts in the marine market as tender activity increased based on work received in Spanish shipyards late in the previous financial year. A number of shipyards remain in a challenging financial position, however, and the outlook for the shipping industry is uncertain once current projects are completed.

We secured satisfactory business primarily related to power generation in retail and diesel markets, which maintained some buoyancy. Large projects continued to suffer from a lack of market financing. Co-generation projects, despite increased activity, were similarly affected.

Product support

Product support remained the biggest contributor to both revenue and margins. Our strong regional footprint enabled us to provide unrivalled market coverage, and gain parts and service market share to offset declining levels of activity in other areas.

Innovative packaging of after-sales solutions, supported by Caterpillar, stimulated activity in our workshops and we sold parts to key customers to maintain their fleets. Additional parts opportunities will flow from significant machine packages secured in 2011. As noted, Equipment Iberia was recognised by Caterpillar with a top award for service excellence.

Rental equipment

The rental business was also badly affected by the construction slowdown. Equipment Iberia’s strategy of focusing solely on renting core Cat products continued successfully, accompanied by a restructure to merge our rental and sales operations. In this process, a number of marginal rental facilities was closed and staffing reduced.

The rental fleet was aggressively decreased and pricing increased to improve margins, resulting in good gains in the financial utilisation of the fleet.

Used equipment

Used equipment sales excelled this year due to opportunities presented by growth in some world economies, as well as local customers looking to reduce their investment spend, and opting for lower-priced, quality, used equipment. Inventory was boosted by quality machines from our rental fleet, along with the development of key purchase-for-resale channels. Customers again realised the value of our Cat Certified Used (CCU) programme, enabling us to compete successfully against cheaper machines sold out of competitor rental fleets.

The business will be continually evaluated and realigned as necessary to meet the prevailing demand cycle. Our integrated solutions offering will continue to be refined and the second phase of the rental reintegration process implemented.

Our web-based sales channel proved successful as an alternative, cost-efficient channel to market in its first full year of operation.

Outlook

The short-term outlook for Spain and Portugal remains pessimistic due to the Eurozone crisis and accompanying market volatility. The consensus of our customers and market analysts is that the industry in Iberia will contract further in 2012. We consequently anticipate another difficult trading year ahead.

The business will be continually evaluated and realigned as necessary to meet the prevailing demand cycle. Our integrated solutions offering will continue to be refined and the second phase of the rental reintegration process implemented. Through our actions in the current year, the business has entrenched its position as market leader and we will continue building on our capability to offer solutions to customers’ requirements no matter where they operate their equipment.

We will also develop technology further to improve back-office cost efficiency, while offering our customers an unrivalled technological base to improve efficiencies in these difficult financial times.

The power systems business will continue to align with the vision of the broader Barloworld Global Power entity. Opportunities will be pursued in marine, electrical power generation and industrial applications where our product offering is particularly relevant.

Our people remain core to our success and we will continue to invest in training and develop remuneration processes to reward productivity and efficiency.

We will progress our strategy within the group framework and align our efforts in terms of Barloworld’s six strategic focus areas.

Our top imperatives for the coming year continue to be based on driving improvement in all five key focus areas of the group. Specifically, we will:

Continue to support our customers with an ever-widening product offering, integrated with new technologies to enhance their efficiency, and our high levels of service
Ensure our staff are well equipped to meet the challenging environment and improve our empowerment credentials by increasing the representation of females in our management structures
Selectively invest in areas that require improvement, and open ourselves to external scrutiny as we expand our environmental certification across our base network
Focus on growth in market share and penetration, while concentrating on tight working capital and asset management to ensure assets are used efficiently, aiming to meet the group’s internal benchmarks for return
Continue to establish low-cost channels to market for used equipment sales.

Russia

Equipment Russia produced a record result with US$374 million in revenues (2010: US$207 million) and US$33 million in operating profit (2010: US$11.5 million).

This provided an immediate return on Barloworld’s acquisition of the remaining 50% shareholding effective October 2010 for US$52 million.

This result, the best in the company’s 12-year history, was fuelled by continued economic growth in Russia and high commodity prices, resulting in improved sales and higher after-sales volumes on the back of an increased installed machine population.

Significant progress was made in developing facilities. A world-class component rebuild centre (CRC) opened in Novosibirsk in July 2011 to provide a wide range of after-market services to customers in Novosibirsk, Altay and Kuzbass territories. Construction on new facilities has started in the Irkutsk and Magadan regions, while properties have been purchased for this purpose in Krasnoyarsk and Neryungry.

Due to the vast dealership area which covers six time zones, regional facilities are vital to ensuring competitive advantage and customer coverage across all territories. Despite the significant growth in the year and having invested more than US$15 million in property acquisition and construction costs, the business generated positive cash flow in 2011.

Stakeholder value creation

Vision: To be a recognised market leader in our targeted industry segments by offering profitable integrated customer solutions.

This is supported by our mission to:

Profitably grow our market position
Expand and develop the capabilities of the regional branch network
Provide value-adding solutions to our customers’ needs
Integrate a unique package of customer benefits, including local presence, product availability, parts, service and product support.

Our strategic focus areas are aligned with the Barloworld group and our principals.

Mining

The mining sector was one of the primary drivers of revenue, with machine sales rising from US$71 million in 2010 to US$176 million. Demand for gold, coal and other key commodities supported increased investments into fleet expansion by most of Equipment Russia’s major customers. Our mining order book remains strong at US$40 million.

Caterpillar’s commitment to transfer the manufacture of selected mining machine models into Russia from January 2012 will also have a positive impact on our ability to increase share in a highly competitive market.

Good prospects have been received from Polyus Gold at the Natalka gold mega-project in the Russian Far East and the Metalloinvest Group’s Udokan copper-mining project in Eastern Siberia. Sustained sales growth will depend on the start-up timing of greenfield operations in Eastern Siberia, Yakutia and the Russian Far East.

Construction

A major turnaround in the construction segment has resulted in revenues growing by 70%. Renewed federal investment in infrastructure projects and the availability of cost-effective finance solutions in the Russian market have contributed to this success.

Infrastructure remains a very price-sensitive market, requiring a high degree of flexibility from both Equipment Russia and Caterpillar to remain competitive. Improved sales of smaller construction machines – such as skid-steer loaders and backhoe loaders – has demonstrated that correct pricing and appropriate marketing programmes are key to growing market share.

Power

The power systems business in Russia has grown significantly in recent years. Most customers now require complete turnkey power solutions rather than the product sales and after-market support historically offered by Equipment Russia. This solutions’ capability demands specialised knowledge in power applications, and of onerous legislation governing this area in Russia.

The power systems business achieved a very pleasing result. A significant portion of aged engine stock has either been sold or committed under signed contracts, improving financial position performance.

With orders of US$18.7 million for delivery in 2012, Power is well positioned to improve further on the 2011 result.

Outlook

The political situation is expected to remain stable with a smooth transition of power after the March 2012 elections. Although macro fundamentals are strong, with continued GDP growth, low levels of sovereign debt and reduced inflation, Russia remains vulnerable to capital flight in line with other emerging markets. Turbulence in global and local financial markets towards the end of the 2011 financial year has brought an element of uncertainty to short- and medium-term economic prospects in Russia.

Equipment Russia is predominantly a mining dealer and our outlook for 2012 and beyond remains positive, based on continued high commodity prices. Growth in after-market revenues is anticipated given the significant increase in our active machine population in recent years.

Should the negotiations between Barloworld Equipment and Caterpillar on the Bucyrus dealership prove successful, this will present significant opportunities for our business. With the only Bucyrus service centre in Russia located in the Kuzbass region, 300km from our headquarters in Novosibirsk, we are very well positioned to take advantage of the expanded product range.

We will continue to align our strategic focus areas to both Caterpillar and the Barloworld group.

Safety and our vision 20153   Caterpillar group president praises technical academy   Cat power for highspeed, anti-piracy vessels built in Africa
“To be the market leader by providing customers with the lowest total owning and operating cost over the life of the machine.”

Safety is one of Barloworld Equipment’s eight values and is critical to our good reputation among all our stakeholders.

Safety means Zero Harm at work. Zero Harm is the responsibility of the company and of every employee within the company.

Barloworld Equipment strives to instil a culture of accountability for workplace safety throughout the organisation. This culture will help us to achieve our vision by attracting and retaining good quality employees, improving productivity, building customer trust and aligning with the strategic goals of our principals.

Accountability is what makes our safety system work. Holding people accountable – top to bottom – eliminates accidents and injuries more than any other single approach.

  “I have not seen anything like it anywhere else.”

These were the words of the Caterpillar group president and chief financial officer, Ed Rapp, during a recent visit to the Barloworld Equipment Technical Academy in Isando.

“I’ve seen elements of it,” he said. “What I haven’t seen is a company that has integrated it all together, including the accommodation. I think that’s what makes it unique.

“Our customers are struggling in terms of technicians and quality operators more and more every day, so what you have here can really build that intellectual capital and build that capability.

“It will be interesting a year from now, five years from now, 10 years from now, to go back and chronicle how many lives have changed as a result of this investment. I think you’ll be able to look back one day and say ‘we really did make a difference’.”

Hosting Caterpillar group president Ed Rapp (right) on a visit to the Technical Academy were (from left): Hannes Wilke, group technical training manager; John Polykarpou, executive director, After Sales; and Rob Pullen, senior general manager, Service; at Barloworld Equipment.

  Barloworld Power has supplied all the power requirements for two high-speed, aluminium hull vessels that are being used to patrol the Nigerian oilfields off the west coast of Africa and safely transfer crews between the shore and the oil rigs.

The 30 metre vessels, built by Nautic Africa in Cape Town and 100% Cat powered, are the first of their kind in Africa and include leading-edge, innovative designs such as Kevlar upper structures that make them lighter, faster and more stable. Designed and built to withstand attacks by pirates, the vessels can achieve a maximum speed of 30 knots travelling between the mainland and oil rig platforms up to 100 nautical miles offshore.

The first vessel is powered by three Cat C32 propulsion engines coupled to ZF3050 gearboxes as well as two Cat C4.4 marine gensets, while the second is slightly smaller with two C32 propulsion engines and two C4.4 gensets.

Barloworld Power has just signed repeat orders with Nautic for two more similar vessels.

Barloworld has also enjoyed 100% market share in the powering of similar anti-piracy vessels built by another Cape Town shipbuilder, Veecraft, also supplying three C32 propulsion engines and two C4.4 marine generators per vessel.


Flying the flags in Middelburg   Water wise at Isando

Barloworld Equipment Middelburg is leading in Safety, Health, Environmental and Quality (SHEQ). In January 2011 the Middelburg mining campus became the first Barloworld Equipment facility to achieve three accredited certifications: OSHAS 18001:2007 (Safety and Health Management System); ISO 14001:2004 (Environmental Management System); and SANS ISO 9001:2008 (Quality Management System).

 

Barloworld Equipment aims to improve its water usage efficiency by 30% over a five-year period from 2009.

Group facilities manager for South Africa, Ramatiyane Seepe, believed the Isando campus in Johannesburg was using too much water and called in a specialist consultant to monitor water consumption.

It is estimated that up to 40% of South Africa’s potable water is lost through leaks and online water metering was installed at Isando to check for just that. The meters showed that significant amounts of water were being used at night when the business was not operating.

Two leaks were found and repaired, bringing our water consumption down to a much more reasonable level.

By being proactive in monitoring water consumption, Isando has potentially saved millions of litres of water and hundreds of thousands of rands in utility bills.