INTEGRATED ANNUAL REPORT 2011 GRI RESPONSES  

1. Strategy and analysis

  • 1.1 Statement from the most senior decision-maker of the organisation.

    Integrated annual report 2011 - Chairmanís letter to stakeholders
    Integrated annual report 2011 - Chief Executive's review

    Chief Executive overview

    The group understands that stakeholder interests are best served by integrated and coordinated value creating activities addressing economic, environmental and social aspects.

    The groupís value-based management approach entrenches long-term value creation, highlights the interdependent nature of stakeholder interests and requires inclusive management and reporting. Engaging with stakeholders enables us to identify their needs, interests and what constitutes value for them. This distils, in part, the material issues for the group and directs group focus. Barloworld actively engages its stakeholders and the recent formulation of a group stakeholder policy codifies the groupís approach.

    In addition, robust strategic planning and risk-identification processes highlight areas for attention which are incorporated into management activities. These also identify strategic opportunities which are pursued. Our strategic planning process identified sustainable development as a strategic focus area for the group and highlighted financial returns and profitable growth as areas for attention. We have focussed on these aspects in the year and made good progress.

    The group continues to focus on reducing its consumption of natural resources, particularly energy generated from fossil fuels, water use, and reducing greenhouse gas emissions. This includes a focus on improving energy and emissions efficiency and setting aspirational targets. Water recycling initiatives are designed to minimise consumption and save costs.

    We recognise the significance of our car rental fleet’s carbon footprint and quantify elements of the business’ scope 3 emissions.

    Our value-based management approach and organisational sustainability is underscored by our commitment to:

    Ensuring our customers’ success by providing the integrated and environmentally sound solutions they require to remain competitive and meet their own sustainability objectives
    Always acting in the best interests of our principals and representing them in a way that ensures their success and reflects their sustainable development objectives
    Providing a workplace for employees where all have equal opportunity, are inspired to fulfil their ambitions and be proud ambassadors of Barloworld
    Delivering top-quartile returns to our shareholders through responsible business practices
    Being a responsible corporate citizen for all our stakeholders, including the communities in which we operate.

    I believe the enduring competitiveness of Barloworld and its ability to create sustained value for all stakeholders is founded in these commitments. We will continue to manage the group accordingly.

    Clive Thomson

     

  • 1.2 Description of key impacts, risks and opportunities.

    Integrated annual report 2011 - Value created and distributed
    Integrated annual report 2011 - Business operations
    Integrated annual report 2011 - Strategic growth segments
    Integrated annual report 2011 - Equipment - Operational review
    Integrated annual report 2011 - Automotive and logistics - Operational review
    Integrated annual report 2011 - Handling - Operational review
    Integrated annual report 2011 - Group strategy
    Integrated annual report 2011 - Barloworld group top risks – 2011
    Integrated annual report 2011 - Stakeholder matrix
    Integrated annual report 2011 - Limiting our environmental footprint
    Integrated annual report 2011 - Equality, empowerment and transformation
    Integrated annual report 2011 - Our people
    Financial risk management">Integrated annual report 2011 - Financial risk management

    Key impacts

    Barloworld’s Value Based Management approach encompasses responsible citizenship and long-term value creation for all stakeholders. Through this approach, economic, social and environmental issues are managed in an integrated manner, supported by a strong governance environment and underpinned by the group’s worldwide code of conduct. The group considers these in the context of its strategic plan, strategic focus areas, associated risks and resulting opportunities and manages them in a balanced and integrated manner.

    Key impacts and areas of value creation are economic, environmental and social as set out below.

    Economic (Strategic focus area: Financial returns):

    Operating performance
    Financial Position
    Cash generation

    Stakeholder value added
    The group understands the direct and indirect economic value it generates for its stakeholders through its commercial activities and is committed to long-term value creation for all stakeholders. The group value added statement reflects direct economic value created for stakeholders. Indirect value creation includes employee spending, providing  products and services, enhancing the image and reputation of areas, and job creation that reduces demand on the fiscus and enables resources to be redirected into other areas. In addition, the group’s enterprise development initiatives, channelled through Barloworld Siyakhula, support the creation of small and medium enterprises. Our economic contribution to stakeholders is reflected in our value added statement.

    Statement of total value added
    for the year ended 30 September

        2011
    Rm
    % 2010*
    Rm
    % 2009*
    Rm
    %  
      Revenue from continuing operations 49 823   40 830   45 269    
      Revenue from discontinued operations     1 219   1 451    
      Paid to suppliers for products and services 39 086   32 149   34 768    
      Value added 10 737   9 900   11 952    
      Income from investments^ 133   104   203    
      Total value created 10 870   10 004   12 155    
      Value distribution              
      Employees (note 1) 6 786 62 6 351 63 7 054 58  
      Capital providers: 1 012 9 1 056 11 1 580 13  
      Finance costs 755   833   1 146    
      Dividends to Barloworld Limited shareholders 223   189   396    
      Dividends to non-controlling interest in subsidiaries 34   34   38    
      Government (note 2) 642 6 856 9 1 093 9  
      Communities (Corporate social investment) 16   11   8    
      Reinvested in the group to maintain and develop operations 2 414 23 1 730 17 2 420 20  
      Depreciation 1 620   1 926   2 145    
      Retained profit 679   (175)   428    
      Deferred taxation 115   (21)   (153)    
                     
        10 870 100 10 004 100 12 155 100  
      Value added ratios              
      Number of employees (30 September) 18 671   18 167   18 918    
      Revenue per employee (Rand)# 2 704 979   2 267 709   2 372 236    
      Value created per employee (Rand)# 590 163   539 517   617 193    
      Corporate social investment – % of profit after taxation,              
      excluding exceptional items 1.6   2.1   1.0    
      Notes:              
      1. Employees              
      Salaries, wages, overtime payments, commissions, bonuses and              
      allowances** 5 864   5 459   6 055    
      Employer contributions+ 922   892   999    
        6 786   6 351   7 054    
      2. Central and local government              
      Current taxation 389   200   603    
      Rates and taxes paid to local authorities 66   68   59    
      Customs duties, import surcharges and excise taxes 163   566   418    
      Skills development levy 24   22   13    
        642   856   1 093    

    ^ Includes interest received, dividend income and share of associate companies and retained profit from ‘joint ventures’.
    # Based on average number of employees.
    ** Represents the gross amounts paid to employees including taxes payable by the employees.
    + In respect of pension funds, retirement annuities, provident funds, medical aid and insurance
    * Reclassification of interest paid in the leasing business from cost of sales to finance costs.

    VALUE DISTRIBUTION
    (%)

    VALUE DISTRIBUTION

    *** See statement of total value added for value distributed.

    Environmental (Strategic focus area: Sustainable Development) include:

    Integrated Customer Solutions
    We understand the environmental impact of our activities. These arise from our internal operations as well as from our products, services and customer solutions. Material areas of impact are the consumption of non-renewable fossil fuels and the associated greenhouse gas emissions. Water consumption is also an area of focus although the group’s activities are not water intensive and water is used and discharged in the areas of operation. Supported by our principals we are committed to providing globally competitive products and services that enable customers to achieve their sustainability objectives, which seek to minimise energy consumption and emissions, and gain competitive advantage. We offer skills development programmes to our customers that assist them in the safe and sustainable operation of our plant, equipment and vehicles.

    Energy efficiency and GHG emissions
    Measurements have been put in place and targets set to underscore our commitment to improving efficiencies in fuel and electricity use and resulting GHG emissions. Innovative products and services are being developed to assist the group and its customers in their quest for environmental sustainability.

    Water use
    We recognise that water is a scarce resource and have implemented conservation measures that include water harvesting, recycling and efficiency initiatives.

    Materials and waste
    Our initiatives around materials and waste focus on recycling, certified waste disposal, extending the useful life of plant and equipment as well as rebuilding components.

    Biodiversity
    The group recognises its role and responsibilities in this regard although the predominantly urban locations of our operations do not impact on protected areas.

    Social (Strategic focus area: People, Empowerment and transformation)

    We appreciate the role, responsibilities and impacts of being a responsible corporate citizen. Our employees are central to our value-creation capabilities and we strive to become an employer of choice to attract and retain the talent required to achieve our goals. We are committed to empowerment and transformation and believe that our profile should reflect those of the societies in which we operate. Our activities are guided by our code of ethics which underpins how we conduct ourselves both inside the company and with our external stakeholders, to ensure respect for human rights. We operate in an environment of good corporate governance and commit time and resources to ensure compliance.

    Elements of our approach to our social role include:

    Employees
    Our employee value-creation approach focuses on safety, health, and skills development and reward for all employees. We can only realise our growth opportunities through our people,
    20153…driven by you
    .

    Human rights
    Our code of ethics, worldwide code of conduct, and our ethics and compliance programme prohibit the abuse of human rights by the group, its service providers and principals.

    Equality, empowerment and transformation
    Our broad-based black economic empowerment and diversity initiatives (including localisation and gender aspects) underpin our commitment to achieving a workforce that reflects the demographics of the societies in which we operate.

    Socio-economic development

    Our corporate social investment programmes focus on education, health and welfare and the environment to empower previously disadvantaged individuals and uplift communities. These are complemented by a fund to develop and empower small and medium enterprises in South Africa.

    Group risks

    Identifying risks and opportunities through a robust and systematic process is central to our strategic planning process. A comprehensive risk management policy is in effect throughout the group and is complemented by the Barloworld Limited Risk Management Philosophy.

    This includes dedicated divisional risk assessment interventions at which internal audit and group risk management services are present. Risk management is incorporated into the group’s strategic planning process which ensures risks are appropriately addressed and related opportunities pursued. This is underscored by highlighting the strategic areas with which the relevant risks are associated and at all levels in the organisation, the strategic planning process requires that action plans are in place to appropriately address such risks. At group level these are reflected in the disclosed risk matrix.

    In line with international best practice, risks are assessed on their probability, severity and quality of the existing control environment. These measures result in residual risk scores that indicate the importance of the risk and facilitate assessing progress made in addressing identified risks. Through the risk and sustainability committee, the board determines the levels of risk tolerance for the group and also ensures that risk assessments are performed on a continual basis by formally reviewing the divisional and group risk registers twice a year. Group risks are disclosed to stakeholders by including a table of the group top risks in its annual integrated report to stakeholders.

    Risks are detailed, comprehensively assessed and managed through acceptance, transfer, avoidance or reduction measures. Details are recorded in divisional and group risk registers.

    Initiatives to address identified risks include the developing and implementing business continuity and disaster recovery plans for unscheduled events or occurrences. These plans include information technology and communications solutions as appropriate.

    While this planning is regularly reviewed at executive and board levels, internal audit also plays a significant role in reviewing processes, procedures and controls.

    GROUP TOP RISKS (in alphabetical order)

    Key risks Category of risk and management response  
    Acquisition underperformance

    The risk of future net cash flows from acquisitions failing to realise the projections upon which the initial purchase consideration was based may lead to value destruction for shareholders and a need to impair the related goodwill or assets.

    Acquisition risk

    A business acquisition policy and procedure is in place that sets out a structured approach and framework to be used when acquisitions are being made. This includes a pre-acquisition phase that includes the requirement to conduct a comprehensive strategic analysis of intended targets, development of acquisition criteria, both strategic and financial, and quantification of risk-adjusted value creation potential for the respective business unit and the group.
    The CEOs and CFOs of each business unit are responsible for ensuring that the policy and procedures are adhered to.
    Following acquisitions, planning and task teams are established to focus on the realisation and management
    of possible synergies.
     
    Competitor actions

    Competitor actions will erode our competitive position and have a significant impact on the value we create for shareholders.

    Competitor risk

    Continually reduce costs by focusing on operational efficiencies and staff training.
    Continually improve service and the provision of innovative solutions to customers.
    Develop key customer plans which contain all the information and strategies to satisfy the customer.

     

     
    Currency volatility

    Movement of currencies against one another, mainly the movement of other currencies against the rand which creates risks relative to the translation of non-rand profits, the marking-to-market of financial instruments taken out to hedge currency exposures and the cost of imports into South Africa.

    Financial risk

    The responsibility for monitoring and managing these risks is that of line management. A group treasury policy is in place which clearly sets out the philosophy of hedging, guideline parameters within which to operate and permissible financial instruments to be utilised.
    Preventive measures are implemented around determination of pricing mechanisms and structuring of
    commercial contracts to reduce the impact of any adverse currency fluctuations.
     
    Defined benefit scheme exposure

    One of the key risks for the UK’s defined benefit scheme over the past few years has been the reduced real yield on AA-rated corporate bonds which is used to value the liabilities. In addition, increased life expectancy of members will have an adverse impact on the scheme’s funding position.

    Market volatility remains a risk, with 50% of the scheme’s assets invested in equities, although a small (8%) diversification into absolute return funds was made in the year.

    A deterioration in the funding level may require additional company contributions over and above the scheme’s current normal contribution rates.

    The year-end valuation indicates that the deficit has increased to approximately £71 million, largely due to an adjustment in the longevity assumptions as compared to the September 2010 year-end and reduced asset yields.

    Market risk

    A suitably qualified representative board of trustees exists which, together with a separate investment sub-committee, is responsible for regularly evaluating the effectiveness of investment decisions. Professional investment advisors are used to assist in the management of the investment portfolios with a view to conservatively preserving and enhancing fund valuations. Complex investment risk models are run by the investment advisors and actuaries to assess optimum risk balance. The actuary also conducts regular valuations.
    Funding shortfalls are planned to be made up within sensible time frames via market-anticipated increased
    interest rates, positive returns on investments and potentially increased company and/or employee contributions.
    The defined benefit scheme in the UK was closed to new members in 2002 and benefits were changed to a CARE basis in 2006 to assist in managing future liabilities. The scheme is now mature with only 7% active membership. All new employees in the UK are automatically enrolled in the UK’s defined contribution scheme.
     
    Dependence on principals and suppliers

    Some of the businesses in the group are dependent on a small number of principals and/or suppliers.

    Our success is therefore linked to their ongoing financial stability, the competitiveness and quality of their products and services and the availability of equipment to meet customers’ needs.

    In order to ensure sustainable value creation, we depend on suppliers of infrastructure in the countries in which we operate. Most of our businesses are dependent, inter alia, on reliable power and water supply and appropriate transport networks.

    Strategic risk

    Add value by giving constant feedback to our principals on market movements and product competitiveness.
    Continually improve/build our relationships with our principals and major suppliers and attempt to ensure
    that we are a preferred dealer/customer.
    Provide excellent customer service and lead in our markets.
    Build long-term partnerships with customers.
    Build relationships with local authorities.
    Align strategies and targets with those of our major principals as far as possible.
     

    Exposure to political risks, terrorism and crime in the countries in which we operate

    The group's people and assets are spread through numerous countries around the world, while our activities are conducted in many more. The possibility exists that our people and assets, and the viability of the businesses, are exposed through acts of terrorism, political turmoil or crime in some of the regions in which the group operates, as well as in those that may be the subject of expansion. Business growth initiatives require that new markets and territories are the focus of our business expansion. These opportunities come with their own distinct risk exposures.

    Operational risk

    Minimise exposure in high-risk countries through thorough and in-depth risk assessments, coupled with the application of preventive and corrective risk management activities.
    Maintain flexible business models.
    Maintain Business Continuity Plans that incorporate emergency response actions, crisis management and business recovery plans specific to the businesses and the respective territories in which the businesses operate.
     

    Exposure to significant customers and dependence on channels to market

    The risk that we are exposed to certain large customers and/or industries and that well-established distribution channels may change or consolidate.

    Market risk

    Build long-term partnerships with customers
    Develop customer solutions which differentiate and expand our offering from product-based businesses.
    Diversify customer base.
    Develop new channels.
     
    Slow recovery of global economies

    The effect of the prolonged slowdown on our businesses, customers, suppliers and funders and the continued risk that funding constraints within the supply chains could result in a double-dip recession and/or impede growth. This, in turn, could lower commodity prices and impact mining company investments.

    Financial risk

    Inflationary pressures to be carefully monitored and managed, as appropriate, in each business.
    Reduce costs and improve operating efficiencies.
    Monitor our customers’ ability to spend and access credit.
    Reduce working capital, limit capital expenditure and improve cash flow.
    Secure adequate committed borrowing facilities.
     
    Regulatory environment

    Many of the group’s activities are governed by regulations. Due to the complexity and changing nature of these regulations across the industries and geographical spectrum of the group’s activities, there are challenges in staying abreast of all developments and maintaining full compliance.

    Regulatory risk

    Management is responsible for the ongoing monitoring of all pending and actual changes to the group’s regulatory environment. Due to the large number of jurisdictions which govern the group’s activities, this monitoring occurs in each relevant country of operation.
    Where feasible, the group will comment on proposed changes to the regulatory environment that may adversely affect the group in a particular jurisdiction.
     
    Strategic employee skills

    Barloworld’s key asset is the intellectual capacities and skills of its employees. This necessitates ongoing management of the challenges regarding recruitment, succession planning, skills retention and development.

    Employee risk

    Barloworld has a comprehensive employee approach and related set of initiatives to align employees with the strategy of the organisation.
    These identify and align all employee elements of a value-creating organisation to ensure sustainable intellectual capacity and value-creation competence.
    Through performance management systems, employees’ purpose, role, function and accountabilities are defined, and, using competency-based assessments, employees are regularly reviewed to ensure the appropriate skill sets are available to enable performance at optimum levels
    Investments in training resources and facilities are continuing to assist and encourage employees to enhance their levels of competence and performance.
    An appropriate suite of reward and incentive schemes ensures recognition, value-creation for employees and retention of high-performing employees.
     

    Group opportunities

    Barloworld  has identified the following growth industries as central to our strategy. Due to our strategic profile, the original equipment manufacturers (OEMs) and brands we represent, and our regions of activity, we are well positioned to realise opportunities in these growth industries:

    Mining
      Drivers: Chinese demand and global economic recovery to drive commodity prices and increased levels of investment (southern Africa and Russia)
    Infrastructure
    Drivers: Infrastructure backlogs and rapid urbanisation in emerging markets to drive infrastructure investment (southern Africa, Iberia, Russia)
    Power
      Drivers: Capacity constraints and increasing electrification requirements provide opportunities in electric power. Marine and petroleum segments also have significant potential (southern Africa, Iberia, Russia)
    Automotive solutions
      Drivers: Tourism potential, growing corporate fleets and other solutions platforms related to vehicle usage (southern Africa, Australia)
    Logistics solutions
      Drivers: Ongoing trend to outsource supply chain management activities and recovery in world trade (southern Africa, Middle East, Europe and China)
    Handling
      Drivers: Demand for food and bio-fuels likely to significantly increase agricultural equipment opportunity in emerging markets. Growth opportunity in providing super-integrator fleet solutions (US, UK, Europe, Russia, Southern Africa)
    Transition to low carbon economies
      Drivers: Climate change, global trends to reduce fossil consumption, carbon taxes, scarcity of resources and increasing costs are driving a trend towards renewable energy, fuel and emissions efficient technologies.

    Barloworld has identified risks associated with climate change and related financial implications. These, together with the group’s responses to the identified risks, are disclosed in its response to CDP 2011 (view pdf download - pdf 1MB ). The group also completed the Water CDP 2011 which also addressed risks and opportunities as well as their financial implications. In identifying sustainable development as a strategic focus area, the group acknowledges the significance of these risks and opportunities and includes them in its strategic planning process.

    Strategic focus areas and key performance indicators (KPI)

    1. Integrated customer solutions
      Our business model, based on our strategic profile, is centred on providing flexible, value added integrated solutions including: customised maintenance and repair contracts, cost efficient combinations of rental, used and new equipment and vehicle offerings, long term fleet management solutions, power efficiency as well as turnkey power solutions in the electrical power, marine and petroleum segments, integrated supply chain management and integrated logistics solutions.
      o KPI: Market leadership in targeted segments
     
    2. People
      Create value through and for our employees by attracting and retaining the globally competitive people and skills necessary to deliver our integrated customer solutions strategy and growth targets. This is achieved by an inspiring employee value proposition, engaged and productive employees, attracting and retaining essential talent, comprehensive skills development programmes, performance-related reward and employee participation systems.
      o KPI: Overall employee engagement score greater than 75% for all businesses.
         
    3. Empowerment and transformation
      Enhance our competitiveness and legitimacy by leading in transformation and diversity while ensuring equality and fairness across the organisation. The group aims for an employee profile that represents the demographics of the societies in which we operate.
      o KPI:
        - South Africa: Department of Trade and Industry broad-based black economic empowerment (BBBEE) Ė at least level 2 or 3 for each South African business unit
        - Group: Targeted gender equality objectives by operation
         
    4. Sustainable development
      We will enhance our competitiveness and legitimacy by leading in sustainable development and ensuring long-term value creation for all stakeholders by responsible business conduct, developing products and services to capitalise on business opportunities allied to core businesses and realising cost savings through energy efficiency initiatives and other sustainable business practices.
      o KPI: Aspirational target of 12% non-renewable energy and greenhouse gas (GHG) emissions efficiency improvements by end 2014 (baseline 2009).
         
    5. Financial returns
      Consistently achieve top-quartile returns, at or above our cost of equity, as measured against relevant peer groups in each of our chosen business segments.
      o KPI: Achieve top-quartile financial returns on average through the cycle
         
    6. Profitable growth
      Achieve top-quartile growth in total shareholder returns over five years to September 2015. Pursue opportunities in high-growth sectors such as mining, infrastructure, power, agriculture, tourism and logistics with a focus on emerging markets.
      o KPI: Achieve top-quartile growth in total shareholder returns over five years to 2015