Barloworld Limited Results for the six months ended 31 March 2015
Overview Clive Thomson CE, Barloworld Limited
Salient features Revenue up 3% to R30.7 billion 3 Operating profit up 6% to R1 744 million Group operating margin increased from 5.5% to 5.7% Headline earnings per share from continuing operations up 16% to 367 cents Headline earnings per share up 9% to 367 cents Interim dividend per share increased 8% to 115 cents
Overview and key developments Barloworld Group Safety focus continues no work-related fatalities Proposed amendments to close out 2008 B-BBEE transaction Remain in JSE Socially Responsible Investment (SRI) Index 4 Equipment southern Africa Resilient operating result despite weakness in mining and construction sectors Equipment Iberia Pleasing turnaround to profitability following actions taken to reduce cost base Equipment and Handling Equipment Russia Challenging economic environment impacted by oil price decline and international sanctions Power systems Growth in SA but reduced oil price impacts results in Angola and Russia Handling Reduced profitability impacted by Agriculture Russia losses Car Rental Successfully integrated the Budget brand effective 1 Mar 2015 Automotive and Logistics Motor Retail Acquired GM Ferndale in Cape Town effective 1 Dec 2014 Avis Fleet Acquired leasing business in Tanzania effective 3 Nov 2014 Logistics Significant new contracts awarded and solid sales pipeline
Financial overview Don Wilson Finance director
Income statement highlights 6 (Rm) 1H 15 1H 14 % chg Continuing operations Revenue 30 668 29 887 3 EBITDA 2 991 2 800 Operating profit 1 744 1 639 6 Fair value adjustments on financial instruments (158) (108) Net finance costs (559) (525) Profit before exceptional items 1 027 1 006 2 Exceptional items (12) (49) Taxation (321) (345) Income from associates 132 95 39 Net profit from continuing operations 826 707 17 HEPS continuing operations (cents) 367 316 16 HEPS (cents) 367 336 9
Income statement highlights 7 (Rm) 1H 15 1H 14 % chg Continuing operations Revenue 30 668 29 887 3 Equipment and Handling 14 254 14 771 (4) Southern Africa 9 927 9 618 3 Europe 1 861 2 277 (18) Russia 1 484 1 929 (23) Handling 982 947 4 Automotive and Logistics 16 414 15 112 9 Automotive 14 168 12 930 10 Logistics 2 246 2 182 3 Corporate 4 Average exchange rates (Rands) 1H 15 1H 14 % chg United States Dollar 11.44 10.47 9 Euro 13.57 14.31 (5) British Sterling 17.77 17.22 3
Income statement highlights 8 (Rm) 1H 15 1H 14 % chg Continuing operations Revenue 30 668 29 887 3 EBITDA 2 991 2 800 Operating profit 1 744 1 639 6 Fair value adjustments on financial instruments (158) (108) Net finance costs (559) (525) Profit before exceptional items 1 027 1 006 2 Exceptional items (12) (49) Taxation (321) (345) Income from associates 132 95 39 Net profit from continuing operations 826 707 17 HEPS continuing operations (cents) 367 316 16 HEPS (cents) 367 336 9
Income statement highlights (Rm) 1H 15 1H 14 % chg Continuing operations Revenue 30 668 29 887 3 EBITDA 2 991 2 800 Operating profit 1 744 1 639 6 Equipment and Handling 940 923 2 Southern Africa 826 768 8 Europe 10 (32) Russia 101 156 (35) Handling 3 31 Automotive and Logistics 836 775 8 Automotive 780 719 9 Logistics 56 56 Corporate (32) (59) 9
Income statement highlights 10 (Rm) 1H 15 1H 14 % chg Continuing operations Revenue 30 668 29 887 3 EBITDA 2 991 2 800 Operating profit 1 744 1 639 6 Fair value adjustments on financial instruments (158) (108) Net finance costs (559) (525) Profit before exceptional items 1 027 1 006 2 Exceptional items (12) (49) Taxation (321) (345) Income from associates 132 95 39 Net profit from continuing operations 826 707 17 HEPS continuing operations (cents) 367 316 16 HEPS (cents) 367 336 9
Statement of financial position (Rm) 1H 15 FY 14 Continuing operations Non-current assets 17 708 17 287 Current assets (excluding cash) 27 141 22 557 Cash and cash equivalents 3 125 4 162 Total assets 47 974 44 006 Interest of all shareholders 17 909 17 486 Total debt 14 763 11 316 Other liabilities 15 302 15 204 Total equity and liabilities 47 974 44 006 11 Net debt 11 638 7 154
Summarised statement of cash flows 12 (Rm) 1H 15 1H 14 Operating cash flows before working capital 3 214 2 925 Increase in working capital (3 944) (3 234) Net investment in leasing assets and vehicle rental fleet (1 421) (1 713) Cash utilised in operations (2 151) (2 022) Other net cash flows (1 005) (935) Dividends paid (531) (481) Net cash applied to operating activities (3 687) (3 438) Net cash applied to investing activities (503) (440) Net cash outflow (4 190) (3 878)
Investment in working capital (Rm) 1H 15 1H 14 Inventories (increase) (2 427) (1 737) Receivables (increase) (1 123) (820) Payables (decrease) (394) (677) Total working capital (increase) (3 944) (3 234) 13 (Rm) 1H 15 1H 14 Equipment southern Africa (2 039) (2 373) Equipment Europe (16) (70) Equipment Russia 140 (243) Handling (590) (181) Automotive (811) (147) Logistics (307) (252) Corporate (321) 32 Total working capital (increase) (3 944) (3 234)
Capital structure remains strong Group segmental gearing ratios 14 Debt to equity (%) Trading Leasing Car Rental Total group Target range 30-50 600-800 200-300 Gross Net Ratio at 31 Mar 2015 56 634 229 82 65 Ratio at 31 Mar 2014 53 599 219 79 68 Ratio at 30 Sept 2014 40 662 205 65 41 Net debt of R11 638m (Mar 2014: R11 198m) increased by R440m Net debt to equity ratio 65% (Mar 2014: 68%) EBITDA interest cover 5.0 x (Mar 2014: 5.2 x)
Debt maturity profile Interest bearing debt Redemption (Rm) Total Short-term Long-term South Africa 13 040 6 130 6 910 Offshore 1 723 486 1 237 Total debt March 2015 14 763 6 616 8 147 Total debt March 2014 13 008 4 777 8 231 Total debt September 2014 11 316 4 395 6 921 15 Ratio of long-term to short-term debt 55:45 (Sept 2014 61:39) Refinancing of BAW2, BEE loan of R1.2bn and off shore PLC bilaterals underway R5.1bn unutilised bank facilities at Mar 2015 Cash and cash equivalents R3 125m (Sept 2014 R4 162m) R710m 7yr fixed-rate bond raised in Mar
Close out of 2008 B-BBEE transaction Sept 2008 transaction matures Sept 2015 16 Proposed amendments Circular distributed to shareholders 15 May 2015 Amendments will unlock value for BEE participants and increase Barloworld black ownership Proposed share buyback to minimise shareholder dilution Shareholder approval special general meeting to be held 19 Jun 2015
Close out of 2008 B-BBEE transaction financial impact Original agreement Estimated cash value accumulated in structure of R269.9m Compulsory subscription price per share of R179.69 IFRS2 charge (Rm) Cashflow (Rm) Shares issued 1 501 901 shares subscribed for by BEE parties at R179.69 269.9 1 501 901 Proposed amendments Termination of compulsory subscription and lock-in 155.3 Additional allocation of 450 000 shares with lock-in 42.8 450 000 Proposed share buyback Share buyback (1 951 901 shares @ R95.1) (185.6) (1 951 901) Total 198.1 84.3-17
Divisional overview
Divisional overview Equipment southern Africa
Operational review Equipment southern Africa Operating profit up 8% despite continued weakness in the mining sector 20 Parts sales growth and improvement in service productivity Cost control and efficiency optimisation contributed to margin improvement Income from associates and joint ventures in line with prior period Operating profit (Rm) Margin Southern Africa 8.3% 8.0% 0 500 1 000 1H'15 1H'14
Southern Africa sales history Rbn 21 20 41% 46% 15 33% 10 28% 34% 36% 51% 30% 46% 5 37% 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H'15 Equipment sales Product support
Southern Africa revenue profile by line of business March 2015 2014 22 8% 5% 6% 4% 36% 46% 51% 44% New equipment Product support New equipment Product support Used equipment Rental Used equipment Rental
Southern Africa new equipment sales by industry March 2015 2014 23 5% 5% 11% 27% 10% 30% 14% 21% Mining 43% Construction Mining 34% Construction EMPR Power EMPR Power Contract mining Contract mining
Surface mining opportunities 2015-2020 Coal Iron ore Diamonds Platinum Copper Uranium Zinc 24 Orapa Cut 3 (2019) Cateruca - AEMR (2016-18) Lumwana-Barrick Gold (2018) Zambeze Rio Tinto (2017) Etango-Bannerman (2019-20) Moatize exp - Vale (2016) Exxaro Medupi Exp (2015) ResGen Boikarabelo (2016) Argent- Shanduka (2015) Waterberg Coal Sekoko (2017) Sedibelo PPM (2016) Kipanya BHP (2016-2018) Belfast Project Exxaro (2016-18) Zonnebloem Xstrata (2017) Sishen - KIO (2015-20) Jwaneng Cut 9 (2017-20) Vedanta (2016) Anglo New Largo (2017) Mogalakwena Amplats (2017)
Mozambique Vale Moatize Project Order of $42m received for 8 Cat 793D mining trucks and 1 Cat 6090 hydraulic mining shovel 25 Rental of 8 Cat MT4400 electric drive mining trucks (240t) Vale forecast 90 large mining trucks requirement by 2018 doubling existing fleet Investment of $11m in a new warehouse Cat 6090 Hydraulic Mining Shovel loading a Cat 797F truck Initial Cat fleet is in first planned component replacement cycle over the next 18 months The Nacala corridor railway line from Tete to Nacala has been completed Total order value $42m Barloworld Equipamentos Mozambique s new branch in Tete
Mozambique Mota-Engil Africa Mota-Engil has secured a 18 month contract with Vale Mozambique for the Moatize Phase II project 26 Order of $29.7m confirmed for 13 x Cat 777G trucks 2 x Cat 6030 hydraulic shovels 1 x Cat 980H tyre handler Cat 6030 Hydraulic Mining Shovel Delivery & commissioning Apr/May 2015 Fleet to be supported from our branch in Tete Total order value $29.7m The two Cat 6030 hydraulic mining shovels currently undergoing assembly in Tete
Equipment southern Africa outlook Mining sector expected to remain under pressure Infrastructure demands improving construction market sentiment in Africa Aftermarket revenues to show continued growth Repair and rebuild centre to continue operating at full capacity Order book higher at R2.3bn (Sept 2014: R1.9bn) due to recent orders Revenue outlook range of R20.0bn R22.0bn maintained (2014: R20.9bn) 27 Order book (Rm) Southern Africa 0 1 000 2 000 3 000 Mar 2015 Sept 2014
Divisional overview Equipment Russia
Operational review Equipment Russia Revenue under pressure due to commodity price weakness and sanctions impact 29 Mining industry still delaying large greenfields projects and fleet replacements Strong aftermarket performance supporting overall result Tight cost control and efficiency improvements across business EMPR aftermarket providing a strong contribution Positive cash generation in the period Operating Profit (Rm) Margin Russia 6.8% 8.1% 0 100 200 1H'15 1H'14
Russia sales history $m 30 600 500 400 27% 33% 28% 46% 300 25% 200 24% 29% 36% 100 25% 60% 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H'15 Equipment sales Product support
Russia revenue by line of business March 2015 2014 31 2% 4% 2% 4% 34% 48% 60% 46% New equipment Product support New equipment Product support Used equipment Rental Used equipment Rental
Russia new equipment sales by industry March 2015 2014 32 9% 5% 6% 8% 16% 14% 6% 64% 18% 54% Mining Construction Power Mining Construction Power Oil and gas Other Oil and gas Other
Surface mining medium term greenfields project opportunities Opportunity 2016 2017 2018 2019 2020 Units 15 15 84 82 75 US Dollars $20m $20m $130m $150m $130m 33 *estimated start of project
Power of Siberia pipeline opportunity 34 CAT machines preparing the ground for pipe-laying Camp of Stroytrans Gas one of the main contractors for the pipeline project Pipes laid down ready for next phase of welding together, digging the trench then pipe-laying Estimated opportunity over 3 year period Pipe-laying machines = 90 units Construction and forestry = 320 units
Equipment Russia outlook Economic and political situation expected to remain challenging 35 Focus on cost reduction, stock realisation and positive cash generation Capitalise on Power of Siberia opportunity Strong aftermarket performance expected to continue Order book of $16m (Sept 2014: $14m) Revenue outlook range reduced to $250 $300m (2014: $382m) Order book ($m) Russia 0 5 10 15 Mar 2015 Sept 2014
Divisional overview Equipment Iberia
Operational review Equipment Iberia Operating profit of R10m ( 0.8m) represents a R42m ( 2.9m) turnaround 37 Restructuring costs of 970k included in 1H Operating costs 10% below prior period as savings from restructuring are realised Market leadership position retained Cash flow remains positive with 4m cash generated Income from associates strongly up due to Energyst turnaround Operating profit/(loss) (Rm) Margin 0.5% -1.4% - 40-20 0 20 1H'15 1H'14
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Machine industry Spain Units 38 25 000 20 000 15 000 10 000 5 000 0 Actual Outlook Spanish new machine market shows growth in 2014 calendar year the first industry growth since 2007 Majority of growth currently in small construction equipment
Iberia sales history m 39 900 800 700 30% 30% 600 32% 500 400 300 34% 40% 37% 33% 35% 41% 200 100 44% 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H'15 Equipment sales Product support
Iberia revenue by line of business March 2015 2014 40 3% 3% 17% 21% 36% 36% 44% 40% New equipment Product support New equipment Product support Used equipment Rental Used equipment Rental
Iberia new equipment sales by industry March 2015 2014 41 1% 16% 48% 42% 43% 28% 8% 14% Mining Construction Mining Construction Other Power Other Power
Equipment Iberia outlook Macro economic indicators continue to show improvement 42 Aftermarket anticipated to show continued growth Expect to remain profitable for the full year Order book of 36m slightly up on Sept 2014 ( 33m) with outlook for machines and power systems improving Revenue outlook range of 290m 315m maintained (2014: 290m) Order book ( m) Iberia 0 20 40 60 Mar 2015 Sep 2014
Divisional overview Power systems
Operational review Power systems SA load shedding generates strong rental and new electric power demand 44 Activity in Angola and Russia negatively impacted by lower oil price Bank of Mozambique genset contract for $18m concluded for Maputo head office Transnet tugboat contract for $17m, with invoicing to start in 2H 15
Power systems outlook Power systems remains a significant medium term growth opportunity 45 Mozambique growing off a low base Spanish Marine business expected to pick up 2H 15 and 2016 Order book increased from $78m to $95m with strong projects pipeline 2015 revenue outlook range reduced to $300m $340m (2014: $344m) Order book* ($m) Power 0 50 100 Mar 2015 Sept 2014 * Included with Equipment order books by geography
Divisional overview Handling
Operational review Handling Operating profit of R3m (1H 14: R31m) adversely impacted by Agriculture Russia 47 Growth in sales and market share for Agriculture SA, but weaker margins Start-up Zambian operation on stream Order book up to R201m (Sept 2014: R167m) 2015 revenue outlook range of R2.0bn R2.4bn maintained (2014: R1.93bn) Order book (Rm) Handling 0 100 200 Mar 2015 Sept 2014
Divisional overview Automotive
Operational review Automotive Revenue: R14.2bn (1H 14: R12.9bn) up 9.6% 49 Operating profit R780m (1H 14: R719m) up 8.5% Operating margin for the period 5.5% (1H 14: 5.6%) All business units performed well Operating profit (Rm) Margin Car Rental Motor Retail Avis Fleet +12% 9.2% 10.3% +8% +6% 2.6% 2.5% 16.8% 17.1% 0 100 200 300 1H'15 1H'14
Integrated business model delivers value Well balanced Automotive portfolio provides resilience Rm 1800 Operating profit 50 Revenue (1H) CAGR of 11% delivers operating profit (1H) CAGR of 21% Operating margins improved from 3.9% to 5.5% (1H 11 1H 15) Inter-business unit synergies including Used vehicle disposal solutions 1500 1200 900 600 300 0 2011 2012 2013 2014 2015 Operating profit 1H Operating profit 2H New vehicle procurement Parts and service Finance and insurance Targeted capital allocation supports value creation Rm 1800 1500 1200 900 600 Operating profit by BU 300 0 2011 2012 2013 2014 1H'15 Car Rental Motor Retail Avis fleet
Car Rental Good operating profit growth up 12% Sustained growth in rental days Improved market share through targeted growth Pleasing revenue per day increase Operating costs well contained Fleet utilisation at 75% Strong used vehicle profit contribution Customer satisfaction remains above 90% Budget brand settling well 51 Car Rental southern Africa 1H 15 (growth) Rental days +5.3% Rental revenue per day +5.1%
Motor Retail Solid result in difficult trading conditions Improved operating profit by 8% and increased operating margin to 2.6% (1H 14: 2.5%) Gross margin expansion and cost containment Aftermarket revenues continued to support the result Good finance and insurance contribution Recently acquired GM Cape Town dealership profitable 52 Motor Retail 1H 15 (growth) New unit sales +1.4% Parts revenue +11% Service hours +5.1%
Avis Fleet Operating profit growth up 6% Maintained finance fleet Sustained growth in fleet under maintenance Further improved used vehicle profits Progressing growth opportunities in select African territories Tanzania settling Zambian start up operations in 2H 15 53 Avis Fleet Finance fleet 1H 15 (growth) -0.5% Fleet under maintenance +13%
Automotive outlook Car Rental Motor Retail Volume and revenue per day increases expected to deliver top line revenue growth, supported by the Budget brand Productivity, fleet utilisation and cost focus will maintain strong return on equity Market leadership position to be maintained Stable performance expected in difficult market with some resilience in certain brands Targeted dealership acquisitions will deliver incremental profitability Opportunities for growth being explored within broader automotive value chain 54 Avis Fleet Automotive Division Well positioned for continued organic growth Market leadership position and strong return on equity expected to be sustained Tanzania acquisition and Zambian start-up establishes medium term platform for growth in targeted African regions Revenue outlook range of R28.0bn to R29.0bn maintained (2014: R26.8bn)
Divisional overview Logistics
Operational review Logistics Revenue up 2.9% and operating profit flat on prior year Operating margin for the period 2.5% (1H 14: 2.6%) South Africa impacted by lower volumes in mining and construction sectors Tough international trading environment, especially in Spain and Germany Exit from Ellerine Holdings complete New contractual revenue in excess of R750m per annum secured 56 Operating profit (Rm) Margin Logistics 2.5% 2.6% 0 20 40 60 1H'15 1H'14
Logistics outlook Expecting a stronger second half on back of organic and acquisitive growth New contracts awarded: Telkom, Kelloggs, Glencore, Makro, Eskom, Total Renewed existing contracts with major clients Capital invested in Barloworld Transport starting to deliver value Diversified service offering Launched Barloworld Cranes Formalised bulk commodity solution offering Acquired 100% of re-environmental solutions business Revenue outlook range of R5.0bn R6.0bn maintained (2014: R4.4bn) 57
Group outlook
Group outlook Clive Thomson, CE of Barloworld, said: 59 While trading conditions are expected to remain challenging in the second half, we will continue our focus on driving operational efficiencies and tight cost control. Overall we expect our businesses to deliver a resilient performance for the full year and are well placed to benefit in the medium term once the mining and construction cycles move into a recovery phase. 18 May 2015
Barloworld Limited Results for the six months ended 31 March 2015