A LEGACY TO BE CELEBRATED - barloworld-reports.co.za · Barloworld Limited Interim Results for the six months ended 31 March 2018 13 STATEMENT OF FINANCIAL POSITION (Rm) 1H’18 FY’17

Barloworld Limited Interim Results for the six months ended 31 March 2018 1

A LEGACY TO BE CELEBRATED19th November 1955 - 8th May 2018

For the six months ended 31 March 2018

INTERIM RESULTS

Group chief executive

Dominic Sewela


Logistics turnaround

Improved positive returns

Disposal of Equipment Iberia Progressing according to plan

SALIENT FEATURES

Revenue(from continuing operations)

R30.9bnup 1%

(1H’17: R30.6bn)

Operating profit(from continuing operations)

R2.0bnup 6%

(1H’17: R1.8bn)

Interim dividend per share

145 centsup 16 %

(1H’17: 125 cents)

Return on equity(from continuing operations)

9.7%(1H’17: 9.0%)

Headline earnings per share(from continuing operations)

457 centsup 14 %

(1H’17: 400 cents)

Total Headline earnings per share(incl. discontinued operations)

481 centsup 32%

(1H’17: 365 cents )

Group return on invested capital

11.0%(1H’17: 9.2%)


ROLLING 12 MONTH ROIC SEGMENTAL – 13.0% HURDLE RATE

-3.2%

5.0%

11.9%

8.5%

18.5%

9.2%

-9.8%

2.5%

13.1% 12.8%

18.4%

11.2%

-5.3%

3.3%

11.6%

12.4%

19.40%

11.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Equipment Russia

Iberia Logistics Automotive Equipment southern Africa

Group

WACC 12.1%

FIX OPTIMISE19.4%

12.4%

AVERAGE INVESTED CAPITAL

H1’17 R3.0bn R2.9bn R11.3bn R11.1bn R2.9bn R30.7bn

FY’17 R2.7bn R2.4bn R10.0bn R10.2bn R2.6bn R27.2bn

H1’18 R2.3bn R2.7bn R11.3bn R10.9bn R2.6bn R29.1bn


STRATEGY UPDATE

• Focus continues on optimal deployment of capital

• Exit of Iberia according to plan: R2.3bn

• Leasing asset solution being sought: R2.0 – R4.0bn (next 6-12 months)

• Equipment southern Africa: circa R2.0bn (next 12 months)

• Existing business units focussing on:

• Cost reduction

• Efficient capital utilisation to enhance ROIC and EP

• Underlying Return on Invested Capital improving as a result of key actions

• Actions to improve ROE

• Continued focus on driving business unit performance

• Optimise capital structure through value-enhancing growth or capital reduction

• Group remains focused on effective resource allocation

Finance director

Don Wilson


INCOME STATEMENT HIGHLIGHTS

(Rm) 1H’18 1H’17 % chg

Continuing operations

Revenue 30 850 30 604 1

EBITDA 3 228 3 134

Operating profit 1 954 1 841 6

Fair value adjustments on financial instruments (127) (123)

Net finance costs (519) (604) (14)

Profit before non-operating and capital items 1 308 1 114 17

Non-operating and capital items (14) (38)

Taxation (406) (261)

Profit after tax 888 815 9

Income from associates & joint ventures 113 43

Profit for the year from continuing operations 1 001 858 17

Discontinued operation

Profit / (loss) from discontinued operation 57 (93)

Profit for the year 1 058 765 38

HEPS continuing operations (cents) 457.1 400.0 14

HEPS (cents) 481.3 364.9 32


INCOME STATEMENT HIGHLIGHTS – REVENUE

(Rm) 1H’18 1H’17 % chg


Revenue 30 850 30 604 1

Equipment 12 489 11 084 13

Southern Africa 8 670 8 214 6

Russia 3 766 2 267 66

Handling 53 603

Automotive and Logistics 18 361 19 520 (6)

Automotive 15 372 16 321 (6)

Logistics 2 989 3 199 (7)

Average exchange rates (Rands) 1H’18 1H’17 % chg

United States Dollar 12.75 13.56 (6)

Euro 15.34 14.57 5

British Sterling 17.42 16.91 3



(Rm) 1H’18 1H’17 % chg


Revenue 30 850 30 604 1

EBITDA 3 228 3 134














HEPS (cents) 481.3 364.9 32


INCOME STATEMENT HIGHLIGHTS – OPERATING PROFIT

(Rm) 1H’18 1H’17 % chg


Revenue 30 850 30 604 1

EBITDA 3 228 3 134


Equipment 1 035 978 6

Southern Africa 734 713 3

Russia 310 263 18

Handling (9) 2

Automotive and Logistics 982 914 7

Automotive 883 863 2

Logistics 99 51 94

Corporate (63) (51) (23)



(Rm) 1H’18 1H’17 % chg


Revenue 30 850 30 604 1

EBITDA 3 228 3 134














HEPS (cents) 481.3 364.9 32


STATEMENT OF FINANCIAL POSITION

(Rm) 1H’18 FY’17

Non-current assets 19 028 18 613

Current assets (excluding cash) 22 913 20 443

Cash and cash equivalents 2 172 3 925

Assets held for sale 3 245 3 343

Total assets 47 358 46 324

Interest of all shareholders 20 018 20 877

Total debt 11 761 9 678

Other liabilities 14 672 14 972

Liabilities held for sale 907 797

Total equity and liabilities 47 358 46 324

Net debt* 9 589 5 753

* Net debt 1H’17 R9 085m.


SUMMARISED STATEMENT OF CASH FLOWS

(Rm) 1H’18 1H’17

Operating cash flows before working capital 3 416 3 262

Movement in working capital (3 075) (362)

Net investment in leasing assets and vehicle rental fleet (1 775) (1 971)

Cash (utilised in) / generated by operations (1 434) 929

Other net cash flows (1 097) (1 167)

Dividends paid (606) (514)

Net cash applied to operating activities (3 137) (752)

Net cash used in investing activities (482) (105)

Net cash outflow (3 619) (857)


INVESTMENT IN WORKING CAPITAL

(Rm) 1H’18 1H’17

Inventories – movement (1 745) 56

Receivables – movement (1 148) (1 178)

Payables – movement (182) 760

Total working capital (3 075) (362)

(Rm) 1H’18 1H’17

Equipment southern Africa (1 578) 561

Equipment Europe (85) 76

Equipment Russia (255) (121)

Handling 67 79

Automotive (773) (602)

Logistics (359) (293)

Corporate (92) (62)

Total working capital (3 075) (362)


SUMMARISED STATEMENT OF CASH FLOWS

(Rm) 1H’18 1H’17

Operating cash flows before working capital 3 416 3 262

Movement in working capital (3 075) (362)

Net investment in leasing assets and vehicle rental fleet (1 775) (1 971)

Cash (utilised in) / generated by operations (1 434) 929

Other net cash flows (1 097) (1 167)

Dividends paid (606) (514)

Net cash applied to operating activities (3 137) (752)

Net cash used in investing activities (482) (105)

Net cash outflow (3 619) (857)


DEBT MATURITY PROFILE

Total interest bearing debt Redemption

(Rm) Total Short-term Long-term

South Africa 11 173 4 119 7 054

Offshore 588 340 248

Total debt Mar 2018 11 761 4 459 7 302

Total debt Mar 2017 12 315 4 182 8 133

Total debt Sept 2017 9 678 2 055 7 623

▪ Ratio of long-term to short-term debt 62:38 (Sept 2017 – 79:21)

▪ BAW29, R400m 5 year bond issued in current year

▪ BAW3 and BAW8, R425m bonds repaid in current year

▪ R8.1bn (committed R7.1bn) unutilised bank facilities at March 2018

▪ Cash and cash equivalents R2 172m (Sept 2017 – R3 925m)


CAPITAL STRUCTURE REMAINS STRONG

Group segmental gearing ratios within target ranges:

Debt to equity (%) Trading Leasing Car Rental Total group

Target range 30 - 50 600 - 800 200 - 300 Gross Net

Ratio at 31 March 2018

29 521 254 59 48

Ratio at

31 March 201732 604 279 63 47

Ratio at 30 Sept 2017

21 560 203 46 28

▪ Net debt of R9 589m (Sept 2017: R5 753m)

▪ EBITDA interest cover 5.5 x (Sept 2017: 5.0 x)

▪ Net debt to EBITDA 1.4 x (Sept 2017: 0.9 x)

▪ Moody’s confirmed Global Scale Rating of Baa3 (stable outlook) and National Scale Rating of Aa1.za (stable outlook)

Emmy Leeka

Equipment southern Africa


▪ Revenue increased by 5.6% to R8 670m due to improvement in the mining sector

▪ Increase in contract mining, driving demand for new machines sales and rental hires

▪ Aftermarket business remained stable with a 4.1% increase in parts sales

▪ Operating profit up 2.9%; slight decrease in margins to 8.5% due to foreign exchange impact

▪ Associate income of R101m (1H’17: R41m) boosted mainly by increased activity in the DRC JV

▪ Cash outflow of R1 786m to support the anticipated demand in 2H’18

▪ Return on invested capital (ROIC) up to 12.4% (1H’17: 8.5%)

OPERATIONAL REVIEW – EQUIPMENT SOUTHERN AFRICA

Margin

8.5%

8.7%

0 200 400 600 800

SouthernAfrica

Operating profit (Rm)

1H'18 1H'17

+2.9%


INVESTED CAPITAL

Working capital Fixed assets Rental Assets Bonds Intangible assets Associate

-

2

4

6

8

10

12

March 2018 September 2017 March 2017

Average Invested Capital

Working capital Fixed assets Rental assets Bonds Intangible assets Associates

11.110.2

10.9

Rbn


30%

28%34%

46%

36%

33%

41% 46%

50%56%

57%

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H'17 1H'18

Equipment sales Product support

58%

SOUTHERN AFRICA SALES HISTORY

Rbn

61%


30%

58%

7%

5%

2018

23%

61%

11%

5%

2017

SOUTHERN AFRICA REVENUE PROFILE BY LINE OF BUSINESS - MARCH

New equipment Product support Used equipment Rental


20%

52%

14%

14%

2018

17%

58%

14%

11%

2017

SOUTHERN AFRICA NEW EQUIPMENT SALES BY INDUSTRY - MARCH

Mining Construction Power Contract mining


BARTRAC JOINT VENTURE IN THE DRC (KATANGA)

▪ Rising copper and cobalt prices, resulting in improved trading activities in the DRC

▪ Unstable political landscape and the latest developments with a major customer in the DRC will be closely monitored

▪ The removal of the stability clause from new Mining Code is likely to impact the new mining projects


MINING PROJECT OUTLOOK - COAL

Customer Project Name Country FleetESTIMATED VALUE

Greenfield Tendering FBO Delivered

Glencore (2020) Mokoupan RSA $23m

Glencore (2020) Zonnebloem RSA $49

Mota Engil (2018) Moatize 2 Moz $102m

Vale (2019) Moatize Moz $90m $13m

AngloAmerican (2021) Mogalakwena RSA $100m

South 32 (2019) WWk RSA $11m

Exxaro (2021) Belfast RSA $50

Res Gen (2020) Boikarabelo RSA $150m

South 32 (2021) Klipspruit RSA $78m


Customer Project Name Country Fleet

ESTIMATED VALUE

Greenfield Tendering FBO Delivered

DIAMONDS

De Beers (2021) Venetia U/G RSA $100m

Debswana (2021) Orapa cut 3 BOT $180m

Debswana (2019) Jwaneng cut 9 BOT $11m

Catoca (2018) Chitotolo ANG $9m $11m

PGM/ZINC/MANGANESE

Vedanta (2020) Gamsberg RSA $113m

Ivanhoe Plate (2020) Platreef RSA $75m

Kalagadi (2018) Kalagadi RSA $10m $1m

COPPER

Glencore (2018) Mopani ZAM $5m $8.5m

PHOSPHATE

Foskor (2019) RSA $21m

MINING PROJECT OUTLOOK – OTHER


▪ March firm back orders remains stable at R2.9bn (Sept 2017: R3.0bn)

▪ Improved commodity prices and optimism in mining expected to drive equipment demand

▪ Past machines component seeding expected to drive aftermarket activity

▪ Continued focus on operational transformation to reduce costs and improve efficiencies

▪ Expanded product offering to increase market share

EQUIPMENT SOUTHERN AFRICA – OUTLOOK

0 1 000 2 000 3 000

SOUTHERN AFRICA

Order book (Rm)

Mar 2017 Sept 2017 Mar 2018

60%16%

18%6%

Mining Contract mining Construction Power

Firm back order composition

Quinton McGeer

Equipment Russia


▪ Revenues and operating profit up 77% and 27% respectively in US Dollar terms

▪ Operating margin reduced on the back of large machine package deals delivery

▪ Mining segment demonstrated strong activity and industry growth

▪ Profitability supported by sustained aftermarket sales

▪ Cost disciplines maintained whilst increasing headcount for customer support

▪ Marginally positive cash flow despite seasonal inventory increase

▪ Strong financial returns with ROIC at 19.4% in Rand terms (1H’17: 18.5%)

OPERATIONAL REVIEW – EQUIPMENT RUSSIA

Margin

8.2%

11.6%

0 200 400

Russia

Operating Profit (Rm)

1H'18 1H'17

+18%


24%

25%

29%36%

28%

27%

33%

46%

61%51%

51%

57%

34%

-

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H'17 1H'18

Equpment sales Product support

RUSSIA SALES HISTORY

$m


62%

34%

2% 2%

2018

40%

57%

1% 2%

2017

RUSSIA REVENUE PROFILE BY LINE OF BUSINESS – MARCH

New equipment Product support Used equipment Rental


86%

6%

4%4%

2018

73%

9%

8%

2%1%

7%

2017

RUSSIA NEW EQUIPMENT SALES BY INDUSTRY – MARCH

Mining Construction Power Oil & Gas Dealer Other


Norilsk

Mirniy Yakutsk

Nerungry

Omsk

Barnaul

Novosibirsk

TomskAchinsk

KemerovoKrasnoyarsk

Chita

Ulan-UdeIrkutsk

Magadan

Anadyr

Petropavloysk-Kamchatskiy

KRU

11 units

$23m

IMM

1 unit 1 unit 9 units

$0.3m $0.3m $4.1m

CURRENT MINING OPPORTUNITIES

Greenfields Firm orders Delivered

Polyus

5 units 12 units 27 units

$6.7m $35.9m $70m

Norilsk Nickel

7 units 2 units

$5.8m $0.9m

KRU

28 units 11 units

$34m $12m

Stroyservice

10 units

$10.9m

Zadubrovskiy Noviy


$20m $5.8m $6.9m

Alrosa


$3.7m $2.2m $6.6m

Mining Service

4 units 1 unit 6 units

$2.0m $0.9m $3.5m

Polus Magadan(RIM)

1 unit 2 units

$0.6m $4.6m

Service Integrator


$6.3m $2.4m $3.3m

NordGold


$10m $27.1m $11.5m

YuzhUralZoloto


$1.9m $9.0m $2m


▪ March firm back orders decreased to $132m (Sept 2017: $202m) after significant deliveries of equipment to Polyus, Norilsk (Bystrinsky) and Nordgold projects

▪ Strong aftermarket performance expected to continue in the second half and into 2019

▪ Recently introduced US sanctions on top Russian businessmen and selected entities have increased uncertainty and may affect customers’ investment decisions

▪ Geopolitical situation represents potential downside risk to Russia equipment result

EQUIPMENT RUSSIA – OUTLOOK

0 50 100 150 200

Russia

Order book (US$m)

Mar 2017 Sep 2017 Mar 2018 Significant once-off orders

Keith Rankin

Automotive


▪ Revenue R15.4bn (1H’17: R16.3bn) – down 5.8%

▪ Improved operating profit for the division at R883m (1H’17: R863m) – up 2.3%

▪ Improved operating margin achieved for the period at 5.7% (1H’17: 5.3%)

▪ Continued strong used vehicle profit contribution

▪ Achieved ROIC of 11.6% (1H’17: 11.9%)

▪ Improved free cash flow by R200m

OPERATIONAL REVIEW – AUTOMOTIVE

0 200 400 600 800 1 000

BarloworldAutomotive

Operating profit (Rm)

1H'18 1H'17

Margin

5.7%

5.3%+2.3%


▪ Well balanced Automotive portfolio provides resilience in a challenging trading environment

▪ Revenue CAGR of 7.3% delivers operating profit CAGR of 13%

▪ Inter-business unit synergies continue to deliver value

▪ Continued focus to optimise returns and address underperforming businesses

INTEGRATED BUSINESS MODEL DELIVERS VALUE

0

500

1 000

2011 2012 2013 2014 2015 2016 2017 2018

Rm Operating profit 1H by BU

Car Rental Avis Fleet Motor Trading

0

300

600

900

1 200

1 500

1 800

2011 2012 2013 2014 2015 2016 2017 1H'18

Rm Operating profit

Operating profit 1H Operating profit 2H


CAR RENTAL

Car Rental 1H’18 1H’17 % chg

Revenue 3.40bn 3.26bn +4.2

Operating profit 301m 297m +1.3

Operating margin 8.8% 9.1% -0.3bps

▪ Operating profit growth of 1.3%

▪ Car rental market grew by 0.3% in rental days

▪ Increased rental days and average rate per day

▪ The Avis brand remains the market leader, supported by growth in the Budget brand

▪ Operating margin negatively impacted by lower used vehicle margin as a result of lower new vehicle price increases

▪ Maintain fleet utilisation at 76%


AVIS FLEET

Avis Fleet 1H’18 1H’17 % chg

Revenue 1.73bn 1.69bn +2.3

Operating profit 308m 292m +5.5

Operating margin 17.9% 17.3% +0.6bps

▪ Pleasing operating profit growth of 5.5%

▪ Finance fleet reduced due to the non-renewal of a few key contracts, including SANParks and ADT

▪ COJ tender awarded for specialised vehicles

▪ Awaiting outcome on COJ tender for non-specialised vehicles

▪ Strong used vehicle profit contribution

▪ Continued focus to address underperforming businesses


MOTOR TRADING

Motor Trading 1H’18 1H’17 % chg

Revenue 10.25bn 11.37bn -9.9

Operating profit 274m 274m -

Operating margin 2.7% 2.4% +0.3bps

▪ Revenue declined by 9.9% (Comparable basis up 1.8%)

▪ Total dealer market up 1.2%

▪ New units sold down 7.9% (Comparable basis -1.8%)

▪ Impacted by declining premium segment

▪ Continued focus to optimise returns from existing portfolio

▪ Positive free cash flow generated

▪ Achieved ROIC above Group hurdle rate of 13%

▪ Minority buy-out in SMD effective 19 February 2018


OPERATIONAL REVIEW – AUTOMOTIVE

-2

0

2

4

6

8

10

12

14

March 2018 March 2017 September 2017

AVERAGE INVESTED CAPITAL

Working capital Goodwill PPE and Other Rental fleet Leasing fleet

R11.3bn R11.3bn R10.0bn

Rbn


AUTOMOTIVE – OUTLOOK

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

Kamogelo Mmutlana

Logistics


FINANCIAL HIGHLIGHTS

3 1992 989

Mar 18Mar 17

-6,6%

Revenue (Rm) Operating Profit (Rm) Operating Margin

3,3%

Mar 17

1,6%

Mar 18

Net Operating Assets (Rm)

51

99

Mar 17 Mar 18

+94%

2 783

2 334

Mar 17 Mar 18

-16%

Rolling 12 month ROIC

-394

-316

Mar 17 Mar 18

+20%

Cash flow before financing (Rm)

2,5%

Mar 17 Mar 18Sep 17

5,0%

3,3%


OPERATIONAL REVIEW – LOGISTICS

• Decisive steps taken to improve returns:

▪ Completed Section 189(A) retrenchments in March 2018

▪ Multiple projects underway to improve operational efficiencies & to reduce SG&A costs

▪ Procurement savings achieved across the board

▪ Implementing a new customer-focused operating model to support future growth

• Strong operational performance from the Transport business despite tough trading conditions

• Improved returns in SCM despite lower trading

• The disposal of the Middle East business is progressing


LOGISTICS OUTLOOK

Fix

• Embed implemented operating model

• Continued portfolio review

Optimize

• Consolidate gains

• New market segments

Grow

• Increase market share

• Scale up

2018 2019 2020

Group chief executive

Dominic Sewela


GROUP STRATEGY OUTLOOK

• Further opportunities sought to deploy capital into higher return businesses

o Strict criteria in place to ensure value accretive growth

o Emerging markets

o Contiguous to existing territories

• Acquisitions

o Adjacencies

• New business

o Leverage existing distribution capability and competency

Equipment

Automotive

• Counter-cyclical• Asset light• Synergies – customers or product• Growing profit pools

For the six months ended 31 March 2018

INTERIM RESULTS

Documents

A LEGACY TO BE CELEBRATED - barloworld-reports.co.za · Barloworld Limited Interim Results for the six months ended 31 March 2018 13 STATEMENT OF FINANCIAL POSITION (Rm) 1H’18 FY’17