STRATEGY & ANALYSIS 1.1 - 1.2


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

    Integrated Report:
    Chief executive overview

    Barloworld is 113 years old which underscores our belief that a sustainable organisation is created through integrated and coordinated activities addressing economic, environmental and social aspects.

    This approach is evidenced in the group’s vision as well as its strategic intent and framework. The end of this financial year marked the end of our 2010 to 2015 five year strategic planning period and the evolution of these plans into our medium-term planning period from October 2015 through September 2020. Sustainability has been central to the group’s approach to value creation. Initially this was formally reflected in the group’s Value Based Management approach and has been incorporated into the group’s strategic intent and frameworks.

    The group vision and strategic intent for 2020 is founded on creating shared value that makes a positive difference for all our stakeholders. This continues to entrench long-term value creation, highlights the interdependent nature of stakeholder interests and requires integrated 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 across the group and has assigned responsibility for coordinating and reporting stakeholder activities to a senior executive. A group stakeholder policy codifies the group's approach.

    Underscoring our commitment to long-term value creation, the group added a fifth value of ‘Sustainability’ to its core values during the year, which recognises that it is central to our value creation approach and emphasises the individual responsibility of all in Barloworld for this aspect.

    Barloworld is a signatory to the United Nations Global Compact (UNGC) and continues to support its 10 Principles which align with our perspective of responsible corporate citizenship.

    Robust strategic planning and risk-identification processes are key elements of our strategic planning. They highlight areas for attention which are incorporated into management activities. These also identify strategic opportunities which are pursued. Although the group’s six Strategic Focus Areas (SFAs) to 2020 essentially remain consistent, two have evolved to reflect a revised strategic intent. Our SFAs are as follows: Innovative customer solutions; People; Diversity and inclusion; Sustainable development; Financial returns; and Profitable growth. We have focussed on all these aspects in the year and they will guide our efforts and direct attention to 2020.

    The health and safety of others and ourselves is our foremost consideration. We put safety first in our work environment and promote safe practices throughout our value chain. Zero work-related fatalities during our 2015 financial year underscore this commitment.

    Climate change and environmental considerations remain central components of the group's ethos of responsible corporate citizenship. Mindful of the environmental consequences of our activities, the group is committed to conducting its operations in an environmentally responsible manner and offering innovative customer solutions that enable our customers to achieve their own objectives including minimising environmental impacts.

    The group continues to focus on reducing its consumption of natural resources and environmental impact, particularly its use of energy generated from fossil-fuels and water, and reducing its greenhouse gas emissions (GHG). This includes a focus on improving non-renewable energy and GHG emissions (scope 1 and 2) efficiency, and setting an aspirational group target in this regard.

    The achievement of the interim aspirational 2015 group target of a 2% efficiency improvement in non-renewable energy consumption and greenhouse gas emissions (scope 1 and 2) set for the end of this financial year was reliant on efficiencies being achieved at an operational level. While some of our operations have reduced their non-renewable energy intensity against prior year, the group did not achieve its aspirational targets due to growing operations with relatively high intensity levels, as well as base consumption patterns of businesses with decreased activity levels. Nonetheless, these targets played a major role in focussing our efforts on energy efficiency with significant benefits for the organisation.

    During the period we continued with our water recycling and harvesting initiatives which are designed to minimise consumption, save costs and enhance operational resilience. Waste management also remained a focus which is underscored by our investment into SmartMatta, an environmental solutions company.

    Progress against our aspirations for our five year strategic period ending September 2015 is reflected in the table 2015 Progress Review

    Going forward, we will monitor progress and report against our aspirational group targets set for 2020 in respect of our strategic focus areas (see Aspirational Group-level 2020 Targets). These will be reviewed from time to time to ensure they remain relevant over the target period balancing the intents of our six strategic focus areas over the five year period.

    We are mindful of our responsibilities in our value chain and a number of initiatives have been implemented to assess and limit any potential risks emanating through our supply chain. We have assessed our principals that account for the majority (some 70%) of our procurement spend, for environmental, labour, human rights, bribery and corruption, and corporate citizenship risks. Third party service providers and suppliers (TPSP&S) in all business divisions have been subjected to a risk assessment and due-diligence process in relation to bribery and corruption. This due diligence process involves the integration of a more rigorous screening of TPSP&S into the existing procurement processes and setting clearly defined minimum requirements. This process is now applied to new TPSP&S and is ongoing for existing TPSP&S, in accordance with the Barloworld Due Diligence policy.

    Organisational sustainability remains central to our 2020 strategy which is underscored by our commitment to:

    • Supporting our customers' success by providing the innovative and environmentally sound solutions they require to remain competitive and meet their own sustainability objectives
    • Mutually beneficial relationships with our principals, and representing them in a way that enhances their success and reflects their sustainable development objectives
    • Treating suppliers fairly and expecting them to commit to our ethical principles
    • Providing a safe and healthy workplace for employees where all have equal opportunity, are inspired to fulfil their ambitions and be proud ambassadors of Barloworld
    • Conducting our operations in an environmentally responsible manner
    • Delivering targeted returns to our shareholders through responsible business practices
    • Identifying profitable growth opportunities and executing our strategic plans efficiently
    • Respecting human rights and the dignity of all people
    • Engaging our stakeholders and being a respected corporate citizen for all of them, including the communities in which we operate, and contributing to their social and economic development.

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

    Clive Thomson
    Chief Executive

  • 1.2 Description of key impacts, risks and opportunities.

    Integrated Report:
    Core strategic themes Group profile and where we operate Organisation structure Governance approach - RISK Business model This is Barloworld - Value added highlights This is Barloworld - Statement of total value added Q and A with the chief executive Group executive: Human resources, strategy and sustainability report 2015 progress review Looking forward - Our medium-term strategy to 2020 Looking forward - Our medium-term strategy to 2020 Looking forward - Our medium-term strategy to 2020 Looking forward - Our medium-term strategy to 2020 Engaging with our stakeholders Managing risk - Barloworld's 2015 CDP climate change disclosure response Managing risk - Barloworld's 2015 CDP water disclosure response Managing risk Managing risk -Risk heat map Managing technology - Digital revolution Managing technology - Risk mitigation People - Strategic intent Diversity and inclusion- Strategic intent Diversity and inclusion - Supplier diversity Sustainable development - Responsible value chain Sustainable development - Strategic intent Sustainable development - Responsible principals Sustainable development - Reducing our environmental footprint and managing our impact Sustainable development - Targets Sustainable development - Overview of environmental risk management and responses Sustainable development - Reducing our environmental footprint and managing our impact Sustainable development - Greenhouse gas emissions Innovative customer solutions - Equipment Innovative customer solutions - Equipment Innovative customer solutions - Equipment Innovative customer solutions - Automotive and Logistics Innovative customer solutions - Automotive and Logistics - Logistics Innovative customer solutions - Corporate division overview Profitable growth - Growth activities Profitable growth - Growth opportunities Financial returns - Summarised notes to the consolidated financial statements - Salient features Governance review - Governance and ethics - Risk management process
    Consolidated Annual Financial Statements:
    Corporate Governance:

    Key impacts

    Barloworld's Shared Value approach encompasses respected citizenship and long-term value creation for all stakeholders. Through this approach, economic, environmental, and social 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 issues 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

    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.

    The group's Statement of Total Value Added reflects direct economic value created for stakeholders. Indirect value creation includes employee spending, providing products and services, enhancing the image and reputation of areas in which we operate, 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 and includes our supplier development initiatives which continued during the period. In terms of this initiatives, over 600 new suppliers have been engaged in line with transformation and black empowerment within our supply chain. The group also has corporate social investment programmes at group and divisional levels through which public benefit and socio-economic development investments are made.

    For more detail see also Statement of Total Value Added

    Environmental
    Innovative 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 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, filtered and discharged in the areas of operation and not transported to other destinations. 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 non-renewable energy consumption and greenhouse gas emissions, and to gain competitive advantage. We offer skills development programmes to our customers that assist them in the safe and sustainable operation of vehicles, plant and equipment which we provide to them. Our environmental solutions company, SmartMatta expands our offering to customers and assists them in reducing the impact of their waste as well as supports the group with its internal waste management imperatives.

    Energy efficiency and GHG emissions

    Measurements have been put in place and an aspirational group target set to underscore our commitment to improving efficiencies in fuel and electricity consumption and resulting GHG emissions.

    At the end of 2014, an interim group aspirational target of 2% was set for efficiency improvement in our non-renewable energy and GHG emissions (scope 1 and 2) by the end of our 2015 financial year, off a 2014 baseline against a business as usual scenario that again tracks revenue as a proxy for business activity.

    This interim one-year target allowed the group to align its subsequent target period to its medium term strategic period of 2016 to 2020.

    While some of our operations have reduced their non-renewable energy intensity against prior year, the group did not achieve its aspirational targets due to growing operations with relatively high intensity levels as well as base consumption patterns of businesses with decreased activity levels. For further details refer to EN 3 & 4 and EN 16

    These targets have however played a major role in focusing our efforts on energy efficiency with significant benefits for the organisation over the past year. Similarly, it is expected that targets set for 2020 will play an important role in maintaining this momentum and focus. Innovative products and services are being developed to assist the group and its customers in their quest for environmental sustainability. Divisions utilise the skills and resources within their respective operations to assist in identifying and maximising efficiency opportunities internally within the group. Our stance with regard to responsible energy consumption is incorporated in our Climate Change, Environmental and Energy Efficiency group policy documents as well as in our Worldwide Code of Conduct.

    Water use

    We recognise that water is a scarce resource and have implemented conservation measures that include water harvesting, recycling and economy of use initiatives. Our approach to responsible water consumption is reflected in our group Water Use and Management policy document.

    Water remains a material aspect within the group’s Sustainable Development strategic focus area, and as such a group water efficiency improvement target has been included in the group strategic plans ending 2020.

    Materials and waste

    Materials and waste recycling, responsible waste management, including disposal, extending the useful life of plant and equipment as well as remanufacture and rebuilding components are the key focus of our initiatives in limiting our impact on constrained resources and the environments in which we operate. We are continually evolving our management of waste and benchmarking our reporting processes. Waste disposal methods and destinations are reported and monitored. The group is also investigating waste to power conversion opportunities internally, which if pursued, will advance both our responsible waste management and energy efficiency objectives. The group is committed to responsible waste disposal and the use of certified waste disposal services. Key aspects of its waste management is recycling, and its most significant contribution in this regard is the rebuild and remanufacture facilities and activities in its Equipment operations which is focussed on recycling components of Caterpillar equipment. The group has invested in SmartMatta, and environmental solutions provider, which is driving internal responsible waste disposal and, enables the group to offer such solutions to its customers.

    Biodiversity

    The group recognises its role and responsibilities in this regard although the predominantly urban locations of our operations do not impact directly on protected areas or on fauna, flora or ecosystems considered to be endangered, rare or threatened.

    Social

    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 execute our strategies and achieve our goals. We are committed to diversity, empowerment and transformation and believe that our employee profiles should reflect those of the societies in which we operate. Our activities are guided by our Code of Ethics and Worldwide Code of Conduct which underpin how we conduct ourselves both inside the company and with our external stakeholders and ensures 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 fair reward for all employees. Our Integrated Employee Value Model informs our approach and includes an Employee Value Proposition and well as a methodology for achieving a high performing organisation. We can only realise our growth, 2020 objectives and future opportunities through our people.

    Human rights

    Our Worldwide Code of Conduct, Code of Ethics and related policies indicate our commitment to upholding human rights, including human rights in the workplace and our intention to doing business with significant suppliers, third party service providers and other business partners who share the same level of commitment.

    Equality, empowerment and transformation

    Barloworld believes in promoting equal access to employment opportunities – not only as a moral and human rights imperative - but also a pre-condition for achieving sustainable development, economic growth and prosperity in all communities in which we operate. We are fully committed to ensuring effective, extensive transformation within the workplace, and to developing exemplary employment conditions by encouraging a diverse organisational culture.

    Barloworld continues to strive and develop an inclusive and diverse workforce that reflects the demographics of our operational environments.

    Concomitant to our pursuit of diversity, we remain steadfast in creating real value for our group in the various countries in which we operate.

    Our approach to gender and racial diversity is based on the premise that an inclusive and creative culture improves the quality of our business decisions.

    Our values of equality are informed by our Code of Ethics, Worldwide Code of Conduct and other related policies, which include:

    • Identifying and eliminating employment barriers
    • Pursuing programmes and initiatives to achieve our equality objectives
    • Eliminating unfair discrimination on the grounds of gender, race, religion, disability, age or sexual orientation
    • Complying with regulations and legislation of our operational environment

    Diversity and inclusion remains one of our six strategic focus areas. The target for all South African operations is to achieve a B-BBEE Level 3 or better in terms of the dti’s new codes of good practice by end September 2020. Barloworld's action plan continues to address the challenges and elements of the B-BBEE scorecard, with specific reference to management control, employment equity, skills development and enterprise and supplier development.

    Employment equity plans and progress reports are submitted to the Department of Labour in South Africa, as well as relevant authorities in some other southern African countries. These plans set out employment targets that address ethnicity, gender and disability and are aligned within South Africa- to the Department of Trade and Industry's (dti's) B-BBEE scorecard, which sets out thresholds to be reached for specified levels of accreditation.

    Our diversity focus is maintained across the group, including non-South African operations. Within our global operations, our emphasis centres on gender equality, localisation and minority representation.

    Corporate social investment

    Barloworld strives to be responsive to the interests and concerns of the communities in which we do business and the expectations of broader society, in line with our value-based management philosophy. Through the Barloworld Trust, on behalf of the group development partnerships are established and investments made in interventions which address the foremost problems in society. Further interventions are made by each division directly into the communities in which they operate. Our programmes focus mainly on education, health and welfare initiatives, and in South Africa aim to empower previously disadvantaged individuals and uplift communities.

    These programmes are complemented by a fund to empower suppliers and develop 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 the strategic planning process which 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 the quality of the existing control environment. These measures result in residual risk scores that indicate the relative importance of the risk and facilitate the assessment of 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 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 development and implementation of 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.

    This table reflects the group's top risks as well as management's responses to them.

    Barloworld group top risks 2015 (in alphabetical order)

          KEY RISKS     CATEGORY OF RISK AND MANAGEMENT RESPONSE   2015 STRATEGIC FOCUS AREA  
      1   Acquisition/joint venture underperformance

    The risk of future net cash flows from acquisitions and/or joint ventures 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 and/or joint ventures 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 acquisition phase includes legal, financial, tax, human resources, empowerment and transformation, information systems and technology, technical, risk, governance and responsible corporate citizenship and environmental due diligence processes to verify and validate assumptions and future projections.
    • Following acquisitions and/or joint ventures, planning and task teams are established to focus on the realisation and management of possible synergies.
      Profitable Growth

    Integrated Customer Solutions
    Sustainable Development
    Empowerment and Transformation
    Financial Returns

     
      2   Climate change and environmental stewardship

    Barloworld considers a number of environmental related risks to its operations and value-chain. These include climate change and related physical risks due to changing weather patterns; regulatory risks associated with Greenhouse gas emissions; financial risks resulting from carbon taxes; operational risks due to constraints in energy supply and the availability of natural resources, such as water. The group identifies the predominant use of fossil-fuel based energy in its supply-chain, operations, products and solutions as a risk to itself and its value-chain.
        Environmental/operational/strategic/financial/regulatory risk

    Minimise exposure through in-depth risk assessments and strategic responses. Ensure organisational resilience through aligned and integrated management activities and policies. These include:

    • Implementation of aspirational efficiency improvement targets in non-renewable energy consumption and greenhouse gas emissions (scope 1 and 2) and focus on water stewardship.
    • Association with leading principals, provision of products and solutions with reduced environmental footprint and which assist customers achieve their sustainable development objectives.
    • Geographic, industry and product diversification.
      Profitable Growth

    People
    Integrated Customer Solutions
    Sustainable Development
    Financial Returns

     
      3   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.
    • Robust strategic planning process assists in identifying industry trends and uncertainties and developing appropriate strategies in response.
      Profitable Growth

    Integrated Customer Solutions
    Sustainable Development
    Financial Returns

     
      4   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 and 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.
    • Geographic, industry and product diversification.
     

    Financial Returns
     
      5   Defined benefit scheme exposure

    One of the key risks for the United Kingdom’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 schemes assets invested in growth assets (largely equities), which includes 25% diversification into absolute return funds.

    The year-end valuation resulted in the deficit decreasing to £92 million, largely due to recovery plan payments made in the year.

    As the active members have reduced substantially, the trustee board will adopt more prudent assumptions in future in line with the maturity profile of the liabilities which will result in the Scheme’s liabilities increasing in the actuarial valuation as compared to the accounting valuation.
        Market risk

    • A suitably qualified representative board of trustees, which includes a professional independent trustee, manages the scheme and is responsible for regularly evaluating the effectiveness of investment decisions, the setting of actuarial factors for the liabilities and managing the administration. Professional investment advisers 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 advisers and actuaries to assess optimum risk balance. The actuary also conducts a formal triennial valuation with updated figures available real time.
    • Funding shortfalls are planned to be made up within sensible time frames via market-anticipated increased interest rates, positive returns on investments and additional contributions from the company agreed as part of a 10-year recovery plan to bring the fund back to full funding on an accounting basis.
    • The defined benefit scheme in the United Kingdom was closed to new members in 2002 and the scheme is now mature with only minimal active membership. All new employees in the United Kingdom are automatically enrolled in the United Kingdom’s money purchase personal pension plan.
    • The Company and Trustees have agreed a long-term strategy for reducing investment risk as and when appropriate. This includes an asset-liability matching policy which aims to reduce volatility of the funding level of the pension plan by investing in matching annuities (buy-ins) for pensioners which perform in line with the liabilities of the plan. In 2013, the fund purchased a buy-in representing approximately 12% of the liabilities.
    • The accounting deficit has been reflected on the company’s balance sheet as a liability in line with international accounting standards.
      People

    Financial Returns

     
      6   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 on-going 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.
    • Supplier due diligence performed
    • Build relationships with local authorities.
    • Align strategies and targets with those of our major principals as far as possible.
      Profitable Growth

    People
    Integrated Customer Solutions
    Sustainable Development
    Empowerment and Transformation
    Financial Returns

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

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

    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, may be exposed to sanctions, 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 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.
      People

    Financial Returns

     
      8   Exposure to significant customers and dependence on channels to market

    We are exposed to certain large customers and/or industries and well-established distribution and support channels that 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 to service and solutions focused.
    • Diversify customer base.
    • Develop new channels.
      Profitable Growth

    People
    Integrated Customer Solutions
    Sustainable Development
    Empowerment and Transformation
    Financial Returns

     
      9   IT and information security related risks

    Barloworld’s strategy of providing innovative customer solutions by transforming our business from Products to Services and Solutions which leverage technology to deliver productivity and performance benefits to our customers, gives rise to an increased risk related to information security and related cybercrime attempts.

    As our solutions are increasingly digitising and connected to many external parties there is an increased risk relating to the protection of the confidentiality, integrity and availability of our customers and our own information and data.
        Employee/Operational/Strategic risk

    Barloworld has revised its response to these risks with an updated Information Security approach which is underpinned by the implementation of new group wide information security policies.

    The approach is based on the ability to:

    • Prevent, detect and respond to attempts to access our information
    • Restore confidentiality, integrity and availability of systems and information and data in the event of a breach.

    The approach includes all appropriate security mechanisms, physical, technical, organisational, human orientated and legal to keep all information protected against threats.

      People

    Integrated Customer Solution
    Sustainable Development
    Financial Returns

     
      10   Occupational health and safety risks

    Barloworld’s key asset is its employees. The Occupational Health and Safety risk is the likelihood of a person being harmed or suffering adverse health effects if exposed to a hazard in the workplace.
        Employee/Operational/Strategic risk

    • Minimise exposure through in-depth risk assessments, coupled with the application of preventive and corrective risk management activities and policies.
    • Training in accident prevention, accident response, emergency preparedness and the use of protective clothing and equipment, all with the aim of ensuring a safe workplace.
      Profitable Growth

    People
    Integrated

     
      11   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 on-going 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.
      Empowerment and Transformation

    Financial Returns

     
      12   Strategic employee skills

    Barloworld’s key asset is the intellectual capacity and skills of its employees. This necessitates on-going management of the challenges regarding recruitment, succession planning, skills retention and development.
        Employee risk

    • Barloworld has a defined Employee Value Proposition and methodology 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.
      People

    Sustainable Development
    Empowerment and Transformation

     
      13   Weak commodity prices

    The effect of weak commodity prices and the decline in oil prices have contributed to the slow recovery on our businesses, customers, suppliers and funders and the continued risk that funding constraints within the supply chains could result in a recurring recession and/or impede growth. This, in turn, has negatively impacted many 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.
    • Maintain credit rating.
      Profitable Growth

    Financial Returns

     

    Barloworld Group – Risk Heat Map

    The heat map below reflects the relative position of the group’s residual risks which are assessed on their probability, severity and quality of existing control environment. The occupational health and safety risks are not reflected on the heat map as our practice is not to attach a value to fatalities.

    Barloworld Group – Risk Heat Map

    Barloworld has formalised group risk assessment processes that assesses risks and opportunities specifically associated with climate change and water together with the associated financial implications. This process is aligned to the group risk assessment policy, framework and processes. These, together with the group's responses to the identified risks and opportunities, are disclosed in its response to both the 2015 CDP Climate Change Disclosure, and 2015 CDP Water Disclosure. 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.

    Sensitivity analysis and stress testing

    Our Integrated Financial Value Model (IFVM) addresses:

    • Long-term shareholder value
    • Short-term value creation
    • Value drivers
    • Financial drivers
    • Operational drivers.

    The impact of changes to the various drivers on both the long- and short-term value of the group is assessed using the model. Such drivers can be influenced by inflation, exchange rates and interest rates. The model enables sensitivity analysis and stress testing on these and other relevant aspects that affect its value drivers. It is central to our strategic planning process, evaluating potential opportunities and assessing related risks in the group. Using our IFVM is part of all potential acquisitions and other corporate restructuring evaluations.

    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

    Growth driver: Emerging industrialisation driving long-term demand for commodities (Geography : Southern Africa and Russia)

    • Infrastructure

    Growth driver: Infrastructure backlogs and rapid urbanisation in developing economies (Geography: Southern Africa, Iberia, Russia)

    • Power

    Growth driver: Increasing demand in electricity, marine, petroleum, and industrial power segments. (Geography: Southern Africa, Iberia, Russia)

    • Agriculture

    Growth driver: Importance of food security, growing demand for bio-fuels and rich agricultural potential across Southern Africa (Geography: Southern Africa)

    • Automotive

    Growth driver: Increasing need for flexible vehicle usage solutions in private, corporate and government segments and exposure to the growing tourism market (Geography: Southern Africa, West Africa, East Africa)

    • Logistics

    Growth driver: growing regional trade and trend to outsource supply chain management activities (Geography: Southern Africa, Middle East)

    Progress against strategic objectives for 5 year period ending September 2015

    Progress against our aspirations for our five year strategic period ending September 2015 is reflected in the table 2015 Progress Review

    Strategic focus areas and key performance indicators (KPIs) for strategic period from October 2015 to September 2020

    See table of Aspirational Group-level 2020 Targets in our 2015 Integrated Report

    1. Innovative customer solutions

    Our business model, based on our strategic profile, is centred on providing flexible, value-adding innovative 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 including efficiency as well as turnkey solutions in electrical power generation, marine transport, petroleum, industrial and rail segments as well as integrated supply chain management and integrated logistics solutions. Technology plays an ever increasing role in delivering such solutions efficiently, competitively and for mutual benefit.

    • KPI: Market leadership in targeted segments through delivering innovative customer solutions
      • Aspirational 2020 group Target – Leadership in customer satisfaction and loyalty.

    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.

    • KPI: Work-related fatalities
      • Aspirational 2020 group Target - zero
    • KPI: Lost-time injury frequency rate
      • Aspirational 2020 group Target – 0.5 or less
    • KPI: Overall employee engagement score (Individual Perception Monitor 'IPM):
      • Aspirational 2020 group Target – rating of 3.2 (80%) or more for all businesses
    • KPI: Operating profit per employee
      • Aspirational 2020 group Target – R350 000 or more per employee
    • KPI: Total direct training spend per employee
      • Aspirational 2020 group Target – R8 000 or more per employee
    3. Diversity and inclusion

    Barloworld remains committed to building a workforce which reflects the communities in which we operate. As a world-class organisation with a broad array of stakeholders, we believe that diversity is what helps maintain our winning edge. Within all areas of our business we strive to create an inclusive talent pool, one which taps into the vast potential found across races, genders, sexual orientations and other demographics.

    As a tool for helping us create shared value within our business, diversity remains key to our strategy. As such, 2015 has seen Barloworld intensify our efforts to entrench diversity and inclusiveness within our corporate sphere through on-going training, mentorship and In 2016 and beyond, Barloworld will continue our drive to promote excellence and opportunity across the breadth and width of our workforce. These efforts will include:

    • Instilling a culture of collaboration, flexibility and high-performance among our employees
    • Promoting empowerment and transformation at all levels of our organisation in accord with established legislation
    • Further entrenching the Barloworld Code of Ethics and the Worldwide Code of Conduct into our organisational culture
    • Fostering fairness and equality within our work environments, irrespective of gender, race, creed and other forms of diversity
    • Recruitment programmes designed to heighten our responsiveness to an evolving society

    Our attitude and strategy for empowerment and transformation goes beyond merely meeting compliance targets, but strives also to establish leadership within this strategic sphere.

    We plan to exceed the minimum requirements of B-BBEE legislation and industry charters, with a view towards setting the benchmark for our industry sector in line with the demographics of our country.

    We believe that empowerment and transformation make commercial sense and contribute towards the national agenda. In addition to promoting our sustainability as a country, they broadening economic activity, allowing the majority of South Africans to participate in the mainstream economy.

    Outside of South Africa, diversity remains a strategic component of our business, enabling Barloworld to maintain our competitive advantage in the marketplace. Within our global operations, Barloworld continues to strive for an employee profile that represents the regional demographics of the areas where we do business. Within these areas, our diversity focus is on gender equality, localisation and minority representation.

    • KPI: % Women of total headcount
      • Aspirational 2020 group Target – 35% or more
    • KPI: % Women in middle management and above
      • Aspirational 2020 group Target – 40% or more
    • KPI: % AIC* employees of total headcount in South Africa
      • Aspirational 2020 group Target – 75% or more
    • KPI: % AIC* employees in middle management and above in South Africa
      • Aspirational 2020 group Target – 50% or more
    • KPI: Broad-Based Black Economic Empowerment rating in South Africa
      • Aspirational 2020 group Target – level 3 or better

    *African, Indian and Coloured

    4. Sustainable development

    We enhance our competitiveness and legitimacy by leading in sustainable development and ensuring long-term value creation for all stakeholders by responsible business conduct, respected corporate citizenship, developing products and services to capitalise on emerging sustainable business opportunities aligned to core businesses and realising cost savings through efficiency initiatives and other sustainable business practices. We strive to enhance Barloworld's reputation by being a leader in sustainable development. It is also an important component of our Integrated Employee Value Proposition, developed to ensure we attract and retain required skills to deliver our strategic objectives.

    • KPI: Non-renewable Energy intensity (GJ/Rms revenue)
      • Aspirational 2020 group Target – 10% efficiency improvement by end 2020 off 2015 baseline against a business as usual scenario
    • KPI: Renewable energy usage (MWh)
      • Aspirational 2020 group Target – 2 000 MWh or more per annum
    • KPI: Greenhouse gas emissions intensity (scope 1 and 2) (tCO2e/Rms revenue)
      • Aspirational 2020 group Target – 10% efficiency improvement by end 2020 off 2015 baseline against a business as usual scenario
    • KPI: Water intensity (KL/Rms revenue)
      • Aspirational 2020 group Target – 10% efficiency improvement by end 2020 off 2015 baseline against a business as usual scenario
    • KPI: Responsible waste disposal
      • Aspirational 2020 group Target – 100% Solid and liquid waste disposed through formal waste disposal service providers
    • KPI: Respected corporate citizenship
      • Aspirational 2020 group Target – 1% net profit after tax (NPAT)
    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.

    • KPI: Operating margin
      • Aspirational 2020 group Target – 6.5% or better
    • KPI: Return on equity
      • Aspirational 2020 group Target – 15% or better
    • KPI: Return on net operating assets
      • Aspirational 2020 group Target – 20% or better
    • KPI: Return on net assets
      • Aspirational 2020 group Target – 18% or better
    • KPI: Net asset turn
      • Aspirational 2020 group Target – 2.8 times or more
    6. Profitable growth

    To double revenue and achieve targeted growth in total shareholder returns (TSR) over five years to September 2020. Pursue opportunities in high-growth sectors such as mining, infrastructure, power, agriculture, automotive and logistics with a focus on emerging markets.

    • KPI: Revenue growth (R billion)
      • Aspirational 2020 group Target – double revenue in 5 years to 2020 off a 2015 baseline

    For more detail see also ‘Roadmap to 2015 and developing our 2020 vision’ section of the 2015 Integrated Report