Chairman's letter
Resilience in unpredictable times
Globally we are operating in an increasingly unpredictable world, with complex geopolitical and socio-economic dynamics that have placed great demands on resources in general, management and leadership, economic and social stability.
Further to these global conditions, in South Africa we are experiencing a slowdown in economic growth, ongoing energy crisis, low consumer confidence, policy uncertainty in the mining environment and general social challenges which have created a difficult trading environment.
Despite these challenging conditions we achieved solid results across our businesses in the 2015 financial year and I must congratulate all our people for their commendable efforts. We have demonstrated that we operate from a sturdy and well supported base of diverse growth sectors and geographies, have an ability to manage business cycles by balancing sales and aftermarket revenues, and share strong partnerships with our principals, who are counted among the world’s leading equipment and vehicle manufacturers in their sectors.
Two regions require special mention, Russia and Iberia. We achieved pleasing results in our Russian Equipment business in 2015. Against the backdrop of the mining downturn, the lower oil price and the political situation surrounding the Ukraine accompanied by western sanctions, the Russian business has turned adversity into profit. This business is less than 20 years old and started as a greenfields operation.
In a relatively short period, over an enormous territory with multiple geographic challenges, we have built a large installed Caterpillar machine population, formed valuable long-term customer partnerships, and we are now harvesting the benefit through parts and service that constitutes more than half of our revenues, while also containing costs to ensure a profitable result.
In Iberia we have not only survived but continued to effectively support our customers in spite of economic and political conditions that have overwhelmed all but the most tenacious businesses. Our people have shown resilience throughout the process of reducing the cost base very significantly over an eight-year period. They have worked harder and smarter to retain our leading market share. Today, as the Spanish economy begins to show signs of recovery, we can stand proud by our decision to remain committed to that region.
Vision 2020
In determining our journey for the next five years to 2020 we have assessed our performance against our 2010 to 2015 objectives and we have many successes and learnings that have informed our view of the future. In March 2015 at our Global Leaders Conference we launched our Vision 2020 at the centre of which is how we as Barloworld will strive to “inspire a world of difference” over the next five years, and beyond.
We have determined in our strategic assessment that we are in the right long-term strategic growth segments in mining, infrastructure, power, agriculture, automotive and logistics. We will fulfil our bold goals through focus on people, diversity and inclusion, sustainable development, innovative customer solutions, profitable growth and financial returns, all aligned with our appetite for calculated risk. These aspects are covered in detail in the report.
Innovation
We have taken some bold steps in harnessing technology to drive e-commerce, manage connected fleets, data analytics to enhance customer productivity and to lead in customer service and support.
With the advent of technology and the opportunity to leverage this for growth our people have the prospect of growing and augmenting their skills and working in new and exciting environments. We have a large pool of talented employees, an experienced and agile management team, and supported by our employee engagement initiatives we will continue to foster a culture of customer centricity which is solutions-focused and values driven.
Leadership and contribution
We see our role in leading and contributing to not only economic outcomes but also social outcomes as critical to our longevity, this gives us a very significant responsibility. We need to lead in and contribute to economic and social development as well as environmental stewardship in order to inspire a world of difference, if we are to fulfil our vision.
As a responsible corporate citizen we have a number of initiatives that are aimed at driving these objectives, by leading in sustainability, economic and social upliftment, enterprise and supplier diversity, localisation, as well as workplace diversity and inclusion. I am especially pleased that in this period we have had zero work-related fatalities as we continue our focus on driving safety awareness in the group. These are critical success factors and to this end we have set bold goals that are both financial and non-financial.
As part of our efforts to preserve non-renewable resources, address climate change and protect our environment for future generations, it is incumbent on us to influence actions of our stakeholders and be the catalysts for change in the areas where we can drive positive action through our partnerships. It should be a condition of our business terms that environmental sustainability is a joint responsibility with our principals, suppliers and customers.
There is great potential in partnering with governments to help them achieve their vision in the areas where we operate. The focus on improving people’s lives through sound infrastructure and efficient services aligns well with the solutions that we have to offer.
At the end of the day we will be taking a role in growing the economy as well as helping to provide the social and environmental benefits inherent in infrastructure improvement. This is what creating shared value, inherent in our new Vision 2020, is all about – a balanced approach to economic, social and environmental value that will benefit all our stakeholders.
B-BBEE transaction
Our 2008 transaction has been successfully closed out. The amendments to the transaction involving the six strategic black partners and the three community service groups were approved by shareholders at the general meeting of 19 June 2015.
The Barloworld way
Our strong ethical framework supports our vision, based on our Code of Conduct and our values, providing assurance to our stakeholders that we will uphold our reputation as a company that always does business with integrity. Ethical behaviour is rewarded and reinforced in our organisation.
We believe our stakeholders can have confidence and assurance in the framework that assists in mitigating reputation risk as it provides the guard rails for all Barloworld people. In our report we give indication of the addition of “Sustainability” as one of our values, testament to our commitment to our vision of inspiring a world of difference to our stakeholders.
Doing things differently in a different world
While there are inherent risks and challenges in a world that is forever changing we have the ability to turn some of these challenges into opportunities. Our power business can leverage the energy crisis in South Africa not only to improve our profitability but to contribute to helping jumpstart the economy. We have made our entry into renewable energy tilising biogas as fuel to power up manufacturing.
I am particularly pleased with this as it aligns with my belief that climate change is a global issue that needs to be addressed and that not only should we be reducing the environmental footprint of our operations, but we should also be supplying products and services that assist our customers with their climate change endeavours.
In the Agricultural business we have the opportunity to broaden our participation in the food value chain, harness technology and contribute to food security on the African continent while driving financial returns and profitability. In Logistics we have expanded our environmental solutions offering in the recently renamed SmartMatta business where we can drive our customers’ sustainability objectives and derive economic benefit at the same time.
I think it is clear that we can hold the fort, we should protect our business and continue to do the many things that we are doing right. Our solid financial performance over a protracted period of global uncertainty testifies to this. We must do this but it should not be all that we do.
I see a bolder, more enterprising Barloworld that has steered through challenges in the past few years. I continue to have the greatest confidence in our dedicated executive team, which has done wonderful work in difficult times and is now planning innovative strategies and setting demanding targets for the next five years; committed to leading Barloworld in turning challenge into opportunity, doing things differently and creating shared value for our stakeholders.
Board
Mr Martin Laubscher, chief executive officer of the Automotive and Logistics division, retired from the Barloworld Limited board at the company’s annual general meeting on 4 February 2015 and from the company with effect from 28 February 2015 due to health-related reasons. We would like to thank him for his outstanding contribution to the group over 28 years.
Dr Alexander Landia has advised that he will be stepping down from the board with effect from 31 December 2015 due to increased external business commitments.
The next AGM in February 2016 will see the retirement of Mr Gordon Hamilton following nine years of service as a non-executive director on the Barloworld board. Gordon also vacates the chairmanship of the audit committee and we thank him for his years of service.
Vote of thanks
It remains for me to thank the board for its continued efficient and effective oversight of Barloworld. I look forward to a new year in which we can be proud of our achievements, individually and as a team.
Dumisa Ntsebeza
Chairman