Barloworld

Innovative customer solutions - operational reviews

Innovative customer solutions

Equipment and Handling

Equipment is a distributor of key brands and products and has been a Caterpillar distributor for 88 years. Equipment sells and supports the broadest opencast and underground mining equipment product line in its territories as well as construction equipment and power systems.

Handling is a dealer for Hyster and Utilev, providing customised materials handling and warehousing solutions in manufacturing and distribution industries, while the agriculture business represents Massey Ferguson and Challenger brands, offering solutions to all farmers from cost-effective tractors to leading technology equipment.

Financial highlights

Financial and non-financial performance indicators

Economic			Revenue						Operating profit/(loss)						Net operating assets
Year ended 30 September			2015 Rm			2014 Rm			2015 Rm			2014 Rm			2015 Rm			2014 Rm
Equipment			27 479			29 031			2 362			2 229			18 681			14 064
– Southern Africa			20 307			20 903			1 894			1 968			12 761			8 770
– Europe			3 793			4 134			71			(168)			2 913			2 343
– Russia			3 379			3 994			397			429			3 007			2 961
Handling			2 027			1 929			6			55			1 125			781
			29 506			30 960			2 368			2 284			19 806			14 845
Share of associate income									294			228

Environmental			Petrol and diesel (ML)						Electricity (MWh)						Energy (GJ)						GHG emissions (tCO2e) (scope 1 and 2)						Water (ML)
Year ended 30 September			2015			2014			2015			2014			2015			2014			2015			2014			2015			2014
Equipment			9.10			10.19			29 801			29 703			455 783			494 657			50 255			53 161			240			269
– Southern Africa			6.61			7.42			19 991			19 721			330 601			359 101			38 806			40 901			192			221
– Europe			1.60			1.78			6 469			6 705			81 912			89 083			7 517			8 106			37			32
– Russia			0.89			0.99			3 341			3 277			43 270			46 473			3 932			4 154			11			16
Handling			1.33			1.14			884			762			53 747			46 535			4 542			3 940			7			6
			10.43			11.33			30 685			30 465			509 530			541 192			54 797			57 101			247			275

Social			Employee headcount						LTIFR						Work-related fatalities						B-BBEE rating*
Year ended 30 September			2015			2014			2015			2014			2015			2014			2015			2014
Equipment			7 336			7 743			0.79			0.91						1
– Southern Africa			5 287			5 480			0.40			0.59						1			2			2
– Europe			1 245			1 408			3.31			3.20
– Russia			804			855			0.48			0.23
Handling			595			555			2.36			1.18									2			2
			7 931			8 298			0.89			0.93						1

* B-BBEE rating for South Africa only.

Equipment

EQUIPMENT

Equipment division overview

In light of the current downturn in the mining cycle, customers have responded by reducing their capital expenditure which negatively impacts our primary machine sales. In addition, the reduction in the oil price has led to significant cutbacks in infrastructural development programmes in Angola and Russia.

However, as customers reduce their capital expenditure, they extend the usage of their existing equipment fleets. The net effect of this is that they spend more on parts and service, which drives our product support business. This shows the resilience of our Seed-Grow-Harvest business model with the increase in product support compensating for the reduction in primary equipment sales.

We have taken proactive steps to minimise the impact of the downturn while also gearing ourselves to take advantage of the upturn in the mining cycle when it occurs.

We further plan to leverage technology in providing innovative solutions for our customers and creating opportunities to capture profitable growth.

Southern Africa

Business overview

Alignment with our principal, Caterpillar, is critical for us to achieve continued value creation for our various stakeholders. Our Caterpillar dealership territory spans across southern Africa and we plan to grow our market share in both equipment sales and the product support business.

We remain fully aligned with Caterpillar and participate on an ongoing basis in various strategic forums including the Dealer Mining Forum and the Africa Middle East Leadership Council, both chaired by Caterpillar. Barloworld also takes part in function-specific forums covering sales, service, finance, product support and other aspects of our Caterpillar dealership business.

One such initiative is the dealer growth and profitability project (DGAP), which is run jointly with Caterpillar to capture new opportunities in sales and product support.

We are geared to grow our business organically and continue to entrench our Seed-Grow-Harvest business model based on seeding new equipment sales into our markets, growing the installed machine population through customer partnerships and harvesting the aftermarket through parts and service revenues. This model is very resilient, with product support compensating to a large degree for the decrease in primary equipment sales in the downturn. Despite the challenging trading conditions, we believe there are great opportunities to grow all areas of our business, including Rental, Used and New (RUN) solutions.

Operating environment and impact

GLOBAL ECONOMY		Trading conditions in our southern Africa footprint are challenging given the downturn in commodity prices, power supply shortages and increases in interest rates, compounded by significant devaluations in local currencies against the Dollar and Euro. Depressed commodity prices are expected to continue well into 2016.
INDUSTRY		A further challenge has been the general labour unrest and job losses taking place in the mining industry in the face of decreasing commodity prices.
SOUTHERN AFRICA REGIONAL ECONOMY		Southern Africa’s overall economic growth has been approximately 3% per annum since 2014. Economic growth for 2016 is forecast to be 3.5%. South Africa’s economic growth is projected to gradually recover over the plan period to 2020. Growth in Angola has declined due to reduced oil prices with economic growth projected to remain low as government expenditure continues to decline.
IMPACT		The impact of the mining downturn is characterised by a decline in primary equipment sales. Our Seed-Grow-Harvest business model is proving resilient as the shift in revenue mix from new machine sales to a higher product support component continues to produce a pleasing result in very challenging trading conditions.

2015 performance review

Despite the downturn in the mining industry, devaluation of currencies and labour unrest, we delivered a solid performance in the year ended September 2015. Revenue decreased marginally from R20.9 billion in 2014 to R20.3 billion in 2015 while operating profit decreased by 3.8% from R1 968 million to R1 894 million.

Our operating profit is projected to remain under pressure in 2016 due to the decline in the mining industry. The growth of our business in current conditions will be rooted in our product support business as customers extend the usage of their equipment and reduce their capital expenditure on new equipment. This also serves as an opportunity to grow our construction and rental/used business.

We are in the process of reviewing our structures to ensure they are fit-for-purpose, enabling us to generate and deliver value to our key stakeholders throughout the various cycles. Fit-for-purpose structures will also enable us to optimise value creation through the peaks and troughs of the industries in which our customers operate. We will continue to focus on growth and operational efficiencies without compromising our ability to deliver innovative solutions for our customers.

Safety is critical to our operations and it is pleasing that we had no fatalities in this period and efforts to maintain a zero fatality rate are continuous.

Mining

Our mining unit sales have reduced significantly since 2012 on the back of the industry downturn. The focus now is on increasing our deal participation and sales coverage as well as growing the product support business.

The EMPR business that came from Caterpillar’s acquisition of Bucyrus has significantly contributed to our financial returns since Barloworld acquired distribution rights in 2012 and is expected to continue to grow both in our new equipment and product support businesses.

Income from associates and joint venture has increased by 19.3% in 2015. This trend is expected to slowdown as a result of the mining downturn.

Mining continues to account for a significant portion of our business and we remain committed to achieving profitable growth by effectively executing our strategy in this sector.

Construction, rental and used

The construction industry remains under pressure with limited large infrastructure projects in southern Africa.

Our rental and used business has served as an attractive alternative for customers to access equipment without major capital investment. Rental revenue in the South African business has increased significantly from R1.6 billion in 2014 to R2.1 billion in 2015.

Governance structures are in place to proactively manage and mitigate the risks associated with the rental and used business.

Power

Revenue in the Power business increased from R562 million in 2014 to R1.792 billion in 2015, largely driven by energy shortages. The marine product support segment showed pleasing growth in Namibia, while the Angolan Power business has retracted significantly due to the decline in the oil price as well as devaluation in the Angolan kwanza.

We expect the Power business to continue its growth trajectory and we remain focused on increasing market share in our entire southern African footprint by focusing on gas and marine opportunities, restructuring our Perkins dealership and growing our product support and rental business. We plan to capitalise on the major opportunities inherent in new power projects anticipated in southern Africa.

The future to 2020 – trends and future operating context

We anticipate that the commodity downturn will modestly recover over the medium term. A significant portion of our business will continue to be derived from the mining industry.

Despite the downturn in the mining industry, we expect a number of projects to come to fruition over the next five-year period to 2020. We expect that copper and coal prices and demand will increase in the medium term.

Our Seed-Grow-Harvest model will remain the core of our business, and we believe that this is a solid foundation to realise profitable growth through our aftersales offering, with initiatives to grow this across our southern African footprint.

Given the number of projects in the pipeline, we anticipate that our heavy construction business will grow over the next five years.

Our focus to 2020 will be to profitably grow our business, reduce costs and achieve operational efficiencies while providing our customers with innovative solutions.

We aim to achieve this by:

• Exceeding service excellence ratings
• Leveraging our technology-enabled solutions
• Implementing digital and cost-effective market coverage
• Gaining full traction with aftersales growth across our southern Africa footprint, and
• Growing our rental and used business capabilities.

Despite the current and future challenges, we believe that there is significant opportunity to capture increased market share and profitably grow our business.

2016 outlook

Indications are that current market conditions will continue well into 2016. We are geared to manage the business through the cycle during what is expected to be a very tough financial year ahead by capturing profitable growth in our aftermarket, rental and power businesses in particular.

In mining, we expect to benefit from the large number of EMPR equipment as they move into their repair cycle, which will contribute to our growth by increasing market share in aftersales.

We will leverage technology to provide innovative customer solutions that drive profitable growth and also expect new opportunities to arise from the aftersales growth initiative. We are positioning ourselves with the capability to optimise our prospects and customer partnerships, not only in the year ahead but also when the cycle does eventually turn.

The 2016 revenue outlook range for Equipment southern Africa is between R19 billion and R21 billion compared to revenues of R20.3 billion in 2015. We continue to strive to grow our business based on the solid foundation of the Seed-Grow-Harvest business model.

MATERIAL THEMES – southern Africa

STRATEGIC FOCUS AREAS AND MATERIAL THEMES		RESPONSES		RISKS		MITIGATION
People Employee engagement Leadership development Safety		Engaged and committed employees Building a high performance organisation		Disengaged employees who bring BWE’s brand into disrepute Inadequately skilled and poorly motivated employees		Integrated employee value proposition model (IEVM) in place Coaching and mentoring programmes in place Training interventions to upskill employees
Diversity and inclusion Workforce profile Localisation and supplier development		Achieve race and gender diversity targets Build an inclusive non-discriminatory environment for all employees		Inability to source and retain appropriate female talent Failure to create a diverse and inclusive working environment for all employees		Strategy to attract and retain female talent Identify and address obstacles that hinder the attraction and retention of female talent Develop and implement awareness programmes
Sustainable development Reduce environmental footprint Products and services Governance, ethics and compliance		Reduce the impact of our economic activities on the environment		Negatively impacting the environment		Execute the sustainability strategy to minimise the impact of our actions on the environment
Innovative customer solutions Alignment with principals Technology-enabled solutions/e-commerce Customer value proposition Customer relationships		Achieve service excellence ratings Leverage technology enabled solutions Digital and costeffective market coverage Achieve breakthrough with electric drive truck market penetration		Retraction in service excellence ratings Inability to provide innovative solutions to customers Loss of business due to poor or non-existent customer value proposition Loss of large mining trucks business		Refocus on product support capability Align with Caterpillar to provide technology enabled solutions Acquired marketing capability to maximise coverage Development and implementation of a digital strategy Try and buy strategy
Profitable growth Market share growth		Exceed service profitability targets Increase market share in machine and parts (DGAP)		Unprofitable service operation Failure to capture profitable growth		Execute the transformation project Entrench Parts growth initiatives
Financial returns Returns on capital Cash management		Exceed group financial return targets		Destruction of shareholder value		Execute the DGAP project Implement a fit-for-purpose structure

Russia

Business overview

Our business model remains focused on seeding, growing and harvesting from the machine and engine fleets in our dealership territory. With the downturn in equipment sales across all segments including mining, protection and growth of aftermarket business becomes ever more important.

We are expanding the distribution channels available to our customer base through a number of initiatives including:

• Launch of a Moscow-based parts warehouse for customers who prefer to arrange their own logistics to job sites
• Development of internet-based parts ordering and integrated procurement platforms together with Caterpillar
• Selective on-site presence

Our technology-enabled solutions team continues to develop the product offering including integrated machine health reporting in collaboration with Equipment southern Africa, oil sampling using Caterpillar’s Scheduled Oil Sampling laboratory in Moscow, and operator training using high-tech simulators. These innovative solutions aim to ensure that we are positioned as a trusted adviser and reliable Cat equipment partner to generate significant incremental business in the coming years.

Operating environment and impact

ECONOMY		A substantial reduction in the oil price has led to postponement and cancellation of infrastructural development against the backdrop of heavy social spending. Commodity prices have stabilised at historically low levels. The Russian economy has contracted by more than 3% year on year. Volatility of the ruble has increased significantly following the oil price decrease, Chinese economic slowdown and Russian Central Bank decision to switch to inflation targeting rather than a stable currency exchange rate.
GEOPOLITICAL ENVIRONMENT		The Ukraine situation remains volatile and there is little likelihood of EU and US sanctions being reduced or withdrawn in the short to medium term. Although sanctions had a limited direct impact on our overall business, the knock-on negative effect on cost of finance and general sentiment towards Western suppliers has been substantial. Internally, Russia remains more politically united than ever with the president receiving some of the highest popular support ratings on record. Government is making a concerted effort to establish closer economic relations with the BRICS countries (particularly China).
IMPACT		The Seed-Grow-Harvest business model is proving resilient with a higher aftermarket component replacing lost primary machine sales in the current difficult and complex trading environment. Overall customer sentiment remains positive towards the Barloworld and Caterpillar offering

2015 performance review

Our revenue was down by 26% on the prior year to US$281 million (US$382 million in 2014) due to the continued decline in mining capital spend, the escalation of the Ukraine crisis and related sanctions, the economic slowdown in Russia and a lack of large infrastructure projects in our dealership territory. Despite weaker top-line performance, we achieved US$32 million operating profit (2014: US$40 million) driven by a strong aftermarket performance. Tight cost controls and balance sheet management further enhanced the result. The business has also delivered a solid cash flow performance in 2015.

Volatility in the mining sector has delayed the development of large greenfields projects. Despite this we are successfully closing smaller opportunities, particularly in the gold mining segment. The Power of Siberia project for the gas pipeline has commenced and should generate rental opportunities as well as direct sales to contractors involved in the pipeline construction and related works.

Gas rental opportunities will continue to be central to the Power business strategy in the oil and gas segment, although negatively affected by the declining ruble.

The future to 2020 – trends and future operating context

Our mining business still represents our biggest opportunity. Several greenfields projects are awaiting commencement once the global commodity markets have improved.

The Power of Siberia project and future phases of the Russian oil and gas pipelines will remain key areas of focus as Russia continues to adjust its economic and political focus towards its Asian partners including China.

Aftermarket business is likely to become ever more competitive, requiring a dedicated effort to maintain and improve our market share through:

• Customer experience management, so that doing business with us is seamless
• Technology-enabled solutions that provide customers and our aftermarket team with value-adding information on fleet utilisation, predictive repairs and maintenance
• E-business platforms to improve procurement practices and offer convenient and quick access to parts information while enabling us to capture incremental business
• Expanding physical distribution channels through selected regional presence and ability to supply parts ex-Moscow
• Focus on expanding our aftermarket team to support specific projects and customer sites, while aiming to keep the overall headcount flat by realising efficiencies and improvements
• Our partnership programmes with local universities in Novosibirsk and Irkutsk to ensure a continued intake of new trainees for technical skills

We are well positioned to take advantage of future growth with our extensive regional facility infrastructure including key regional hubs in Novosibirsk, Krasnoyarsk, Kemerovo, Norilsk, Irkutsk and Magadan.

2016 outlook

We are forecasting a challenging 2016 driven by the delay in mining recovery, lack of growth in the Russian economy and political instability surrounding the Ukraine crisis. We are hopeful for a recovery in the 2017 to 2018 timeframe as the mining industry starts to unfold new investment programmes.

The Equipment Russia firm order book of US$27.7 million at September 2015 is up on the prior year and a number of large new mining equipment awards came our way at the end of the financial year. Additional orders to the value of US$31 million were signed after year-end.

Good gold grades in Russia mean some deposits are viable even in the downturn, providing ongoing opportunities for equipment suppliers who can provide the right machines and aftermarket support.

The 2016 revenue outlook range for Equipment Russia is between US$270 million and US$340 million compared to revenues of US$281 million in 2015.

MATERIAL THEMES – Russia

STRATEGIC FOCUS AREAS AND MATERIAL THEMES		RESPONSES		RISKS		MITIGATION
People Safety Employee engagement		Promote and improve safety culture Embed Customer Experience Management (CEM) in corporate culture		Unsafe working practices Loss of customers due to lack of engagement from VT		Continuous management effort to improve safety culture Established CEM team and dedicated training effort
Diversity and inclusion Workforce profile		Diversify workforce by increasing number of women in supervisory/managerial positions		Workplace not balanced from gender perspective		Specific targets set on percentage of female workforce, including managerial levels
Sustainable development Governance, ethics and compliance Reduce environmental footprint Products and services		Continue to improve foundational capabilities through alignment with Caterpillar Grow rebuild and remanufacturing opportunities Increase sales of technology and SOS (oil sampling) solutions		Inability to generate incremental business		Formal assessments and action plans with Caterpillar Dedicated focus on growing component repair business Specific targets set for technology and oil sampling
Innovative customer solutions Alignment with principals Returns to shareholders through the cycles Customer value proposition		Penetrate Large Mining Trucks (LMT) and Hydraulic Mining Shovels (HMS) markets Ability to capture economic profit through the cycles Actively promote a range of remote monitoring, machine health and other technology-enabled solutions		Product not competitive on value terms Cyclicality of the business and the impact on profitability Failure to monetise data gathered Value not communicated to the customer		Implement strategy to capture Large Mining Trucks Working directly with principals to ensure alignment of goals Adopt a try-and-buy strategy Piloting e-business offerings Dedicated technology team
Profitable growth Alignment with principals Growing market share Service excellence		Improve prime product and power market share Grow parts market share Service excellence performance		Lack of new product seeding Erosion of aftermarket revenues		Alignment with Caterpillar on strategic initiatives DGAP execution plan
Financial returns Returns on capital Working capital Cash management		Achieve working capital turn targets through better inventor management, forecasting and negotiated special terms Achieve return on capital targets		Not generating required returns Destroying value Cash utilisation for projects not meeting cost of capital targets		Specific targets set for the business on returns and cash Dedicated management focus on working capital management and cash generation

Iberia

Business overview

Barloworld Equipment Iberia is Caterpillar’s dealer for the Iberian Peninsula and incorporates operations in Spain (Finanzauto) and Portugal (STET).

While maintaining market leadership in both territories in the equipment and power systems space, we have also been recognised by Caterpillar through the award of Gold status for Service Excellence for the fifth consecutive year in Spain and the second consecutive year in Portugal. We have also maintained Platinum status for Marine Service as well as Excellence in Service Training. In addition Finanzauto received a Global Dealer Excellence Award for Power Systems Marine.

These accolades are reflected in our customer loyalty and satisfaction levels, which exceed those of our competitors. Strong focus remains on delivering solutions to our customers wherever they are, working in partnership with our fellow Barloworld companies and Caterpillar.

The region continues to benefit from the number of used equipment sales generated by the MyTractor brand.

Operating environment and impact

POLITICAL		Iberia continues to experience political change, with both Spain and Portugal going to the polls in 2015. Spanish politics saw a large political swing in recent regional and municipal elections from the centre right to a coalition-led leftist dominance.
ECONOMIC		The European Union (EU) continues to be affected by the ongoing crises surrounding Greece and uncertainty around the single currency union while trying to deal with regional economic stagnation coupled with the slowdown of one of its largest trading partners, China. In 2015 Spain has been one of the better performing economies within the EU with exports, lower energy costs and retail growth driving a recovery in GDP growth and injecting confidence back into the market. Portugal continues to be one of the poorer performing economies as it looks to recover its international image in the financial markets following the financial bailout.
IMPACT		The Iberian equipment business is characterised by an improvement in consumer confidence, slow recovery in prime machine industry sales and growth of the marine business as a component of the sales mix. We maintained our industry leadership position, customer loyalty and satisfaction levels.

2015 performance review

Following cost base reductions totalling €79 million since 2008, the Iberian business has returned to operating profitability during the past year and short-term objectives include maintaining our industry-leading position in equipment sales and product support in a growing market, continued margin management, cost management, and strong alignment with Caterpillar´s Dealer Growth and Profitability (DGAP) initiative. Our balance sheet will be managed with a proven track record of working capital and capital investment management to drive improved returns.

As a result of lower heavy construction activity prime product lines of business, except for power systems, were lower than the prior year while product support saw an increase in revenues. Revenue of €274 million for the Iberian business was 1.5% lower than the 2014 figure.

Mining activity in the region continued to be centred in base metals, specifically copper, while traditional mining activity such as coal and potash suffered low levels of activity. Quarrying remained steady based on international demand.

The construction segment remains muted, with ongoing austerity in public expenditure limiting heavy construction opportunities. Light construction and agriculture have been boosted by a reinvigorated housing segment and increasing retail demand respectively and this has driven the first increase in the local construction machine sector since 2007.

Development of the group´s capability and market participation in alternative markets such as quarries, industry, agriculture and forestry saw steady advancement. However, both the regional and international used markets continued to be affected by lower demand while rental revenue was also affected by low public works demand.

Prime product revenue increased in the power systems business, buoyed by a strengthening marine market and good activity in the rail segment in Spain. The renewable power segment remained inactive based on punitive legislation around co-generation, while oil and gas suffered from the drop in oil prices.

Product support improved and parts revenues benefited as increased confidence drove longer operating hours on machines and improved competitiveness on the back of a weakening local currency. Work done internally to develop our capacity and capability in product support has helped us to capture opportunities coming out of the improving market conditions.

Revenue mix shifted marginally from prime product to product support, but steps taken to protect gross margins at all levels and improved technician productivity following the prior year’s restructuring have resulted in overall gross margins exceeding the prior year. Operating expenses were significantly lower than 2014 as the successful implementation of the restructuring programme contributed savings as planned. Additional cost savings were secured in a number of other operating expense areas, ensuring that the region regained operating profitability and setting us on the road to improved returns.

The balance sheet remained well controlled with working capital, rental fleet investments and capital investments managed to ensure retention of our business capabilities. We continued to realign the branch network with the opening of a modernised facility in Seville to replace old infrastructure.

The future to 2020 – trends and future operating context

The recovery of the local economies in Iberia and the resultant growth that is expected in the new machines markets is expected to drive revenue growth into the future.

Improving local activity has also seen a small revival in the used equipment segment with the purchase for sale model still proving to be a very successful approach to the market. Given the lower number of new machines that have been sold over the past years, the availability of quality used equipment is expected to remain challenging but this is expected to be supplemented by a dedicated purchasing function and the quality of equipment coming from the roll out of rental fleet.

The Power systems business remains a key component of the revenue mix and marine segment revenues are expected to be driven by the expansion of product portfolio and new service offerings that have been created during the year through the formation of joint ventures with established partners to expand this offering. The industrial and rail segment maintains a good medium outlook based on export markets, while electric power activity is expected to remain muted as the co-generation market remains subject to punitive local legislation in the face of a current electricity oversupply.

Product support business remains a cornerstone of the business. The growth of the market share that the Iberian grouping has seen over the past three years and work done in improving and creating a solid base in a number of areas is expected to continue driving value into the future. This includes the renovation of the region’s infrastructure, with key investments that have been made to date delivering solid performances.

The division’s alignment with our principal will remain key to the development of our product and service portfolio. Areas such as customer experience management, technology-enabled solutions and the development of e-business platforms will be key in servicing a more technological savvy customer base while further enhancing the value added to our customers.

2016 outlook

The short to medium-term outlook for Iberia remains mixed with continued market uncertainty around the strength of the European Union’s financial recovery and growth prospects, balanced against rising confidence levels in Spain.

Our focus will remain on maintaining our leading position in our traditional markets while continuing to build on gains made in other segments. The ability to leverage our market-leading position in our power systems business, specifically in the marine segment will also help to create related product support opportunities.

We will continue to grow our technology-enabled product support solutions offering and optimise market coverage for our excellent service capabilities. The combination of our used and rental businesses into a single organisation has now been completed and we will look to maximise the synergies inherent in this union while utilising our internally generated brands and routes to market to increase market coverage at low cost.

The 2016 revenue outlook range for Equipment Iberia is between €300 million and €360 million compared to revenues of €274 million in 2015.

MATERIAL THEMES – Iberia

STRATEGIC FOCUS AREAS AND MATERIAL THEMES		RESPONSES		RISKS		MITIGATION
People Safety Employee engagement Talent management Negotiation of collective bargaining agreements		Promote and create a safety-first culture Implementation of IEVM Develop cross-border growth opportunities Successful staff rotation		Death or injury of personnel Low staff morale and engagement Lack of mobility of staff due to financial conditions Inability to reach a negotiated settlement		High visibility health and safety programmes Roll out of IEVM principles Defined collective bargaining negotiation programme
Diversity and inclusion Workforce profile		Promote female representation into management positions		Low rotation of staff and nature of services does not appeal to females		Internal development plans and learnership programmes
Sustainable development Governance, ethics and compliance Reduce environmental footprint Products and services		Comply with established sustainability norms and targets Comply with corporate social responsibility policies Ensure compliance with group ethics policy		Investments in energy efficiency initiatives do not deliver required savings Reputational damage Staff act in contravention of group ethical code		Comprehensive due diligence and selection of reliable partners Established training programme and ongoing communication
Innovative customer solutions Alignment with principals Returns to shareholders through the cycles Customer value proposition		Provide seamless service to cross-territorial customers Continue promotion and development of equipment management solutions Expand marine service offering leveraging on expanding CAT product portfolio		Change of buying strategies by customers Lack of internal expertise to develop, sell and support expanded offering Inability to find suitable partners to expand marine vessel repair opportunity		Key account plans and international contact through shared management resources Alignment with CAT and joint programme with South Africa Enhanced training, and leverage of joint ventures
Profitable growth Market share growth Cost management and technician productivity Fleet management		Maintain leading market share Continue growth in total parts share Create a profitable service operation Maintain profitable rental operations Continue with the strong cost control		Inadequate market coverage Opportunities for parts growth do not materialise Service operations do not provide sufficient profitability and return Rental profitability declines		Implementation of parts growth initiatives Provision of crossterritory service Implementation of agreed CAT supported growth plans Staff planning and cost management processes
Financial returns Customer value proposition Working capital Cash management		Implement agreed product support front office coverage model Implement identified power systems growth Improve working capital turn		Front office coverage model does not deliver expected growth Growing opportunities decrease the velocity in working capital		Open multiple sales channels Maintenance of working capital management processes

Handling

 

 

 

 

 

 

 

HANDLING

Business overview

The division is in transition with a number of initiatives to support future growth aligned to our vision.

• The business invested in capability to create a precision farming department to provide one-stop shop solutions
• Implemented growth initiatives and improved sales in the high technology equipment market segments through various fleet change deals
• Introduced a skills development programme to improve the capability of employees and dealer network
• Strengthened the operational support team to drive sales and improve product support
• Improved our footprint and service to customers through appointment of five new dealers during 2015.

Operating environment and impact

AGRICULTURE		Commercial maize crop 31% down on the previous season largely due to general drought conditions mainly in the Western part of the country The agricultural tractor market unit sales estimated at 6 950 units is down by 8% on last year while the combine market has declined by 37% In Mozambique the national elections in 2014 caused difficult trading conditions with the freezing of government funds, compounded by floods in early 2015 Zambia experienced uncharacteristic drought conditions negatively impacting yields We exited the agriculture business in Russia
LIFT TRUCKS		Load shedding and general negative global market have created negative business sentiment in the lift truck industry Zambian economy down due to lower commodity prices
IMPACT		The drought’s impact on agriculture and tougher trading conditions in the lift truck, SEM and Metso markets adversely impacted business profitability

2015 performance review

Despite the market downturn we have grown our Agriculture tractor unit market share in South Africa and increased revenue from R915 million in 2014 to R966 million in 2015 (6% increase). Low government funding in Mozambique resulted in a revenue decrease, while revenue was down in Zambia due to the drought.

Revenue remained flat in the SA lift truck business, while service, repair and maintenance contracts grew by 5%.

2016 outlook

The prevailing drought is expected to continue to impact agriculture demand in South Africa. However, the disposal of the loss-making Agriculture Russia business in September will benefit results in 2016. The introduction of new models and technology enabled solutions will generate growth with a focus on integrated solutions and Precision farming technology.

While we expect trading conditions to remain challenging in 2016 in the lift truck sector, we will continue to focus on targeting high potential market segments, developing the customer value model and proactive response utilising our extensive service footprint.

The 2016 revenue outlook range for Handling is between R1.3 billion and R1.6 billion compared to revenues of R2 billion in 2015.

Automotive and Logistics

Financial and non-financial performance indicators

Economic			Revenue						Operating profit/(loss)						Net operating assets
Year ended 30 September			2015 Rm			2014 Rm			2015 Rm			2014 Rm			2015 Rm			2014 Rm
Automotive			28 704			26 770			1 529			1 522			8 348			7 384
– Car Rental			5 202			4 510			471			421			1 994			1 808
– Motor Retail			20 140			19 173			486			542			2 569			2 258
– Avis Fleet			3 362			3 087			572			559			3 785			3 318
Logistics			4 509			4 367			159			122			2 403			1 761
– Southern Africa			3 980			3 709			186			174			2 241			1 618
– Europe, Middle East and Asia			529			658			(27)			(52)			162			143
			33 213			31 137			1 688			1 644			10 751			9 145
Share of associate loss									(7)			(11)

Environmental			Petrol and diesel (ML)						Electricity (MWh)						Energy (GJ)						GHG emissions (tCO2e) (scope 1 and 2)						Water (ML)
Year ended 30 September			2015			2014			2015			2014			2015			2014			2015			2014			2015			2014
Automotive			9.96			9.89			39 296			38 812			496 134			490 468			65 703			64 913			397			413
– Car Rental			3.55			3.81			6 243			6 085			144 048			152 615			15 055			15 547			122			152
– Motor Retail			5.68			5.39			31 322			31 226			319 782			307 698			47 098			46 139			258			252
– Avis Fleet			0.73			0.69			1 731			1 501			32 304			30 155			3 550			3 227			17			9
Logistics			49.83			45.20			11 825			11 084			2 114 017			1 918 772			166 560			151 266			99			95
– Southern Africa			49.71			45.06			9 376			8 507			2 101 171			1 904 671			164 280			148 924			93			85
– Europe, Middle East and Asia			0.12			0.14			2 449			2 577			12 846			14 101			2 280			2 342			6			10
			59.79			55.09			51 121			49 896			2 610 151			2 409 240			232 263			216 179			496			508

Social			Employee headcount						LTIFR						Work-related fatalities						B-BBEE rating*
Year ended 30 September			2015 Rm			2014 Rm			2015 Rm			2014 Rm			2015 Rm			2014 Rm			2015 Rm			2014 Rm
Automotive			7 603			7 433			1.37			2.00						1
– Car Rental			2 070			1 974			0.71			1.32						1			2			2
– Motor Retail			4 878			4 821			1.78			2.45									4#			3
– Avis Fleet			655			638			0.39			0.59									4#			2
Logistics			4 100			3 770			1.13			0.71						1
– Southern Africa			3 885			3 445			1.17			0.70						1			2			2
– Europe, Middle East and Asia			215			325			0.29			0.83
			11 703			11 203			1.26			1.46						2

*B-BBEE rating for South Africa only.
^#Based on new dti codes.

Automotive

AUTOMOTIVE

Business overview

An integrated model

Customers are offered a range of innovative solutions from single-unit transactions to bespoke solutions, appropriate to the clients’ specific needs, complemented by Barloworld service excellence.

Through a structured approach, the division ensures that each business unit applies best practice within its core businesses, a strong focus on operational excellence, and strives for a market-leading position in each key segment. In addition, this approach maximises the direct and indirect synergies that exist between the business units through running an integrated business focused on the automotive sector.

The divisional platform provides for leadership and guidance across key areas of the business. The leadership approach recognises the important role of every employee and institutionalises initiatives and structures aimed at developing, harnessing and directing collective employee wisdom towards our value-creation objectives, while ensuring that employees share in the value created. An integrated approach to good people management is entrenched throughout the division.

We remain committed to a safe work environment and continue to proactively apply leading safety practices ensuring the well-being of our employees and customers. There were no work-related deaths during the year and the LTIFR as reported, declined during the year as we continue to focus on improving the number and severity of work-related injuries. Our car rental, fleet and motor retail operations’ LTIFR do not include individuals sourced through temporary service providers.

Consistent with the group’s approach, we remain committed to workplace diversity and inclusion. Entrenching these principles in the strategic and operational decision-making processes ensures that we achieve the best overall ratings despite the current industry constraints.

We continue to create value for our principals and suppliers by investing in infrastructure and business systems, addressing brand exposure, market share and improving business performance. Their confidence in our ability is reflected in new opportunities offered to represent their brands and their ongoing commitment to our operations.

Sustainable development is integrated into our strategy and operations. These strategies and initiatives drive the development of products and services to capitalise on emerging sustainable business opportunities, realise cost savings through energy efficiency and other sustainable business practices. Our overall approach to good governance ensures that we meet the legitimate interests of all stakeholders, which is supported by the Barloworld Worldwide Code of Conduct and the ethics and compliance programme.

Car rental
Avis Budget Rent a Car operates short-term vehicle rental from over 190 customer service centres focused on the tourism, corporate, local and replacement market segments throughout southern Africa. At peak, the car rental fleet comprised some 29 100 vehicles. The operations in South Africa, Botswana, Mozambique, Namibia and Swaziland are company owned and the remainder are sub-licensed.

Avis Point 2 Point is a chauffeur-driven inner-city transfer service, while Avis Van Rental operates via a sub-licensee network in South Africa. Avis Car Sales disposes of ex-rental vehicles into the trade and to retail customers.

Avis Fleet
Avis Fleet provides long-term rental vehicles and a range of fleet management services to operators of passenger and commercial vehicles in southern Africa, Ghana and Tanzania. The business accepts residual value and maintenance risk on behalf of its leasing customers, while adding value through the design of customised fleet solutions, which include the leasing of fit-for-purpose vehicles, the administration of service and maintenance plans, vehicle licensing, managed maintenance services, fuel management including billing, analysis and forensics, accident claims management, traffic fine and open-road tolling management, vehicle procurement and disposal.

Motor retail
Motor Retail operates 44 leading motor vehicle franchise dealerships in South Africa and Botswana. Brands include Audi, BMW, Chrysler, Ford, General Motors, Jaguar Land Rover, Mazda, Mercedes-Benz, Toyota and Volkswagen. Products include the sale of new and used vehicles with supporting finance and insurance products, and aftermarket services including parts sales, service and coachworks repair centres. Complementing the dealer footprint, Barloworld Fleet Marketing develops and maintains strong relationships with key corporate customers requiring a range of ownership solutions.

Operating environment and impact

ECONOMIC		The Automotive division operates in markets that are influenced by interest rates, consumer and business confidence and overall economic activity, all of which were under pressure during the financial year. The South African vehicle market saw a softening with new vehicle sales volumes lower in the financial year under review and a softer market expected to carry through to 2016. South African new vehicle sales declined by 1.9% over the previous year due to weak consumer confidence, while the used vehicle market provided select opportunities as new vehicle prices increased. Statistics from the South African Vehicle Rental and Leasing Association (SAVRALA) showed the car rental market grew by 0.3%. Demand for outsourced vehicle management services has slowed in line with the overall economy.
IMPACT		In the context of this challenging environment, the division performed very well in maintaining a similar operating result to the prior year.

2015 performance review

Revenue of R28.7 billion and a record operating profit of R1 529 million resulted in an operating margin of 5.3% (2014: 5.7%). Permanent employees grew to 7 603 in nine countries. The Automotive business units performed in line with expectations while the integrated model and approach sustained profits in difficult trading conditions.

Avis Budget Rent a Car grew rental days in southern Africa by 5.9% to 7 million from 6.7 million in the previous year. This growth was achieved with well-controlled fleet utilisation of 75% across an average fleet of 25 571 vehicles. The average fleet increased by 7.0% and revenue per day improved by 3.5% in a competitive trading environment. This resulted in revenue growing 15% to R5.2 billion while operating profit grew 12% to R471 million. The operating margin decreased to 9.1% from 9.3% in the prior year mainly as a result of lower margins achieved on used vehicle disposals.

The Budget brand was successfully integrated as from 1 March 2015 which resulted in a growth in market share in the inbound and non-contracted segments.

Avis Fleet operations maintained core fleets, with 280 703 vehicles under long-term finance and other management contracts at year end compared to 307 456 vehicles in the previous year, despite the loss of some marginal managed fleets. The business delivered a solid performance with operating profit improving by 2.3% to R572 million as a result of stable fleets and a focus on enhancing operational efficiencies across all product lines.

Avis Fleet acquired a small telematics business to complement the overall fleet management offering, commenced operations in Zambia and acquired a small leasing business in Tanzania to fast track entry into the east African market. The outsourced fleet management contract with the government of the Kingdom of Lesotho was not renewed and was terminated on 30 September 2015.

Motor Retail sold 57 722 new and used vehicles during the year compared to 58 253 units in the prior year. Aftermarket activity improved, resulting in a 7.7% increase in parts turnover, while service hours grew by 3.2%. Operating profit declined by 10% to R486 million, with a resultant operating margin of 2.4% (2014: 2.8%). The results reflect a more sustainable performance for our Mercedes-Benz franchise which performed exceptionally well in the prior year. Overall new vehicle sales volumes were in line with the market and the result was supported by an improved used vehicle and after-sales performance.

Major facility upgrades during the year included Barons VW Woodmead, Ford Alberton, as well as executing the split of the Ford and Mazda brands. The business targeted specific expansion, acquiring GM Ferndale in Cape Town, effective 1 December 2015, and has secured the Toyota/Volkswagen dealership in Postmasburg to support growth in a key mining node.

The future to 2020 – Trends and future operating context

The prolonged uncertainty in world markets remains challenging and the division will continue to prudently manage all aspects of the business, maintaining emphasis on our six strategic focus areas. Our strategic planning process supports astute capital allocation in identified growth areas that exceed internal hurdle rates, while recent developments on the global emissions debate will continue to be closely monitored.

Urbanisation is a key trend affecting all areas of the business and the division is considering various alternatives, including the further use of technology, to deal with the consequences of changing customer needs. Mobility as a Service (MaaS) is gaining momentum in select developed markets and the division’s principals are actively pursuing ways to service this niche. The future of motor vehicle retailing in large city centres will continue to change as property values increase requiring the optimal use of space and technology to serve a changing customer base. The division is well aligned to its principals on these and other changing trends and remains well positioned to capitalise on these, where appropriate.

Avis Fleet will continue to focus on profitability in its African operations and grow business in the government sector. Other issues material to the future success of the division include optimising the Car Rental business after the successful integration of the Budget brand, and maximising value in the leisure and non-contracted segments. Motor Retail will continue to align to well-established OEM brands in the South African market which will support select expansion of the motor retail footprint in order to complement the overall vehicle usage strategy.

2016 outlook

It is expected that 2016 will yield limited growth in all business units. Optimising the inherent synergies of our South African integrated vehicle usage solutions offering remains central to our strategy. The Car Rental operations will focus on rental yields, maintaining high fleet utilisation and optimising their asset base. Additional products and services will be provided to cater for evolving customer needs.

Our southern African Motor Retail operations will continue a “Fewer, Bigger, Better” strategy, coupled with pursuing efficiencies through the centralisation and coordination of common functions, improving asset turn and reducing working capital. The renewal of certain contracts within Avis Fleet remains critical in maintaining a leading market position for the business and we will continue to seek attractive growth opportunities in various markets. Focus on meeting and exceeding divisional return on equity targets within each business unit will remain a key priority.

The division is also considering acquiring several complementary businesses within the broader automotive market that leverage technology and know-how to maximise value in specific markets, while providing strong cash flows that balance in part the capital requirements of the overall division.

The 2016 revenue outlook range for the Automotive division is R29.5 billion to R30.5 billion compared to revenues of R28.7 billion in 2015.

Recognition awards highlight strong alignment to principals

The Automotive division has performed well in the last few years, improving returns while growing the business units. Growth in a predominantly principal-driven business is often difficult; however, when in the spirit of true partnership there is alignment, the rewards are there for both the principal and the business. This in part supports the great results from the Automotive division.

Some key awards include:

Motor Retail South Africa

Thirty dealer accolades awarded across southern Africa, including:

• Volkswagen Dealer Group of the Year: Barons
• Volkswagen Dealer of the Year: Barons Pietermaritzburg
• Barons Bruma: Club of Excellence
• Barons Durban: Club of Excellence
• Barons Pietermaritzburg: Club of Excellence
• Barloworld Toyota Centurion: Presidents Award Mega Dealerships
• Mercedes-Benz Passenger Cars Brand Centre Dealer of the Year: Mercedes-Benz Brand Centre Umhlanga
• Freightliner/Fuso Commercial Brand Centre of the Year: NMI-DSM CV Pinetown
• Freightliner/Fuso Commercial Market Centre of the Year: Garden City Commercials
• Mercedes-Benz Chairman’s Awards: Best Overall Mercedes-Benz Vans Dealer – Garden City Commercials
• Mercedes-Benz Chairman’s Awards: Best Overall Freightliner/Fuso Dealership – NMI-DSM CV Pinetown

Car rental

• Sunday Times – Best Car Rental brand in SA (12th consecutive year)
• Icon Brand Awards, Top car hire company (third consecutive year)
• Business Traveller Africa Awards, fourth consecutive year

Avis Fleet

• Professional Management Review (PMR): Best Overall Fleet Management Company (ninth consecutive year) – Diamond Arrow Award
• Laserfiche – Run Smarter – Best accounting finance initiative

Avis Southern Africa

• Avis Namibia – 2015 Licensee of the Year

MATERIAL THEMES – Automotive

STRATEGIC FOCUS AREAS AND MATERIAL THEMES		RESPONSES		RISKS		MITIGATION
People Employee engagement Talent management Safety first culture		Drive employee engagement and collective wisdom Sustain IPM >3 for all business units Appropriate skills/ resources through structured ICR process Ensure safe working environment		Death or injury on duty Inability to attract, develop and retain people required to meet the divisional and individual business unit growth objectives		Integrated approach to good people management Continue to proactively apply and entrench leading safety practices
Diversity and inclusion Workforce profile Enterprise and supplier development Black ownership at group level		Highest rating for all businesses on the new codes given current industry constraints Focus on employment equity, skills development procurement targets and gender diversity		Ensuring diversity in the workplace Maintaining a competitive rating on the dti B-BBEE scorecards for South African operations		Ongoing focus and development
Sustainable development Reducing our environmental footprint Products and services Ethics and compliance Governance Stakeholder engagement Create value for communities		Meet energy and emissions efficiency targets Drive development of products and services to capitalise on emerging opportunities Align to the Barloworld Worldwide Code of Conduct and ethics programme		Environmental impairment as a result of the division’s activities Reputation risk due to non-compliance		Comprehensive approach to embedding sustainable development principles into our strategy and operations
Innovative customer solutions Alignment with principals Customer value proposition Innovation Technology/e-commerce		Entrench both principal and Barloworld’s commitment to sustainable practices Focus on operational excellence to deliver on customer expectations Leveraging technology Investing in infrastructure and business systems		Non-alignment to key principals and key customer strategies Inability to satisfy ever-changing customer needs		Business model and stakeholder engagement activities ensure alignment Continuous monitoring of our customer satisfaction index
Profitable growth Growth projects Shareholder returns Capital allocation Cost management		Sustained EBITDA growth to fund asset replacement from existing cash flows Achieve targeted operating profit Pursue targeted growth opportunities		Underperformance of existing and acquired businesses		Thorough analysis and robust acquisition processes ensure alignment to overall strategic objectives Revised strategic planning process
Financial returns Returns on capital Working capital Cash management Maximising business unit synergies		Meet and exceed the divisional return on equity hurdle rate		Ongoing ability to improve returns and maintain results above set group hurdle rates		Business model ensures attractive returns with a focus on exceeding hurdle rates for new and existing businesses

Logistics

LOGISTICS

Business overview

Barloworld Logistics is one of the leading supply chain solutions businesses in southern Africa with complementary operations in the United Arab Emirates, employing 4 100 people across 100 offices.

Our integrated solutions offerings include supply chain consulting, inventory management, a wide range of road transportation and transportation management services, warehousing and distribution, freight forwarding and clearing, crane hire and services, environmental solutions and supply chain planning and software solutions. Through client collaboration, operational excellence, customer centricity and innovation, Barloworld Logistics delivers smart supply chain solutions to drive business results and a competitive advantage for clients.

Depending on customer requirements, solutions can be deployed across the supply chain in an integrated manner or as point solutions for specific areas of the customer’s business. In each of these supply chain areas we provide the leadership, skills, methodologies, processes and tools to consult, design, implement, manage and operate the solution.

Operating environment and impact

ECONOMIC		The Logistics division operates in a highly competitive environment in all regions driven by tough economic conditions and rising uncertainty. The mining and construction downturn in southern Africa negatively impacted certain areas of the business.
INDUSTRY		Labour unrest in South Africa is disruptive and the ongoing risk is proactively monitored and managed by all business units. Changing customer and market needs require agile supply chains, innovative business and commercial models and technology-enabled solutions. New and changing regulations particularly in the environmental, labour and transportation sectors are closely monitored.
IMPACT		Activity has been slow in the services linked to the mining and construction sectors and we have exited from non-performing regions. Robust ongoing stakeholder engagement continues to address labour matters. The complexity inherent in the environmental, labour and transportation sectors is balanced by opportunities for new business solutions.

2015 performance review

Logistics delivered an improved performance with revenue of R4.5 billion, up 3.3% on last year, and an operating profit of R159 million, up 30% on last year, resulting in an operating margin of 3.5% (2014: 2.8%). Employees grew from 3 800 to 4 100 with operations in eight countries.

The southern African operations continued to grow despite the tough trading conditions in the Mining and Infrastructure sectors. Supply Chain Management revenue was up significantly on last year. The addition of new contracts, the extension of work with existing clients, the strong performance of the Freight Management and Services business in South Africa, the acquisition of the remaining stake of Re Ethical (now re-branded SmartMatta) and the introduction of a new business unit, Integrated Freight Solutions, have positively impacted the business. Lower abnormal and cross-border transport volumes and the impact of two unprotected strikes negatively influenced the performance of the Transport division.

International operations were favourably impacted by the cessation of trading losses from the exit of Barloworld Logistics in Spain and the sale of total equity in Sea Air Transport (SAT) effective 1 June 2015 and 1 July 2015 respectively. Business activity in the Middle East increased and more robust licence and consulting revenue was realised by the Supply Chain Software division.

Key focus areas for 2015 included developing people, organic and acquisitive growth, operational excellence, customer-centricity, profitable growth, financial returns and the integration of acquisitions and joint ventures.

In line with the strategy to continually develop and invest in niche products and services, Barloworld Logistics launched Barloworld Cranes. The Cranes division is complementary to existing logistics services for customers needing to move abnormal cargo or engage in specialised projects. A partnership with LBH Africa offering a holistic supply chain solution for the dry bulk commodities market was also concluded.

Barloworld Logistics formed a partnership with Re Ethical, an environmental solutions company, two years ago to offer clients a more holistic environmental and supply chain solution as well as explore the environmental solutions industry in more detail.

We extended our service offering with many existing clients and closed numerous deals with new customers in 2015. The business also leveraged its investment in developing new supply chain planning software products.

In addressing loss-making operations arising from the very tough trading conditions, we closed out the contract with a major furniture retailer in South Africa and disposed of our operations in Iberia and Germany.

The future to 2020 – trends and future operating context

Barloworld Logistics is well positioned for organic and acquisitive growth. We continue to monitor trends such as changing consumer behaviour, rising urbanisation, technology developments, new legislation, scarcity of resources and growth into developing markets to develop solutions to changing client and market needs. Enabling our people to cope effectively in the fast-paced environment in which we operate is paramount and much investment is being made to develop our future leaders.

People are a key differentiator and competitive advantage. We aim to attract, develop and retain the people and skills required to deliver on our strategies and create shared value through innovation, collaboration and continuous improvement. We will enhance our competitiveness, credibility and legitimacy in the eyes of all stakeholders by leading in diversity and inclusion across all our operating units. One of the key elements of this objective is to increase the representation of women across the business, in particular in senior management roles.

Customer centricity is a core value driver of the business. The division will drive market leadership through the ongoing evaluation and transformation of our business model. By partnering with clients and industry specialists, we will deliver solutions aligned to achieving productivity, profitability and performance.

We are committed to continually re-thinking, refining and re-evaluating innovative ways to drive economic, social and environmental sustainability. Our smart philosophy of ensuring everything we do is sustainable, measurable, adaptable, resourceful and transformational is a measurement for success. Included in this philosophy is to be a leading corporate citizen, reduce our environmental footprint, operate with the highest standards of governance, ethics and compliance, build strong relationships with all our stakeholders and offer products, services and solutions that generate shared value for all. In particular, we aim to leverage and grow our own service offering in the environmental sector.

Profitable growth and financial returns are paramount to the division’s success. The aim is to grow market share in all our service offerings and regions while maintaining stringent cost management. The division aims to achieve financial returns above the group’s cost of capital through the cycle in each of our strategic business segments.

We balance our investment and growth strategies with a comprehensive integrated risk management process which is constantly assessed and monitored. Some of the high level risks noted and managed continuously include unintentional non-compliance with legislation in new markets, the failure of significant acquisitions or joint ventures, and the inability to meet group hurdle rates or to respond effectively to changing market conditions.

2016 outlook

The outlook for 2016 is positive with further growth opportunities anticipated from integrating new contracts, diversifying and extending service offerings and leveraging the investment in SmartMatta. Tough trading conditions are expected to continue in the mining and infrastructure sectors putting further strain on solutions focused on serving these sectors, in particular the specialised transport and cross-border business units. Increased business activity in the Middle East and targeted African countries is expected to continue.

The 2016 revenue outlook range for the Logistics division is between R5.0 billion and R5.6 billion compared to revenues of R4.5 billion in 2015.

MATERIAL THEMES – Logistics

STRATEGIC FOCUS AREAS AND MATERIAL THEMES		RESPONSES		RISKS		MITIGATION
People Employee engagement Talent management		Drive employee engagement initiatives Integrate and align all people Learnerships, coaching, bursaries and leadership training initiatives		Death or injury on duty Failure to attract, retain and develop key talent		Safety campaigns Integrated risk management Ongoing training and wellness programmes Compliance with health and safety programmes Talent management
Diversity and inclusion Diversity and inclusion Enterprise and supplier development		Create a diverse and inclusive culture Increase gender and racial diversity in senior management roles Implement employment equity and skills development forums Drive supplier diversity		Failure to meet transformation requirements		Drive current initiatives Continued focus on addressing all aspects of the B-BBEE scorecard
Sustainable development Reduce environmental footprint Products and services Governance, ethics and compliance Stakeholder engagement		Integrate sustainable development practices and mindset Define appropriate energy intensity targets Integrate environmental solutions into supply chain service offering		Non-compliance with existing and new legislation and with governance requirements		Roll out and embed ethics and compliance and supplier due diligence programmes Monitor all legislative changes in relevant areas
Innovative customer solutions Technology solutions Customer value proposition and relationships Operational excellence Innovation		Drive customer intimacy, operational excellence and customer centricity Focus on new solutions roll out		Failure to diversify due to concentration in too few industries, customers, verticals and services		Improve capabilities across the businesses, market segmentation and customer relationships Thought leadership and market analysis
Profitable growth Market share growth Cost management		Grow organically and acquisitively Cost control Leverage business units and recent investments		Failure of significant JVs, mergers and acquisitions		Follow group acquisition policy Multi-disciplinary acquisition task team
Financial returns Returns on capital Cash management		Meet or exceed profitability, returns and cash flow targets Funding directed to investments with highest returns Cost containment		Failure to meet group hurdle rates and to respond effectively to volatile market conditions		Diversify revenue streams Increase market share and capabilities Continue to focus on loss-making operations

Corporate division overview

Corporate primarily comprises the operations of the headquarters and treasury in Johannesburg, the treasury in Maidenhead, United Kingdom, and the captive insurance company. While the group has a decentralised management philosophy; the corporate office creates value by providing a number of services to the operating units. These include internal audit, governance and company secretarial, investor relations, corporate communication, corporate finance, treasury and taxation, risk, insurance and legal, group strategy and sustainability, human resources management, employee benefits, diversity and inclusion, information technology and facilities management.

Southern Africa has shown a profit owing mainly to lower charges and accruals for long-term incentives and reduced operating costs. In Europe the higher operating loss is mainly as a result of higher insurance claim losses in the captive insurance company and the impact of currency depreciation.

Aligned with group commitments and aspirational targets, corporate office strives to provide a safe and healthy work environment and minimise its environmental footprint.

A number of initiatives have been implemented in this regard and improved social and environmental indicators reflect this.

Economic			Revenue						Operating profit/(loss)*						Net operating assets/liabilities
Year ended 30 September			2015 Rm			2014 Rm			2015 Rm			2014 Rm			2015 Rm			2014 Rm
– Southern Africa			1			4			17			(24)			480			652
– Europe									(78)			(74)			(1 979)			(1 944)
			1			4			(61)			(98)			(1 499)			(1 292)

*Excluding B-BBEE charge of R251 million in 2015.

Environmental			Petrol and diesel (ML)						Electricity (MWh)						Energy (GJ)						GHG emissions (tCO2e) (scope 1 and 2)						Water (ML)
Year ended 30 September			2015			2014			2015			2014			2015			2014			2015			2014			2015			2014 Rm
Southern Africa			0.02			0.01			471			667			2 360			2 606			537			706			2			2

Social			Employee headcount						LTIFR						Work-related fatalities						B-BBEE rating*
Year ended 30 September			2015			2014			2015			2014			2015			2014			2015			2014
Southern Africa			111			115															2			2

*B-BBEE rating for South Africa only.