merrill lynch conference - barloworld · barloworld limited merrill lynch conference march 2019...

MERRILL LYNCH CONFERENCE

12 -13 March 2019

Barloworld Limited

Merrill Lynch Conference March 2019

BEE transaction

approved

on 14 Feb 2019

Iberia exit

generates

R2.5bn in cash

Logistics

turnaround

on track

838.0975.0

1150.9

0.0

500.0

1000.0

1500.0

2016 2017 2018

-5%

345390

462

0

100

200

300

400

500

2016 2017 2018

18%

4.33.4 3.6

0.0

2.0

4.0

6.0

8.0

2016 2017 2018

9.310.5

11.4

0

5

10

15

2016 2017 2018

GROUP HIGHLIGHTS - 2018

HEPS growth % Total dividend per share (cents)

Free Cash (Rbn) ROE %

5%18%

Barloworld Limited


7.8%

18.1%

12.8%

6.0%

9.4%

12.8%

18.4%

13.1%

2.5%

11.2%

12.7%

21.6%

12.4%

8.7%

12.3%

-5.5%

-0.5%

4.5%

9.5%

14.5%

19.5%

Equipment

southern

Africa

Equipment

Russia

Automotive Logistics Group

WACC 12.5%

SEGMENTAL 12 MONTH ROLLING ROIC – HURDLE RATE 13.0%

AVERAGE INVESTED CAPITAL

FY16 R11.5bn R2.8bn R9.8bn R2.6bn R29.4bn



Barloworld Limited


CORPORATE LEVEL STRATEGY UPDATE

FIX OPTIMISE GROW

Address underperforming

business units:

Iberia exit complete –

Released R2.5bn

Logistics turnaround

on track

Further asset disposals in

Logistics (SmartMatta, ME)

Realise full potential of

business units:

Equipment SnA operational

transformation

Motor Retail restructure and

cost optimisation

Optimal capital allocation

across portfolio:

Restructure of Leasing and Rental

Assets

Targeted growth:

Considering

opportunities that fit the

group’s capabilities

Optimise group

capital structure:

Through value-

enhancing growth or

capital reduction

ACTIVE SHAREHOLDER

Allocate Resources, Capital and Talent across the group

Strengthened group’s core capabilities to deliver on new strategy

2.5

4.0

2.0

Iberia Auto Leasing Equip Rental

Invested Capital

Barloworld Limited


Revenue

R63.4bnup 2%

(FY17: R62bn)

Operating profit

R4.4bnup 8%

(FY17: R4.1bn)

Income from associates

R235mup 153%

(FY17: R93m)

Profit before non-operating & capital items

R3.2bnup 22%

(FY17: R2.7bn)

Effective tax rate

28.5%(FY17: 23.9%)

Headline earnings per share

1 151 centsup 18%

(FY17: 975 cents)

INCOME STATEMENT HIGHLIGHTS FROM CONTINUING OPERATIONS

EQUIPMENT SOUTHERN AFRICA

DIVISIONAL OVERVIEW

Barloworld Limited


Revenue up 8% due to improved machine sales growth of 21%

Operating margin decreased to 9.1% due to sales mix, exchange rate impact and

investment in operational and digital transformation

Solid performance in the DRC JV significantly boosting attributable income

Marginal decrease in return on invested capital (ROIC) to 12.7% (2017:12.8%)

OPERATIONAL REVIEW - EQUIPMENT SOUTHERN AFRICA

Operating profit (Rm) Margin

9.1%

9.8%

0 500 1 000 1 500 2 000

SouthernAfrica

Sept 2018 Sept 2017

Barloworld Limited


AFTERMARKET CONTRIBUTION REMAINS STRONG

Rbn

30%

28%

34%

46%

36%

33%

41%

46%50%

56% 57%

52%

0%

10%

20%

30%

40%

50%

60%

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Equipment sales Product support

Barloworld Limited


37%

52%

6%5%

SOUTHERN AFRICA REVENUE BY LINE OF BUSINESS - SEPTEMBER

2018

29%

57%

10%

4%

2017

New equipment Product support Used equipment Rental

Barloworld Limited


20%

49%

8%

23%

SOUTHERN AFRICA NEW EQUIPMENT SALES BY INDUSTRY - SEPTEMBER

2018

30%

40%

14%

16%

2017

Mining Construction Energy & Transportation Power Contract mining

Barloworld Limited


BARTRAC JV IN DRC DELIVERS SOLID PERFORMANCE

ASSOCIATE INCOME (Rm)

Economic outlook in the DRC remains stable post elections

Key customers continue to invest in existing operations focusing on productivity

improvements

Outlook for BARTRAC expected to be in line with prior year

265

13

97

251

0

50

100

150

200

250

300

FY 2015 FY 2016 FY 2017 FY 2018

Barloworld Limited


MINING OPPORTUNITIES

ANGOLAZAMBIA

MOZAMBIQUE

NAMIBIA

RSA

ZIMBABWEBOTSWANA

Kolomela

$80m

Gamsberg

24 units

$80m

Platreef

20 units

$50m

Mopani

17 units

$11.3m

Luaxe

8 units

$14,1m

Belfast

25 units

$200m

Mota Engil

35 units

$101m

Mogalakwena

12 units

$50m

Vale

2 units

$13m

Venetia

20 units 1 unit

$100m <$1m

Greenfields/Major Projects Firm order Delivered FY18 to date

Tharisa

11 units

$16m

Trollope

3 units 6 unit

$4.6m $7m

Barloworld Limited


COMMODITY MIX – MINING UNIT SALES BY COMMODITY - 2012 - 2018

COALGlencore

South 32

Exxaro

Vale

COPPER

Mopani Copper

Vedanta

Barrick

Palabora Copper

DML

FQM

DIAMONDSDeBeers

Debswana

Namdeb

Petra

Catoca

GOLD B2GoldNew Kleinfontein

Gold One

IRON ORESishen

KolomelaAssmang

MANGANESE South 32UMK

Assmang

PLATINUMPGM

Anglo Platinum

Impala

Tharisa

URANIUM Rossing Uranium Swakop Uranium

ZINCSkorpion

Rosh Pinah

Coal23%

Contractors18%

Copper12%

Diamonds13%

Gold4%

Iron Ore4%

Manganese3%

Other7%

Platinum2%

Rental12%

Uranium1%

Zinc1%

Barloworld Limited


Commodities fundamentals remain favourable

Government commitment in Infrastructure

Mining investments to boost growth

Competitive aftermarket solutions to drive aftermarket growth

Investment in operational and digital transformation

Continued focus to improve returns in underperforming businesses

Firm order book as at February 2019 - R2.36bn

EQUIPMENT SOUTHERN AFRICA OUTLOOK

1.5

2.4

Sep-17

Sep-18

Order book (Rbn)

EQUIPMENT RUSSIA

DIVISIONAL OVERVIEW

Barloworld Limited


Record results with revenue of $606m, up 57%, driven by strong prime product sales,

particularly gold and coal, including $100m Polyus project

Operating profit of R804m - US Dollar terms up 41% to $61.7m (2017: $43.7m)

Operating margin impacted by sales mix

Continued aftermarket growth from direct parts sales, component and machine rebuilds

Return on invested capital of 21.6%, economic profit of $20m and positive cash

generation of $22.2m

OPERATIONAL REVIEW – RUSSIA

0 250 500 750 1 000

Russia

Sept 2018 Sept 2017

Operating profit (Rm)

10.3%

11.3%

38%

Margin

Barloworld Limited


24%

25%

29%36%

28%

27%33%

46%

61%51%

51%

37%

-

100

200

300

400

500

600

700

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Equipment sales Product support

AFTERMARKET CONTRIBUTION DRIVING PROFITABILITY

$m

Barloworld Limited


57%37%

3%

1% 2%

RUSSIA REVENUE PROFILE BY LINE OF BUSINESS – SEPTEMBER

2018

45%

51%

1%1%

2%

2017

New equipment Product support Technology RentalUsed equipment

Barloworld Limited


83%

10%

4% 2%1%

RUSSIA NEW EQUIPMENT SALES BY INDUSTRY – SEPTEMBER

2018

76%

13%

7%

3% 1%

2017

Mining Infrastructure Energy & Transportation SEM Other

Barloworld Limited


MINING OPPORTUNITIES

Norilsk

Mirniy Yakutsk

Nerungry

Omsk

Barnaul

Novosibirsk

TomskAchinsk

KemerovoKrasnoyarsk

Chita

Ulan-UdeIrkutsk

Magadan

Anadyr

Petropavloysk-Kamchatskiy

Greenfields/Major Projects Firm order Delivered in FY 2018

Polyus

35 units 40 units

$122.2m $116.7m

Norilsk Nickel

17 units 6 units 5 units

$15.8m $4.6m $4.5m

KRU


$44.6m $2.9m $11.8m

Arshanovskiy

14 units 14 units

$15.4m $13m

Zadubrovskiy Noviy


$18.8m $5.4m $23.4m

Alrosa

10 units 15 units

$8m $9.9m

Pavlik

14 units

$14m

Kekura

11 units

$8.1m

Service Integrator


$15.9m $8.1m $4.2m

NordGold


$14.4m $16.7m $25.5m

Barloworld Limited


Increased duties on US Sourced Products:

• Large machines: TTT, wheel loaders, motor graders, mining trucks, wheel dozers,

pipelayers

Potential sanctions under consideration by US Senate / Congress:

• Chemical warfare act on the basis of Skripal poisoning

• Defending American Security Against Kremlin Aggression Act (meddling in elections)

Rusal sanctions lifted following Deripaska’s removal as majority owner

Russian economy showing small growth despite the sanctions

Commodities driving revenue include coal, gold, nickel and copper

EQUIPMENT RUSSIA – GEOPOLITICAL LANDSCAPE

Barloworld Limited


Geopolitical environment remains volatile but yet “stable”

Increased retaliatory customs duties have impacted mining product opportunities

US sourced units sales are estimated to decrease by 52% in 2019 vs 2018 of which

approximately 50% can be attributed to increased customs duties.

Firm order book remains strong

Growth consolidation, tight control over expenses and working capital management

Aftermarket revenues generate a solid contribution to overall dealership profitability

Russian mining sector and commodity outlook maintain positive trajectory

EQUIPMENT RUSSIA - OUTLOOK

64

44

81

March 2018

September 2018

February 2019

Order book ($m)

+84%

Large deals (68)

AUTOMOTIVE

DIVISIONAL OVERVIEW

Barloworld Limited


Margin

5.7%

5.5%

OPERATIONAL REVIEW - AUTOMOTIVE

Revenue R29.8bn (FY’17: R31.6bn) – down 5.6% (Comparable basis up 0.3%)

Operating profit for the division at R1 701m (FY’17: R1 747m) – down 2.6%

Operating margin achieved for the year at 5.7% (FY’17: 5.5%)

Achieved ROIC of 12.4% (FY’17: 13.1%)

Average invested capital maintained at similar levels to prior year

Generated R690m of free cash flow

0 500 1 000 1 500 2 000

BarloworldAutomotive

FY'18 FY'17

Operating profit (Rm)

-2.6%

Barloworld Limited


Operating profit down 4.6%

Increased rental days against a market

decline of 0.7%

Results negatively impacted by lower used

vehicle margin as a result of lower new

vehicle inflation

Increased rate per day, reduced damage

expenses and managed fleet cost

Maintained fleet utilisation at 76%

Generated positive free cash flow

CAR RENTAL

FY’18 FY’17 % chg

Revenue 6.53bn 6.45bn +1.3

Operating profit 536m 562m -4.6

Operating margin 8.2% 8.7% -0.5bps

Barloworld Limited


Pleasing operating profit growth of 3.2%

Finance fleet reduced due to the non-renewal

of a few key contracts

Total fleet under management up 2.0%

Strong used vehicle profit contribution from

older used vehicles

Improved ROIC by 0.5bps

Positive momentum achieved through recently securing

a few sizeable corporate contracts

AVIS FLEET


Revenue 3.33bn 3.57bn -6.8

Operating profit 641m 621m +3.2

Operating margin 19.3% 17.4% +1.9bps

Barloworld Limited


Revenue declined by 7.5% (Comparable basis up 1.2%)

Total dealer market up 0.5%

New units sold down 4.9% (Comparable basis -1.1%)

• Impacted by declining premium segment

Ongoing dealership portfolio review and

cost-base alignment

The SMD acquisition remains value accretive

Positive free cash flow generated

Achieved ROIC above Group hurdle rate

MOTOR TRADING


Revenue 19.96bn 21.58bn -7.5

Operating profit 524m 564m -7.1

Operating margin 2.6% 2.6% -

Barloworld Limited


MOTOR RETAIL

Forecasts and information by Dr. Neal Bruton, adjusted by management

2019 total market expected to be 2% -

3% down on prior year

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Total South African Vehicle Market

Passenger LCV M&HCV

Barloworld Limited


Car

Rental

Avis

Fleet

Motor

Trading

Automotive

Division

AUTOMOTIVE - OUTLOOK

Car rental industry rental day growth to remain subdued

Yield management and dual brand strategy to deliver top line revenue growth

Continued contribution from used vehicle disposals but margins under pressure

Leverage technology and mobility solutions to improve customer experience

Well positioned to maintain market leadership

Positive outlook for Corporate growth

City of Johannesburg non-specialised contract not renewed

Challenging trading conditions in the new vehicle market to persist

Premium segment remains under pressure

Ongoing review of underperforming dealerships and brands

SMD to remain value accretive and leverage inter group synergies

Balanced portfolio will continue to provide resilience throughout the cycle

Continued focus on achieving optimal returns above Group hurdle rates

Reviewing various funding options to enhance return on capital

Explore value enhancing growth opportunities

LOGISTICS

DIVISIONAL OVERVIEW

Barloworld Limited


2.8

%

3.5

% 3.9

%

1.6

%

4.4

%

2014 2015 2016 2017 2018

12

2

15

9

22

3

10

1

26

2

2014 2015 2016 2017 2018

-4.0%R5 924mil

(2017: R6 171m)

+160%R 262mil

(2017: R101m)

4.4%(2017: 1.6%)

4,3

67

4,5

09

5,7

56

6,1

71

5,9

24

2014 2015 2016 2017 2018

FINANCIAL HIGHLIGHTS

REVENUE OPERATING PROFIT OPERATING MARGIN

-2.6%-4.0%

+21.1%

160%

Barloworld Limited


4.7

%

5.6

%

6.0

%

2.5

%

8.7

%

2014 2015 2016 2017 2018

1,7

61

2,4

03

2,4

72

2,0

82

1,5

38

2014 2015 2016 2017 2018

-62

4

-73

0

86 26

0

52

0

2014 2015 2016 2017 2018

FINANCIAL HIGHLIGHTS

CASH FLOW*

NET OPERATING

ASSETS

RETURN ON

INVESTED CAPITAL

* before financing

+100%R520mil

(2017: R260m)

-26%R1 538mil

(2017: R2 082m)

8.7%(2017: 2.5%)

100%

-26%

Barloworld Limited


Integration of Transport

& SCM businesses

Headcount optimisation

Multiple operational

improvements

implemented

More streamlined

operations

Leveraging group

buying power

Creating shared value

with suppliers

Sub-optimal business

units held for sale

Exit of sub-optimal

contracts

Customer-focused

operating model to

support future growth

SG&A COST

REDUCTION

OPERATIONAL

PERFORMANCEPROCUREMENT

OPERATING

MODEL

KEY ACHIEVEMENTS

Barloworld Limited


3

LOGISTICS STRATEGIC OUTLOOK

VISION

TO BE AN INTERNATIONAL LEADER IN SUPPLY CHAIN

FULFILLMENT THAT DELIGHTS STAKEHOLDERS

421

Achieve full potential

of existing

business & assets

Further review of

portfolio for

enhanced returns

Unlock high

value profit pools

as supply chain partner

of choice

Enhance business

models through

technology

CONSOLIDATE

GAINS

OPTIMISE

PORTFOLIO

EXPLORE

NEW MARKETSDIGITISE

Barloworld Limited


DIVERSE BLUE CHIP CUSTOMER BASE

SUSTAINABILITY AND

INCLUSIVE GROWTH

Barloworld Limited


BLACK PUBLIC

SCHEME

MANAGEMENT

TRUST

BARLOWORLD SABARLOWORLD

LOGISTICS

B-BBEE TRANSACTION SALE OF PROPERTIES

38% 32% 30%

Sale of PropertiesPROPCO

EMPLOYEE

TRUST

Lease payment

100%

BARLOWORLD

FOUNDATION

100%

FOUNDATION

3%

EXTERNAL

FUNDER

Loan

Barloworld Limited


B-BBEE TRANSACTION HIGHLIGHTS

Transformation Creation of a long term sustainable BBBEE transaction

Contribute to transformation and inclusive growth of the South African economy

Broad-based

Creation of a broad-based Foundation issued with 3% of Barloworld

Foundation mandate of poverty alleviation, education and youth development

Broad-based participation of 14 000 employees

Public Offer to the black public

Longevity Foundation shareholding permanent

Minimum 15-year empowerment period

Sustainability

The sale of a R2.8bn property portfolio to a black controlled company (PropCo)

PropCo will raise external debt of up to 80% of the acquisition price of the Properties

Grow its property portfolio over time

Strategic

alignment

Sale of property portfolio aligned to strategic focus to maximise and unlock value of all assets

Protect and grow the market leading positions of the

South African operations

Reliable, credible partner to public and private sector clients

Efficient

structure

B-BBEE ownership equivalent to 14%

Whilst limiting dilution to shareholders

Barloworld Limited


BARLOWORLD FOUNDATION


Aligned with the national development

imperatives of advancing inclusive

economic transformation and growth.

Focus will be on:

• Poverty alleviation,

• Education,

• Youth development and advocacy

Permanent shareholding, not allowed

to sell into perpetuity

Increases Barloworld’s annual social impact

spend to [R60] million per annum


3%

Barloworld Limited


SALE OF PROPERTIES

Disposal price based on:

• Future value of properties of R2.8 billion (being the current market value (as above) increased by

the value of capex committed on properties under development

• Discount of 5% to the future value

Ten year lease between Barloworld (through Barloworld SA and Logistics) and Propco

* Independent Property Valuation

Property type Properties’ Market Value GLA

Motor Retail R1.676 billion 128 913

Industrial R940.3 million 149 901

Commercial R95.28 million 9 150

Mixed – Commercial and Industrial R13.8 million 5 264

Residential and Vacant Land R29.4 million 595

Total R2.755 billion* 293 823

Barloworld Limited


Note 1: The amounts are based on a market cap of circa R24.97 billion

Refer to other costs included with the transaction detail on slides 16, 17 and 18

The average BEE transaction’s economic cost is around 2.7% for every 10%. This is normally for shorter term

transactions (5 – 8 years). The total economic cost of this 14% transaction is 3.4% per 10%. This is slightly above the

average, however, the longer tenure (15 years) compensates shareholders for this extra cost

Of the total costs of 4.70%, 3% relate to the Foundation and the costs of the property transaction amount to 1.70%

The market related rental escalation of the property portfolio was informally determined as 7% vs the 8% rental

escalation as part of this transaction. The cost to the Barloworld shareholder is the present value of the difference in

rentals paid over the market rental period, which amounts to R80 million

TOTAL ECONOMIC COST TO SHAREHOLDERS

ECONOMIC COST TO SHAREHOLDERPercentage of

Market Cap

Rand

Equivalent (1)

Foundation (Free issue of shares) 3.00% 749 167 085

Property transaction Facilitation costs

Employees (Grades 2 – 10) (100% facilitation of equity portion) 0.70% 174 187 586

Junior Management (Grades 10 -14) (100% facilitation of equity portion) 0.11% 26 422 682

Senior Management (Grades 15 – 23) (95% facilitation of equity portion) 0.32% 81 126 815

Total IFRS 2 Costs 1.13% 281 737 083

Discount on Property sale 0.57% 143 246 370

Facilitation Costs 1.70% 424 983 453

Total BEE Facilitation Costs (Public Scheme Successful) 4.70% 1 174 150 538

MERRILL LYNCH CONFERENCE

12 -13 March 2019

merrill lynch conference - barloworld · barloworld limited merrill lynch conference march 2019...

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