Building sustainable value
Presentation to the
Investment Analysts Society
Tony Phillips
CEO, Barloworld Limited
Today’s agenda
• Where we have come from
• What we do today
• Value Based Management
• The current business environment
• 2x4x4
Building long term value:
“From little acorns…..”
• Established, Durban 1902
– branch of Thos Barlow & Sons Ltd, England
• 1927 appointed Caterpillar dealer for SA
– Charles Sydney “Punch” Barlow joins firms
• 1929 appointed Hyster lift truck dealer for SA
• 1941 listed on JSE
Building long term value:
1950-90 expansion & diversification
• Everything from food to computers
• 1971 acquired Rand Mines
• 1979 acquired Hyster dealerships in US
• 1984 acquired UK-based J Bibby & Sons
Building long term value:
1990’s bring change as SA re-joins global economy
• 1989 R1 billion profit, 240 000 employees
• 1991 Warren Clewlow appointed Chairman & CEO
– recognised illegitimacy of SA focused conglomerate
– MS&A (now Columbus) sold + some mining interests
• 1993/4 Barlow Rand unbundled
• 1994 -1998 “A South African infrastructure play”
– invested R5 bn to modernise operations
– restructured for global market
Today Barloworld is an international industrial
brand management company
providing business solutions
through leading industrial brands, supported by
service, relationships and attention to detail,
to make our customers’ businesses excel
Barloworld today: R 35 billion revenues from
operations in 32 countries
Australia &
Asia
North America
Rest of Africa
South Africa
Europe
2003 total revenues
Revenues have risen 3-fold in a decade to match
pre-unbundling levels
Revenue R billion
40
35
Pre-unbundling
30
25
20
15
10
5
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Products, services and solutions
delivered through 7 operating business segments
Coatings
Scientific
Cement &
Lime
Steel Tube
Equipment
Motor
Industrial
Distribution
2003 trading revenues (excluding corporate ops & other)
Equipment:
one of the world’s largest Cat dealers
• A 77 year relationship
• Exclusive dealer for:
– Spain and Portugal
– Southern Africa
– Western Siberia
– Bulgaria
Equipment:
… providing total solutions
Complementary brands complete the offering:
• Perkins,Dezzi, Ingersoll Rand, Bitelli, Boart Longyear,
Massey Ferguson, Mak
We add intellectual capital and deliver:
Smart Partnerships™
Cement & Lime:
Leading in cement & lime in southern Africa
• South Africa and Zimbabwe’s leading cement producer
– 8 factories
• Southern Africa’s leading lime producer
– 1.8 m ton capacity plant
• Saldanha Steel Smart Partnership
Industrial distribution:
world’s largest independent lift truck dealer
• 75 year Hyster relationship
• Dealer for:
– 8 states in South East US
– UK
– Belgium
– Netherlands
– Southern Africa
Industrial distribution:
major presence in truck distribution in SE US
• Top 5 US dealer in Freightliner and Sterling trucks
• Arkansas, Louisiana, Mississippi, Tennessee &Texas
• Only listed dealer in United States
Motor: major player in motor solutions in
Southern Africa and growing in Australia
• Motor vehicle dealerships
– 55 outlets in southern Africa
– growing base in Australia
– Subaru distributor for southern Africa
– other services (panel shops, truck hire)
• Acquiring 100% of Avis Southern Africa
– strategic move to total automotive solutions
Coatings:
painting everything that moves (and doesn’t)
• Decorative coatings
– market leader in South Africa
– no. 3 in Australia
– business includes retail stores
– franchised exports to China
• Automotive and industrial coatings
– JV’s in South Africa
Scientific: an international market leader in
specialised scientific equipment
• Melles Griot
– world leader in lasers and
photonics
– manufacturing in US, UK,
Japan
– headquarters in Carlsbad, CA
• Laboratory (Bibby Sterilin)
– UK-based leader in glass and
plastic laboratory equipment
and related products
Steel tube:
Regional player in Africa
• Southern African market leader in small bore
steel tube and pipe
• Largest supplier of stainless steel into
European Union
Our success isn’t built on what we do - it is built
on how we do things: “the Barloworld way”
•
•
•
•
•
•
•
•
Market leadership
Strong brands
Long term relationships
High ethical standards
Good governance
Sharing best practice & common business systems
Value Based Management
Barloworld management teams
VBM: at the heart of everything we do
1999: Decision to build an integrated global company and
introduce a new measurement philosophy
The Barloworld Brand
+
Value Based Management
VBM: What is it?
The essence of VBM is not
the measurement of value
It is aligning the organisation
to create long term sustainable value
It is a journey not a destination
VBM : The 1999 framework
Shareholder Value
TSR (total shareholder return)
CFROI (cash flow return on investment)
Capital
Worth What Paid For
Customer Value
Value for money
Customer Value Attributes
Direct Measures of Quality
Company’s
processes,
activities and
assets
People Value
Employee Satisfaction
Value-Based
Innovation
Compensation
Employee Satisfaction
Innovation
VBM: Why use CFROI as the financial metric?
Reported ROE using actual U.S. inflation for a 6% “real” IRR project
20
% Return
15
ROE
10
IRR
5
Source: HOLT analysis
0
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
VBM: CFROI has the strongest correlation to
Total Shareholder Returns of any metric
Measure
Correlation to
shareholder returns
(%)
ROE
44
ROCE
31
CFROI
70
Holt source data: US S&P industrials 1998
VBM: 2000 – 2002 first phase of rollout
• Focus on financial measures
• Building knowledge of CFROI
• Modeling every business
• Goal to achieve real 8% CFROI hurdle
10%
Cost of Capital
Real Growth In Assets
VBM:
“It’s all about the bubbles”
5%
0%
5%
-5%
-10%
6%
7%
8%
CFROI
9%
10%
VBM: Barloworld bubble progression delivers
shareholder value
Cost of Capital
Real Growth In Assets
25%
20%
15%
10%
1999
2000
5%
2001
0%
-5%
-10%
-15%
6.0%
7%
8%
9%
10%
2002
2003
Since 2002 VBM has evolved into a fully
integrated sustainability management system
Community
(social and environment)
Shareholders
Customers
Employees
VBM-driven actions include:
Shareholders
Community
• New products and
• Pricing and quality of
services
customers improvements • Customer value analytics
• Margin enrichment
• Employee value models
• Acquisitions and
• CEO’s Awards
disposals
• Sustainability reporting (GRI)
• Emphasis on cash flows
• Black Economic Empowerment
• Growth in
• Pac Man expansion
Smart Partnerships
• Surgery to improve
• Strategic shifts in focus
operations in
(eg Avis)
difficult markets
Employees
Customers
VBM driven actions:
Smart Partnerships - moving up the value chain
Cost per Ton
Maintenance & Repair
Contract (MARC)
Asset
Management
Ownership Options
Op Training
Application
Parts & Service Products
Systems
Basic Support
VBM driven actions:
Acquiring Avis - changing strategic focus
South Africa
BTH
“Shop Front”
C
U
S
T
O
M
E
R
S
Parts
AVIS
Fleet Services
Motor
Retail
AVIS
Rent-A-Car
Panel
Service
Fitment
/ Tyre
Subaru
EMPOWERED
VBM driven actions:
Avis is a springboard for international growth
Scandinavia
– grow from existing Avis base
Africa
– leverage growth in other services from Avis footprint
Australia
– grow existing retail base and then add other offerings
USA
– established Freightliner base is foundation for future
growth in commercial transport sector
VBM driven actions: sustainable approach to BEE
founded on ethics, governance & community value
Strong ethics
Good governance
•
•
•
•
•
• A business imperative
• IAS compliant
• Aligned with global standards of
best practice
• Continual evolution in approach
Obey the law
Be fair
Be honest
Respect others
Protect the environment
VBM driven actions: A balanced scorecard is the
substance of long term BEE effectiveness
People
development
Excellent Employment Equity
programmes
Equity
BU based approach
CSI
Long proud history
Procurement
A curate’s egg
Directorships
Global company dilemma
VBM driven actions:
Equity BEE in every South African business unit
Equipment
Emerging contractors programmes
Umndeni Circon (66% BEE equity)
Motor
NMI-DSM largest BEE transaction in
motor industry so far (50% BEE equity)
Cement & Lime
Sale of majority stake in Afripack to BEE
consortium under way (75% BEE equity)
Coatings
Sizwe Paints (70% BEE equity)
Steel Tube
Shosholoza steel (70% BEE equity)
VBM driven actions:
Pac Man expansion strategy case study
VBM driven Pac Man strategy: Our Hyster territory
in the United States was built over 13 years
Mo
Ok
Tx
Ak ‘92
La
Al
NC ‘79
SC ‘79
Ga
‘88
‘79
Tn ‘79
‘92
Ms
Va
Ky
Fl
Hyster territory
‘88
VBM driven Pac Man strategy: In 2000
acquired first Freightliner dealerships
Ak
Tn
Ms
Barton Freightliner
Freightliner Territory
Hyster Territory
VBM driven Pac Man strategy: In 2003
Freightliner territory expands for critical mass
Ok
Ak
Tx
Ms Northwest Arkansas Truck
La
Texarkana Truck Center
Freightliner Territory
Hyster Territory
3000
8
7
2500
6
2000
5
1500
4
3
1000
2
500
1
0
Operating Margin (%)
Operating profit (R million)
VBM has delivered 4 years of margin and
operating profit growth
0
1999
2000
2001
Operating profit (R million)
2002
2003
Operating Margin (%)
Business environment update:
generally positive
Region
Drivers for Barloworld
Conditions
South Africa
GDP/GFCF and mining
Mixed
Rest of
Africa
Mining and infrastructure
Slower
Spain
Infrastructure spend and GDP
Still going well
UK
GDP and manufacturing
activity
Solid
USA
GDP, distribution and
manufacturing in south east
Much more vibrant
Australia
GDP and housing
Bouyant
IN 2002 using our VBM principles we set
ourselves a new medium term value goal
Double the value
we create
In 4 years
(2002 – 2006)
2x4x4
For all 4 stakeholders
(investors, customers, employees, social/environmental communities)
Achieving 2x4x4: 2 pillars of growth, supported by
long term “R&D” businesses and built on VBM
Southern
African
infrastructure
Long term
“R&D”
businesses
VBM
Global
business
solutions
Achieving 2x4x4:
Profit analysis reveals 2 major streams of profit
Global business
solutions (41%)
Southern African
infrastructure (57%)
Long term “R&D”
businesses (2%)
2003 Segment results
Achieving 2x4x4: different drivers for each pillar
Southern
African
infrastructure
Long term
“R&D”
businesses
VBM
Global
business
solutions
Achieving 2x4x4: strategic focus
• “More of the same” in new geographies
• Add complementary brands
• Expand existing and new business solutions
and Smart Partnerships™
• Ongoing VBM-driven “quality of business” improvements
www.barloworld.com
Our 5 year track record*
• The share price has soared 203%
• Profits have risen 97%
• Dividends are up 106%
* Source: Financial Mail February 27 2003