MERRILL LYNCH CONFERENCE 12 -13 March 2019 GROUP HIGHLIGHTS - 2018 - - PowerPoint PPT Presentation

MERRILL LYNCH CONFERENCE

12 -13 March 2019

Barloworld Limited Merrill Lynch Conference March 2019

BEE transaction approved

• n 14 Feb 2019

Iberia exit generates R2.5bn in cash Logistics turnaround

• n track

838.0 975.0 1150.9 0.0 500.0 1000.0 1500.0 2016 2017 2018

• 5%

345 390 462 100 200 300 400 500 2016 2017 2018

18%

4.3 3.4 3.6 0.0 2.0 4.0 6.0 8.0 2016 2017 2018 9.3 10.5 11.4 5 10 15 2016 2017 2018

GROUP HIGHLIGHTS - 2018

HEPS growth % Total dividend per share (cents) Free Cash (Rbn) ROE %

5% 18%

Barloworld Limited Merrill Lynch Conference March 2019

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 FY17 R10.2bn R2.6bn R10.0bn R2.4bn R27.1bn FY18 R10.9bn R2.9bn R10.0bn R1.9bn R26.3bn

Barloworld Limited Merrill Lynch Conference March 2019

CORPORATE LEVEL STRATEGY UPDATE

FIX OPTIMISE GROW

Address underperforming business units:  Iberia exit complete – Released R2.5bn  Logistics turnaround

• n 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

• pportunities 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 Merrill Lynch Conference March 2019

Revenue

R63.4bn

up 2% (FY17: R62bn) Operating profit

R4.4bn

up 8% (FY17: R4.1bn) Income from associates

R235m

up 153% (FY17: R93m) Profit before non-operating & capital items

R3.2bn

up 22% (FY17: R2.7bn) Effective tax rate

28.5%

(FY17: 23.9%) Headline earnings per share

1 151 cents

up 18% (FY17: 975 cents)

INCOME STATEMENT HIGHLIGHTS FROM CONTINUING OPERATIONS

EQUIPMENT SOUTHERN AFRICA

DIVISIONAL OVERVIEW

Barloworld Limited Merrill Lynch Conference March 2019

 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%

500 1 000 1 500 2 000 Southern Africa Sept 2018 Sept 2017

Barloworld Limited Merrill Lynch Conference March 2019

AFTERMARKET CONTRIBUTION REMAINS STRONG

Rbn

30% 28% 34% 46% 36% 33% 41% 46% 50% 56% 57% 52%

0% 10% 20% 30% 40% 50% 60% 5 10 15 20 25 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Equipment sales Product support

Barloworld Limited Merrill Lynch Conference March 2019

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 Merrill Lynch Conference March 2019

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 Merrill Lynch Conference March 2019

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

50 100 150 200 250 300

FY 2015 FY 2016 FY 2017 FY 2018

Barloworld Limited Merrill Lynch Conference March 2019

MINING OPPORTUNITIES

ANGOLA ZAMBIA MOZAMBIQUE NAMIBIA RSA ZIMBABWE BOTSWANA

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 Merrill Lynch Conference March 2019

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

COAL Glencore South 32 Exxaro Vale COPPER Mopani Copper Vedanta Barrick Palabora Copper DML FQM DIAMONDS DeBeers Debswana Namdeb Petra Catoca GOLD B2Gold New Kleinfontein Gold One IRON ORE Sishen Kolomela Assmang MANGANESE South 32 UMK Assmang PLATINUM PGM Anglo Platinum Impala Tharisa URANIUM Rossing Uranium Swakop Uranium ZINC Skorpion Rosh Pinah Coal 23% Contractors 18% Copper 12% Diamonds 13% Gold 4% Iron Ore 4% Manganese 3% Other 7% Platinum 2% Rental 12% Uranium 1% Zinc 1%

Barloworld Limited Merrill Lynch Conference March 2019

 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 Merrill Lynch Conference March 2019

 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

250 500 750 1 000 Russia Sept 2018 Sept 2017

Operating profit (Rm)

10.3% 11.3%

38% Margin

Barloworld Limited Merrill Lynch Conference March 2019

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 Merrill Lynch Conference March 2019

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 Rental Used equipment

Barloworld Limited Merrill Lynch Conference March 2019

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 Merrill Lynch Conference March 2019

MINING OPPORTUNITIES

Norilsk Mirniy Yakutsk Nerungry Omsk Barnaul Novosibirsk Tomsk Achinsk KemerovoKrasnoyarsk Chita Ulan-Ude Irkutsk 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

23 units 2 units 11 units $44.6m $2.9m $11.8m

Arshanovskiy

14 units 14 units $15.4m $13m

Zadubrovskiy Noviy

20 units 6 units 30 units $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

17 units 14 units 7 units $15.9m $8.1m $4.2m

NordGold

6 units 7 units 16 units $14.4m $16.7m $25.5m

Barloworld Limited Merrill Lynch Conference March 2019

 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 Merrill Lynch Conference March 2019

 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 Merrill Lynch Conference March 2019

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

500 1 000 1 500 2 000 Barloworld Automotive FY'18 FY'17

Operating profit (Rm)

• 2.6%

Barloworld Limited Merrill Lynch Conference March 2019

 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 Merrill Lynch Conference March 2019

 Pleasing operating profit growth of 3.2%  Finance fleet reduced due to the non-renewal

• f a few key contracts

 Total fleet under management up 2.0%  Strong used vehicle profit contribution from

• lder used vehicles

 Improved ROIC by 0.5bps  Positive momentum achieved through recently securing a few sizeable corporate contracts

AVIS FLEET

FY’18 FY’17 % chg

Revenue 3.33bn 3.57bn

• 6.8

Operating profit 641m 621m +3.2 Operating margin 19.3% 17.4% +1.9bps

Barloworld Limited Merrill Lynch Conference March 2019

 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

FY’18 FY’17 % chg

Revenue 19.96bn 21.58bn

• 7.5

Operating profit 524m 564m

• 7.1

Operating margin 2.6% 2.6%

Barloworld Limited Merrill Lynch Conference March 2019

MOTOR RETAIL

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

2019 total market expected to be 2% - 3% down on prior year

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 Merrill Lynch Conference March 2019

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 Merrill Lynch Conference March 2019

2.8% 3.5% 3.9% 1.6% 4.4% 2014 2015 2016 2017 2018 122 159 223 101 262 2014 2015 2016 2017 2018

• 4.0%

R5 924mil

(2017: R6 171m)

+160%

R 262mil

(2017: R101m)

4.4%

(2017: 1.6%) 4,367 4,509 5,756 6,171 5,924 2014 2015 2016 2017 2018

FINANCIAL HIGHLIGHTS

REVENUE OPERATING PROFIT OPERATING MARGIN

• 2.6%
• 4.0%

+21.1% 160%

Barloworld Limited Merrill Lynch Conference March 2019

4.7% 5.6% 6.0% 2.5% 8.7% 2014 2015 2016 2017 2018 1,761 2,403 2,472 2,082 1,538 2014 2015 2016 2017 2018

• 624
• 730

86 260 520 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 Merrill Lynch Conference March 2019

 Integration of Transport & SCM businesses  Headcount optimisation  Multiple operational improvements implemented  More streamlined

• perations

 Leveraging group buying power  Creating shared value with suppliers  Sub-optimal business units held for sale  Exit of sub-optimal contracts  Customer-focused

• perating model to

support future growth

SG&A COST REDUCTION OPERATIONAL PERFORMANCE PROCUREMENT OPERATING MODEL

KEY ACHIEVEMENTS

Barloworld Limited Merrill Lynch Conference March 2019

3

LOGISTICS STRATEGIC OUTLOOK

VISION

TO BE AN INTERNATIONAL LEADER IN SUPPLY CHAIN FULFILLMENT THAT DELIGHTS STAKEHOLDERS

4 2 1

Achieve full potential

• f existing

business & assets Further review of portfolio for enhanced returns Unlock high value profit pools as supply chain partner

• f choice

Enhance business models through technology

CONSOLIDATE GAINS OPTIMISE PORTFOLIO EXPLORE NEW MARKETS DIGITISE

Barloworld Limited Merrill Lynch Conference March 2019

DIVERSE BLUE CHIP CUSTOMER BASE

SUSTAINABILITY AND INCLUSIVE GROWTH

Barloworld Limited Merrill Lynch Conference March 2019

BLACK PUBLIC SCHEME MANAGEMENT TRUST

BARLOWORLD SA BARLOWORLD LOGISTICS

B-BBEE TRANSACTION SALE OF PROPERTIES

38% 32% 30%

Sale of Properties PROPCO EMPLOYEE TRUST Lease payment

100% BARLOWORLD FOUNDATION 100%

FOUNDATION

3%

EXTERNAL FUNDER Loan

Barloworld Limited Merrill Lynch Conference March 2019

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 Merrill Lynch Conference March 2019

BARLOWORLD FOUNDATION

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

BARLOWORLD FOUNDATION

3%

Barloworld Limited Merrill Lynch Conference March 2019

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 Merrill Lynch Conference March 2019

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 SHAREHOLDER Percentage 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