BWO.L Regulatory News (BWO)

Barloworld Limited

(Incorporated in the Republic of South Africa)

(Registration number 1918/000095/06)

(Income Tax Registration number 9000/051/71/5)

(Share code: BAW)

(JSE ISIN: ZAE000026639)

(Share code: BAWP)

(JSE ISIN: ZAE000026647)

(Bond issuer code: BIBAW)

("Barloworld" or "the company")

Interim results for the six months ended 31 March 2015

Clive Thomson, CE of Barloworld, said: 

"The group delivered a solid performance in the first half with operating profits up 6% and headline earnings per share from

continuing operations increasing by 16%.

Our Caterpillar equipment businesses in southern Africa held up well in a challenging mining environment, supported by growth in aftermarket revenues. It was pleasing that our Iberian operations returned to profitability as a result of actions taken last year to lower the cost base. Our Russian equipment business continues to operate in a difficult economic and political environment but managed to deliver a satisfactory result as costs were well contained.

The Automotive and Logistics division produced another solid result with Car Rental, Motor Retail and Avis Fleet all performing ahead of the prior period.

While trading conditions are expected to remain challenging in the second half, we will continue our focus on driving operational efficiencies and tight cost control. Overall we expect our businesses to deliver a resilient performance for the full year and are well placed to benefit in the medium term once the mining and construction cycles move into a recovery phase."

18 May 2015

Salient features

Revenue up 3% to R30.7 billion

Operating profit up 6% to R1 744 million

Group operating margin increased from 5.5% to 5.7%

Headline earnings per share from continuing operations up 16% to 367 cents

Headline earnings per share up 9% to 367 cents

Interim dividend per share increased 8% to 115 cents

Chairman and chief executive's report

Overview

The global economy continues along a gradual path to recovery. While the US economy appeared to lose some momentum in the first quarter, the outlook for the Eurozone is improving. Recent growth numbers for China were weaker which is likely to moderate Chinese growth prospects for the full year.

The outlook for the South African economy remains negative with growth impacted by reduced commodity demand from China, power shortages and potential risks emanating from an anticipated increase in US interest rates. The mining and construction sectors, in particular, remain under pressure.

Against this backdrop, group revenue from continuing operations for the six months to March 2015 increased by R781 million (3%) to R30.7 billion, while operating profit increased by 6% to R1 744 million. This resulted in a pleasing improvement in the group operating margin to 5.7% (1H'14: 5.5%).

Headline earnings per share (HEPS) from continuing operations increased by 16% to 367 cents (1H'14: 316 cents), while total HEPS, including discontinued operations, was 9% higher than the comparable 336 cents last year.

An interim dividend of 115 cents per share (1H'14: 106 cents) has been declared which shows an increase of 8% over last year.

Operational review

Equipment and Handling

Equipment southern Africa

Revenue to March of R9.9 billion showed a R0.3 billion (3%) increase over the prior year. The mining sector remains under pressure with mining houses and mining contractors delaying their machine replacement programmes. The prior year comparative included the deliveries of EMPR packages to Husab in Namibia and FQM in Zambia. We have recently had success at the Moatize site in Mozambique with significant orders received from both Vale as well as the contract miner Mota Engil.

Operating profit to March of R826 million is R58 million (7.6%) up on last year with the operating margin of 8.3% showing improvement. Income from associates is in line with the prior year.

After sales activity, which represented 51% of revenue in the first six months, continues to show resilience. Activity levels at the repair and rebuild centre in Boksburg have increased substantially with a number of planned component repair programmes for customers, including repairs to large EMPR components, being undertaken.

In Angola the government is trying to secure foreign funding to ensure that key infrastructure projects are not stalled following the drop in oil revenues which represent the bulk of that country's export earnings. The National Bank of Angola has prioritised the allocation of foreign currency (US dollars) to the oil and food sectors and this is impacting our ability to secure dollars, in exchange for Kwanzas, to fund machinery imports.

In southern Africa infrastructure demands have improved overall construction market sentiment, while the South African construction sector remains depressed due to the slow rollout of public sector infrastructure projects.

The firm order book at March 2015 of R2.3 billion is up on the September level of R1.9 billion following the recent orders from Vale and Mota Engil in Mozambique.

Equipment Russia

The Russian economy continues to contract against a backdrop of lower commodity prices and international sanctions, which are making it more difficult for local companies to access external funding.

Revenue to March of $129 million was $55 million (30%) down on last year with mining and construction equipment sales well below the prior year. Strong aftermarket sales continue to confirm the resilience of the business model and represented 60% of revenue for the first six months. Activity levels at the central repair centre in Novosibirsk are well up on the prior year.

Operating profit for the first half of $8.6 million (R101 million) was $6 million (41%) below last year or 35% down in rand terms.

The March firm order book stood at $16 million, slightly up on September 2014. In addition $5.8 million of underground Room and Pillar mining orders retained by Caterpillar will generate margin via a service fee arrangement. A number of opportunities are presented by the Power of Siberia pipeline project.

Equipment Iberia

The Spanish economy is now in its second year of recovery following the economic crisis. While unemployment remains unacceptably high at just under 24%, the recovery is evident in consumer confidence, household spending and manufacturing data.

Revenue to March of €139.5 million was €13.3 million (8.7%) below last year; however the after sales business continues to perform well and represented 43% of total revenue in the first six months.

The cost cutting measures we have taken have delivered according to plan and resulted in the division generating an operating profit of €0.8 million (R10 million) compared to a loss of €2 million (R32 million) last year.

The firm order book of €36 million is €3 million above the September 2014 level and still mainly relates to power projects.

Income from the Energyst associate of €1.8 million (R24.5 million) showed a significant improvement on the €0.5 million loss in the prior year following resolution of a project in Argentina.

Power

Year to date revenue is 12% below last year with activity in South Africa strongly up but Angola, Russia and Iberia well down on the prior year. Projects in Angola and Russia have been negatively impacted by the lower oil price.

The firm order book for power which is included in the regional equipment order books, increased by $17 million to $95 million at March 2015, which bodes well for deliveries in the medium term.

Handling

The division generated revenue of R982 million to March compared to R947 million in 2014. Revenue in Agriculture SA and SEM was R99 million (23%) and R11 million (44%) respectively, ahead of last year, while Handling SA and Agriculture Russia were down on the prior year.

Operating profit to March of R3 million was down on the R31 million generated last year and was negatively impacted by losses incurred in Agriculture Russia and Mozambique together with a start-up loss in Agriculture Zambia.

Automotive and Logistics

Automotive

The division generated revenue of R14.2 billion in the six months to March which represented 9.6% growth compared to last year. Divisional operating profit of R780 million was R61 million (8.5%) up on the prior period with all business units contributing to this improvement.

Car Rental

Revenue to March of R2.7 billion was R534 million (25%) up on the prior year driven by a significant increase in used sales through vehicle rollouts. Rental days increased by 5.3% while rental revenue per day also increased by 5.1%. Vehicle utilisation remained solid at 75%.

The operating profit of R246 million showed a R26 million (12%) improvement on last year with the operating margin dropping from 10.3% to 9.2% due to the impact of increased used vehicle sales in the revenue mix.

The Budget brand was successfully integrated with effect from 1 March 2015 into the existing infrastructure with a minimal financial impact on the March interim results.

Motor Retail

Motor Retail increased revenue to March by R584 million (6.3%) to R9.8 billion driven by a strong growth in used vehicle sales and a strong growth in parts sales.

Operating profit of R254 million was 8.1% ahead of last year with the operating margin slightly improved at 2.6%.

The recent acquisitions, including General Motors (GM) Ferndale in the Cape, have contributed positively to profitability in the period.

Avis Fleet

Revenue to March of R1.7 billion was 7.8% up on the prior year with the financed fleet showing a marginal year-on-year reduction.

Year to date, Avis Fleet generated an improved operating profit of R280 million which was 6.1% ahead of the prior year in an extremely competitive market.

Logistics

Logistics generated revenue to March of R2.2 billion which was 2.9% up on the prior year with Transport and Supply Chain Management showing growth while Freight Management and Services was down on last year. The abnormal load transportation market remains weak with low demand in both mining and construction.

Operating profit to March of R56 million is in line with last year but includes continued losses in Iberia and the Middle East Sea-air Transport business due to lower volumes. Strategic actions are underway to address the international businesses and recent contract awards in South Africa will benefit the second half result.

Human resources, diversity and sustainable development

There have been no work-related fatalities during the period and our ongoing commitment to safety has resulted in a marginal improvement in our lost-time injury frequency rate (LTIFR).

Initiatives to attract, develop and retain a diverse skills base, support our objective to ensure that our workforce reflects the demographics of the countries in which we operate. Our integrated approach to talent management underpins our strategy to secure the required diverse leadership and people to implement our business objectives including increased gender diversity in the technical service areas of our operations.

The group has retained its broad-based black economic empowerment (B-BBEE) Level 2 rating and our major South African business units achieved Level 2 or 3 ratings.

Progress is being made in relation to our various sustainable development objectives; however the expansion of Logistics' road transportation activities adversely impacts the achievement of our aspirational efficiency improvement targets for non-renewable energy consumption and greenhouse gas emissions (scope 1 and 2).

Funding

Net debt for the group at March 2015 of R11.6 billion was slightly up on the R11.2 billion in March 2014, however represents an increase of R4.4 billion from September 2014. The bulk of the cash absorption came from a R3.9 billion seasonal increase in working capital together with a R1.4 billion investment in the leasing fleet and the equipment and vehicle rental fleets.

Net debt to equity of 65% was up on September 2014 but slightly down on the prior year March level of 68% and is expected to decline in the second half as working capital levels reduce.

Proposed amendments to 2008 B-BBEE transaction

The Barloworld 2008 B-BBEE transaction concludes in September 2015. The company is proposing certain amendments to the strategic black partner (SBP) and community service group (CSG) components of the transaction in order to close it out in a fair and equitable manner for the SBPs, the CSGs, the company and our shareholders.

The board appointed a sub-committee under the leadership of independent non-executive director, Ms N Dongwana, to engage with the nine groups and recommend suitable terms for the close out of the transaction. The board has considered the terms and conditions of the proposed amendments and is of the unanimous opinion that they provide the most equitable solution for the SBPs, the CSGs, the company and our shareholders. The proposals take into account the objective of increasing black ownership in Barloworld and factors such as the equity risk assumed by the SBPs and CSGs and the share price of the company.

Following extensive engagement with the parties, amendment agreements have been signed by each of the nine groups comprising the SBPs and CSGs. For the proposed amendments to become effective, a general meeting of shareholders will be convened on or about 19 June 2015 where shareholders may vote on the resolutions proposed to give effect to the amendments.

The board is also committed to repurchase sufficient shares in the market to minimise any dilution that may arise from the closeout of the B-BBEE transaction. Details of the proposed amendments are contained in the company announcement of 12 May 2015 and the circular to shareholders posted on or about 15 May 2015.

Directorate

Mr Martin Laubscher, chief executive officer of the Automotive and Logistics division, retired due to health-related reasons at the company's annual general meeting on 4 February 2015. We would like to thank him for his outstanding service and contribution to Barloworld and the automotive industry over the past 28 years and wish him and his family well for the future.

Mr Keith Rankin, the chief executive of Barloworld Automotive, and Mr Steve Ford, the chief executive of Barloworld Logistics, continue to run these businesses and now report directly to the group chief executive Mr Clive Thomson.

Outlook

While the firm order book in Equipment southern Africa is up on the September level, it is the continued growth in after sales activity which will underpin the division's performance. We also expect construction activity at local government and municipality levels to show some improvement in the second half.

Activity levels in Equipment Russia are forecast to remain below last year with some opportunities presented in mining as well as construction, related to the Power of Siberia project. The after sales business will provide the steady growth required to support profitability.

Equipment Iberia will continue to benefit from the reduced cost base and we remain positive that the business will be profitable for the full year.

Handling should deliver improved performances in Handling SA and Agriculture SA in the second half.

The outlook for new vehicle sales for the balance of this financial year shows a slightly negative trend with consumers under pressure and the requirements of consumer regulations likely to further constrain access to credit. Our Motor Retail business will continue to focus on growing the after sales business, capitalising on finance and insurance opportunities as well as used vehicle sales. In addition we expect to benefit further from our increased dealership footprint in the Northern Cape, Mpumalanga and the Western Cape.

Car Rental will benefit from the opportunities arising from the Budget brand particularly in the inbound and non-contracted segments. In addition, used vehicle sales will again contribute significantly to the second half performance.

Avis Fleet's performance for the balance of this year should be stable. There are a number of contracts that are in the process of renewal or adjudication which could impact the medium-term performance of the business. Good progress is being made with embedding the new businesses in Zambia and Tanzania.

Logistics is forecasting a stronger performance in the second half. A number of new Supply Chain contracts are in the process of being finalised and the recently acquired Transport businesses are expected to make a positive contribution.

While trading conditions are expected to remain challenging in the second half, we will continue our focus on driving operation efficiencies and tight cost control. Overall we expect our businesses to deliver a resilient performance for the full year and are well placed to benefit in the medium term once the mining and construction cycles move into a recovery phase.

DB Ntsebeza CB Thomson

Chairman Chief executive

Group financial review

Revenue for the year increased by 3% to R30.7 billion, mainly due to improved revenues in Equipment southern Africa and Automotive and Logistics, offset by reduced revenue in Equipment Russia and Iberia. The weakening rand increased revenue for the period by R0.3 billion.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 7% to R2 991 million with depreciation and amortisation increasing by 7% as a result of the increased fleets in equipment rental, car rental and logistics transport businesses.

Operating profit rose by 6% to R1 744 million with the operating margin increasing to 5.7%. In Equipment southern Africa, operating profit increased by 8% despite a subdued mining sector, largely due to stronger aftersales profits. The improved operating results generated in Equipment southern Africa made up for the 35% drop in profits in Equipment Russia. Equipment Iberia has shown a strong turnaround, having recorded a profit compared to a loss in the previous year.

The Automotive and Logistics division produced a solid performance with most business units performing ahead of the prior year, increasing operating profit by 8% to R836 million.

The total negative fair value adjustments on financial instruments of R158 million (1H'14: R108 million) mainly relate to the cost of forward points on foreign exchange contracts and translation losses on local currency bank accounts and other monetary balances in Equipment southern Africa, Russia and Handling South Africa.

Finance costs increased by R47 million to R589 million. This is mainly due to higher average debt levels, arising from increased average working capital levels for the period, increased fleet leasing and capex relating to investment in the logistics business, further impacted by higher short-term interest rates.

The exceptional charge of R12 million mainly comprises the impairments of goodwill in the Logistics Sea-air Transport business (R33 million), offset by profits on sale of properties and other assets.

The taxation charge reduced by R24 million to R321 million, despite having been negatively impacted by a deferred tax liability raised in Equipment Russia in terms of IAS 12 following the depreciation of the rouble and a corporate tax rate decrease in Spain from 30% to 25% which resulted in a write down of the deferred tax asset of €1.9 million. The effective taxation rate for the period (excluding prior year taxation and taxation on exceptional items) was 32.4% (1H'14: 34.5%) which was assisted by the return to profitability in Spain.

Income from associates and joint ventures increased by 39% to R132 million (1H'14: R95 million) mainly attributable to the equipment joint venture in Europe.

Headline earnings per share (HEPS) from continuing operations increased by 16% to 367 cents (1H'14: 316 cents), while total HEPS was 9% higher than the comparable 336 cents last year.

Basic EPS from continuing operations of 353 cents is 20% higher than last year's comparable of 293 cents, while total EPS is 28% lower than the 494 cents in the prior period which included the exceptional profit of R370 million earned on the disposal of the Australian motor retail operations.

Cash flow

Current activity levels have resulted in increased investment in working capital of R3 944 million (1H'14: R3 234 million). Equipment southern Africa showed absorption of working capital of R2 039 million and Automotive and Logistics R1 118 million.

Net cash applied to investing activities of R503 million mainly comprises the purchase of heavy vehicles and cranes in the Logistics Transport business and facilities in the Equipment southern African and Automotive Trading businesses. The net cash outflow at interim was R4 190 million which was R312 million up on the R3 878 million outflow at March 2014.

Financial position and debt

Total assets employed in the group increased by R4 billion (9%) to R48 billion from September 2014. The increase was driven by the weaker rand (R0.4 billion) and an increase in working capital, rental and leasing fleets, as well as the acquisition of property, plant and equipment during the year.

Total interest-bearing debt at 31 March 2015 increased to R14.8 billion (September 2014: R11.3 billion) while cash and cash equivalents decreased to R3.1 billion (September 2014: R4.2 billion). Net debt increased in the first half mainly as a result of the seasonal increase in working capital. Net interest-bearing debt at 31 March 2015 of R11.6 billion was R4.4 billion higher than September 2014 (R7.2 billion).

Debt

In March, the company issued an unsecured seven-year bond totalling R710 million under its South African Domestic Medium Term Note programme. This was in line with the strategy of improving our debt maturity profile. The funds were utilised to redeem the R310 million BAW12 which matured on 17 April 2015.

In South Africa, short-term debt includes commercial paper totalling R1.4 billion (September 2014: R1.0 billion). While this market has remained liquid, spreads have been negatively impacted by interest rate uncertainty. We expect to maintain our participation in this market.

Cash balances of R3.1 billion are available to meet short-term commitments. Included in the March cash balance is $37 million (R446 million) held in local currency in Angola. Currently the Angolan government has prioritised the allocation of foreign currency to the oil and food sectors which has limited our ability to convert these funds into US dollars. Steps are underway to reduce this exposure.

The group has short-term borrowings at 31 March 2015 of R6.6 billion, unutilised committed borrowing facilities of R3.8 billion and further uncommitted facilities of R1.3 billion.

Fitch ratings reaffirmed the company's long-term credit rating at A+(zaf) (stable outlook) following the annual credit review in February 2015.

The group total debt to equity ratio at 31 March 2015 was 82% (1H'14: 79%), while group net debt to equity was 65% (1H'14: 68%).

Gearing in the three segments are as follows:

Going forward

Based on forecast deliveries in the second half in Equipment southern Africa, we are again forecasting a strong reduction in working capital and gearing by year end. We will also be finalising the refinancing of certain of our debt facilities which mature in the second half of this calendar year including the BEE loan financing of R1.2 billion and BAW2 of R750 million. We are also progressing the refinancing of the £100 million off-shore bilateral facility which matures in 2016.

DG Wilson

Finance director

Operational reviews

Equipment southern Africa was impacted by the cyclical mining and construction industries. Currently, the mining industry is going through a difficult period with a decline in commodity prices resulting in a reduction in capex spend, which impacts directly on our machine sales. Nevertheless, revenue for the period increased marginally by 3.2% as customers extended the life of machines, leading to an increase in parts sales. This, together with our continued focus on cost and efficiency optimisation, contributed to an 8% increase in operating profit.

Equipment Iberia revenue dropped by 9% in euro terms with lower prime product revenues, but margins remained robust across all market segments largely offsetting the lower revenues. Operating expenses declined by 10% as savings were realised following the restructuring undertaken in Spain last year. Operating profits earned during the period of R10 million represented a R42 million turnaround against the prior period, while tight control of the balance sheet continued to ensure that the region was cash flow positive.

In Equipment Russia revenue remained under pressure due to depressed mining equipment demand, challenging economic environment and international sanctions resulting from the Ukraine crisis. Despite these challenges, a satisfactory result for the first half was delivered due to strong aftermarket performance, tight cost control and efficiency improvements across the business. The EMPR aftermarket performance also contributed positively to the overall result.

Income from the associates includes a strong turnaround in the Energyst associate following resolution of a project in Argentina.

In Handling, strong sales and market share growth in the Agriculture SA operation was accompanied by lower machine margins as we converted additional large farmer fleets to our products. These new machines are not yet consuming many parts and this adverse mix and less favourable currency gains impacted the result. The Handling business suffered from weaker forklift demand while the SEM operation generated improved sales and operating profits on the back of an expanded product range. The start-up Zambian Agricultural business traded satisfactorily, albeit at a small loss. Difficult market conditions prevailed in Russia, and losses increased as a result of lower volume and balance sheet impairments.

The Automotive division delivered another record result in difficult markets. The division generated strong operating cash flows and has continued to reinvest into profitable growth opportunities across all business units. Divisional operating profit improved by 8.5% off revenue growth of 9.6%, while maintaining an overall operating margin of 5.5%.

Car Rental southern Africa delivered a good result, improving operating profit by 12%. The business maintained high fleet utilisation, grew rental day volumes and market share, and increased revenue per rental day. Used vehicle profits further improved on the high levels achieved in the previous year, supported the result. The Budget brand was successfully integrated from

1 March 2015.

The southern African Motor Retail operations delivered a pleasing result, growing operating profit by 8.1% while margins improved on the prior period. Overall vehicle sales volumes were in line with market and the result was supported by improved aftermarket volumes and a solid finance and insurance contribution. The acquisition of GM Ferndale was effective 1 December 2014.

Avis Fleet produced a stable result, improving operating profit by 6.1%. The business maintained the level of the financed fleet and benefited from further select growth in the non-financed fleet, however overall fleet size was negatively impacted by the loss of a low margin fleet accident management contract. Another strong used vehicle profit contribution supported the result.

Associates, which include our Soweto motor retail joint venture, remain in the early stages of development with progress being made.

The Logistics business delivered a flat performance in a tough trading environment with operating profit at R56 million. Revenue increased marginally by 2.9% to R2.2 billion. A stronger second half is forecast as significant new contracts awarded and a solid sales pipeline come on stream. While the international businesses remain under pressure, the investment in Barloworld Transport is starting to deliver value and the Supply Chain Management business in southern Africa remains stable. The acquisition of 100% of the re- environmental solutions business places us in a favourable position to take advantage of opportunities in this growing sector.

Corporate primarily comprises the operations of the headquarters and treasury in Johannesburg, the treasury in Maidenhead (United Kingdom) and the captive insurance company.

Southern Africa is showing an operating profit compared to a loss in the previous comparative period, owing mainly to lower charges and accruals for long-term incentives and reduced operating costs. In Europe the higher operating loss is mainly due to higher claims in the captive insurance company and the impact of currency depreciation.

Dividend declaration

Dividend number 173

Notice is hereby given that final dividend number 173 of 115 cents (gross) per ordinary share in respect of the six months ended 31 March 2015 has been declared subject to the applicable dividends tax levied in terms of the Income Tax Act (Act No. 58 of 1962) (as amended) ("the Income Tax Act").

In accordance with paragraphs 11.17(a)(i) to (x) and 11.17(c) of the JSE Listings Requirements the following additional information is disclosed:

• The dividend has been declared out of income reserves;

• Local dividends tax rate is 15% (fifteen per centum);

• Barloworld has 231 291 819 ordinary shares in issue;

• The gross local dividend amount is 115 cents per ordinary share;

• The net dividend amount is 97.75 cents per share.

In compliance with the requirements of Strate and the JSE Limited, the following dates are applicable:

Share certificates may not be dematerialised or rematerialised between 8 June 2015 and 12 June 2015, both days inclusive.

On behalf of the board

LP Manaka

Group company secretary

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of financial position

Condensed consolidated statement of changes in equity

Condensed consolidated statement of cash flows

Notes to the condensed consolidated financial statements