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)

(JSE share code: BAW)

(JSE ISIN: ZAE000026639)

(Share code: BAWP)

(JSE ISIN: ZAE000026647)

(Namibian Stock Exchange share code: BWL)

("Barloworld" or "the company")

PRELIMINARY AUDITED YEAR-END RESULTS FOR THE 12 MONTHS TO 30 SEPTEMBER 2015

Salient features

Revenue up by 1% to R62.7bn

Operating profit (before B-BBEE charge) up by 4% to R3 995m

Successful close out of 2008 B-BBEE transaction

Significant turnaround in Equipment Iberia

HEPS (before B-BBEE charge) from continuing operations up 8% to 926 cents

Total dividend per share increased 8% to 345 cents

Clive Thomson, CE of Barloworld, said:

"The group's industry and geographic diversity contributed to a resilient overall performance with headline earnings per share from continuing operations (before B-BBEE charge) up 8% on last year.

While trading conditions remain challenging in certain of our businesses we are taking appropriate strategic and operational steps which will position the group to make solid progress in the year ahead."

16 November 2015

Chairman and Chief Executive's report

Overview

The group has produced a resilient result for the 2015 financial year despite ongoing challenges in the mining sector as a result of weakness in commodity prices. Aftermarket revenues in Equipment contributed positively as did improved operating results in Car Rental, Avis Fleet and Logistics.

Revenue from continuing operations of R62.7 billion is 1% up on last year. Operating profit (before the R251 million charge in respect of the close out of the 2008 B-BBEE transaction) of R3 995 million is 4% ahead of the prior year.

Headline earnings per share (HEPS) from continuing operations (excluding the B-BBEE charge) increased by 8% to 926 cents compared to 857 cents in the prior year. HEPS including the B-BBEE charge was 814 cents per share compared to 857 cents in 2014.

The total dividend for the year of 345 cents per share is 8% above the 320 cents last year.

Operational review

Equipment and Handling

Equipment southern Africa

Revenue for the year of R20.3 billion was 3% below the prior year mainly as a result of the slowdown in mining and contract mining equipment demand. After-sales revenue remained resilient, increasing by 12% to R10.1 billion and represented 50% of total revenue.

Operating profit of R1 894 million was 4% below the R1 968 million achieved last year and was adversely impacted by rising bad debts particularly in the rental business. The operating margin of 9.3% held up at a similar level to the prior year.

In the Power Systems business, activity levels in South Africa and Mozambique were well ahead of last year while Angola was significantly down as activity levels were adversely impacted by the decline in the oil price.

Associate income increased by 19% over last year.

Equipment Russia

Revenue decreased by 26% to US$280 million with both mining and construction well below the prior year as a result of weak commodity prices and slowing economic growth. After-sales revenue continued strongly and represented 61% of total revenue compared to 46% in 2014.

Operating profit of US$32 million was below the prior year but showed a significant improvement in the second half. The improved operating margin of 11.4% in dollar terms was favourably impacted by the change in sales mix as well as a reduction in operating costs.

Equipment Iberia

The macro-economic environment in both Spain and Portugal is improving. Revenue for the year of €274 million was slightly below the prior year as the construction sector lags the broader economic recovery, however Power Systems revenues continued positively.

A highlight for the current year was the return to profitability in Iberia for the first time since 2008. The business generated an operating profit of €5 million compared to a loss of €11.8 million last year.

Handling

Revenue for the year of R2 billion was 5% up on the prior year mainly due to the inclusion of Metso equipment sales. Agriculture equipment sales in South Africa were negatively impacted by the extended drought and customer financing delays.

The business generated an operating profit of R6 million which was well down on the R55 million achieved in 2014. Trading conditions in our Russian Agriculture business deteriorated in the current year following the collapse of the Russian Rouble. A decision was taken to dispose of this business and a sale transaction was concluded at the end of September.

Automotive and Logistics

Automotive

The Automotive division generated revenue of R28.7 billion which is 7% ahead of the previous year. Operating profit of R1 529 million was slightly up on last year's R1 522 million.

Car Rental

Revenue to September of R5.2 billion is 15% up on last year driven by strong growth in used vehicle sales together with a 5.9% growth in rental days and a 3.5% increase in rental revenue per day. Average fleet utilisation for the year remained high at 75%.

The integration of the Budget brand from 1 March 2015 has contributed positively to a growth in the Avis Budget market share particularly in the local and foreign inbound segments.

Operating profit of R471 million was 12% ahead of last year.

Motor Retail

The Motor Retail business increased revenue by 5%. While new vehicle unit sales were down by 3% on the prior year, this was somewhat offset by higher prevailing vehicle inflation. In addition there was good growth in used vehicle sales and after-sales volume.

Operating profit declined by 10% to R486 million mainly due to new vehicle margin pressures and higher than normal sales in the prior year generated by the introduction of a new model range from the Mercedes-Benz franchise.

Avis Fleet

Revenue of R3.4 billion was 8.9% up on the prior year with operating profit increasing by 2.3% to R572 million. A fleet technology operation was acquired and the business entered the Tanzanian and Zambian markets during the year.

Logistics 

Revenue for the year of R4 509 million showed a 3% growth on last year with the bulk of the increase coming from the Supply Chain Management business.

Operating profit of R159 million was 30% up on last year. The disposals of the loss-making operations in Spain and Germany at the back end of the year benefited the Freight Management and Services segment in the last quarter.

The mobile crane business was launched during the year and we acquired the remaining 74.9% shareholding in the Re- environmental solutions company for R73 million, which has subsequently been rebranded SmartMatta.

Subsequent to year-end we formed a strategic partnership with LLamasoft, a global leader in supply chain planning software solutions. This included a transaction to dispose of our supply chain software division to LLamasoft while gaining access to a wider range of advanced supply chain design and analysis tools for the benefit of our current and future clients. The conditions precedent to the transaction are expected to be completed by the end of November 2015.

Closure of 2008 B-BBEE transaction

The amendments to the transaction involving the six strategic black partners and the three community service groups were approved by shareholders at the general meeting of 19 June 2015. In terms of the amendments the compulsory obligation by the B-BBEE participants to subscribe for shares in Barloworld in excess of what could be funded from available cash resources was terminated and the restrictions imposed upon them relating to those shares was also removed.

In terms of the transaction the company issued 1 590 622 shares to the participants on 5 November 2015 at an agreed price of R179.69 generating proceeds of R285.8 million. To further the objective of increasing black ownership in Barloworld, the company issued 450 000 additional shares to the participants at a subscription price equal to par value of 5 cents per share. The total cost to shareholders of these amendments was R204.9 million calculated in terms of IFRS 2 and including transaction costs.

As at 30 September 2015 the company had repurchased 450 000 shares in the open market of the total buy-back commitment of 2 040 622 shares required to minimise the dilution impact of the transaction on Barloworld shareholders.

The 2008 transaction also included a Black Managers Trust (BMT) set up to reward and retain black managers in the group. This element of the transaction terminated without any value accruing to any of the participants. The board was of the opinion that the black managers play a vital part in the success of the company and therefore approved an ex gratia payment based on the original rules of the BMT. This resulted in 183 current and past black managers receiving a R46.4 million cash award as recognition of their contribution over the past eight years.

The group therefore incurred a total pre-tax charge of R251.3 million (112 cents per share after tax) related to the close out of the 2008 B-BBEE transaction.

Human resources, diversity and sustainable development

Providing a safe and healthy work environment remains a key focus. Zero work-related fatalities and a 10% improvement in our Lost-time injury frequency rate (LTIFR) underscore our initiatives in this regard.

During this period our focus remained on implementing our Integrated Employee Value Model covering both our employee value proposition and entrenching a methodology for high performing organisations. Leadership, talent, diversity and inclusion are key focus areas across the group.

Barloworld Limited maintained a dti B-BBEE ranking of Level 2 and our businesses are preparing for assessments under the new codes which will be applicable to ratings obtained in 2016. We remained in the top 20 of the JSE most empowered companies in an independent survey.

The group was 7% behind its aspirational target of a 2% efficiency improvement for non-renewable energy and greenhouse gas emissions (scope 1 and 2) set for the end of this financial year off a 2014 baseline, mainly due to growing operations with relatively high intensities, as well as base energy consumption patterns of businesses with decreased activity levels.

Barloworld is a constituent of the Dow Jones Sustainability Emerging Markets Index and the FTSE/JSE Responsible Investment Index.

Stakeholder engagement informs our activities and formal structures are continually being refined to enhance their effectiveness.

Directorate

Mr Martin Laubscher, chief executive officer of the Automotive and Logistics division, retired from the Barloworld Limited board at the company's annual general meeting on 4 February 2015 and from the company with effect from 28 February 2015 due to health-related reasons. We would like to thank him for his outstanding contribution to the group over 28 years.

Outlook

In Equipment southern Africa we expect mining unit sales to remain under pressure as the major mining companies continue to minimise their capital expenditure and the business is taking steps to ensure tight control over the cost base. Our business model has, however, proven to be resilient in the current environment, underpinned by strong aftermarket growth and we expect this to remain so going forward. The order book at end September of R1.7 billion is slightly down on the comparative book of R1.9 billion at September last year.

In Iberia the ongoing recovery of the Spanish economy and the political stability which is likely following the year-end general election should have a positive impact on future public works spending. While Spain currently has one of the fastest growing economies in the Eurozone this is yet to fully translate into increased activity levels in the construction industry. We believe that the current cost structure is appropriate to position the business for future growth and any increase in activity levels will have a direct positive impact on profitability. The current Iberia order book of €41.5 million compares to €33.1 million last year and is dominated by Power Systems where activity levels remain solid.

The Russian economy is in recession and is suffering from current low commodity prices, with the weak oil price having a negative impact on the overall economy. However, our firm order book at September of US$27.7 million is well up on last year as a result of some recent mining contract awards. Additional contracts signed in October amounting to US$31 million will provide some positive momentum going into the 2016 financial year.

In Handling we expect drought conditions 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 the year ahead.

South African new vehicle sales are likely to maintain the current negative trend into next year. Consumer confidence levels remain low and are likely to be exacerbated by projected interest rate hikes in 2016. The weakening Rand should also translate into higher new vehicle price inflation. This is likely to impact our motor retail business. However, this will be mitigated by growing aftermarket and used vehicle sales.

Car Rental will continue to benefit from the addition of the Budget brand, particularly as inbound tourism is stimulated by a weak Rand, while Avis Fleet is expecting a stable performance in the year ahead.

In the Logistics Supply Chain Management business we are likely to see the positive full year earnings impact of new contracts awarded in 2015. The disposals of the loss-making logistics operations in Spain and Germany towards the end of this financial year will ensure an improved result in the Freight Management and Services business in the coming year.

While trading conditions remain challenging in certain of our businesses, we are taking appropriate strategic and operational steps which will position the group to make solid progress in the year ahead.

DB Ntsebeza CB Thomson

Chairman Chief executive officer

Group financial review

Revenue for the year increased by 1% to R62.7 billion, mainly due to increased revenues in Automotive and Logistics (R2.1 billion), offset by reduced revenue in Equipment southern Africa, Equipment Russia, and Iberia. The weakening Rand increased revenue for the year by R995 million.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 5% to R6 479 million with depreciation and amortisation increasing by 6%.

The group incurred charges in the current year of R251 million related to the close out of the 2008 B‑BBEE transaction, these costs comprise largely of IFRS 2 charges. Operating profit from continuing operations before the B-BBEE charge rose by 4% to R3 995 million with the group operating margin increasing to 6.4% on a comparative basis. Despite the slowdown in the mining sector, Equipment southern Africa delivered a resilient performance with operating profit of R1 894 million for the year. The growth in aftermarket activity continued to contribute positively to their results. Russia had a strong second half to produce a solid result achieving a profit of R397 million for the year. Equipment Iberia, which posted a loss of R168 million in the prior period, showed a significant turnaround to report a profit of R71 million in the current year.

The Automotive and Logistics division produced another good performance in a tough trading environment, with operating profits of R1 688 million, showing a 2.7% increase on last year.

The total negative fair value adjustments on financial instruments increased to R198 million (2014: R156 million).The current year's losses mainly comprise the cost of forward points in exchange contracts in Equipment southern Africa and gains and losses on unhedged transactions in Handling South Africa. In addition there were translation losses on local currency receivables and bank balances in Equipment operations in Africa (mainly Angola, Zambia and Mozambique), Equipment Russia and Agriculture Mozambique, resulting from local currencies having weakened against the US dollar.

Finance costs increased by R135 million to R1 252 million. The increase is a result of higher average debt levels, arising from increased average working capital levels for the year, increased fleet leasing and rental fleets and capex relating to the logistics business, further impacted by higher interest rates in South Africa.

The exceptional charge of R6 million comprises the impairment of goodwill in the Logistics Sea Air Transport business of

R33 million and the loss on disposal of the Agriculture Russia business of R88 million. This was offset by profit of R76 million from the disposal of offshore businesses in Logistics, as well as a net profit of R35 million on sale of properties and other assets.

The taxation charge for the year was R808 million. The effective taxation rate (excluding prior year taxation and taxation on exceptional items) of 37.1% (2014: 34.1%) which included deferred taxation charges of R247 million (2014: R11 million) arising in terms of IAS12:41 for currency depreciation mainly in Russia, Angola, Mozambique and Zambia.

Income from associates and joint ventures increased by 32% to R287 million (2014: R217 million) driven by strong performances from the Equipment joint ventures.

The non-controlling interest in the current year's earnings includes dividends of R48 million paid to participants of the B-BBEE transaction with the balance relating to the minorities in our NMI/DSM and Transport Solutions subsidiaries.

Headline earnings per share (HEPS) from continuing operations excluding the B-BBEE charges increased by 8% to 926 cents (2014: 857 cents). Basic earnings per share (EPS) of 809 cents is 20% below the prior year which included the profit from discontinued operations of R428 million in respect of the Australian Motor Retail operations which were disposed of last year.

Cash flow

Cash generated from operations decreased to R1.1 billion compared to R3 billion generated in 2014. Reduced activity levels in Equipment southern Africa has resulted in further working capital absorption in the second half. For the year Equipment southern Africa showed an absorption in working capital of R2 279 million and Handling R447 million, mainly as a result of higher inventories and reduced payables.

Cash applied to the net investment of property, plant and equipment together with subsidiaries and intangibles of R1 826 million mainly comprises the purchase of heavy vehicles and cranes in the Logistics transport business, and facilities in the Equipment southern Africa, Iberia and Automotive trading business. In addition approximately R328 million was invested in Angolan US$ linked bonds as protection against further currency devaluation. The group had a net cash outflow of R3 523 million at September 2015 compared to the R145 million inflow at September 2014.

Financial position and debt

Total assets employed in the group increased by R4.2 billion to R48.2 billion at September. This increase was driven by the weaker Rand (R2.5 billion) and increases in working capital, leasing and rental assets, and property, plant and equipment.

Total interest-bearing debt at September 2015 increased to R13.4 billion (2014: R11.3 billion) while cash and cash equivalents reduced to R2.4 billion (2014: R4.2 billion). While the group achieved some reduction in net debt in the second half of the year, this was hampered by higher working capital levels and the investment of US$26 million in Angolan US$ linked government bonds. Net interest-bearing debt at 30 September 2015 of R11.1 billion was R3.9 billion up on the prior year of R7.2 billion.

The group debt-to-equity ratio at 30 September 2015 was 66.9% (September 2014: 64.7%), while group net debt to equity was 55.1% (September 2014: 40.9%).

Debt

In March this year the company issued a senior unsecured note for R710 million, under the South African Domestic Medium Term Note programme (BAW21) which matures in March 2022. In September we concluded a local R2 billion finance package which includes a five-year fixed-rate R500 million loan, a five-year floating rate R500 million loan and a six-year R1 billion revolving credit facility. The funds raised were utilised to repay the R1.2 billion B-BBEE loan which matured in September and the R750 million bond (BAW2) which matured in October 2015. In addition, our UK subsidiary concluded a five-year £110 million syndicated loan facility in July, to refinance the existing £100 million bilateral facility.

In South Africa, short-term debt includes commercial paper totalling R0.9 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.

At 30 September 2015 the group had committed unutilised borrowing facilities of R5 494 million and further uncommitted facilities of R2 170 million.

Fitch Ratings affirmed the company's long-term credit rating at A+(zaf) (Stable Outlook) following the annual credit review in February 2015.

Gearing in the three segments are as follows:

Going forward

The group return on net operating assets from continuing operations (excluding the B-BBEE charge) decreased from 18.8% in 2014 to 16.8% in the current year due to increased net operating assets, mainly in Equipment southern Africa and the Handling divisions. The group disposed of certain loss-making operations during the second half of the year which together with a continued improvement in Equipment Iberia should assist operating results in the coming year. The strategic redeployment of capital into higher returning businesses and a reduction in working capital should further contribute to improved returns in 2016.

DG Wilson

Finance director

Operational reviews

EQUIPMENT AND HANDLING

Southern Africa delivered a resilient result in the year ending September 2015, despite the continued economic downturn. The decrease in commodity prices and electricity shortages across a number of southern African countries negatively impacted revenues from mining. Operating profit for the period declined by 3.8% to R1 894 million.

The decrease in mining capital expenditure has created opportunities for our after-sales, rental and used businesses. Lower firm orders at September of R1.7 billion compared to R1.9 billion in 2014 is reflective of the challenging industry climate with ongoing mining production likely to underpin strong after-sales opportunities.

Russia produced a pleasing result under highly challenging market and economic conditions. Operating profit of R397 million (US$32 million) for the year was supported by a strong aftermarket performance combined with tight cost controls and headcount reductions. Although the mining downturn continued to affect the business performance, the closing firm order book has improved substantially on prior year.

Iberia continued to operate in a market which saw the overall machine industry grow, driven by gains in the light construction sector, while heavy construction and mining sector continued to show low activity levels. The business delivered an operating profit of €5.0 million which included restructuring costs of €1.1 million, mainly in the Portuguese operations. This turnaround result has driven strong margin improvement across all prime product segments, while product support benefited from improved service productivity. The order book ended the year 25.3% better than the prior year on the back of continued opportunity in the Power Systems business.

In Handling the South African agricultural operation enjoyed strong sales in the first half but drought conditions and a liquidity squeeze in the second half of the year depressed demand and left higher than anticipated stocks, though there was a pleasing growth in market share and higher penetration of the high tech tractor market. The Russian dealership was exited at the end of the year.

The forklift operation in South Africa saw higher service activity but weaker export parts demand and lower new sales. Order books increased appreciably in the final quarter and a number of initiatives were announced after year-end to reduce the cost base.

AUTOMOTIVE AND LOGISTICS

The Automotive division delivered another pleasing 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 marginally improved off revenue growth of 7.2%, while achieving an overall operating margin of 5.3%.

Avis Budget Car Rental delivered a good result, further improving operating profit by 12%. The business grew rental day volumes and market share, increased revenue per rental day and successfully managed fleet utilisation at 75%. The overall margin was impacted by a change in mix between car rental and used vehicle revenue, while used vehicle profits supported the overall result. The Budget brand was successfully integrated from 1 March 2015.

The Motor Retail operations delivered a creditable result given the tough trading conditions and declining new vehicle market. Operating profit decreased by 10% with an 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 market and the result was supported by an improved used vehicle and after-sales performance.

Avis Fleet produced a solid result, improving operating profit by 2.3%. 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. The outsourced fleet management contract with the government of the Kingdom of Lesotho ended on 30 September 2015 and was not renewed.

Logistics delivered an improved performance with revenue up 3.3% on last year and operating profit up 30% on last year with improved margins of 3.5% (2014: 2.8%). The South African operations grew despite tough trading conditions in the mining and infrastructure sectors. The addition of new contracts, the extension of work with existing clients, the strong performance of freight forwarding in South Africa and the acquisition of the remaining 74.9% in Re Ethical (rebranded SmartMatta) positively impacted the results.

Lower abnormal load and cross border transportation volumes as well as the impact of two unprotected strikes negatively impacted the performance of the Transport business unit. Volumes within Manline Energy and Dedicated Transport remain robust.

Trading losses in the international operations have been addressed by the exit of Barloworld Logistics in Spain and the Sea Air Transport effective 1 June 2015 and 1 July 2015 respectively.

CORPORATE

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

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 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.

Dividend declaration

Dividend number 174

Notice is hereby given that final dividend number 174 of 230 cents (gross) per ordinary share in respect of the year ended 30 September 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 214 733 205 ordinary shares in issue;

• The gross local dividend amount is 230 cents per ordinary share;

• The net dividend amount is 195.5 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 Monday, 11 January 2016 and Friday, 15 January 2016, both days inclusive.

On behalf of the board

LP Manaka

Group company secretary

Directors

Non-executive: DB Ntsebeza (Chairman), NP Dongwana, FNO Edozien^, AGK Hamilton*, A Landia~, SS Mkhabela, B Ngonyama, SS Ntsaluba, SB Pfeiffer•, OI Shongwe

Executive: CB Thomson (Chief Executive), PJ Blackbeard, PJ Bulterman, DM Sewela, DG Wilson

^Nigerian *British ~German •American

Summarised consolidated income statement

for the year ended 30 September

Summarised consolidated statement of comprehensive income

for the year ended 30 September

Summarised consolidated statement of financial position

at 30 September

Summarised consolidated statement of changes in equity

at 30 September

Summarised consolidated statement of cash flows

for the year ended 30 September

Summarised notes to the consolidated financial statements

for the year ended 30 September