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Building sustainable value

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…..”.

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Building sustainable value

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  1. Building sustainable value Presentation to the Investment Analysts Society Tony Phillips CEO, Barloworld Limited

  2. Today’s agenda • Where we have come from • What we do today • Value Based Management • The current business environment • 2x4x4

  3. 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

  4. 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

  5. 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

  6. 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

  7. Barloworld today: R 35 billion revenues from operations in 32 countries 2003 total revenues

  8. Revenues have risen 3-fold in a decade to match pre-unbundling levels 40 Pre-unbundling 35 30 25 Revenue R billion 20 15 10 5 0 1997 1993 1994 2000 1995 1996 1998 2002 1999 2001 2003

  9. Products, services and solutions delivered through 7 operating business segments 2003 trading revenues (excluding corporate ops & other)

  10. A 77 year relationship Exclusive dealer for: Spain and Portugal Southern Africa Western Siberia Bulgaria Equipment: one of the world’s largest Cat dealers

  11. Complementary brands complete the offering: Perkins,Dezzi, Ingersoll Rand, Bitelli, Boart Longyear, Massey Ferguson, Mak We add intellectual capital and deliver: Smart Partnerships™ Equipment:… providing total solutions

  12. 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

  13. 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

  14. Industrial distribution:major presence in truck distribution in SE US • Top 5 US dealer inFreightlinerand Sterling trucks • Arkansas, Louisiana, Mississippi, Tennessee &Texas • Only listed dealer in United States

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

  21. VBM: What is it? The essence of VBM is not the measurement of value It is aligning theorganisation to create long term sustainable value It is a journey not a destination

  22. VBM : The 1999 framework Shareholder Value TSR (total shareholder return) CFROI (cash flow return on investment) Capital Capital Market Company’s processes, activities and assets Commercial Market Labour Market People Value Compensation & Worth What Paid For Customer Value Self fulfilment Revenue Employee Satisfaction Value-Based Compensation Value for money Innovation Customer Value Attributes Employee Satisfaction Direct Measures of Quality Innovation

  23. ROE IRR VBM: Why use CFROI as the financial metric? Reported ROE using actual U.S. inflation for a 6% “real” IRR project 20 15 % Return 10 5 Source: HOLT analysis 0 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

  24. VBM: CFROI has the strongest correlation to Total Shareholder Returns of any metric Holt source data: US S&P industrials 1998

  25. 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

  26. VBM:“It’s all about the bubbles” Cost of Capital 10% Real Growth In Assets 5% CFROI 0% 5% 6% 7% 8% 9% 10% -5% -10%

  27. VBM: Barloworld bubble progression delivers shareholder value Cost of Capital 25% 20% 1999 15% 10% 2000 Real Growth In Assets 5% 2001 0% 2002 6.0% 7% 8% 9% 10% -5% 2003 -10% -15%

  28. Since 2002 VBM has evolved into a fully integrated sustainability management system Community (social and environment) Shareholders Integrated management of value creation across all stakeholder groups simultaneously Employees Customers

  29. Pricing and quality of customers improvements Margin enrichment Acquisitions and disposals Emphasis on cash flows Growth in Smart Partnerships Strategic shifts in focus (eg Avis) New products and services Customer value analytics Employee value models CEO’s Awards Sustainability reporting (GRI) Black Economic Empowerment Pac Man expansion Surgery to improve operations in difficult markets VBM-driven actions include: Shareholders Community Customers Employees

  30. Asset Management Parts & Service Products Basic Support VBM driven actions:Smart Partnerships - moving up the value chain Cost per Ton Maintenance & Repair Contract (MARC) Ownership Options Op Training Application Increasing value added Systems

  31. VBM driven actions:Acquiring Avis - changing strategic focus South Africa “Shop Front” C U S T O M E R S BTH Parts AVIS Fleet Services Motor Retail Service Fitment / Tyre EMPOWERED AVIS Rent-A-Car Subaru Panel

  32. 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

  33. Strong ethics Obey the law Be fair Be honest Respect others Protect the environment Good governance A business imperative IAS compliant Aligned with global standards of best practice Continual evolution in approach VBM driven actions: sustainable approach to BEE founded on ethics, governance & community value

  34. VBM driven actions: A balanced scorecard is the substance of long term BEE effectiveness

  35. VBM driven actions:Equity BEE in every South African business unit

  36. VBM driven actions:Pac Man expansion strategy case study

  37. VBM driven Pac Man strategy: Our Hyster territory in the United States was built over 13 years Va Ky Mo Ok NC ‘79 Tn ‘79 Ak ‘92 SC ‘79 ‘92 Ms Ga ‘79 Al ‘88 Tx La Fl ‘88 Hyster territory

  38. Freightliner Territory Hyster Territory VBM driven Pac Man strategy: In 2000 acquired first Freightliner dealerships Tn Ak Ms Barton Freightliner

  39. Freightliner Territory Hyster Territory VBM driven Pac Man strategy: In 2003 Freightliner territory expands for critical mass Ok Ak Tx Northwest Arkansas Truck Ms La Texarkana Truck Center

  40. VBM has delivered 4 years of margin and operating profit growth

  41. 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 Business environment update:generally positive

  42. Double the value we create In 4 years (2002 – 2006) For all 4 stakeholders (investors, customers, employees, social/environmental communities) IN 2002 using our VBM principles we set ourselves a new medium term value goal 2 x 4 x 4

  43. Achieving 2x4x4: 2 pillars of growth, supported by long term “R&D” businesses and built on VBM Southern African infrastructure Global business solutions Long term “R&D” businesses VBM

  44. 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

  45. Achieving 2x4x4: different drivers for each pillar Excellent organic growth prospects Pac Man expansion Southern African infrastructure Global business solutions Long term “R&D” businesses Blue sky VBM

  46. 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

  47. 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

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