KHULA SIZWE

BROAD-BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION

18 December 2018

The Circular published on 18 December 2018 is the main source of detailed

information on the proposed B-BBEE transaction, therefore this presentation

serves only to give highlights of the transaction and address possible questions.

AGENDA– TRANSACTION HIGHLIGHTS

– FAQs

Barloworld Limited

BBBEE TRANSACTION

B-BBEE TRANSACTION HIGHLIGHTS

Transformation Creation of a long term sustainable B-BBEE transaction

Contribute to the 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 circa 14 000 employees and management

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

The empowerment points from the sale of properties will be locked in after three years time

Propco will 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%

Limited dilution to shareholders

3

Barloworld Limited

BBBEE TRANSACTION

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

BARLOWORLD FOUNDATION

3%

4

Barloworld Limited

BBBEE TRANSACTION

In respect of any financial year of the Foundation, the aggregate maximum entitlement of each beneficiary

shall be determined in accordance with the allocation principles of the Foundation Trust Deed and

apportioned to the qualifying categories set out below:

BARLOWORLD FOUNDATION

30%

• Programmes focusing on

access to quality

education with emphasis

on improving science,

technology, engineering

and mathematics (STEM)

subjects at high school

• Teacher Development

Programmes with an

emphasis on STEM

streams

30%

• Funding for youth

programmes that give the

youth:

• access to tertiary education

• access to youth skills and

leadership development

programmes

• Social Entrepreneurship and

Social Innovation

Programmes that resolve

local community challenges

80% Youth

60% Black Female

10% Black People

disabilities

100% Black

100% Youth

60% Female

10% Black People with

disabilities

100% Black

60% Black Female

30% Black People with

Disabilities

15%

• Financial and non-

financial initiatives that

promote

entrepreneurship

including, but not

limited to

• Training

• Mentoring

• Collaboration

60% Black Female

10% Black People with

Disabilities

5%

• Initiatives that ensure

conservation and

environmental

sustainability

20%

• Funding support for

welfare and charitable

organisations

• Humanitarian and

disaster relief support

Entrepreneurship

5

Barloworld Limited

BBBEE TRANSACTION

BLACK PUBLIC

SCHEMEc.20 000 participants

MANAGEMENT

TRUSTc.1 800 participants

B-BBEE TRANSACTION SALE OF PROPERTIES

38%32%30%

Sale of Properties

PROPCOPropco will be listed after 5 years

to enable trading

EMPLOYEE

TRUSTc.12 000 participants

EXTERNAL

FUNDERLoan

100% free contribution

towards the Employee

Trust’s R174m equity

requirement

Senior Managers: Loan from

Barloworld amounting to

R147m to fund 95% of the

Senior Managers’ equity

requirement

Junior Managers: Loan from

Barloworld amounting to R52m

to fund 100% of the Junior

Managers’ equity requirement

Market Value

(R2.8 billion) less

5% discount

Capital

Structure

Debt 80%

Equity 20%

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Barloworld Limited

BBBEE TRANSACTION

SALE OF PROPERTIES

Purchase Price Reconciliation Value

Current Value (31 Aug 2018) R2 754 617 400

Developments in progress R110 310 000

Future Market Value (1 Oct 2019) R 2 864 927 400

Discount on future value (5%) (R143 246 370)

Purchase Price R2 721 681 030

The purchase price is calculated as follows:

7

Barloworld Limited

BBBEE TRANSACTION

SALE OF PROPERTIES

Disposal price based on:

• Future value of properties of R2.865 billion (being the current market value (as above) increased by

the value of capex committed on properties under development of R110 million)

• Discount of 5% to the future value of R2.865 billion

Ten year lease between Barloworld (through Barloworld SA and Logistics) and Propco

• Year 1 rental will be escalated at 8%

Propco will not limit Barloworld’s ability to sell a division

*Independent Property Valuation

** GLA: Gross Lettable Area

Property typeProperties’ Market

ValueYield Base Rental GLA (m2)**

Motor Retail R1.676 billion 8.83% R148 million 128 913

Industrial R940.3 million 9.28% R87.2 million 149 901

Commercial R95.28 million 9.00% R8.6 million 9 150

Mixed – Commercial and

IndustrialR13.8 million 9.00% R1.2 million 5 264

Residential and Vacant Land

AttachedR29.4 million 9.38% R2.8 million 595

Total R2.755

billion*9.00% R247.9 million 293 823

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FAQ’s – PARTICIPANTS

How were the staff allocations done?

• Whilst Barloworld aimed to ensure inclusivity by allowing participation by all employees, the

allocations are based on national economically active population statistics (EAPs). Thus, a large

portion of the transaction value accrues to black staff

How many employees, that will be involved in the BEE scheme, are in each of grades 2-10, 10-

14 and 15-23?

• Grades 2 – 10 : 12 000

• Grades 10 – 14: 1 600

• Grades 15 – 23: 150

Why are white staff participating in a BEE Transaction?

• One of the key pillars in the design of the transaction is inclusivity, thus the inclusion of all staff,

black and white

• A large component of the value of the transaction (in excess 90%) accrues to black people

• Participation is based on EAPs, therefore the impact on black ownership is minimal

What is the level of women participation?

• At Propco level: Participation within the Employee Trust and the Management Trust is governed by

EAPs. Based on the EAPs, women will have 45.2% participation (with black women at 41%)

• At the Foundation level: Beneficiaries are required to be minimum 60% black female

9

FAQ’s – PARTICIPANTS cont’d

Please outline the management participation. Will there be facilitation and what are the

governance considerations?

• Allocations were done by a sub-committee of the board made up of independent non-executive

directors. Management was recused from this process

• The allocation is based on EAPs and grading

• Senior Management will be required to put “skin in the game” of 5% (a total of R8 million) of their

own equity requirement. The rest of the facilitation will be in the form of an interest-free loan from

Barloworld, which will be repaid

• Non-managerial employees will receive a free contribution from the company in order to participate

• The transaction is subject to shareholder approval (which is scheduled for February 2019). All the

required governance procedures and approvals are detailed in the published circular

How have conflicts of interest been resolved given significant management participation?

• The following safeguards were put in place by the board to ensure that conflicts of interest are

appropriately managed:

• In the interests of transparency, the company approached the transaction as a related party

transaction as a principle, and thus resolved to:

• seek shareholder approval;

• independently determine the value of the properties; and

• seek a fairness opinion

• A sub-committee made up of independent non-executive directors was specifically tasked with

dealing with matters relating to the participation of and allocation to management in the

transaction and were integral to the structuring of the transaction

10

FAQ’s – PARTICIPANTS cont’d

Are non-executive directors participating in the transaction?

• Those non-executive directors that qualify (being black South African citizens) are eligible to

participate in the public offer by Propco, just like ordinary members of the black public, subject to

such participation:

• Not impacting their independence

• Not exceeding R1 million per director

• Not exceeding 0.25% of Barloworld’s market capitalisation

• There is no special treatment or set aside allocations for non-executive directors

What is the process for the public to participate in the scheme?

• The public scheme will open in H1 of 2019. Propco will issue a prospectus inviting members of the

public to subscribe for shares in Propco. Additional information will be provided in H1 2019

If the public offer does not yield desired participation, how is this to be addressed?

• The total equity required for the public scheme is R163 million

• The minimum target for the public scheme is to raise R120 million, i.e. if the minimum of R120

million is not achieved, the scheme will not be implemented

• Any short-fall on the R163 million total equity required will be reallocated to the Management

Trust, for the specific benefit of the circa 1 600 Junior Managers. None of the Senior Managers

(grades 15 and above) will benefit from the re-allocation

• Should the public scheme fail to raise the total equity of R163 million, the junior managers loan

from Barloworld will increase from R52 million to R215 million

11

FAQ’s – PROPERTIES

How is Barloworld’s continued use of the properties guaranteed?

• Barloworld will enter into a 10-year lease with Propco with renewal rights for a further 5 years

Will this limit the management of the motor retail dealerships?

• Management performed an analysis of which dealerships should be included in the transaction

• This transaction will not limit management’s ability to make decisions relating to the viability of each

dealership. Barloworld’s management will continue to manage the company in the best interests of

all stakeholders, including any decisions to open or close dealerships

• On closure of dealerships, Propco may (i) rent the premises to a third party or (ii) sell the property

• In cases where dealerships need to be closed, the only impact on Barloworld will be in those cases

where Propco is unable to sell the relevant property for an amount higher than the present value of

the then remaining lease payments. In such instances Barloworld will be liable for any shortfall

What is the impact on Automotive who have owned their properties and therefore not paid any

rentals?

• The Automotive dealerships are managed on the basis of an attributed rental charge to each

dealership, although the properties were owned within the Automotive division

12

FAQ’s – PROPERTIES cont’d

Given that more than 50% of the properties are dealerships, with management participating in

the transaction, does this remove Barloworld’s ability to consider the viability of certain

dealerships?

• Propco will be independently managed with no involvement by Barloworld management. Barloworld

management will continue to manage Barloworld in the best interests of all stakeholders

• Furthermore, due to the related party nature of the transaction, any transactions (other than lease

payments) may require Barloworld shareholder and other regulatory approvals at the time

13

FAQ’s – OWNERSHIP

What is your current BEE level / BEE shareholding?

• Barloworld’s current BEE shareholding is 54% (comprising 31% permanent BEE shareholding and

23% BEE shareholding from mandated investments). Mandated investments are not permanent

and may change should the relevant shareholders sell their shares in Barloworld

• The proposed BEE transaction provides Barloworld with a higher permanent BEE shareholding

• The BEE shareholding is secured post the expiry of 3 years after the sale of the assets (Properties)

provided Barloworld does not buy-back the properties from Propco

• Should Barloworld buy-back the properties from Propco within the empowerment period, Propco

will be required to buy Barloworld shares with the net proceeds after settling debt and taxes

• The transaction will result in Barloworld’s permanent BEE shareholding increasing to 48%

How does the sale of assets into Propco confer BEE points?

• The ownership points are conferred under Statement 102 of the BEE Codes:

• Statement 102 provides that: “a Seller that has concluded a transaction involving a sale of

Asset, Equity Instrument or Business of a separately identifiable related business, may claim

the benefits provided for in this statement in its own Ownership scorecard.”

• The future rental from a black owned company will further confer procurement points for

Barloworld

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FAQ’s – OWNERSHIP

Why target such a high BEE shareholding?

• Barloworld’s current and prospective customers prefer suppliers with a 51% black shareholding.

Barloworld believes achieving 51% black shareholding will give Barloworld a competitive

advantage. This transaction achieves 48% black shareholding without the mandated investments.

This gives Barloworld headroom even with any volatility that may emanate from the mandated

investments shareholding and/or future growth of the business

15

FAQ’s – FINANCIAL EFFECTS

What is the value created as a result of the proposed transaction?

• With the enterprise value at risk of R5.5bn identified, the transaction will give Barloworld the ability

to be competitive and to protect and grow the market leading positions of its South African

operations

• Barloworld’s different business units have customers (both public and private) that require strong

BEE credentials from suppliers. Barloworld is entering into the proposed BEE transaction in order to

maintain its relevance and competitive advantage

• Barloworld, with the capital released from the transaction, will continue to carefully assess value

enhancing growth opportunities

Please explain how the transaction generates 14% increase in black ownership?

= Foundation size + Property Transaction Size (Value of Property/Value of BAW)

= 3% + (R2.75bn/R24.97bn)

= c. 14%

What is the difference between the cash costs of the scheme vs the economic costs?

• The cash outflow from Barloworld includes the payment of CGT and breakage costs amounting to

R207 million as well as the transaction execution costs which have been detailed in the circular

16

FAQ’s – FINANCIAL EFFECTS cont’d

What are the cash flows on day1?

How will the cash received by Barloworld be deployed? What is the availability of the cash since

Propco is consolidated? Will the cash only be available post 1 October 2019?

• The transaction is only due to be concluded on 1 October 2019. For the purposes of the pro-forma

financial effects in the circular, it has been assumed that the proceeds will be applied towards

reducing debt

• Given the current low gearing levels for Barloworld, as part of management’s ongoing capital

allocation assessment, the proceeds may be used to:

• Make an acquisition that meets Barloworld’s return hurdles; and/or

• If no appropriate acquisition is made (within a reasonable period), return cash to

shareholders

Cash Reconciliation Value

External Debt Raised R2 177 344 824

Public Scheme Equity R163 300 862

Management Equity R7 756 791

Total cash inflow R2 348 402 477

CGT + Breakage costs (R207 304 133)

Net cash inflow R2 141 098 344

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FAQ’s – FINANCIAL EFFECTS cont’d

What is the impact on EPS and HEPS?

• The year 1 impact on EPS and HEPS is a reduction of 16.6% and 6.7% respectively on a pro-forma

basis

• This comprises: Income tax and IFRS 2 charge, 3% administration charge, Foundation and transaction

costs, net finance costs and breakage costs

• EPS will include CGT and transaction costs

What is the immediate dilution to shareholders and over time in terms of both shares and earnings?

• The dilution to shareholders results from the issue of shares to the Foundation. However, due to the

Foundation being consolidated, these shares are treated as treasury shares and as such have no

dilutive impact. Only the actual expenses of the Foundation will have an impact on earnings in

perpetuity

• The impact of the overall transaction on earnings in year 1 is a 16.6% and 6.7% reduction in pro-forma

EPS and HEPS respectively

• Over time:

• The impact of the Foundation component on Barloworld’s Income Statement will be the actual

expenditure by the Foundation (which is based on dividends received from Barloworld)

• The rental charge for the Property component will also be eliminated on consolidation

• However, there will be an actual net cash cost to Barloworld of the rental (being the after tax

rental expense)

• The net proceeds to Barloworld may (depending on how the proceeds are applied) generate

returns that reduce the impact of the rental charge

18

FAQ’s – GENERAL

What happens if shareholders do not vote in favour of the transaction?

• This transaction will not go ahead. However, BEE is required to trade competitively within the South

African environment. There is material enterprise value at risk as South African customers are unwilling to

continue doing business with untransformed businesses. Therefore, another BEE transaction may need to

be considered in order for Barloworld to remain competitive

What happens at the end of 10 years - Will Propco continue to be consolidated? Will Barloworld buy

back properties or extend the leases? How will the price of the properties be determined?

Accounting Treatment

• If Propco were to be de-consolidated (due to Barloworld being deemed to have lost control in terms of

IFRS 10), there will be a net loss equal to Propco’s NAV in Barloworld’s financial statements of R2.3 billion

Properties

• At the end of the 10-year lease period, the following alternatives are available:

• Barloworld may extend the lease period (on some or all the properties) by a further 5 years. The

extension will be at the then independently determined market related rental;

• Propco may, in its sole discretion, sell some or all the properties;

• If Propco chooses to sell the properties, Barloworld has a right of first refusal to acquire the

properties

• The purchase price will be independently determined, given the related party nature of such a

transaction

• Were Barloworld to acquire (some or all of) the properties from Propco, the transaction may be

subject to any regulatory approvals at the time (which may include shareholder approval)

• The transaction term is 15 years, during which period Propco is required to remain black

owned

19

Barloworld Limited

BBBEE TRANSACTION

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 SHAREHOLDERPercentage 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

Total property transaction facilitation costs 1.70% 424 983 453

Total BEE Facilitation Costs (Public Scheme Successful) 4.70% 1 174 150 538

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KHULA SIZWE

BROAD-BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION