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
B-BBEE TRANSACTION HIGHLIGHTS 3 Creation of a long term sustainable B-BBEE transaction Transformation Contribute to the transformation and inclusive growth of the South African economy Foundation shareholding permanent Longevity Minimum 15-year empowerment period Creation of a broad-based Foundation issued with 3% of Barloworld Foundation mandate of poverty alleviation, education and youth development Broad-based Broad-based participation of circa 14 000 employees and management Public Offer to the black public 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 Sustainability The empowerment points from the sale of properties will be locked in after three years time Propco will grow its property portfolio over time Sale of property portfolio aligned to strategic focus to maximise and unlock value of all assets Strategic Protect and grow the market leading positions of the South African operations alignment Reliable, credible partner to public and private sector clients Efficient B-BBEE ownership equivalent to 14% structure Limited dilution to shareholders Barloworld Limited BBBEE TRANSACTION
BARLOWORLD FOUNDATION 4 Aligned with the national development imperatives of advancing inclusive economic transformation and growth BARLOWORLD FOUNDATION Focus will be on: • Poverty alleviation, 3% • Education, • Youth development and advocacy BARLOWORLD FOUNDATION Permanent shareholding, not allowed to sell into perpetuity Barloworld Limited BBBEE TRANSACTION
BARLOWORLD FOUNDATION 5 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: Entrepreneurship 20% 30% 30% 15% 5% • • • Funding support for Programmes focusing on Funding for youth • • Financial and non- Initiatives that ensure access to quality programmes that give the welfare and charitable financial initiatives that conservation and organisations education with emphasis youth: promote environmental • • Humanitarian and on improving science, access to tertiary education entrepreneurship sustainability • disaster relief support technology, engineering access to youth skills and including, but not and mathematics (STEM) leadership development limited to subjects at high school programmes • Training • • Teacher Development Social Entrepreneurship and • Mentoring Programmes with an Social Innovation • Collaboration emphasis on STEM Programmes that resolve streams local community challenges 80% Youth 100% Youth 60% Black Female 60% Black Female 60% Black Female 60% Female 100% Black 30% Black People with 10% Black People with 10% Black People 10% Black People with Disabilities Disabilities disabilities disabilities 100% Black Barloworld Limited BBBEE TRANSACTION
B-BBEE TRANSACTION SALE OF PROPERTIES 6 Senior Managers: Loan from Barloworld amounting to R147m to fund 95% of the Senior Managers’ equity requirement 100% free contribution Junior Managers: Loan from towards the Employee Barloworld amounting to R52m Trust’s R174m equity to fund 100% of the Junior requirement Managers’ equity requirement EMPLOYEE MANAGEMENT BLACK PUBLIC TRUST TRUST SCHEME c.12 000 participants c.1 800 participants c.20 000 participants 38% 30% 32% Capital PROPCO EXTERNAL Structure Propco will be listed after 5 years FUNDER to enable trading Loan Debt 80% Equity 20% Sale of Properties Market Value (R2.8 billion) less 5% discount Barloworld Limited BBBEE TRANSACTION
SALE OF PROPERTIES 7 The purchase price is calculated as follows: 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 Barloworld Limited BBBEE TRANSACTION
SALE OF PROPERTIES 8 Properties’ Market Property type Yield Base Rental GLA (m2)** Value 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 R13.8 million 9.00% R1.2 million 5 264 Industrial Residential and Vacant Land R29.4 million 9.38% R2.8 million 595 Attached R2.755 Total 9.00% R247.9 million 293 823 billion* *Independent Property Valuation ** GLA: Gross Lettable Area 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 Barloworld Limited BBBEE TRANSACTION
FAQ’s – PARTICIPANTS 9 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
FAQ’s – PARTICIPANTS cont’d 10 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
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