Wrap Text
Amendment to the terms of the B-BBEE Transaction
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")
AMENDMENT TO THE TERMS OF THE B-BBEE TRANSACTION
Background
Shareholders of Barloworld approved the broad-based black economic empowerment transaction ("Khula Sizwe Transaction")
on 14 February 2019, based on the circular to shareholders dated 18 December 2018 ("the Circular") (terms defined in
the Circular shall have the same meaning in this announcement unless otherwise defined). In terms of the Khula Sizwe
Transaction, Barloworld disposed a significant portion of its property portfolio to Propco, which properties are now
leased by Propco to various subsidiaries of Barloworld.
First Amendment
Subsequent to the abovementioned Barloworld Shareholder approval, the operational requirements within the Barloworld
Equipment division necessitated changes to the property portfolio that formed part of the Khula Sizwe Transaction.
Barloworld determined that the below mentioned properties did not meet the long-term requirements of Barloworld.
Barloworld and Propco accordingly proposed to exclude these properties ("Excluded Properties") from the Khula
Sizwe Transaction:
Properties Description Amount per Circular
1 Gamma Road, Germiston The property was sold to a third party R21 230 000
Corner Watt and Liter Street Property was sold to a third party so that
an adjacent property could be acquired R19 640 000
Total of properties that were
proposed to be excluded R40 870 000
The following properties ("New Properties") were added to the properties proposed to be sold to Propco or have additional
capital expenditure spent by Barloworld, and would therefore fall into or increase the value of the property portfolio to
be sold to Propco as part of the Khula Sizwe Transaction:
Property Description Amount
Canteen and Wellness Centre - Isando New Barloworld Equipment Head Office in
the process of being developed, a need to
add a canteen and wellness centre for
employees R19 630 000
Various properties in Middelburg Properties adjacent to Barloworld Equipment's
existing properties - this would result in
improved operational efficiencies R14 870 000
Total of properties to be added R34 500 000
Collectively, the property transactions referred to in the table above are the "New Property Transactions".
At the same time, Barloworld took the opportunity to process certain other clean up amendments, including updating
incorrect property details and inserting the exact amounts relating to the Management Trust Subscription Agreement,
Employee Trust Subscription Agreement, Management Trust Loan Agreement, and the Employee Trust Contribution Agreement,
which were previously rounded in the agreements themselves.
The table below shows the changes that were proposed to the amounts in the Management Trust Loan Agreement and the
Management Trust Subscription Agreement as well as the Employee Trust Contribution Agreement and the Employee Trust
Subscription Agreement. These changes were immaterial and arose due to rounding differences.
Amounts as per Original
Agreement Agreement Proposed Change Difference
Employee Trust Contribution R174 000 000 R174 304 000 R304 000
Employee Trust Subscription Agreement R174 000 000 R174 304 000 R304 000
Management Trust Loan R206 800 000 R206 986 000 R186 000
Management Trust Subscription Agreement R206 800 000 R206 986 000 R186 000
The Transaction Agreements were amended to provide for, inter alia, the following:
- deletion of the Excluded Properties from the schedules of properties (i) to be sold by Barloworld to Propco, and
(ii) to be leased by Propco to subsidiaries of Barloworld;
- addition of the New Properties to the schedules of properties (i) to be sold by Barloworld to Propco, and (ii) to
be leased by Propco to subsidiaries of Barloworld;
- decrease in the purchase price for the property portfolio being sold to Propco - aggregate purchase price to be
decreased by R6 051 500;
- decrease in the aggregate of the rental amounts payable by Barloworld SA and Barloworld Logistics to Barloworld under
and in terms of the Property Lease Agreements by an amount which takes account of the decrease in the aggregate
purchase price payable for the Properties;
- increase of the Employee Trust Contribution and Employee Trust's Subscription Price from R174 000 000 to
R174 304 000; and
- increase of the Management Trust Loan and the Management Trust's Subscription Price from R206 800 000 to
R206 986 000
(collectively, "First Amendment").
Rationale for the First Amendment
The rationale for the changes to the previously defined properties was to address the operational requirements within
the Barloworld Equipment division and the consequential changes to the property portfolio being sold to Propco.
The First Amendment was required in order to ensure that the Transaction Agreements, as amended, accurately identified
the properties being sold to Propco and the value at which those properties were disposed, in addition to effecting the
necessary consequential changes.
JSE's No Objection to First Amendment
Shareholders are referred to the Barloworld announcement dated 9 April 2019 regarding the First Amendment whereby,
subsequent to the submission made by Barloworld to the JSE in accordance with the Guidance Letter: Amending transaction
terms as approved by shareholders issued on 8 May 2012, the JSE issued a letter of no objection noting the proposed
amendments and advising that shareholder approval would not be required in that regard.
Second Amendment
The trust deeds of the Management Trust provide for the forfeiture of beneficial interests in the event that a beneficiary
resigns from employment with the Group Companies, or is dismissed from a Group Company for misconduct, within a prescribed
period of 5 years from 1 October 2019 ("Implementation Date") which expires on 1 October 2024.
Barloworld proposed that the period in which beneficiaries of the Management Trust are at risk of forfeiture of their
beneficial interests on resignation or dismissal for misconduct be reduced from 5 years to 3 years.
In order to give effect to these new proposed changes, the following amendments must be effected to the Transaction
Agreements:
- amendment of the definition of "Cancellation Period" in the trust deed of the Management Trust (clause 3.1.15) so as
to read as follows after amendment: "Cancellation Period" means the period of 3 years ending on 30 September 2022; and
- deletion of the phrase "within a period of five years from the Implementation Date" in clause 16.4 of the Framework
Agreement and insertion of the phrase "at any time up to 30 September 2022" in its place,
(collectively, "Second Amendment").
Rationale for the Second Amendment
The forfeiture of beneficial interests was intended to incentivise beneficiaries to remain in the employ of the Group
Companies and refrain from misconduct for the duration of the above mentioned 5-year period. Since the Implementation
Date, Barloworld's business and employee profile has changed fundamentally. These changes arose from the restructure of
the Barloworld business through retrenchments, divestiture of the bulk of its automotive and logistics businesses and the
proposed divestiture of the remaining parts of its automotive and logistics businesses. In this period, the total group
headcount moved from 17 392 in 2018 to 5 186 as at 31 March 2022 (excluding discontinued operations and those businesses
held for sale), which is 29.82% of the 2018 headcount.
The employees who are no longer employed by Group Companies due to the above-mentioned restructuring are no longer
subject to the forfeiture of beneficial interests on resignation or dismissal for misconduct as indicated above, whereas
those who remain employed by Group Companies continue to be subject to such forfeiture of beneficial interests, which has
a negative impact on employee morale. Barloworld and the Trustees are of the view that:
(i) the differential treatment of beneficiaries is inappropriate in the circumstances and operates in a manner that is
unfair to the employees that remain in the employ of the Group Companies,
(ii) the object of employee retention has been materially achieved, and
(iii) it would be in the best interests of the Group Companies to equalise the treatment of all Beneficiaries, by
reducing the period in which forfeiture of beneficial interests occurs to 3 years from the Implementation Date
(as opposed to 5 years), on the basis that such forfeiture will occur only up to 30 September 2022 and cease to
apply as from 1 October 2022 (inclusive).
It is noted that the Lock-in Period remains unchanged and expires 5 years from the Implementation Date.
Pro forma financial effects of the First Amendment and Second Amendment
2018 effects
The pro forma financial effects of the Khula Sizwe Transaction on the results of Barloworld as at and for the year ended
30 September 2018 are the responsibility of the Directors and have been reviewed by the Independent Reporting Accountants
and Auditors (being Deloitte & Touche with respect to the First Amendment and Ernst & Young Inc. with respect to the Second
Amendment).
The pro forma financial effects are presented for illustrative purposes only and because of their pro forma nature,
may not fairly present Barloworld's financial position, changes in equity and results of operations or cash flow,
nor the effect of the Khula Sizwe Transaction going forward.
Column A Column B Column C Column D Column E Column F Column G Column H
First Second
Amend- Amend- Post % Change % Change
ment Post ment adjust- from from
Circular 2019 adjustment % Change 2022 ment previous Circular
Pro Forma
Basic earnings per share (cents) 870,20 2,80 872,56 0,27% 0,00 872,56 0,00% 0,27%
Diluted earnings per Share (cents) 865,00 2,80 867,32 0,27% 0,00 867,32 0,00% 0,27%
Basic headline earnings per share (cents) 1 073,60 2,90 1 076,00 0,22% 0,00 1 076,00 0,00% 0,22%
Diluted headline earnings per share (cents) 1 067,20 2,80 1 069,54 0,22% 0,00 1 069,54 0,00% 0,22%
Net asset value per share (cents) 10 127,60 0 10 127,60 0,00% 0,00 10 127,60 0,00% 0,00%
Tangible net asset value per share (cents) 8 576,70 0 8 576,70 0,00% 0,00 8 576,70 0,00% 0,00%
Weighted average number of shares in issue
('000s) 210 875 0 210 875 0,00% 0 210 875 0,00% 0,00%
Weighted average number of diluted shares in
issue ('000's) 212 147 0 212 147 0,00% 0 212 147 0,00% 0,00%
Number of shares in issue ('000's) 219 271 0 219 271 0,00% 0 219 271 0,00% 0,00%
Profit from continuing operations 1 835 5 1 840 0,27% 0 1 840 0,00% 0,27%
Headline earnings from continuing operations 2 264 5 2 269 0,22% 0 2 269 0,00% 0,22%
Reconciliation of changes in earnings
Finance cost 7 Note 1
Tax (2) Note 2
IFRS 2 1 Note 3
Transaction costs (1) Note 4
Additional cost 5 - Note 6
Notes:
Note 1 Finance costs
As a result of the amendments to the Khula Sizwe Transaction, the value of the Properties acquired by PropCo from Barloworld
is reduced by R6 million to R2 716 million (originally R2 722 million per circular). Propco's purchase of the Properties will
be funded 20% equity and 80% external debt. PropCo will obtain external debt of R2 172 million (originally R2 178 million
per circular) to fund the acquisition.
The reduction in debt and improved interest rates, 9.59% (originally 9,96% per circular) result in the finance charge
decreasing by R7 million to R210 million (originally R217 million per circular).
Note 2 Tax
The deduction of the finance charge, increase in IFRS 2 and increase in transaction costs resulted in an increased tax charge
of R1 million (R5 million at 28% corporate tax rate) to R166 million (originally R167 million).
Note 3 IFRS 2: Share based payment expense
The total IFRS 2 charge for the Employee Trust is R174 million (no change from the circular) and R103 million for the Management
Trust (originally R108 million per the circular). These charges will be amortised over 2 years for Employees and 5 years for
Management in accordance with the vesting period as detailed in paragraph 7 of the Circular. The impact on Propco is an
adjustment in equity only. These transactions continue over the vesting period.
R'million
Annual IFRS 2 charge - Employees 87
Annual IFRS 2 charge - Management 21
Annual IFRS 2 charge - Total 108
The change in the IFRS 2 charge results in an annual decrease of R1 million to the amount as reported in the circular
(originally R109 million per annum).
Note 4: Transaction costs
The property amendments have resulted in an increase in transaction costs of R1 million to R38 million (originally
R37 million per the circular).
Note 5: Effect on balance sheet
The amendments to the property transaction result in reduced cash in Barloworld and increased debt and equity in
PropCo. However, the impact on the to the Net asset value per share of tangible net asset value per share is less
than 0,00 cents and less than 0.00%.
Note 6: IFRS 2: Share based payment expense
Due to the fact that no forfeitures were taken into account when the Circular was issued and forfeited shares will be
reallocated, there is no financial impact of the change.
2022 effects
The pro forma financial effects of the Khula Sizwe Transaction on the results of Barloworld as at and for the six months
ended 31 March 2022 are the responsibility of the Directors and have been reviewed by the Independent Reporting Accountants
and Auditors (being Ernst & Young Inc. with respect to the Second Amendment).
The pro forma financial effects are presented for illustrative purposes only and because of their pro forma nature,
may not fairly present Barloworld's financial position, changes in equity and results of operations or cash flow, nor the
effect of the Khula Sizwe Transaction going forward.
Column A Column B Column C Column D
% Change
31 March 2022 Second from 2022
published Amendment Post published
results 2022 adjustment results
Pro Forma Note 1 Note 2
Basic earnings per share (cents) Group (31,65) 0,00 (31,65) 0,00%
Basic earnings per share (cents) Continued (82,85) 0,00 (82,85) 0,00%
Basic earnings per share (cents) Discontinued 51,20 0,00 51,20 0,00%
Diluted earnings per Share (cents) Group (32,50) 0,00 (32,50) 0,00%
Diluted earnings per Share (cents) Continued (82,85) 0,00 (82,85) 0,00%
Diluted earnings per Share (cents) Discontinued 50,34 0,00 50,34 0,00%
Basic headline earnings per share (cents) Group 755,61 0,00 755,61 0,00%
Basic headline earnings per share (cents) Continued 446,84 0,00 446,84 0,00%
Basic headline earnings per share (cents) Discontinued 308,76 0,00 308,76 0,00%
Diluted headline earnings per share (cents) Group 742,99 0,00 742,99 0,00%
Diluted headline earnings per share (cents) Continued 439,38 0,00 439,38 0,00%
Diluted headline earnings per share (cents) Discontinued 303,61 0,00 303,61 0,00%
Net asset value per share (cents) 9 202,63 0,00 9 202,63 0,00%
Tangible net asset value per share (cents) 7 132,64 0,00 7 132,64 0,00%
Weighted average number of shares in issue ('000s) 196 984 0 196 984 0,00%
Weighted average number of diluted shares in issue ('000's) 200 330 0 200 330 0,00%
Number of shares in issue ('000's) 200 214 0 200 214 0,00%
(Loss) from continuing operations (164) 0 (164) 0,00%
Profit from discontinuing operations 101 0 101 0,00%
Headline earnings group 1 488 0 1 488 0,00%
Headline earnings from continuing operations 880 0 880 0,00%
Headline earning from discontinuing operations 608 0 608 0,00%
Notes:
Note 1 First Amendment
The March 2022 published results include the Khula Sizwe transaction after the changes proposed in the First Amendment
have been taken into account. This should therefore not be adjusted.
Note 2: Second Amendment IFRS 2: Share based payment expense
Due to the fact that no forfeitures were taken into account when the Circular was issued and forfeited shares will be
reallocated, there is no financial impact of the Second Amendment on the 2022 published results.
Opinion
The Board is of the view that the cumulative amendments to the Khula Sizwe Transaction arising from the First Amendment
and the Second Amendment are not material and do not conflict with the Khula Sizwe Transaction as approved by the
Shareholders on 14 February 2019. The First Amendment and the Second Amendment do not, in the opinion of the Board, affect
the overall guiding principles and intention of the Khula Sizwe Transaction in terms of which Barloworld is seeking to
maintain or improve its BEE Status as a business imperative to operating in South Africa and based on which Barloworld
obtained the approval of the Shareholders in General Meeting on 14 February 2019. The rationale for the Khula Sizwe
Transaction will still be met in that Barloworld will still have disposed of a material property portfolio to Propco resulting
in the creation of a broad based empowerment property entity and the disposal conferred BEE ownership points to Barloworld in
terms of Statement 102 of the BEE Codes. The reduction from 5 years to 3 years of the period in which forfeiture of beneficial
interests due to resignation or dismissal may take place will not change the beneficiaries of the Management Trust and will
accordingly not result in a change in the BEE Status of Barloworld.
In addition:
- the net impact on the Disposal Consideration under the Transaction Agreements being a decrease of R6,051,500, representing
a 0.22% decrease in terms of the First Amendment;
- the net impact on the future market value under the Transaction Agreements being a decrease of R6,370,000, representing a
0.22% decrease in terms of the First Amendment;
- the net impact on the As-is Value of the property portfolio being a decrease of R26,000,000, representing a 0.94% decrease
in terms of the First Amendment;
- the net impact on the annual rental amounts payable by Barloworld SA and Barloworld Logistics under and in terms of the
Property Lease Agreements being a decrease of R777,918, representing a 0.31% decrease in the aggregate annual rentals
amount payable under and in terms of the Property Lease Agreements in terms of the First Amendment;
- the net impact of the increase in the Employee Trust Contribution and subscription price in the Employee Trust Subscription
Agreements from R174,000,000 to R174,304,000, representing a 0.17% increase in terms of the First Amendment;
- the net impact of the increase in the Management Trust Loan and the subscription price in the Management Trust Subscription
Agreement from R206,800,000 to R206,986,000, representing a 0,09% increase in terms of the First Amendment; and
- the net impact of reducing the period in which forfeiture of beneficial interests occurs to 3 years from the Implementation
Date (as opposed to 5 years), on the basis that such forfeiture will occur only up to 30 September 2022, and cease to apply
as from 1 October 2022 (inclusive), representing a 0.0% movement in terms of the Second Amendment both on the pro formas
contained in the Circular as at and for the year ended 30 September 2018 and on the pro formas as at and for the six months
ended 31 March 2022;
as well as the Board's review of the opinions from the Independent Property Valuer (Broll Valuation and Advisory Services
(Pty) Ltd) on the First Amendment, Independent Expert (THEZA Capital (Pty) Ltd (previously Basis Points Capital (Pty) Ltd)
and BDO Corporate Finance (Pty) Ltd) on the first Amendment and on the aggregate of the First Amendment and the Second
Amendment, legal advisers (Dentons) on the First Amendment and the aggregate of the First Amendment and the Second Amendment,
and the independent Reporting Accountant's reasonable assurance report on the compilation of the pro forma financial effects
(Deloitte & Touche in respect of the First Amendment and Ernst & Young Inc. in respect of the Second Amendment);
the aggregate of the First Amendment and Second Amendment are:
(i) not material; and
(ii) not in conflict with the approved Khula Sizwe Transaction.
In addition, based on the Independent Property Valuer's letter on the First Amendment and the Independent Expert's letter on
the First Amendment and on the aggregate of the First Amendment and the Second Amendment, the Khula Sizwe Transaction as
amended by the First Amendment and the Second Amendment remains fair insofar as the Shareholders are concerned and accordingly
does not require the further approval of the Shareholders of Barloworld in general meeting.
No objection
A submission was made to the JSE in accordance with Guidance Letter: Amending transaction terms as approved by shareholders
issued on 8 May 2012.
The JSE has issued a no objection letter in respect of the amendments to the approved Khula Sizwe Transaction not being referred
back to Shareholders.
As a result, the amendments to the approved Khula Sizwe Transaction will not be referred back to Shareholders for approval.
Documents for inspection
A copy of the amendment to the Framework Agreement and the amendment to the trust deed of the Management Trust reflecting the
Second Amendment is available for inspection at Barloworld's registered office (61 Katherine Street, Sandown, Sandton, 2196)
during normal business hours and on Barloworld's website at https://barloworld.com/investors/khula-sizwe from Monday,
3 October to Friday, 21 October 2022.
Johannesburg
3 October 2022
Company Secretary
Vasta Mhlongo
Corporate Adviser and Transaction Sponsor
Tamela Holdings Proprietary Limited
Sponsor
Nedbank Corporate and Investment banking, a division of Nedbank Limited
Independent Reporting Accountants and Auditors on the Second Amendment
Ernst & Young
Independent Expert
BDO Corporate Finance Proprietary Limited
THEZA Capital (Pty) Ltd (previously Basis Points Capital (Pty) Ltd)
Legal Adviser
Dentons
Date: 03-10-2022 11:35:00
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