Barloworld Limited: Leading Brands

The summarised preliminary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for reports, and the requirements of the Companies Act applicable to financial statements.

The JSE Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards(IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the summarised preliminary consolidated financial statements are derived in terms of International Financial Reporting Standards and are consistent with those accounting policies applied in the preparation of the annual financial statements for the year ended 30 September 2020, with the exception the adoption of new policies as required by new and/or revised International Financial Reporting standards issued and in effect for the current financial year. Specifically, the Group has applied IFRS 16: Leases for the first time, effective 1 October 2019. Refer to note 19 for further information regarding the impact of this new accounting standard.

As at 30 September 2019 Avis Fleet was disclosed as held for sale and a discontinued operation on the basis of management’s firm intention to dilute Barloworld’s interest in Avis Fleet to a 50% shareholding. Management have subsequently reconsidered this decision and concluded that this initiative will be placed on hold. This position will be re-assessed at the appropriate time and in the context of the Group’s strategy and optimal portfolio mix. Going forward Avis Fleet will be re-presented as part of continuing operations. The impact of the decision has resulted in the income statement and balance sheet being restated to include Avis Fleet as part of continuing operations per note 20.

In addition, effective 1 September 2020, Barloworld Mongolia Limited, an indirect wholly owned subsidiary of Barloworld Limited, was awarded the Caterpillar distribution rights for Mongolia and acquired 100% of Wagner Asia Equipment LLC and a 49% share in SGMS LLC. Our Caterpillar business in Mongolia is engaged in the business of selling and distributing construction and mining equipment, aftermarket and technology solutions as well as rental solutions under the Caterpillar brand. This will enhance the expansion of the Barloworld Group in the mineral rich Eurasia region.

The summarised preliminary consolidated financial statements are presented in South African rand, which is Barloworld Limited’s functional and presentation currency. The summarised preliminary consolidated financial statements do not include all the disclosures required for complete annual financial statements prepared in accordance with IFRS as issued by the International Accounting Standards Board. The board is satisfied that the group companies are sufficiently liquid and solvent to be able to support the current operations for the next 12 months. Accordingly, the summarised preliminary consolidated financial statements are prepared on a going concern basis.

The summarised preliminary consolidated financial statements appearing in this announcement are the responsibility of the directors. The directors take full responsibility for the preparation of the condensed consolidated financial statements.

This preliminary report and the complete set of the consolidated financial statements were prepared under the supervision of T Plews CA(SA) (Group general manager: finance).

The Group revenue disaggregation has been determined as follows:

^	The restatement of the revenue recognised has changed due to the reclassification of Avis Fleet into continued operations.
*	Variable leasing income earned mainly relates to excess kilometres and additional maintenance costs invoiced.

The Group’s B-BBEE deal Khula Sizwe was implemented on 1 October 2019. At 30 September 2020, 57 of the 64 properties had transferred to Khula Sizwe and the Barloworld entities were incurring rental changes related to these properties. Implementation charges of R13 million were incurred in the period (2019 R73 million) together with IFRS 2 Share Based Payment (IFRS 2) charges totalling R223 million (2019 Rnil).

The IFRS 2 charges in Barloworld arose from the benefits received by staff members which were facilitated by the Group providing funding/donations to the trusts so that employees could acquire their shares at less than market value. The employee trust was allocated 17 430 080 shares and the management trust was allocated 20 698 220 shares, this was then allocated as units to employees of 18 059 822 and 18 460 296 respectively. The employees will have an exercise price of nil, and management has contributed R7.1 million for their shares.

The IFRS 2 charges in Khula Sizwe arose from the per share discount given to Khula Sizwe shareholders in the initial share offering. The Khula Sizwe shares were valued using a Monte Carlo approach, with share prices following a geometric Brownian model. The following were the primary model inputs, estimates and judgements:

• The net asset value of Khula Sizwe, assuming all properties had transferred on 1 October 2020
• Share volatility determined with reference to the SA REIT index
• Adjustments for the lock in periods applicable to the shares
• Expected dividend yield
• The valuation outcome was compared to the R10 per share offer price and the estimated discount of R2.77 will be accounted for as an IFRS 2 charge in Khula Sizwe.

The IFRS 2 charges incurred by Barloworld segments in the period were as follows:

R million		2020
Employee Trust		108
	Current year	87
	Acceleration due to retrenchments	21
Management Trust		30
	Current year	21
	Acceleration due to retrenchments	9
Total IFRS 2 charges incurred by Barloworld segments		138

IFRS 2 charges incurred by the Khula Sizwe segment were as follows:

R million	2020
IFRS 2 charges incurred by the Khula Sizwe segment were as follows:
Employee Trust	24
Management Trust	16
Black Public (once off charge)	45
Total IFRS 2 charges incurred by the Khula Sizwe segment	85
Total IFRS 2 charge incurred by the Barloworld Group	223

Note that the Employee Trust charge will be recognised over 2 years and the Management Trust charge will be recognised over 5 years in line with the service conditions attached to these shares. The Black Public charge is a day 1 charge and not recurring.

@	Exempt income and special allowances largely comprise learnerships allowances, gains on rental assets, dividends, investment income taxed at lower rates and other capital income/gains.
**	The Group has companies in Russia, Mozambique, Malawi, Zambia and Angola where deferred taxes are recognized for temporary differences that arise when an entity’s taxable profit or loss (and thus the tax basis of it’s non-monetary assets and liabilities) are measured in a currency different than its functional currency. Changes in the exchange rate result in a deferred tax asset or liability which is charged to profit or loss.
***	Disallowable charges and specific inclusions relate largely to the capital gain and recoupments resulting from the sale of properties in terms of the B-BBEE deal, IFRS 2 charges relating to the B-BBEE deal, expenses not incurred in the production of income, non-deductible capital nature professional fees, the impact of currency movements on the tax base of the companies mentioned in ** and other non-deductible expenses such as payroll expenses and provisions.
^	Non-operating and capital items taxation refer to expenses/income that are unrelated to Barloworld’s core operations and fall outside the normal course of business. This would include items excluded from the headline earnings of the Group, refer to note 2.

Barloworld operates in numerous countries around the world and accordingly is subject to, and pays annual income taxes, under the various income tax regimes in the countries in which it operates. The Group has historically filed, and continues to file, all required income tax returns and to pay the taxes reasonably determined to be due. In some jurisdictions, tax authorities are yet to complete their assessments for previous years. The tax rules and regulations in many countries are highly complex and subject to interpretation. From time to time, the Group is subject to a review of its historic income tax filings and in connection with such reviews, disputes can arise with the tax authorities over the interpretation or application of certain rules in respect of the Group’s business conducted within the country involved. Significant judgement is required in determining the worldwide provisions for income taxes due to the complexity of legislation. There are some transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

The United Kingdom ("UK") government announced that it intends to require large businesses to notify HMRC where they have adopted an uncertain tax treatment applicable to returns filed after April 2021. Whilst the final regulations are still being drafted, we do not believe that any of the Barloworld companies in the UK Group will have anything to report.

*	Refer to note 21 for details of the acquisition of Mongolia during the current year.
**	The reclassifications within rental assets relates to assets that are recognised as property, plant and equipment and reclassified to inventory during the current year.
^^	The impairments primarily relate to the land and buildings held within Equipment Southern Africa operating segment as at 30 September 2020 which were impaired to net realisable value less costs to sell.

*	Refer to note 21 for details of the acquisition of Mongolia during the current year. In addition to above goodwill to the value of R1.6 million (2019: R2 million) arose from the acquisition of trading licences within the Avis Rent-a-Car operating segment. This is considered immaterial and no further disclosure is provided.
#	Relates to disposal of Smartmatta (fully impaired in 2018 financial year) within Logistics operating segment.

Goodwill is allocated to the following cash generating units for impairment testing purposes:

^	The aggregate of the remaining immaterial goodwill balances consists of 10 cash generating units in 2020, (2019: 12).

Goodwill is allocated to the appropriate CGUs based on which CGU is expected to benefit from the synergies arising in a business combination. External and internal factors surrounding the business operations play a role in determining an indication of impairment. In addition, the carrying amount of goodwill is subject to an annual impairment test. Notable, the goodwill acquired in the Equipment Mongolia business on 1 September 2020 has not been tested for impairment and will be subject to impairment testing for the first time in the 2021 financial year.

Impairment of goodwill arises when the recoverable amount of the CGU, including goodwill, is less than the carrying value. The recoverable amount is determined as the greater of the fair value less costs to sell or the value in use.

With the outbreak of the COVID-19 global pandemic, the resulting global economic downturn and the credit rating downgrade of South Africa to sub-investment grade all goodwill was assessed for impairment which resulted in the below mentioned impairments for the year ended 30 September 2020.

Note 1: Avis Rent a Car southern Africa: Impairment recognised for the current year.

In South Africa, as a result of the initial lockdown announced by President Ramaphosa, all nonessential operations (dealerships, stores, head offices and distribution centres) were closed from 27 March 2020 until 12 May 2020. The automotive industry was allowed to return to trading in a phased approach between May and June 2020. As the economy transitioned to level 3 lockdown with dealerships allowed to resume operations, an improvement in vehicle sales was experienced in June 2020. The Avis Rent a Car business has been significantly impacted by the COVID-19 crisis due to local and global travel restrictions which have particularly impacted the on-airport market segment. This crisis was expected have a prolonged impact on the cash flows in this business driven by an expected slow recovery of local and global tourism. Regulatory restrictions on used car sales and expectations for future used car sales volumes and margins also negatively impacted cash flow projections for this business. The impairment recognised is a reflection of projected cash flows as estimated at 31 March 2020 when the impairment was recognised and based on further impairment testing carried out at 30 September 2020 no additional impairment were recognised (in accordance with IAS36 impairment to goodwill cannot be reversed).

Note 2: BZAMM: Impairment recognised for current year.

Similar to the automotive industry, lower than expected short and long term growth rates in the African regions (BZAMM) negatively impacted expected mining and construction activity levels which drive the cash flows of this CGU. Further, the higher discount rate applied to these lower forecast cash flows was a primary driver of the impairment recognised during the year. At 30 September the uncertainty of the effects of COVID-19 on future cash flows has necessitated the use of judgements and assumptions in estimating the impact on the carrying value of certain assets, in applying the accounting policies in the preparation of the Annual Financial Statements. Accordingly, an impairment charge has been recognised in these regions for property, plant and equipment of R140 million (refer to note 6) and intangible assets of R708 million (refer to note 8).

The key assumptions used in the value in use calculation for the CGU’s shown above are as follows:

At each impairment testing interval a discounted cash flow valuation model is applied using a five-year strategic plan as approved by the board. The financial plans are the quantification of strategies derived from the use of a common strategic planning process followed across the Group adjusted for the estimated impact of COVID-19 on the various businesses in the medium term and the expected prolonged recovery from this global crisis which has impacted long term growth rates across our businesses. The process ensures that significant risks and sensitivities are appropriately considered and factored into strategic plans.

The discount rate applied to the five year forecast period has been outlined for each cash generating unit in the table below. Discount rates applied to cash flow projections are based on a country or region-specific discount rate, dependent upon the location of cash-generating operations. As at 30 September 2020 there was a marked increase in discount rates as a result of increased risk free rates used within the discount rate calculations together with higher country risk premiums across the territories in which we operate. The notable reduction in the discount rate applied to the Avis Rent a Car Southern Africa is a reflection of the lower borrowing rates prevailing in the market as well as taking into account the capital structure of comparable businesses, where the industry average ratio of Debt to Equity is considerably higher (when compared to trading businesses). The net effect is a higher proportion of a lower cost of debt in the discount rate.

The pre-tax nominal discount rates applied are as follows:

**	In current year discount rate based on Cost of Equity whilst prior year discount rate based on WACC due to refinements in the RAC valuation models.

Long-term growth rates applied to extrapolate cash flows are as follows:

Sales growth rates: sales growth rates have been derived by analysing historical data, considering growth rates projected by the senior management teams which includes price and volumes and considering the economic and trading conditions of each area within South Africa and the rest of the world.

Gross margins: gross margins have been derived by analysing historical data, approved forecast gross margins for the forecast period, and considering the impact of currency fluctuations.

Operating costs have been derived by analysing historical data, considering economic and trading conditions, committed and uncommitted capital expenditure, and operating requirements coupled by various operational improvement initiatives.

Working capital: working capital requirements are driven by required stock turn ratios, credit terms and capital expenditure requirements

Long-term growth rates: long-term growth rates are based on the longer term inflation and currency expectations for the various industries in South Africa and the rest of the world.

As at 30 September 2020, management have performed sufficient sensitivity analysis to conclude that a reasonably possible change in key assumptions would not cause the carrying amount of the Group’s individual cash-generating units to exceed their value in use.

HEADROOM SUMMARY

#	Acquisition of Mongolia in the current financial year included Supplier relationship with Caterpillar which will be amortised over the remaining useful life of 20 years. Refer to note 21.
^	With the outbreak of the COVID-19 global pandemic, the resulting global economic downturn and the credit rating downgrade of South Africa to sub-investment grade all indefinite life intangible assets were assessed for impairment at 30 September 2020 which resulted in the below mentioned impairments.

*

BZAMM COVID-19 had a significant impact on the performance of the Group and is expected to continue to do so for at least the remainder of the calendar year, given the fluid and challenging environment. The mandatory lockdown measures imposed to curb the pandemic resulted in the closure of a significant number of the Group's operations which all led to a decreased overall demand in the short-term. The uncertainty of the effects of COVID-19 on future cash flows has necessitated the use of judgements and assumptions in estimating the impact on the carrying value of certain assets, in applying the accounting policies in the preparation of the Annual Financial Statements. Accordingly, an impairment charge has been recognised for the supplier relationship intangibles in the BZAMM territories of R708 million. This was as a result of lower expected short and long term growth rates in these regions negatively impacted on expected mining and construction activity levels which drive the cash flows of this CGU. Further, the higher discount rate applied to these lower forecast cash flows was a primary driver of the impairment recognised for the current year.

The Equipment South Africa and Russia indefinite life intangible assets classified as Supplier Relationship are in relation to a dealer agreement which has no fixed termination date. The indefinite useful life is supported by Barloworld’s long standing relationship with Caterpillar Incorporated, (CAT) as the exclusive CAT mining equipment dealer in South Africa, BZAMM and parts of Russia.

The key assumptions used in the value in use calculation for the CGU’s shown above are as follows:

At each impairment testing interval a discounted cash flow valuation model is applied using a five-year strategic plan as approved by the board. The financial plans are the quantification of strategies derived from the use of a common strategic planning process followed across the Group adjusted for the estimated impact of COVID-19 on the various businesses in the medium term and the expected prolonged recovery from this global crisis which has impacted long term growth rates across our businesses. The process ensures that significant risks and sensitivities are appropriately considered and factored into strategic plans.

The discount rate applied to the five year forecast period has been outlined for each cash generating unit in the table below. Discount rates applied to cash flow projections are based on a country or region-specific discount rate, dependent upon the location of cash-generating segment operations. As at 30 September 2020 there was a marked increase in discount rates as a result of increased risk free rates used within the discount rate calculations together with higher country risk premiums across the territories in which we operate.

The pre-tax nominal discount rates applied are as follows:

Long-term growth rates applied to extrapolate cash flows are as follows:

As at 30 September 2020, management have performed sufficient sensitivity analysis to conclude that a reasonably possible change in key assumptions would not cause the carrying amount of the Group’s individual cash-generating units to exceed their recoverable amount (value in use).

Impairment of investments arises when the recoverable amount of the Investment is less than the carrying value. The recoverable amount is determined as the greater of the fair value less costs to sell or the value in use. For the purposes of assessing the above Investments for impairment, the recoverable amount was based on the fair value less costs to sell method.

With the outbreak of the COVID-19 global pandemic, the resulting global economic downturn and the credit rating downgrade of South Africa to sub-investment grade all investments in associates and joint ventures were assessed for impairment at 30 September 2020 which resulted in the below mentioned impairments.

*	The impairment of loan in Barloworld Maponya (Pty) Ltd in the current year is recognised in operating expenses.

The following key assumptions have been used in determining the fair value less costs to sell of each investment at 30 September 2020:

*

It should be noted that the investment in NMI Durban South Motors (Pty) Ltd was impaired by R124 million at 31 March 2020 but has subsequently been reversed after it was concluded that since the economy transitioned to level 3 lockdown with dealerships allowed to resume operations, an improvement in vehicle sales was experienced. As a result of the extensive planning prior to the relaxation of restrictions, supported by our existing infrastructure the dealership was in a position to commence trading as soon as restrictions were eased. This readiness, coupled with the sufficient availability of vehicles, enabled successful trade since the restrictions have tapered off.

Reasons for impairment are as follows:

BHBW SOUTH AFRICA (PTY) LTD

Projections indicate the Company will continue to make losses through 2020 and 2021 impacted by the COVID-19 crisis and the related economic downturn. The impairment recognised is a reflection of projected cash flows in the current market environment.
The discount rate increased in the period under review, further impacting on the valuation.

The sensitivity of management’s assumptions as applied in the valuation is demonstrated below. Specifically, the sensitivity analysis indicates the point at which the headroom over the carrying value is reduced to zero (break even). Each sensitivity has been performed independently and not cumulatively across all assumptions.

As at 30 September 2020, management have performed sufficient sensitivity analysis to conclude that a reasonably possible change in key assumptions would not cause the carrying amount of the Group’s individual cash-generating units to exceed their recoverable amount (fair value less costs to sell) (other than for those investments that were impaired in the year).

^ Level of discount rate at which Headroom is R0.

*	Long-term growth rate can drop to below 0% before investment is fully impaired.

*	The Group remains invested in dollar linked Angolan government bonds. On maturity the bonds will be settled in Kwanza. At September 2020, the Group’s investment in these bonds was $31.7 million (2019: $57 million) of which long term was $6.1 million (2019: $29 million). The above assets have been assessed for impairment based on the historical and forecast dividends received and no impairment is required. Refer to note 12 regarding the fair value of the Angolan bonds.
^	Immaterial credit loss arising from unlisted debt instruments and other receivables.

As at 30 September 2019 Avis Fleet was disclosed as held for sale and a discontinued operation on the basis of management’s firm intention to dilute Barloworld’s interest in Avis Fleet to a 50% shareholding. Management have subsequently reconsidered this decision and concluded that this initiative will be placed on hold. This position will be re-assessed at the appropriate time and in the context of the Group’s strategy and optimal portfolio mix. Going forward Avis Fleet will be presented as part of continuing operations and the 2019 financial statements have been restated accordingly.

Results from discontinued operations as reported are as follows:

^	In the previous year certain tax uncertainties related to our Iberian operations were resolved resulting in the reversal of previously held provisions totalling R33 million. This was a change in estimates in the year and as such it was accounted for prospectively through non-operating and capital items in the income statement.

The major classes of assets and liabilities classified as held for sale are as follows:

*	The Equipment division has taken the decision to dispose of non-core properties. The resolution to sell the properties was taken in the current financial year and therefore the properties are classified as held for sale as at 30 September 2020.

 

*	Includes financial assets of R121 million.
*	Includes financial liabilities measured at amortised cost of R60 million.

 

Note 1:	This refers to properties within the Equipment division that are in the process of being sold.
Note 2:	Assets held for sale in the Logistics business included Middle East and SmartMatta. These businesses were sold in the year.
Note 3:	The assets held for sale within the Corporate division relate to the Barlow Park property owned by Barloworld Limited which is in the process of being sold into a consortium of investors with the aim of redeveloping the site into a multi-use precinct.

All financial instruments are carried at fair value or amounts that approximate fair value, except for the non-current portion of fixed rate receivables, payables and interest-bearing borrowings, which are carried at amortised cost. The carrying amounts for investments, cash, cash equivalents as well as the current portion of receivables, payables and interest-bearing borrowings approximate fair value due to the short-term nature of these instruments. The fair values have been determined using available market information and discounted cash flows.

For all of the above mentioned financial asset categories the carrying value approximates the fair value with the exception the Angolan Bonds included within Long Term financial asset and Trade and Other Receivables where the fair value as at 30 September 2020 exceeds the carrying value by R22 million (30 September 2019: R30 million). Note that the Angolan Bonds are measured at amortised cost however had they been measured at fair value they would represent a level 2 financial instruments valued in line with comparable hedging instruments.

For all of the above mentioned categories the carrying value approximates the fair value with the exception of non-current interest bearing liabilities where the fair value as at 30 September 2020 has been calculated as R95 million (2019: R33 million).

FAIR VALUE MEASUREMENTS RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets. The markets from which these quoted prices are obtained are the bonds market, the stock exchange as well other similar markets.
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The valuation techniques used in deriving level 2 fair values are consistent with valuing comparable hedging instruments (foreign exchange contracts and interest rate swaps). The primary input into these valuations are foreign exchange rates and prevailing interest rates which are derived from external sources of information.
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The valuation techniques used in deriving level 3 fair values are discounted cash flows as well as the net asset value approach of the investment that is being valued. This information is based on unobservable market data, and adjusted for based on management’s experience and knowledge of the investment.

*	This relates to forward exchange contracts that are part of a cash flow hedging relationship (of which the effective portion has been recognised through OCI and the ineffective portion has been recognised through profit and loss).

 

*	This relates to forward exchange contracts that are part of a cash flow hedging relationship (of which the effective portion has been recognised through OCI and the ineffective portion has been recognised through profit and loss).

RECONCILIATION OF LEVEL 3 FAIR VALUE MEASUREMENTS

Note 1:	Unlisted shares are measure at fair value considering the latest arm’s length share trade information available for this investment. Sensitivity to inputs is considered immaterial for further disclosure.
Note 2:	The valuation techniques used in deriving fair value of investments in cell captures are based on Net asset value approach of the underlying cell captives. Sensitivity to inputs is considered immaterial for further disclosure.

FINANCIAL RISK MANAGEMENT

MARKET RISK

i) Currency risk

Trade commitments

Currency risk arises because the Group enters into financial transactions denominated in a currency other than the functional currency of the Group. The Group’s currency exposure management policy for the southern African operations is to hedge substantially all material foreign currency trade commitments in which customers have or will not be accepting the currency risk. In respect of offshore operations, where there is a traditionally stable relationship between the functional and transacting currencies, the need to take foreign exchange cover is at the discretion of the divisional board. Each division manages its own trade exposure within the overall framework of the Group policy. In this regard the Group has entered into certain forward exchange contracts which do not relate to specific items appearing in the statement of financial position, but were entered into to cover foreign commitments not yet due or proceeds not yet received. The risk of having to close out these contracts is considered to be low.

Net currency exposure and sensitivity analysis

The following table represents the extent to which the Group has monetary assets and liabilities in currencies other than the Group companies’ functional currency. The information is shown inclusive of the impact of forward contracts and options in place to hedge the foreign currency exposures. There has been no change to the Group’s exposure to market risks or the manner in which these risks are managed and measured. Based on the net exposure below it is estimated that a simultaneous 10% change in all foreign currency exchange rates against divisional functional currency will impact the fair value of the net monetary assets/liabilities of the
Group to the following extent:

ii) Interest rate risk

Interest rate risk arises when the absolute level of interest rates the Group is exposed to fluctuates. The Group manages the exposure to interest rate risk by maintaining a balance between fixed and floating rate borrowings. The interest rate characteristics of new borrowings and the refinancing of existing borrowings are structured according to expected movements in interest rates. There has been no change in the current year to this approach.

Credit risk management

Credit risk arises from the risk that a counterparty may default or not meet its obligations timeously as contracted.  Credit risk is managed on a Group-wide basis. Potential areas of credit risk relate primarily to trade receivables and cash on deposit. Trade receivables consist mainly of a large and widespread customer base. Where considered appropriate, use is made of credit guarantee insurance. The granting of credit is controlled by a thorough  application process based factors specific and unique to each operating division which includes creditworthiness checks using the reputable ITC institutions, the credit quality of the customer, its financial position, upfront deposits received etc.  Group companies monitor the financial position of their customers on an on-going basis. It is Group policy to deposit cash with major banks and financial institutions with strong credit ratings.

The following table details the risk profile of trade receivables based on the Group’s provision matrix. As the Group’s historical credit loss experience shows significantly different loss patterns for the different customer segments, the provision for loss allowance is further distinguished between the Group’s different operations.

iii) Liquidity risk

Liquidity risk arises when the Group cannot meet its contractual cash outflows as they fall due and payable. The Group manages liquidity risk by monitoring forecast cash flows, maintaining a balance between long term and short term debt and ensuring that adequate unutilised borrowing facilities are maintained. Unutilised bank facilities amounted to R15.7 billion (2019: R10.5 billion). There has been no change to this approach during the current year.

Maturity profile of financial liabilities

The maturity profile of the financial instruments is summarised as follows (based on contractual undiscounted cash flows):

During 2018 the Barloworld Equipment division entered into a Risk Share Agreement with Caterpillar Financial Corporation Financeira, S.A. , E.F.C. — Sucursal em Portugal and Barloworld Equipment UK Limited. The Risk Share Agreement only relates to certain agreed upon customer risk profiles and relates to exposure at default less any recoveries. As at 30 September 2020 the maximum exposure of this guarantee was estimated to be R106 million (2019: R294.2 million) representing 25% of the capital balance outstanding.

During 2018 the Barloworld Equipment division entered into Risk Share Agreement with Caterpillar Financial Services South Africa (Pty) Ltd. The Risk Share Agreement only relates to certain agreed upon customer risk profiles and relates to exposure at default less any recoveries. As at 30 September 2020 the gross maximum exposure of this guarantee was estimated to be R148 million (30 Sep 2019: R116.2 million) representing 25% of the capital balance outstanding.

During 2018 the Vostochnaya Technica Equipment division entered into a Risk Share Agreement with Caterpillar Financial LLC. The Risk Share Agreement only relates to certain agreed upon customer risk profiles and relates to exposure at default less any recoveries. As at 30 September 2020 the maximum exposure of this guarantee was estimated to be R21 million (2019: R48 million) representing 40% – 60% of the capital balance outstanding.

Barloworld also provides certain guarantees on behalf of NMI, Maponya, Bartrac and BHBW of which non-performance by these associates and joint ventures will result in contractual cashflows to be made by Barloworld which has been included in the above mentioned maturity analysis.

As these risk share agreements relate to a contractual payment in the event of default they are accounted for as financial instruments (Financial Guarantee contracts).

Liquidity risk maturity analysis disclosure

*	The purchase consideration was settled on 31 October 2020 through cash obtained from a bridging finance loan payable in May 20201, a process of refinancing of this loan as a long term loan will be undertaken by ABSA through Barloworld Bonds and loans.

Analysis of dividends declared in respect of current year’s earnings:

During the period the Automotive Trading segment acquired three BMW dealerships for R84 million. Refer to note 21 for details of the acquisition of Barloworld Mongolia which became effective 1 September 2020.

Effective 1 October 2019 Barloworld disposed of its Logistics Middle East business for R39 million ($2 million). The funds were received on 18 February 2020.

Effective 31 July 2020 Barloworld disposed of its SmartMatta business, the proceeds will effectively be repaid in the form of a loan over two years at R13.4 million. A R6 million loss on sale of this operation was recognised.

Capital expenditure commitments to be incurred:

Capital expenditure will be financed by funds generated by the business, existing cash resources and borrowing facilities available to the Group.

Lease commitments:

*	The Group has adopted IFRS 16 leases on 1 October 2019 and therefore all operating lease commitments are now included on the balance sheet in line with the Group policy adopted. Refer to note 19 for more details on the accounting policy change.

Due to a change in characteristics certain guarantees relating to contractual obligations have been removed from contingent liabilities for 2020 and 2019 financial years and is now recognised as financial liabilities for which maturity analysis have been presented in liquidity risk section (refer to note 12 Financial Instruments).

There has been no significant changes in related party relationships and the nature of related party transactions since the previous year.

Other than in the normal course of business, there have been no other significant transactions during the year with associate companies, joint ventures and other related parties.

19.1 ADOPTION OF NEW STANDARDS EFFECTIVE

IFRS 16 LEASES

The Group adopted IFRS 16 on 1 October 2019 and elected to apply the modified retrospective approach with the net impact of the first time adoption of IFRS 16 recognised in retained earnings. The Group applied the exception for short-term leases (lease term of less than 12 months) and leases of low value (R85 000) assets.

The adoption of the new standard had the most impact on the Groups’ property operating leases that were capitalised on 1 October 2019 for the first time. The adoption of IFRS 16 resulted in a right-of-use asset of R1.8 billion and a corresponding liability of R2.3 billion with the difference  of R281 million adjusted against retained earnings opening balance (see statement of changes  in equity), R213 million against lease smoothing liability and R78 million against deferred tax.

There were a limited number of immaterial onerous lease contracts that requiring adjustment  to the right-of-use asset at the date of initial application.

The lessor accounting has remained primarily the same and therefore there was no financial impact on the Group.

The following practical expedients were applied by the Group on adoption of IFRS 16 as follows:

1. No application of IFRS 16 to leases that were previously assessed not to contain a lease;
2. The accounting for operating leases with a remaining lease term of less than 12 months as at 1 October 2019 as short-term was not amended;
3. The use of hindsight in determining the lease term where the contract contains options to extend or terminate was not applied; and
4. Lease components were separated from non-lease components and account for each separately.

JUDGEMENTS AND ESTIMATES APPLIED IN IMPLEMENTING IFRS 16

Lease term

The lease term is the non-cancellable period of the lease plus any optional renewal period less any optional early terminations where it is reasonably certain that the options will be exercised. The lease term was determined considering these options, where applicable, and involves judgement to determine whether the options will be exercised on a lease-by-lease basis. The following factors were considered in determining whether it is reasonably certain the options will be exercised, thus whether there is an economic incentive to exercise:

1. The strategic objectives of the business and annual business plans that observes a 5-year cycle;
2. Whether the terms and conditions of the current lease are more favourable than the current market conditions;
3. The proximity of the leased premises to core customers and other business hubs;
4. Specifics for the premises/assets leased and any leasehold improvements, such as workshops or office building, undertaken by the Group optimised to business needs;
5. Costs relating to the termination of the lease;
6. The availability of similar/alternative assets in the market suitable to the business needs; and
7. All relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option.

Incremental borrowing rate (IBR)

The Group engaged an external service provider to determine the IBRs which were distributed to and used by all divisions except for Barloworld Transport for leases of trucks and trailers as the IBRs could be determined from the contracts. The following judgements and estimates  were applied in determining IBRs for Barloworld Transport:

1. The purchase price of the assets is known from the invoice/contract;
2. The lessors specify the residual value of the assets at the end of the lease period;
3. The leases are secured by the asset and there are separate contracts for each truck and trailer;
4. The present value, number of payments and actual payments are specified in the contracts; and
5. The contracts have no option for extensions and no escalations.

The recognised right-of-use assets relate to the following categories of property, plant and equipment:

The impact of first time adoption of IFRS 16 for the 12 month ended 30 September is as follows:

Reconciliation of operating lease commitments disclosed as at 30 September 2019 to the right-of use liabilities recognised as at 1 October 2019:

*	The weighted average incremental borrowing rate used to measure the right-of-use liabilities on 1 October 2019 was 14.89%.

New standards and amendments to existing standards issued but not yet effective as at 30 September 2020 are not expected to have a material impact on the Group’s financial statements when they become effective.

IFRS 17 will be effective for Barloworld for the first time in the year ending 30 September 2023.

The following new and amended standards are expected to have no or minimal impact on presentation, recognition and measurement in future years:

*	Effective for annual periods beginning on or after this date.

1. AVIS FLEET RE-PRESENTED TO CONTINUING OPERATIONS

As at 30 September 2019 Avis Fleet was disclosed as held for sale and a discontinued operation on the basis of management’s firm intention to dilute Barloworld’s interest in Avis Fleet to a 50% shareholding. Management have subsequently reconsidered this decision and concluded that this initiative will be placed on hold. This position will be re-assessed at the appropriate time and in the context of the Group’s strategy and optimal portfolio mix. Going forward Avis Fleet will be re-presented as part of continuing operations. The impact of the decision has resulted in the income statement and balance sheet being restated to include Avis Fleet as part of continuing operations per below:

2. INVENTORIES AND FLOOR PLAN PAYABLES RESTATEMENT

Management omitted to raise inventory in transit, and the related floor plan facility, resulting in an understatement for the 2020 interim period, the 2019 financial year and 2018 financial year. The purchase agreement states that control of the inventory passes on delivery to the carrier or the dealer, whichever occurs first, whereas previously the inventory, and related floor plan liability, was recorded only on receipt by the dealer on the basis that this was how the agreement was understood.

The agreement has been in place since 2015, but as required by IFRS only those financial periods affected in the current set of financial statements are restated. Accordingly the 2019 Balance Sheet has been restated to take into account the impact, as has the interim Balance Sheet for March 2020. The 30 September 2018 Balance Sheet could not be restated as sufficient records were not available internally to do so. Furthermore, the third party carrier and the financier do not retain the information required for a period longer than 24 months, making it impractical to determine the inventory balance, nor the floor plan liability which should have been recorded at 30 September 2018.

These errors had no impact on profit or loss (on the basis that interest on the floor plan liability was recorded previously) nor any tax effect.

3. RECLASSIFICATION OF TRADE AND OTHER PAYABLES AND NON-CURRENT LIABILITIES TO CONTRACT LIABILITIES RESTATEMENT

Management has reviewed the current presentation of the Deferred Income Maintenance Contracts in context to IFRS 15 adoption. The 2019 full year and 2020 March presentation was incorrect. This means there was an error in the presentation of these values for the 2019 and 2020 reporting. The correct treatment is to present the Deferred Income Maintenance Contracts as Contract Liability, split between non-current and current.

The “insurance contract” note from the prior period has also been removed as all of these maintenance contracts are accounted for under IFRS 15 and have been accounted for as such since IFRS 15 was adopted by the entity. This note should have been removed in 2019, it however does not impact any balances and is purely disclosure that should have been removed.

CONSOLIDATED INCOME STATEMENT AT 30 SEPTEMBER 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 SEPTEMBER 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 MARCH 2020

The following restatements arose as a result of errors occurring when reporting and presenting the year end financial results for the period ended 30 September 2019:

1.  PRESENTATION OF CASH FLOWS

The error occurred when applying IAS 7 Statement of Cash Flows (IAS 7). IAS 7 requires  cash flows for major classes of gross cash receipts and gross cash payments to be reported separately. The cash flow line item ‘Acquisition of subsidiaries, investments and intangibles’ as at 30 September 2019 was erroneously included cash inflows and outflows as a single net balance (3a). Further, it was identified that the line item ‘Investment in leasing receivables’ was erroneously classified as an investing activity when the nature of these cash flows is better reflected as an operating cash flow (3b). These errors have been corrected for all periods presented in the 30 September 2019 year ended financial statements as follows:

The following restatement arose as a result of errors occurring when reporting and presenting the consolidated annual financial statements for the period ended 30 September 2019:

2.  CLASSIFICATION OF THE EXPECTED CREDIT LOSS (ECL)

This error occurred when applying IAS 1 Presentation of Financial Statements for the presentation of ECL in the consolidated income statement for the period ended 30 September 2019. IAS 1 requires in paragraph 82(ba) that impairment losses (including reversals of impairment losses or impairment gain) determined in accordance with IFRS 9 section 5.5 are separately presented. However, there were reversals of impairment losses on financial assets and contract assets incorrectly presented in earnings before interest tax depreciation and amortisation (EBITDA) instead of reducing the impairment losses of financial assets and contract assets. This error has been corrected by restating the consolidated income statement as follows:

Due to Avis fleet not being presented as a discontinued operation the restated impact noted above is as follows:

21.1  Effective 1 September 2020, Barloworld Mongolia Limited, an indirect wholly owned subsidiary of Barloworld Limited, was awarded the Caterpillar distribution rights for Mongolia and acquired 100% of Wagner Asia Equipment LLC and a 49% share in SGMS LLC. Our Caterpillar business in Mongolia is engaged in the business of selling and distributing construction and mining equipment, aftermarket and technology solutions as well as rental solutions under the Caterpillar brand. This will enhance the expansion of the Barloworld Group in the mineral rich Eurasia region.

The goodwill, intangible and tangible asset values represented are provisional, as this acquisition was completed close to the Group’s reporting date.

The transaction is subject to the acquisition of 49% of ordinary shares in SGMS LLC as well as 80% of preference share in SGMS, which together effectively gives Barloworld 90% economic interest in and control of SGMS because the preference share in SGMS have the same rights as the ordinary shares, resulting in a non-controlling interest (NCI) to the extent of 10%. The purchase of SGMS is negligible/immaterial to the whole transaction and therefore they are not split for business combination accounting purposes. NCI is measured by applying the percentage holding of the NCI to the net asset value acquired.

IDENTIFIABLE ASSETS AND LIABILITIES ACQUIRED ON 1 SEPTEMBER 2020

^	Supplier relationships Intangible asset comprise of the Supplier relationship with Caterpillar representing the distribution rights for Mongolia. This will be amortised over the remaining useful life of 20 years. This is the only intangible asset which meets the IFRS recognition criteria.
**	Trade and other receivables The receivables acquired (which primarily comprised trade receivables) in this transaction with a fair value of R377 million had a gross contractual amounts of R673 million. The best estimate at acquisition date of the contractual cash flows not expected to be collected are R296 million.

Goodwill represents synergies whereby Barloworld expects to leverage core competencies within its existing businesses in Russia which will create additional value.

The goodwill will be accounted for in terms of the Group policy where it will be tested for impairment annually with impairment losses recognised in profit or loss but excluded from headline earnings.

21.2  Barloworld Limited ("Barloworld") entered into a Sale and Purchase Agreement ("SPA") with Tongaat Hullet Limited on 28 February 2020 to acquire 100% ownership interest in Tongaat Hullet Starch ("Ingrain"). The transaction was completed on 31 October 2020, being the transaction effective date. This purchase is done through Barloworld's wholly owned subsidiary, KLL Group (Proprietary) Limited, which will hold the shares in Ingrain.

Ingrain is Africa's largest producer of starch, glucose and related products, and produces a wide range of high quality products for customers across Africa and around the World using maize as raw material.

Barloworld acquired Ingrain, being a different business to its existing business portfolio, to  balance out the seasonality of its existing business to deliver a consistent return to shareholder.

1

The consideration transferred (the ”Purchase Consideration” as per the Sale and Purchase Agreement (SPA)) is made up of the initial amount of R4.536 billion, payable at the effective date in cash, and the adjustment payment payable when the closing stocktake has been completed after the closing date. The adjustment payment is a contingent consideration in nature as it adjusts the purchase consideration up or down and is dealt with below. Acquisition-related costs to the value of R53 million were incurred, excluded from consideration transferred and recognised as an expense in profit or loss.

2

The contingent consideration of R450 million arises from the adjustment payment which will adjust the purchase consideration when finalised based on stock valuations. This has been added as one of the pre-closing activities, being a closing stock take as well as valuation thereof, and is not completed at closing date. This may result in either party having to pay another the difference between the initial amount paid on the closing/effective date of the transaction and the confirmed purchase consideration due to finalised stock take. It is expected that the stock take should be completed just after the closing date, within 15 business days after the closing date. The R450 million was arrived at using an estimate of the September 2020 working capital carrying values. The contingent consideration was measured at fair value on 31 October 2020 based on the current stock values and will be subsequently remeasured at fair value based on the finalised stock values. Due to the short turnaround of the valuation since the closing date to finalisation of the stock count and valuation, the fair value of the contingent consideration approximate the amount of the purchase consideration agreed. This is a measurement period adjustment, the business combination accounting is incomplete, and the amounts reported on 31 October 2020 are provisional. When the stock values are finalised, the business accounting combination accounting on 31 October 2020 will be adjusted retrospectively to reflect the new information obtained about the facts and circumstances that existed as of 31 October 2020. The adjustments to the purchase consideration as a result of changes in the value of the contingent consideration, will be accounted for against goodwill. The range of possible outcomes is not expected to be materially different from the R450 million. There is no minimum and maximum for the adjustment payment amount.

ASSETS ACQUIRED AND LIABILITIES ASSUMED ON 30 SEPTEMBER 2020

5	Intangible assets: Intangible asset comprise of Customer relationships may arise from non-contractual customer relationships, which represent loyal customers that will continue their relationship after the acquisition by a market participant. This is the only intangible asset, which meets the IFRS recognition criteria.
6	The receivables acquired (which primarily comprised trade receivables) in this transaction with a carrying value of R709 million had a gross contractual amounts of R713 million. The best estimate at acquisition date of the contractual cash flows not expected to be collected are R4 million. The fair value of the receivables is still to be determined and finalised during the measurement period.

7

Goodwill represents synergies/improvements whereby Barloworld expects that through product development and specialisation (into modified starches) it will be able to create immediate margin uplift and optimise the product mix, whilst the ability to leverage Barloworld’s core competencies in distribution within its existing businesses will create additional value. Goodwill will be accounted for in terms of the Group policy where it will be tested for impairment annually with impairment losses recognised in profit or loss but excluded from headline earnings. Goodwill is not tax deductible.

It should be noted that the values used for the business combination accounting above are as at 30 September 2020 because the purchase price allocation is not yet completed as at 31 October 2020 as some assets and liabilities still need to be fair valued. This has not been completed because the acquisition date is very close to the date the Group financial statements are issued. When the business combination accounting is completed, which should be done by 30 October 2021 per IFRS 3 measurement period, the values allocated to assets and liabilities would be updated with any resulting adjustments accounted for against goodwill.

UPDATE ON BARLOWORLD’S PROPOSED ACQUISITION OF TONGAAT HULETT STARCH

Refer to note 21 regarding the progress of the Tongaat Hulett Starch acquisitions.

COVID-19 CRISIS UPDATE

The impact of COVID-19 has been considered up to 30 September 2020. Subsequent to year end there have been no significant changes in the COVID-19 restrictions impacting our businesses and thus no subsequent events related to the COVID-19 crisis have occurred. In the automotive businesses the Rental volumes have been severely impacted by COVID-19 and the resultant lockdown. Airport traffic is critical to car rental and the current restrictions continue to impact the business. The key countries driving inbound tourism to South Africa are thus excluded from travelling to South Africa and this is severely impacting the business. This resulted in being over fleeted from March 2020, and post lockdown the business has managed to reduce the fleet significantly with used vehicle sales a lot stronger than originally anticipated, both from a volume and margin perspective. At September 2020, the business has brought the fleet back in line with business requirements and will have to start procuring fleet to maintain service levels and demand. The rate per day was impacted by a change in business mix as monthly and replacement increased proportionally compared to other segments. Average utilisation for the period is 61.3% (prior year: 76.1%) on an average fleet of 24 097 vehicles (8.4% lower than last year’s 26 305). The lockdown affected utilization and the business has been right sizing its fleet to adapt to the declined volumes. This has been a tough process and the fleet in October is in line with demand. We expect the utilization levels to return to normality in 2021. The austerity measures and cost saving initiatives already implemented by the group have yielded significant cost savings of approximately R402 million during this financial year as a result of salary sacrifices, travel expenses , operating lease savings and other measures applied in the business and are forecast to lower the overall cost base going forward. Capex expenditure of R596 million was also reduced. Most of our businesses have been severely affected by restrictions on trade as well as various lockdowns and the prospects of a quick recovery are low. In an effort to adjust to the requirements of trading in a significantly changed environment while positioning the business for a recovery, management and the board instituted group-wide retrenchments, in addition to the 12-month remuneration sacrifice plan implemented on 1 May 2020. Retrenchment processes have largely been completed with significant staff complement reductions at Automotive and Logistics, Equipment southern Africa and the Corporate Centre. The number of staff retrenched in this process was 2 644 out of a total staff compliment of 15 396 at the end of 2019. Retrenchment costs of R289 million were incurred to September 2020 with the reduced staff levels.

**	The geographical segments are determined by the location of assets.
***	Inter-segment revenue is priced on an arm's-length basis.
@	Including Middle East for 2019.

@	Including Middle East for 2019.

**	The geographical segments are determined by the location of assets.
***	Inter segment revenue is priced on an arm’s-length basis.
@	Including Middle East for 2019.

@	Including Middle East for 2019.

**	The geographical segments are determined by the location of assets.
***	Inter-segment revenue is priced on an arm's-length basis.
@	Including Middle East for 2020.
^	Effective 1 September 2019 the result of NMI Durban South Motors (Pty) Ltd (NMI) has been equity accounted. Motor retail segment included in 2019 representing the 11 months of NMI as a Barloworld controlled subsidiary. NMI’s revenue and operating profit reported in 2019 for comparative purposes was R3 887 million and R125 million respectively.

@	Including Middle East for 2019.
^	Effective 1 September 2019 the result of NMI Durban South Motors (Pty) Ltd (NMI) has been equity accounted. Motor retail segment included in 2019 representing the 11 months of NMI as a Barloworld controlled subsidiary. NMI’s revenue and operating profit reported in 2019 for comparative purposes was R3 887 million and R125 million respectively.

**	The geographical segments are determined by the location of assets.
***	Inter-segment revenue is priced on an arm's-length basis.
@	Including Middle East for 2019.

@	Including Middle East for 2019.

**	The geographical segments are determined by the location of assets.
***	Inter-segment revenue is priced on an arm's-length basis.
@	Including Middle East for 2020.

@	Including Middle East for 2019.