Barloworld Limited (BAW) Earnings Call Transcript & Summary

Good day. Thank you for joining us for the Barloworld annual results for our year ended 30th September 2021. Today, we will take you through our group highlights from our CEO, Mr. Dominic Sewela; a financial overview from our FD, Nopasika Lila; Industrial Equipment and Services businesses, Emmy Leeka. Quinton McGeer will also give you updates; Consumer Industries will hear from Garth Macpherson for Ingrain; in the Car Rental and Leasing business will hear from Ramasela Ganda for the Avis Budget Rental and Avis Fleet businesses. Thereafter, we'll go into a strategy update and outlook session and then take your questions and answers. I would like to now hand you over to Mr. Dominic Sewela, our Group CEO. Over to you, Dominic.

Thank you, Nwabisa. Good morning, ladies and gentlemen. Last year, at this time, I stood before you during one of the most challenging period in recent history. The scares of coronavirus and its devastating impact has been a wake-up call for many businesses. ESG are not merely buzz with, but should be embedded in the way we do business. We all have a significant part to play in living our people, communities and the planet better than we found them. For Barloworld in particular, it has reinforced our commitment to doing business in a manner that is responsible and sustainable. It is therefore important that today, we start with what truly underpins our decision-making, the lens through which we take our strategic outlook. ESG underpins group strategy action. People are at the center of our business. The initiatives we prioritize with respect to their health, safety and well-being. We are committed to communities where we operate, and we try and understand social dynamics, diversity and inclusion and taking transformation seriously in our organization. We take meaningful action to reduce our footprint throughout our value chain by ensuring that we understand key drivers in each and basically, those drivers that impact the environment, setting granular targets for each of our business and measuring our targets. As management of this business, we are accountable to the Board through Social Ethics and Transformation Committee as well as Audit and Risk Committee for all the actions in these areas. Such assessment help us to steer our ESG framework, policy practices and disclosures back to stakeholders. We are encouraged by the recognition of our performance as reflected by the inclusion in various global sustainability indices and the ratings achieved in ESG assessments. We have robust risk management and governance processes over ESG, including climate change-related aspects, which are disclosed in our annual response to the CDP climate change. We believe this address the recommendations of the task force on climate-related financial disclosure. I'd like to highlight the progress we've made on our safety. It remains a key priority to that extent, in the current period, we've embarked on a strategy deployment to embed Zero Harm Culture across our group. And we are using BBS to ensure that as we approach this, we use what I call an A3, which is a lean approach. The key tenant of this initiative is about leadership accountability. 100% of BBS improvement events are safety improvements. 97% of our global leaders are performing the leader standard work, which involves going to where work is done, seen coaching employees to become problem solvers. We aim to promote and sustain a high level of productivity and safety through visible felt leadership. Unfortunately, we have had fatalities in our organization. One employee due to a motor vehicle accident in logistics, Mr. [indiscernible] passed away from this accident. To date, we have had 29 employees lose their lives due to COVID. We take this moment to honor our dear employees to their service, to their organization. Our deepest condolences to their families, friends and colleagues of our buried employees. We can continue to actively manage COVID-19 in our region and support our employees working on-site or at home. We're active in the participation of vaccine rollout through our medical aid. It has been very important for us over the years to understand the key areas that contribute to our environmental impact. Given the nature of our operations, there are 4 environmental areas of impact which we consider to be material. The first one is carbon emission, water stewardship, energy efficiency and waste management. We also manage these impacts using the MARSO approach, which stands for measure, avoid, reduce, switch, offset. In terms of measure, using measurement that speak to key drivers in each operations and the value stream thereof. We completely avoid usage -- avoid -- rather would be completely avoiding usage as a [indiscernible] where we cannot measure or reduce our impact through efficiency, like, for instance, you look at where we use water like in Avis, we use recycling in some instances. In Ingrain, we'll use regular maintenance of plant and equipment and monitor intensity. And when it gets to switch, if you look at the Equipment Southern Africa, basically, we've rolled out a lot of solar panels where in some of the areas, BBS business has moved off grid in terms of that. And we are practicable carbon emissions, we are offset through credits. We've embarked on a feasibility study on Ingrain and environmental targets and high-impact initiatives, which are underway in that business. Ingrain's targets will be confirmed once we've performed the impact studies and benchmarking. Our unique operations impact these areas differently. To that extent, we have identified key drivers for each impact and set granular targets for each operation. For example, in Avis, we use fleet efficiency where we measure petrol and diesel per kilometer travel. In terms of water, it's water utilized per vehicle washed. In equipment is a fuel liters per billable service kilometer travel and integrates usage of coal, electricity and water per ton of maize grind. Our target setting is focusing these key drivers that are unique to each operation and within their control. In light of our approach to doing business sustainably, we have made significant improvement in our environmental impact on continuing operation. If you compare the progress to 2020, we've reduced our carbon emissions by 2% and our intensity by 10%. We will reduce municipal water consumption by 18% and our intensity by 25%. We've improved our nonrenewable consumption by 8% and our intensity by 16%. And for me, this means for us to be able to produce the results that we produce financially, we need to make sure that we do so in a sustainable way. And therefore, I'm pleased to say, if you look at the financial overview highlights, revenue is up 22.5%, largely due to the turnaround, particularly in Avis, and the 2 acquisitions that we've made in Ingrain as well as Mongolia. But more importantly, Equipment business both in Southern Africa and Eurasia has performed exceptionally well. And Emmy and Quinton will speak to that. When it comes to margins, the quality of margins have improved by 450 basis point. When you look at the cash generation, the EBITDA is very strong at ZAR 6.9 billion compared to ZAR 4.4 billion, which is 54% up. The free cash conversion is 92% compared to 69% last year. And what's pleasing is to see the earnings per share at 1 391 cents compared to 1 236 cents last year. Solid balance sheet at ZAR 2.3 billion net debt compared to ZAR 2.7 billion. And what's pleasing the Board has taken a decision given the strong performance and the balance sheet to declare a special dividend of 1 150 cents over and above the 300 cents per share. I'm going to hand over to Nopasika. Thank you.

Thank you, Mr. Sewela, and thank you all in attendance. Good morning. I'm pleased to present to you these remarkable Barloworld results for the financial year ended 30 September 2021. To start off, in order to better understand the financial statement and for your ease of reference, it's important that we start by sharing key transactions that have taken place that needs to be taken into account as you analyze the financials. So we have Motor Retail transaction, which was concluded during the year. So what that means for that business? We accounted for it 8 months as discontinued operation and 4 months, you'll see it under associate as equity accounted. Logistics as well, you'll still see it under discontinued operations as we close off the financial year-end. So we've had to accordingly restate our 2020 financial numbers to reflect these developments. Looking at the new acquisitions, we have Equipment Mongolia, which we have included for the first time, 12 months. You recall that last year, we had included Mongolia for 1 month as it came into our records on the 1st of September 2020. And Ingrain, we brought it into account in November 2020. Therefore, your 11 months of that business is in our accounts this year. Revenue from continued operation increased by 23%, and it's sitting at ZAR 41.6 billion in the current period. Looking at the gross revenue for the group, now including discontinued operations, it's ZAR 53.8 billion, and discontinued operations on its own contributed 22% of this said revenue. Profit for the period is ZAR 2.8 billion. Now this is due to the strong margins across all our businesses. And if you do compare this with a loss with last year of 2.5, This has been a phenomenal, phenomenal improvement and performance of the Barloworld numbers. Effective tax came through for us at 25.3% in the current reporting period. Revenue by segment. Equipment Southern Africa and Eurasia represent 70% of our total revenue. New acquisitions exceeded our expectation at ZAR 6.6 billion, and thus contributing 16% of the 23% group growth in the financial year. It is a commendable that Avis Rental Car and Lease, they recovered extremely well emerging from the challenges from the pandemic, and Ramasela will talk more in terms of that performance. Overall, the businesses have performed well ahead of the prior year numbers. Exceptional performance again on operating profit, increasing by 119% compared to the previous year. This is attributable to the cost containment measures that we implemented in the prior year and the benefits coming through in this current financial year. Also, the positive contribution from new acquisitions, as I have mentioned earlier. Depreciation was marginally up in comparison to the previous year, which indicates a good capital expenditure movement and containment. EBITDA at ZAR 6.9 billion, is 54% ahead of prior year. Significant improvement in margin, especially in the Equipment businesses. The funding rate were favorable in the current reporting period and added to that is an interest that we did receive from our cash that has been quite extraordinary from a cash conversion point of view coming from the divisions. So if one looks at the improvement in our net finance costs, it's at 24%. Now this is before we include Ingrain. And if we just focus on Ingrain -- funding of ingrain, the cost attracted there was ZAR 183 million. Now our tax compared to last year improved by 99%. As I've indicated, in this current financial year, it is at 25.3%. Benefits were realized from the utilization of tax losses, which previously were not recognized in deferred tax. Now this is mainly in the U.K. as well as the deferred tax liability, which is raised in terms of IAS 12.41 now on currency appreciation against the U.S. dollar in territories in which we operate. Now moving on to headline earnings per share. Earnings demonstrated agility and business resilience. We experienced improved earnings from continued operations. And when normalized by IFRS 16 as well as the BE charges, HEPS generated 1,323 cents. The combined Equipment businesses, now this is Equipment Southern Africa as well as Eurasia, generated an impressive 983 cents per share. The balance sheet maintained its strong stature on the back of good working capital. Now this is especially with inventory management throughout the businesses. Noting at the increase in our total assets, this is largely driven by the new acquisition of Ingrain, which carried an asset base of approximately ZAR 7 billion. The increase in total equity and liability line is mainly driven by the funding of Ingrain, which was at ZAR 5.3 billion. Now this is also offset by the significant reduction in our U.K. pension fund liability as well as a Motor Retail sale that was concluded in June this year. On the cash side, exceptional free cash flow generated by the group at ZAR 6.6 billion for the year. Now this is before we take into account Ingrain. But if we compare this performance with prior year performance, it is actually doubled because last year, we had reported cash flow -- free cash flow of ZAR 3.3 billion. With that, we closed off the year with cash on hand at ZAR 10.8 billion. Now this is an increase of ZAR 4.1 billion compared to the previous financial year because you may recall we had closed off the year at ZAR 6.7 billion. This resulted on a net basis in our group net debt reducing by ZAR 13 billion at ZAR 2.3 billion from ZAR 2.7 billion in the prior year. ROIC at 11.3% is a remarkable improvement compared to our 1% that we had reported in the previous year. Also, the cash conversion from the businesses has been exceptionally great. As you may see, the cash conversion has been at 93%. So I'd like to conclude on a high note, and that is the Board has yet again declared both an ordinary dividend and a special dividend, as Dominic has said earlier. Now if we look at final and ordinary dividend, it's a 300 cents 3 per share. And if you add that to what we declared during the interim period, it's 437 cents per share and a special dividend of 1,150 cents per share and adding to what we declared at interim, the total special dividend declared for the year is ZAR 13.50. I thank you. And with that, I'd like to call on Mr. Leeka.

Thank you, Ms. Lila. Good morning, ladies and gentlemen. I'm pleased to announced the Equipment Southern Africa results for September 2021. We started 2021 with our motto 2021, our best day yet. And I'm so excited to share the results with you, but more importantly, so that we have made 2021 our best year yet. The division delivered stellar results amidst the pandemic with overall activity at 89% post-COVID level. The total revenue was up at 3.6% at ZAR 18.2 billion, with a growth in part sales at 16.5%. We have seen a double-digit growth in part sales in Botswana, Zambia and Namibia. EBITDA at ZAR 2.6 billion compared to prior year with a growth of 42.9%. The operating profit margin seen a growth of 390 basis points to 10.7%. This was supported by a very strong aftermarket sales, but also reducing our cost to serve. Our continuous effort in optimizing our invested capital, so as reducing our overall invested capital by ZAR 2 billion and resulting to our invested capital at ZAR 7.2 billion, with a of 2.5. Bartrac, the joint venture in the Democratic Republic of Congo, remained under pressure with positive signs of recovery seen in the second half. The division posted ROIC of 15.2%, but also continued to deliver a strong cash of ZAR 3 billion. Now turning to new machine sales by segment. We have seen overall machine sales down by 7.7% on the back of challenges in terms of this overall global supply chain and certain areas lower level in terms of activity. However, when we look at the strong commodity prices, both contract mining and as well as mining sector sales, we have seen a strong contribution in terms of the total mix. And starting with the mining, mining grew by 16% and contract mining by 16%. This was offset by a 36% reduction in terms of construction industries sales. When we look at the commodity, as we know that the region is well endowed with different commodities, which actually defends us against cyclicality. Coal remains strong. But also we have seen a very good contribution in terms of diamonds in Botswana as well as Angola, but also a good recovery in terms of copper with new projects in Botswana but also in Zambia. Now when we talk about this being our best day yet, if we look at the aftermarket contribution from 2020 of 55% to 57% and the last time we achieved the 57%, it was in 2017. And you look at a similar level in terms of the top line, the revenue same -- and -- but when we look at the operating profit margin in 2017 was at 9.8%. But it's interesting to see the leverage that is coming through due to cost savings, which catapulted our operating profit margin in 2021 to 10.7%. We will continue to focus on a double-digit growth in terms of the aftermarket, but also ensuring that we maintain the cost discipline, which will assist us in maintaining our overall operating profit margin above 10%. Now let me double click in terms of regional performance. Looking at the 9 countries, excluding the JVs in Zimbabwe as well as the Democratic Republic of Congo, it is pleasing to see that countries like Botswana, Zambia and Mozambique in terms of the turnaround strategies that we implemented, the returns on invested capital were way ahead the huddle rate. We still have a job cut out in terms of lower activity challenges in both Angola as well as Malawi. Now looking at our joint venture in the Democratic Recovery -- Democratic Republic of Congo, we have really seen a reduced activity. We have completed our restructuring program, but it was encouraging to see signs of recovery last quarter. I'm quite positive when I look at the outlook for 2022 with activity levels expected to improve and as realizing the benefits in terms of the restructuring. Now when we look at the divisional strategy, the division delivered with regards to their promises. And we'll still maintain alignment with Caterpillar when we focus on services growth, market leadership position. But also ensuring that in terms of our cost reduction as well as invested capital term, we optimize both going forward. I've indicated areas of concern where we still need to improve in terms of Angola and Malawi, but also we continue to embed continuous improvement culture through our Barloworld Business System, as indicated by the Group CE. I remain positive in terms of the activity, in particular, around mining on the back of good commodity prices into 2022, supported by a strong order book. If you look at the order book in terms of mining, overall order book at the close of the period was sitting at ZAR 3.2 billion compared to the ZAR 2.2 billion, post-balance sheet order book of ZAR 3.5 billion. Construction industry is expected to recover as infrastructure and energy projects gather momentum. And when I look at the opportunities in the Northern part of Mozambique, the Ruvuma region, we are hoping to see activity picking up, subject to the issues that we have in terms of security in that region. Services growth will remain our #1 priority. We will continue to focus on digital optimization and transformation and sustaining returns above the hurdle rate. I thank you. And I would like to hand over to Quinton McGeer.

Thank you, Emmy, and good morning, ladies and gentlemen. If we can go to the first slide, thanks, I'm pleased to announce excellent 2021 financial results for the Eurasia division, which includes Mongolia over the full year for the first time. Both Russia and Mongolia delivered stellar results. This is despite the unpredictable trading environment with sporadic country lockdowns. The second half performance in aftermarket assisted by our recovery in the coal segment that supported the overall numbers from both a revenue and a profit perspective. We've managed to maintain our margins, despite record deliveries in the machine segment. The division continues to generate strong cash flows on the back of good trading results and working capital management. We have excellent rate returns in both countries. If we move on to the next slide, we delivered a record number of machines to the market, dominated by mining with 57% of the revenue generated by prime product. It was also pleasing to see the strong performance in the Construction segment. Despite the slightly lower aftermarket percentage contributions in the sales mix, both Mongolia and Russia delivered solid results. Russia reduced an 8% aftermarket growth over the prior year in dollar terms. If we can move to the next slide. Russia is a world-leading producer in most commodities, providing us with an abundance of opportunities. We are very fortunate to be serving a diversified mining industry that represents all commodities with a well-balanced customer portfolio between blue chip mining houses as well as junior miners. This diversified exposure help us to defend against cyclicality. As can be seen on the chart, the division generated strong sales in the gold segment across both countries. Sales to the coal segment contributed 46% of our overall revenue in Mongolia. A large portion of this coal is coking coal and exported to China for use in the iron ore factories. If we go to the next slide, I'm not going to spend too much time on this slide. I think the main point is that we have an abundance of opportunities in Eurasia, both in greenfield as well as on brownfield mining opportunities. And our firm order book for the 2022 financial year is solid evidence of this. If we move to the next slide, our strategy has not changed, and we remain closely aligned with Caterpillar in driving growth and value for our stakeholders. Just want to highlight a few key points. Firstly, is the importance of continued winning greenfield opportunities as well as continue to develop our digital footprint. Also would like to highlight that we are on target in terms of doubling our service growth through to 2026 on our 2016 base. If we then move to the last slide, I'm very excited to share this slide, which shows a record firm order book as at the 30th of September. And then further pleasing is that subsequent to September, we have managed to secure a further firm order to the value of $55 million. The book reflects a very diversified commodity mix with strong contributions from gold, coal, copper and very pleasing also our power division for the 2022 financial year. Integrating Mongolia and optimizing best practices in the Eurasia division will continue gearing the forthcoming year. We are looking forward to a strong 2022 year to back up the 2021 performance. And with that, I want to thank you and hand you over to Garth. Thank you.

Thank you, Quinton, and good morning, everybody. We are very pleased with the growth that Ingrain has delivered. And I would like to take this opportunity to thank all employees and partners of Ingrain who have played a role in our performance during the current year. Before we turn to the financial performance, just a reminder that the results presented in the slides and in the information booklets offer an 11-month period with the acquisition of Ingrain being effective from November 1, 2020. Ingrain has delivered strong revenue growth of nearly 20%, driven by an increase in sales volumes in both domestic and export markets, high international prices and improved co-product realizations. This revenue growth, when combined with more competitive local maize prices, has seen an improvement in margins and has resulted in EBITDA increasing by some 36.6% to ZAR 772 million. Operating for the profit for the period grew by 18% to ZAR 534 million. This includes the impact of the acquisition-related asset amortization and increased depreciation on the fair valuation of plant and equipment as required in terms of international financial reporting standards. The additional noncash expense included in the income statement during the period amounts to some ZAR 125 million. Cash generation remained strong and benefited from the improved operating results and lower working capital requirements and translated into a cash inflow of some ZAR 768 million. If we turn to revenue, we can see here that Ingrain's strong revenue growth was on the back of an increase in sales volumes in the domestic market of 8.7% and in the export markets of some 3.1%. The volume increases are despite the impact of 5 weeks of industrial action in February and March, COVID-related lockdowns, limited availability of food grade containers, shipping space and congest in the ports and some curtailment of customer activity during the July unrest period. The graphs depicted here provide a high-level overview of the breakdown of sales between local, export and co-product markets. And as can be seen from the graphs, there is an increase in the share of revenue attributable to co-products. This increased revenue is attributable to higher international agricultural commodity prices and continuing customer mix optimization. If we now turn to the domestic market, which remains a key part of our overall success. We have seen that Ingrain continues to benefit from its diverse customer base with a strong recovery in the alcoholic beverage sector. The sector has demonstrated its resilience and was able to show a growth, despite the impact of lockdowns and the associated curtailment of sales. This growth, combined with growth in the coffee creamer sector and the paper sector, has offset declines in the confectionery and prepared food sectors. Good progress was made in growing sales of powered glucose by 8.2%, and modified starch sales grew by 1.3% with the curtailed availability of an imported raw material and the impact of industrial action having an effect. Looking ahead, whilst the economic outlook remains uncertain, we expect economic growth -- volume growth to be supported by a reduction in the level of restrictions in place in the new year. This is positive for the entertainment and tourism industry and schools and should benefit the alcoholic beverage, confectionery, paper making and paper converting sectors. The acceleration of investments in our facilities and the implementation of Barloworld Business Systems will benefit volumes and support our import replacement program. Growth in powdered glucose and modified starches is expected to continue, and new business development is currently underway in the papermaking sector with trials underway at customer sites. Turning to maize. Ingrain benefits when South Africa produces maize in excess of its own requirements. As can be seen in this table, high international agricultural commodity prices have encouraged increased domestic maize plantings, which, combined with favorable weather conditions in the prior season, have led to a current maize crop of some 16.2 million tons. The outlook for the current season remains favorable with continuing high international commodity prices being beneficial for South African maize plantings and long-term weather forecasts indicating a normal rainfall season for the summer period. This large local crop of 16 million tons, combined with a favorable outlook, will support margins in the business going forward. International starch and glucose prices remained favorable and have increased on the back of COVID-19 supply chain constraints, increased freight rates and higher energy costs. From a strategic perspective, Ingrain is continuing to focus on various initiatives to accelerate its market development, supported by ongoing operational excellence and capacity optimization projects. During this year, we will be increasing our investments in the optimization and maintenance of our facilities and will accelerate the implementation of Barloworld Business Systems, building on the foundation created in the current year and the results that are being achieved. Market development activities will focus on targeted import replacement opportunities with a particular focus on packed and powdered glucose, modified starches and regional markets. In conclusion, despite ongoing volatility and uncertainty in markets, we expect to see volume growth as markets recover from the impact of lockdowns. Customers look to shorten their supply chains and our various market development opportunities are realized. The current high international commodity prices and expectations of a third large local maize crop should support margins going forward, and Ingrain should grow earnings in relation to the current year. Thank you. I'll now hand over to Ramasela.

Thank you very much Good morning. I will be taking you through the results of unrivaled market leader in rental and leasing from Accra, Ghana to Cape Town, South Africa. Starting with the rental operation. In 2021, we have experienced 2 major COVID-19 infection peaks, which negatively impacted the tourism sector. And in our case, domestic travel. As you all know, international travel is not yet back. We're trading at about 10% of pre-COVID levels. But our strategy of repositioning from being predominantly a tourism business to mobility solution provider, coupled with an agile operating model of depleting at the right time, at the right price. In this point, used car market has paid off, with our revenue up at 3.5% year-on-year. As you may recall, we did mention about our subscription offering. We have seen an exceptional growth in our subscription offering with rental days up 50% and its related revenue up 58.5% compared to prior year. An average rate per day in all rental segment increased by about 5.8%. We've managed to maintain our fleet at an average of just under 16,000. The precision in which we executed on our out-of-service fleet to improve fleet availability in this supply chain challenging time yielded positive results, with utilization improving by 1,600 basis point at a 77% utilization level. That's higher than global now, you may check it out. Our mobility strategy and the discipline and execution on operational efficiency contributed significantly intending around the loss of ZAR 142 million to a profit of ZAR 348 million. That is 344% tenor and up tenor activities. Before I move into the leasing operation, it is important to note that the integrated business of rental and leasing managed to deliver ZAR 2.2 billion of EBITDA, that is 16% higher than the prior year. We continue to generate strong cash from our operating activity as a result of a robust working capital management. Moving on to our leasing operation. As at the end of September 2021, we had over 230,000 fleet under management, of which 18,000 was on a balance sheet. A major milestone in our leasing operation was the implementation of heavy commercial leasing operation, which afforded us the opportunity to expand on our offering to existing customer and actually acquire a new business. That, together with our ability to retain and grow our corporate customers, has somewhat mitigated the impact of the decline due to natural attrition of 2 major contracts. Yes, the net effect is still revenue down by 5.9 year-on-year. But despite the decline in our revenue, a discipline on operational efficiency execution, looking after the health of our fleet, quality of our maintenance and service program, together with a very strong used car market, improved the quality of our earnings, with operating margin increasing from 14.6% to 17.5%, and our operating profit went up year-on-year by 13.5%. We are starting to see a shift in the economic sentiment from South African corporate with new orders that they are placing for business growth which for the current year resulted in our fleet investment growing by 300 million year-on-year. Looking forward, we continue to pioneer opportunities in the mobility landscape by leveraging on our very strong infrastructure and capability. And with the use of Big Data, we aim to provide personalized customer experience, while obviously focusing and emphasizing on employee wellness and engagement. As we continue on our trajectory of recovery and growth, we are well positioned to protect and grow our market share with a fleet capital commitment at circa ZAR 3.1 billion and a firm order book in the leasing business of over 500 units. I'd like to thank you for attending the results. I'll hand over to the Group CEO.

Thank you, Ramasela. Just to review the strategy and just reminding everybody that this journey to pivot Barloworld and simplify our operation has been a long time coming. If I look back at 2017, when we review the portfolio at the time, the portfolio mainly consisted and dependent on OEMs. The bulk of the business was in unattractive segments and markets, the low value creation potential, overall portfolio was not geared to delivering key value creation metrics with low margins, low cash conversion, low return on invested capital. And we also had a decentralized approach to resource allocation. There was no clear group operating model to drive value like we now have a Barloworld Business System. And we took certain actions to sort of pivot out of those environments. We sold our business out of Spain and Portugal. We attempted to optimize and basically fix logistics, which last year proved futile as an exercise. To that extent, we had to exit that business. Currently, we've signed an SPA in terms of the 51 sale of our Aspen business. And we've also signed an SPA with respect to the sale of our Barloworld transport. And we will be selling the supply chain in the not-too-distant future because we resorted to taking a piecemeal approach given the fact that in July, the crisis led to some of the buyers exiting that process. Notwithstanding, we also looked at optimizing the automotive business in terms of retail. And we've since sold a 50% of the Motor Retail business in -- by June. This year, the deal was concluded. And then -- but I think, overall, we also said it's important for us to start thinking about growth and being defensive. And hence, we were able to get into Mongolia as well as buying starch business. Our active shareholder model is paying a dividend because, as we drive strategy, we focus on execution, not just volume M&A, but just value opportunities and being deliberate in the way we approach management deployment at very seamless level, which drives performance and execution agility. If you then look at 2020 and beyond, we spoke about COVID. For us, stewardship, amidst 2019 pandemic was very -- COVID-19 was very important. Significant austerity measures were taken and very quick. We focus on capital preservation and ensuring that the business continue to deliver cash. We sustainably reduce the cost base. I think, as Emmy highlighted, our view is that this is sustainable. And with BBS, we'll be able to demonstrate we could do more with less. And the simplification continues. Our view is that, as we said, we set certain milestone as to when things will be done, and we'll start the process on Avis in the new year and concluding that by the end of the year, as I've already communicated. And the focus is going to be making sure that we also drive acquisition in terms of the existing portfolio. There will be focus to say those acquisitions are going to be programmatic in nature and not transformational, it will be adjacencies to the existing 2 verticals that we're talking about. I think I want to also highlight the issue around capital allocation on this slide. Of course, all the other points I've made in the interest of time, it's important that when we think of capital allocation, we've been fairly consistent. And I'd like to take you back to 2018. And then you look from 2018 to date, we've basically distributed ZAR 7.8 billion back to the shareholders. That is either in the form of a dividend, be a special or final dividend as well as share buyback. If you remember, last year, we did about ZAR 1.6 billion of share buyback. And a year prior, we actually declared a dividend of over ZAR 1 billion as well as a special dividend of about ZAR 500 million. And in 2018, it was about ZAR 1 billion of special. So combined, including what we're declaring, I mean, this year alone, we're distributing ZAR 3.6 billion. For me, it is capital allocation because as we are addressing the issues around my favorite slide of saying, if we're not generating returns that are above our cost of funds, we should be able to carefully allocate capital. Where we can't demonstrate value, we'll return the money back to the shareholders. And I'm pleased to say when you look at this graph, in the interim, you look at where Avis was at minus 4.9%. And at the time, I spoke about the annualized return based on where Ramasela was to about 6%. And I'm glad to see that she has achieved 8.2%. And in 2019, that was sitting at about, Ramasela, if I'm not wrong, 11.5%. And when you look at leasing at 12.2%, the highest leasing was -- in 2019 was 11.7%. And I think Emmy spoke about the best year yet for him. If you look at the interim at 6.5%, I was projecting that Emmy will be probably sitting between 11% and 12%. And I'm pleased to see that he's done well. And I think the consistency that comes through from Eurasia is very impressive at about 17.1% following -- after the acquisition of Mongolia. We thought Mongolia that might have been even higher for VT. Importantly, it's also on Ingrain at 11.7% at the interim. With the purchase price allocation finalized, we still get about 8.8%. I hasten to say that if you look at this business, in terms of its defensive nature, in terms of its free cash internal rate of return of about 17%, it's a very impressive business. But my view for going into next years to focus on operational efficiency making sure that we spend CapEx for organic growth, previously the owner of the business expect CapEx. And when we bought the business, we have figured that out, we adjusted the price for that. And another issue for us is making -- we identified opportunities in terms of efficiencies. We've deployed BBS over the last in the 4 months, and we've seen significant improvement in terms of OEE as well as the grind in that business. I'm going to pause here to take questions because. I'm aware of time. Nwabisa, are there questions on the line?

Yes. Thank you, Dominic. I'll start with one from Daniel Isaacs. After the business sales, Barloworld will predominantly be an Equipment business. This has worked well in a high commodity price environment, does that does not make you far more exposed to the commodity cycle.

Yes. Thanks, Daniel, for the question. As one of the reasons that we bought a countercyclical business that's stable like Ingrain was precisely to address the issues of cyclicality. But I think if you just look at the portfolio though, and I've mentioned this even when I was running the Equipment business. That just when you look at the geographic diversification of Equipment Southern Africa as well as in Mongolia and in Siberia, it's a business spread across different commodities that do not necessarily follow the same cycle and also different infrastructural issues. So at any given time it's always important to have an embedded populations of machine. I think that's why the business demonstrated resilience even when the commodity cycle was down. But I think Ingrain will add to buffer that. And there is clear focus that we'll be looking at opportunities in adjacent to the Equipment business in industrial services, that would make sense to make sure that we can increase our share of the wallet with existing customers. Thanks, Daniel.

Then one from Ross. On the tax rate, please help me understand how the effective tax rate was calculated? - The rate looks much lower by my calc, even excluding capital items. And what is the sustainable effective tax rate going forward?

Okay. Nopasika. Continue further.

So we do work with the standard statutory rate. As we all know, it's 28%. So in this current financial year, we've utilized -- we had tax losses in our businesses in which we utilized and that worked in our favor. We also benefited from the weakening U.S. dollar compared to in territories in which we operate. So the weakening in the U.S. dollar then gave us a bit of a benefit in terms of the currency translation and so on. So we took those 2 been tax benefits that came through. But I also need to add to your point of your nondeductible, we certainly do have some of the nondeductible expenses that specifically though relating to professional fees, as you would know, as we execute on the strategy, some of the professional fees are not deductible. But largely, those with the key contributing factors to a reduced tax rate. And I think I did mention the IAS 12.41 impact as well.