Creating a platform for growth

Barloworld Equipment Mongolia


CREATING A PLATFORM FOR GROWTH AND GENERATING LONG TERM VALUE FOR ALL OUR STAKEHOLDERS

One of the key strategic levers in the short to medium term to generate long term value is to add high growth businesses to our portfolio and ensure optimal deployment of capital.

We believe the business will support Barloworld's long term growth objectives through combining this territory with the adjacent Russian business to form Barloworld Eurasia.

Regarding growth, we expanded the geographic coverage of our equipment business with the acquisition of Wagner Asia Equipment in Mongolia on 1 September 2020, acquiring 100% of Wagner and 49% of SGMS from Wagner Asia Group and Wagner International.

Mongolia is an add-on to the Russian equipment business, which will strengthen Barloworld's position in the region and provide new growth opportunities. The Mongolian business will be owned by Barloworld Mongolia, a 100% subsidiary of Barloworld Equipment UK.

The business in Mongolia sells and distributes construction equipment, mining equipment, power systems, and related goods and services in Mongolia, primarily under the Caterpillar brand. This acquisition will complement our other dealerships that sell earthmoving equipment in the region.

The remaining shares in SGMS will continue to be held by Battur Battulga, a Mongolian citizen actively involved in SGMS.

The business has been rebranded Barloworld Mongolia.

GROWTH PROSPECTS AND DIFFERENTIATING CAPABILITIES

GROWTH

The business is focused on machine sales, however, they recently invested in remanufacturing capabilities (aftermarket support) which presents significant growth opportunities for the future as the growing machine population requires rebuilds in country.

PROSPECTS

With the business being profitable today, a ROIC target of 14% to 17% is achievable in the medium term.

CAPABILITIES

The business has a strong local in country management team to support businesses. A clear business plan will drive the allocation of resources and provide clear measurable for the team. Integration into Barloworld Eurasia will also provide the necessary platform to support further growth of the business in a sustainable way.

The current managing director has been in business since 2016 and has a management team with years of experience which offers stability.

Since commencing operations in 1996 it has grown to be the largest heavy equipment supplier in the country.


Barloworld will not assume any debt liabilities from the existing entities and will provide its own capital into the operations from existing credit lines and some locally sourced funding in line with how its other offshore operations are funded.

Barloworld believes that the the Mongolia Equipment business has strong long term fundamentals and will be a good fit within its current portfolio.

 

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Ingrain


ACQUISITION

  • Closed out MAC Process, business is resilient and performed well above expectations
  • Market leader in Starch and Glucose in B2B Consumer Industries
  • Unlock identified improvements through BBS
  • Business expected to continue delivering good EBITDA margins and strong operating cash flows
  • The Group includes operation in South Africa and Australia
 

OUTLOOK

  • Strong growth in key segments
  • 2021 market recovery in alcoholic beverages and confectionery
  • Continuing benefits from diverse customer base
  • Maize and co-products
    • Low exposure to the current high maize prices until the end of Q1 2021
    • International edible oil and soya prices support increased co-product recoveries
  • Pricing
    • Expected lower maize crops in key international export markets and improved global demand, supportive of international starch and glucose prices

CREATING AN ATTRACTIVE VERTICAL TO ENSURE VALUE IN THE LONG TERM

We initiated our portfolio pivot by entering into the consumer goods sector through the acquisition of Ingrain (THS) in South Africa, an acquisition that will provide us with access to the less cyclical consumer sector without having direct exposure to the end-consumer.

We believe a balanced portfolio will generate long term value for all our stakeholders and is key in Barloworld's ability to deliver value while adapting and transforming to ensure long term growth.

THE CREATION OF INGRAIN

On 31 October 2020 Barloworld successfully concluded its landmark acquisition of Ingrain. Having proved resilient throughout the COVID-19 lockdowns and other restrictions, Ingrain validates Barloworld's strategy of entering the defensive food sector, creating exciting new opportunities for employees and customers in the years ahead.

The transaction is in line with Barloworld's strategy and supports its journey of becoming a focused industrial company, with a balanced portfolio of enduring businesses across key markets.

The acquisition is the result of an auction process conducted by the Seller and follows a comprehensive financial, legal, tax, technology, environmental and commercial due diligence performed by Barloworld and its external advisors. The outcome of the due diligence and the subsequent commercial negotiation culminated in a transaction acceptable to Barloworld.

Ingrain's new identity solidifies Barloworld as an industry leader that is deeply rooted in the South African heritage. Similar to how grains grow and adds value across different industries, Ingrain will continue to have an impact in its new home with the 'One Barloworld' family.

GROWTH PROSPECTS AND DIFFERENTIATING CAPABILITIES

GROWTH

Ingrain is a fully integrated starch and modified starch producer and has been in operation for over 100 years. It is the leading starch and glucose producer in Africa and has significant growth prospects.

PROSPECTS

Ingrain has consistently delivered a strong financial performance and will make a positive contribution to Barloworld.

The starch and glucose consumption (volume) is projected to grow at c. 3.4% per annum in Africa and c. 1.7% per annum in South Africa, with the South African modified starch market showing resilience.

CAPABILITIES

The business is a highly cash generative, relatively asset light and defensive investment with a leading market position and a strong client base of highly regarded and well-established multinational companies. These characteristics have underpinned the resilience of the starch business through the current economic challenges, validating Barloworld's stated strategy of entering into the defensive consumer foods sector and serving industrial customers as a long term strategic pivot of its portfolio. Ingrain is Africa's largest producer of starch, glucose and related products.


Ingrain further presents an opportunity for Barloworld to leverage its core capabilities of building lasting B2B businesses and operating in emerging markets. The identified growth and product development potential opportunities identified include:

  • unlocking latent manufacturing capacity through the application of lean improvement processes
  • increasing exports into key African countries
  • increasing the presence of the business within the high-margin modified starch sector
  • better utilisation of current plant capacity, through efficiency increases and by addressing current production bottlenecks, all with little incremental investment being required of Barloworld

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, while the ability to leverage Barloworld's core competencies in distribution will also create additional value. Currently, Ingrain has a global technical partner who is a leading global ingredients solutions company and it is intended to retain the technical partner's services.

Ingrain has a strong management team that has consistently delivered strong EBITDA performance and cash conversion despite tough economic conditions. It is the intention to retain this management team post the Acquisition.