Valuation Report. Proteak Uno S.A.B. de C.V. January, Capital Inc.

Transcription

1 . Valuation Report Proteak Uno S.A.B. de C.V. January, 2017

2 Disclaimer The analysts responsible for the production of this report certify that the views expressed herein exclusively reflect their personal views and opinions about any and all of the subject issuers or securities, and were prepared independently and autonomously, including from 414 Capital Inc. and Consultora 414 S.A. de C.V. (together or separately, 414 ) and other associated companies. The analysts responsible for the production of this report are not registered and/or qualified as research analysts with the NYSE or FINRA and are not associated with any broker/dealer entity in the United States or elsewhere and, therefore, may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. 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3 Agenda I. Executive Summary 3 II. Company Overview 5 III. Investment Case 19 IV. Valuation Summary 24 V. Segmented Financial Statements 32 2

4 I. Executive Summary 3

5 Executive Summary Antecedentes Introduction 414 Capital is pleased to present an independent valuation exercise for the Ordinary Participation Certificates ( CPOs ) of Proteak Uno S.A.B. de C.V. ( Proteak ) Proteak is a company that presents a particular difficulty when performing a valuation exercise, due to a number of factors which will be discussed later on in this report; including: Long value realization horizon for the teak business line Opaque international market for teak products Uncertainty (limited) on the performance of forestry assets Additional value of the new MDF business line Per the request of some members of Proteak s investors, we developed this document focusing on: Deepening the understanding of the business and its key variables Detailing our considerations and steps used to reach a value conclusion It is worth mentioning that during the life of the company, the expected cash flows will change continuously as the teakwood estimated growth and the current market prices are dynamic and subject to change On January 13, the Company announced a loan granted by the International Finance Corporation (IFC) of MXN 1,400 mm. Our understanding is that the loan will be used to restructure current debt. However, it will be included in the valuation once Proteak publishes detailed uses of the loan Valuation exercise conclusion As of January 16, 2017, CPOs traded at MXN Based on our analysis and applied methodology, there is significant value in the company that has not been realized in its current market value. 414 Capital considers that the fair value range of the CPOs is: Please refer to Section IV for a discussion on the methodology used Exchange rate USD/MXN: 20.6 (31/12/2016). Source: Banxico MXN

6 II. Company Overview 5

7 Company Overview Introduction Proteak is one of the most important companies in the forestry industry in Mexico. It engages in the plantation, exploitation and marketing of teak and eucalyptus in Mexico and abroad and the production of MDF boards As of today, Proteak s biological assets of teak are more than 8,300 planted hectares (has) Most of its plantations are located in Mexico, with additional has in Colombia and Costa Rica Recently, the company developed a new business line dedicated to the production and commercialization of medium density fiber (MDF) boards A of today, Proteak s has more than 9,600 hectares of Eucalyptus (species characterized by its accelerated growth) to provide the plant s capacity of 280,000m 3 per year Distribution and business operation Forestry Roundwood Trading Roundwood commercialization Sales Mainly in China and India 6

8 Company Overview Teak forestry business Forestry Proteak s forestry activity is mainly teak plantation (also known as Tectona Grandis) The teak forestry business consists of five phases: 1 Site selection - The Company has selected 27 properties 2 Land preparation and planting - Preparing the land through drains and liming. In parallel, the seed is reproduced in a nursery and later proceed with planting 3 Maintenance - Clean the area where trees are planted to ensure their healthy development 4 Thinning - Proteak s policy is to plant around 900 to 1,200 trees per ha. Thinning is done in years 5, 9, 12, 15 and 20 in an approximate cycle of 25 years 5 Final harvest - ~70% of revenues come from the final harvest Trading This business line is engaged in the commercialization of round wood (at higher volumes) primarily in Asia s southeastern market One goal of this segment is to achieve a better understanding of the global teak market behavior in order to exploit new business opportunities The Trading division was created in late 2011 to commercialize round wood obtained in the final harvests of the Colombian plantations 7

9 Company Overview Geographic coverage Mexico Costa Rica Colombia 312 has of teak Costa Rica 624 has of teak Colombia Nayarit 1,888 has of teak Tabasco 5,552 has of teak Has total distribution Has distribution - Mexico 7% 4% 47% Mexico Costa Rica Colombia 89% Teak Eucalyptus 53% Source: Proteak 8

10 Company Overview MDF business What is MDF? MDF is a board made of a mixture of wood fiber and resin, compacted with high pressure and heat This product is mainly used to produce office furniture, kitchens, closets, doors, frames and moldings. Due to its light weight, it is easy to cut and has an ideal smooth surface which can be painted or covered with melamine or wooden sheets The standard MDF board in the Mexican market has a density between 650 and 750 kg/m 3, width of 1.22m and height of 2.44m, with a thickness between 12mm and 18mm Recently, MDF has substituted natural wood and other kinds of boards, such as triplay and agglomerate wood boards Natural wood is becoming scarce and reducing its quality because there are less trees with the required diameter to produce a board with the necessary size and hardness. Furthermore, the production cost of natural wood furniture is significantly higher Even though the agglomerate wood boards are between 35% and 40% cheaper than MDF, they have a disadvantage in the sense that they can only be cut straightly and their surface is rough MDF Agglomerate wood vs 9

11 Business Description MDF business Production process of MDF boards Trituration Selection Heating Shredding Once the logs arrive at the Factory, the first step is to triturate or splinter them with the Wood chipper The splinters pass through a screen in order to be selected by size. At the same time scraps are removed The splinters are then heated with steam and pressure, in order to break the lignin linkages The splinters pass through a shredder that converts it into fiber Volume Formation Mixing Drying The mixture passes through a pre-pressing procedure in order to reduce its volume The mixture is then left in a molder The resulting product is later mixed with urea formaldehyde The fiber is dried to reduce the humidity content from 40% to 10% Pressing Cooling Cutting The mixture is shaped with heat and pressure Boards are cooled down Before packing, the boards are cut and rubbed 10

12 Company Overview MDF business Why will Proteak commercialize MDF? Taking advantage of its forestry platform in order to continue its growth, Proteak acquired the only existing private Eucalypt plantation in Mexico and has built a factory to produce MDF with wood coming from this plantation 90.5% of MDF consumed in Mexico is imported mainly from Chile and the U.S., resulting in high logistic costs that represent an important amount of the price paid by distributors. Currently, there are no MDF continuous process lines in Mexico and the consumption per capita is still low in comparison with most countries in the world. Given this opportunity, Proteak decided to diversify its growth strategy Mexico has the potential to become an important wood exporter because of its geographical location, climate, domestic market growth potential and trade agreements Additionally, when the plant reaches full capacity, 35% of the boards commercialized by Proteak will include added value, which will increase their selling price by 30%-70% Only 15% of the MDF boards sold in Mexico include melamine sheets Proteak s objective is to reach a 30-35% market share by substituting imports Collaboration Agreement with FINSA In January 2015, Proteak announced a collaboration agreement with Financiera Maderera S.A. ( Finsa ), the largest Spanish company engaged in board, resin, melamine and veneer production in the Iberian peninsula Some of the highlights of the agreement include: The joint operation of Proteak s MDF plant The transfer of technology from Finsa to Proteak The marketing of Finsa s products in Mexico 11

13 Company Overview Company phases Project scalability Incorporation of small investors to start planting between 150 and 200 has per year 580 has are planted in the state of Nayarit and the certification from FSC (Forestry Stewardship Council) is obtained IPO and institutional growth The company s institutionalization process begins The company opened subsidiaries in Panama, Costa Rica and Colombia. Also, a new plant in Estado de Mexico begins to process timber 119 has of mature plantations are acquired in Tabasco (16 years), 950 has in Mexico, 1,450 has incosta Rica and 890 incolombia Phase zero Phase one Phase two Phase three Phase four Feasibility analysis Strategic and financial study in which engineers and consultants are retained to establish the type of timber that will be harvested, calculate IRR for investors and set the site for the pilot plantation Scale generation Operating procedures are established to secure the appropiate cost and expense structure 1,700 has are seeded in 23 plantations in the state of Nayarit and Tabasco. 90% of the land is private owned and 10% is comunal land Stabilization of the company A new business segment is created calles Trading for roundwood commercialization at an international level Consolidation of operations Proyecto MDF FOMEX s plantation acquisition, conceptualization and engineering design Plant installation in2014 Phase five Phase six2016 MDF project execution Production tests began in February, 2016 and commercialization in April,

14 Company Overview Management and corporate structure Management Name Gastón Mauvezin Enrique Espinosa Omar Nacif José García Moreno Jurgen Stock Position CEO Teak General Director MDF General Director CFO Forestry Director Corporate structure General Management Finance and Accounting Teak Management MDF Management Forestry Planning and Institutional Relations 13

15 Industry Overview Teak supply and demand Teak represents a small proportion of the world s timber production; the estimated supply of teak logs in the market is less than 2%. However, the teak industry is important in this market due to its high value The teak currently planted in Asia, Africa and Latin America, total more than 5,900,000 hectares. A vast majority of these plantations are found in Asia (India, Laos and Thailand) India is the largest consumer of teak in the world followed by Thailand, China and Vietnam, while the last two are the principal importers of teak worldwide In Mexico, the states of Veracruz, Tabasco, Campeche, Chiapas, Puebla and Nayarit are the leaders on planted has of different species, including teak. They concentrate more than 65% of the total plantations Teak plantations distribution by age 80% 0% 0-20 years years years > 60 years Source: FAO,

16 Industry Overview Teak supply and demand The demand of teak has been growing at double digit in the last years. It was registered that between 2010 and 2012 the demad of teak increased by 47%. Nowadays, the teak plantations ascend to 6.8 mm of hectares worldwide, this represents a capacity to produce 30 mm of m 3 of wood annually The teak produced in Myanmar established the international standards of quality and was the principal log provider of teak worldwide. During the period the exportations of Myanmar grew 50%. However, in 2014 reforms in exports of forestry products where implemented in the country, reducing the availability of teak in the world, providing new opportunities for other teak producers Prices in exportations to India Source: ITTO and Proteak 15

17 Descripción de la Industria Teak supply and demand The Mexican MDF market is still young. Therefore, consumption and production are relatively low MDF consumption per capita COL PER MEX VEN URU JAP GER ARG NED FRA USA KUW ITA CAN AUS BRA CHIL CHI COR NZ Consumption by country Production by country China China 35% United States 30% United States Russia 48% Germany 50% Canada 3% 3% 11% Russia All others 3% 3% 3% 3% 8% Germany Brazil All others Fuente: SIAVI y FAO 16

18 Industry Overview MDF industry The MDF market in Mexico has suffered falls in the price per square meter Due to the oversupply of MDF in the Brazilian market, the exportations to Mexico increased and as a consequence the price of MDF per m 3 has decreased up to 11.1% from 2014 to 2015 Brazil counts with an installed capacity of ~8 mm of m 3 and the MDF they export represents 32% of the market in Mexico Now that Proteak and other Mexican producers started to produce MDF, less pressure is expected from Brazil Only 9% of the MDF consumed in Mexico is produced in the country Imports to Mexico (2015) Prices - MDF imports (2015) 12% 9% 4% 4% % 5% 12% % 32% % % 27% National China Canada Unites States Chile Brazil Thick (USD per m³) Thin (USD per m³) Thick - growth Thin - growth -15% Source: ITTO 17

19 Industry Overview MDF supply and demand The forestry sector in Mexico has a large trade deficit. 80% of wood products consumed are imported In 2015, the annual consumption of MDF in Mexico was 700,000 m 3 /year, and it is expected that this trend will continue over the next few years MDF global demand has increased almost four times in the last 11 years, while natural wood and other boards have increased by 50%. MDF has become the preferred board among carpenters and furniture manufacturers Annual production of MDF in Mexico Annual consumption of MDF in Mexico 40 30% % 35 25% % 30 20% 15% % 25 10% % 20 5% % 15 0% % 10-5% -10% 200 0% 5-15% % % 5.94% 14.66% % 47.68% Production Growth -20% Consumption Growth -20% Source: SIAVI and FAO (2014) 18

20 III. Investment Case 19

21 Investment Case Investment highlights and key risks Investment highlights Diversified income sources Proteak has developed a vertically-integrated business model based on the following points: The company has secured financial resources to ensure the feasibility of its business model through loans, subsidies and positive cash flows generated by recently-acquired mature plantations Diversification of inventory in terms of economic value The company has been able to commercialize teak without the need to negotiate with intermediaries through its Trading division, while also gaining a better understanding of the teak market Recently, Proteak decided to open a new business line that consists of MDF production With this strategy, the company will further diversify its income, mitigating the risk of relying solely on the demand for teak In November 2013, the construction of the high-tech plant began (supplied by Dieffenbacher, a highly-specialized German company), with a production capacity of 280,000 m 3 per year. As of today, the plant is operating Acquisition of mature biological assets Proteak timely acquired biological assets in Cosa Rica from a Dutch company, Eco Direct Nederland B.V., which at that time was in a bankruptcy process 2,862 has were acquired for USD 16.5 mm, of which 240 has were mature teak (strategic value) and the rest was land for sale 890 has of teak were purchased in Colombia of which 560 has are ready for final harvest In September 2013, Proteak concluded the acquisition of Fomex (the largest private forestry company in Mexico) Approximately 8,600 has of eucalyptus were acquired, along with the technology, research and all the components to supply the raw material for the new MDF business line 20

22 Investment Case Investment highlights and key risks Efficient capital structure Limited competition Operation Geographical presence Management board and directors Certifications Proteak has managed to be at a healthy leveraged position with favorable conditions As of today, the obtained debt is with the International Finance Corporation (IFC), Financiera Rural, and Commerzbank AG There is only one scale competitor in Mexico (Agropecuaria Santa Genoveva) and since the teak market is global, these two Mexican companies do not represent significant competition to each other Due to the insufficient wood supply, currently available in Mexico, the company may be one of the few domestic providers for the next year with local wood sources, obtaining lower costs and thus higher margins The learning curve in terms of forest plantations has increased significantly in recent years The company has learned to select adequate land at the right price, which translates into better quality and more profitable plantations Proteak has plantations in Mexico, Costa Rica and Colombia to diversify some risks and has different distribution centers The company has its own sales office in Mexico. Also, it has offices under an outsourcing scheme in United States, China, India and Colombia to serve different teak markets Nine out of thirteen board members are independent and are mostly recognized entrepreneurs or senior executives Officials leading Proteak s operations have experience and a successful track record in businesses across different industries Proteak is certified by the FSC (Forest Stewardship Council) due to the sustainable forestry practices it handles Having this certification allows the company to build a higher credibility and reputation 21

23 Investment Case Investment highlights and key risks Key risks Proteak s biological assets contemplate a long-term horizon and are illiquid as of today, given the nature of the forestry business Asset illiquidity Regulatory framework Macroeconomic conditions Growth with acquisitions MDF as a greenfield component Moreover, Proteak s shares have little liquidity (3-month ADTV 21,056) We believe that in the near future Proteak s ADTV will increase due to the fact that the company is facing an expansion phase, in 2017 the company will receive positive cash flows (thanks to harvests from mature plantations and from the beginning of MDF operations) Proteak is subject to strict environmental regulations, both domestic and abroad, due to an increase in illegal logging Proteak has the necessary specifications to mitigate this risk Changes in environmental regulations in countries where Proteak operates could adversely affect their business operation Most sales are overseas so Proteak is subject to MXN s appreciation or depreciation Currently the main markets for teak are located in China, India and US Proteak s growth has been partly driven by acquisitions of new biological assets, that in turn depend on terms and conditions in which they were acquired. The company s enhanced growth could be affected in case these terms and conditions are not met in the future The MDF business has yet to demonstrate its thesis. There may be a learning period the company needs to go through Despite a clear case for import substitutions, the price of local MDF may differ from expectations 22

24 Investment Case Investment highlights and key risks The International Tropical Timber Organization (ITTO) publishes on a monthly basis teak prices recorded on the market, based on the Myanmar rating system. However, this information is based on few transactions and teak that comes only from Myanmar, so it is difficult to predict its behavior Price volatility Meteorological phenomena, pests and fires We believe a rise in demand for teak from plantations is expected because natural teak forests have slowly been extinguishing The current production of teak in the world is estimated between 9-10 mm m 3 of which ~ 85% is supplied by teak plantations (most of them with no chance of being certified) and ~ 15% of natural forest 414 Capital has conducted one of the most wide-ranging studies regarding teak prices and uses it to validate the prices used in the financial projections Like any other forestry asset, Proteak s biological assets are subject to pest-related risks However, Proteak s plantations are in various properties and the larger ones are interspersed with native vegetation to keep pests from expanding Regions where Proteak s plantations are located (tropical climates near the sea) are exposed to different weather events such as hurricanes and storms that could negatively affect trees Heavy rains help growth but require unplanned maintenance and exhaustive land preparation There is a risk that plantations might suffer from fire disasters. However, to mitigate this risk, Proteak took some preventive measures such as: Create roads to divide plantations and constantly cleaning young plantations (where there is greater risk due to lack of shade) All these risks are mitigated due to the fact that teak is generally resistant to pests and fires 23

25 IV. Valuation Summary 24

26 Introduction We conducted a valuation exercise according to standard methodologies and the application of criteria based on the nature of the assets We performed a sum of the parts valuation estimating the company s levered free cash flows for each of its business lines For purposes of this exercise we took the teak s business line as a finite project. In turn, we used a 10-year projection and assumed a perpetual growth rate of 3.0% for the MDF business line We applied different discount rates for each business line considering the risks for each business While the company is likely to continue its activities beyond the forecasted period (2045): A growth plan is not easy to project beyond what is already known and has been published by the company We would have to adjust the company s investment plan for the next years without any basis or sufficient information to do so We assigned a terminal value to the land once the final harvest of each plantation is concluded. We used a 7% discount rate for the land s NPV Note that, as discussed below, the projected cash flows and the weighted average cost of capital are modeled in USD (USD is the currency used in the global teak market) Cash flows are converted to MXN once they are discounted and unleveraged In conclusion, we expect upside potential for Proteak s stock that could be triggered by an increase in its trading activity and a better understanding of the drivers that determine the value of the company We attribute at least partially the stock s low liquidity to the fact that ~80% of the company s value (at present value) is materialized after 2025 Value is also added because MDF s flows are positive from the beginning 25

27 's Production Volume Projections Teak volume (m 3 ) P12 P11 P10 P9 P8 P7 P6 P5 P4 P Note: Volume is estimated by the company according to their future growth projection methodology 26

28 Considerations on Exchange Rate and Cost of Capital The base currency is USD due to the fact that the teak market is dictated by international buyers and sellers We estimated a different discount rate for each business line considering the following: We used the unlevered beta of comparable global public companies and re-leveraged to Proteak s capital structure The teak business cycle is ~23 years and MDF is 6 to 8 years, which represents a lower risk We used a discount rate adjusted for the underlying asset s low liquidity and country risk We adjusted the market cap value for each business line considering the amount of capital invested in each one Equity Teak WACC Equity MDF WACC Cost of equity 17.3% Cost of equity 17.7% Debt Weighted average cost of debt 8.3% Effective tax rate 30.0% Debt Weighted average cost of debt 4.2% Effective tax rate 30.0% Cost of debt 5.8% Cost of debt 2.9% Market capitalization 122 Total funding debt 20 Market capitalization 149 Total funding debt 86 WACC 15.7% WACC 12.3% Note: capitalization value in millions of USD 27

29 Discounted Cash Flows (Teak) USD 000s Discounted cash flows Teak % of year 25% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Operating income (5,765) (2,051) (1,241) (4,059) 9,169 49,816 17,658 19,614 30,102 90,303 50,813 54, ,129 Taxes (11,182) (5,359) (6,045) (9,275) (27,383) (15,553) (16,533) (32,166) Depreciation and amortization 3,767 3,390 3,051 2,782 2,540 2,323 2,119 1,907 1,717 1,545 1,391 1,251 1,170 Changes in working capital (1,070) 691 (3,850) (9,987) 9,197 (387) (2,674) (15,790) 11,108 (1,142) (13,380) Capex - - (3,839) (3,927) (4,016) (288) (432) - EBITDA (1,999) 1,339 1,810 (1,278) 11,709 52,139 19,778 21,521 31,819 91,848 52,204 55, ,298 Free cash flows (1,104) 1,680 (3,100) (4,513) 3,842 30,682 23,616 15,090 19,869 48,675 47,759 37,169 61,752 Discount factor Discounted flows¹ (271) 1,505 (2,400) (3,021) 2,223 15,341 10,420 5,653 6,414 13,580 12,590 7,746 11, % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 73, ,139 84, , , , , , , , , , , , , , ,987 (21,980) (40,542) (25,346) (57,739) (67,433) (147,023) (115,556) (142,977) (50,823) (128,437) (33,525) (35,490) (37,628) (41,067) (167,480) (177,233) (135,896) 1, ,365 (15,091) 12,925 (27,170) (7,759) (63,055) 25,796 (21,517) 74,533 (62,072) 75,718 (1,499) (1,492) (2,406) (99,744) (6,382) 32, (574) (762) , ,087 85, , , , , , , , , , , , , , ,245 60,703 80,453 72, , , , , , , , ,583 81,748 86,700 93, , , , ,740 10,887 8,543 11,044 13,866 21,830 20,444 18,725 11,072 12,201 6,931 3,515 2,345 2,192 5,887 7,964 5,284 1Includes cash flow from the land s terminal value mentioned in page 28 28

30 Discounted Cash Flows (MDF) USD 000s Discounted cash flows MDF % of year 25% 100% 100% 100% 100% 100% 100% 100% 100% Operating income (8,926) 2,799 21,362 42,795 44,187 46,855 48,191 49,244 50,034 Taxes - (329) (6,101) (12,623) (13,024) (11,752) (14,213) (14,696) (14,667) Depreciation and amortization 6,894 10,566 9,801 9,039 8,371 7,739 7,120 6,554 5,992 Changes in working capital 11,277 (3,068) (5,156) (5,114) (2,976) (3,176) (3,015) (3,013) (3,018) Capex (48,297) (3,631) (2,944) (3,245) (3,009) (2,580) (2,587) (2,135) (2,226) EBITDA (2,032) 13,365 31,163 51,834 52,558 54,594 55,311 55,798 56,026 Free cash flows (39,052) 6,336 16,962 30,852 33,550 37,086 35,496 35,954 36,116 Discount factor Discounted flows (9,622) 5,805 13,834 22,399 21,684 21,338 18,180 16,393 14,659 Terminal value - perpetuity growth 161,770 29

31 Discount rate (teak) Discounted Cash Flows USD 000s Enterprise value 539,814 Debt 86,836 Cash 4,810 Minority interest 34,373 Net debt 116,399 Equity value 423,415 USD MXN Implied CPO price Sensitivity table Discount rate (MDF) 11.4% 11.7% 12.0% 12.3% 12.6% 12.9% 13.2% 15.0% % % % % % %

32 Sentitivity to Key Variables MXN In order to detect which variables impact valuation the most we sensitized the key variables in by +/- 5.0% CPO price: MXN 32.1 Variable range MDF perpetuity growth 3.2% - 2.9% Teak inflation rate 5.2% - 5.8% Teak sale price +/- 5% Change MDF discount rate 16.5% % Teak discount rate 13.0% % MDF sale price +/- 5% Change Exchange rate +/- 5% Change

33 V. Segmented Financial Statements 32

34 Projected Income Statement (Teak) USD 000s Income Statement Total revenues 4,622 8,207 10,148 7,507 21,852 63,501 29,029 30,887 41, ,591 62,524 66, ,398 86,402 SG&A 2,843 2,995 4,368 4,716 5,973 7,088 4,870 4,874 5,306 8,025 5,484 5,998 8,018 6,876 Gross profit 1,779 5,212 5,779 2,791 15,879 56,413 24,159 26,013 36,422 96,567 57,040 60, ,380 79,526 Total expenses 7,545 7,263 7,021 6,850 6,710 6,598 6,501 6,399 6,320 6,263 6,227 6,209 6,251 6,261 EBIT (5,765) (2,051) (1,241) (4,059) 9,169 49,816 17,658 19,614 30,102 90,303 50,813 54, ,129 73,265 EBITDA (1,999) 1,339 1,810 (1,278) 11,709 52,139 19,778 21,521 31,819 91,848 52,204 55, ,298 74,318 EBITDA m argin -43% 16% 18% -17% 54% 82% 68% 70% 76% 88% 83% 83% 89% 86% Net income¹ 12,383 1,908 (711) ,484 44,514 17,721 19,582 27,394 69,933 42,631 45,234 82,045 58, ,818 97, , , , , , , , , , , , , , ,453 8,393 6,573 10,117 10,782 15,332 12,600 13,956 7,030 12,122 6,144 6,190 6,106 5,966 12,746 11,827 9, ,425 90, , , , , , , , , , , , , , ,977 6,286 6,325 6,376 6,440 6,572 6,651 6,741 6,841 6,950 7,068 7,271 7,398 7,534 7,678 7,830 7, ,139 84, , , , , , , , , , , , , , , ,087 85, , , , , , , , , , , , , , ,245 91% 88% 92% 93% 96% 95% 96% 93% 96% 90% 90% 91% 91% 97% 97% 96% 102,305 67, , , , , , , ,075 90,182 95, , , , , ,114 1 Includes non-cash items 33

35 Projected Balance Sheet (Teak) USD 000s Balance Sheet Cash and equivalents 11,126 12,537 1, ,082 47,458 59,972 80, , , , , ,894 Accounts receivable 2,685 2,257 2,410 1,500 4,513 13,759 6,090 6,494 8,894 22,854 13,496 14,310 26,337 18,772 Inventory 1,707 1,825 3,061 3,356 4,484 5,481 3,422 3,400 3,769 6,234 3,877 4,319 6,142 5,065 Non-current assets 121, , , , , , , , , , , , , ,500 Total Assets 137, , , , , , , , , , , , , ,230 Suppliers ,155 1, , ,112 1,582 1,305 Long-term credit 19,562 18,753 13,790 11,275 8,793 5,556 3, Total Liabilities 25,216 24,437 19,793 22,242 17,437 12,182 9,207 6,090 6,185 6,820 6,213 6,327 6,796 6,519 Total equity 111, , , , , , , , , , , , , ,711 Total liabilities & equity 137, , , , , , , , , , , , , , , , , ,289 1,032,967 1,329,004 1,641,649 1,835,263 2,073,324 2,226,906 2,308,654 2,395,354 2,489,126 2,780,485 3,187,934 3,538,038 32,853 21,190 45,973 53, ,288 89, ,998 40,206 98,841 27,220 28,717 30,297 32, , , ,909 6,425 4,724 7,940 8,517 12,653 10,114 11,321 4,936 9,565 4,047 4,049 3,932 3,762 9,934 9,048 6, , , , , , , , , , , , , , , , , , , ,731 1,022,147 1,375,635 1,654,448 1,998,700 2,126,487 2,438,755 2,527,515 2,622,881 2,723,832 2,833,454 3,240,363 3,668,940 4,001,488 1,655 1,217 2,045 2,194 3,259 2,605 2,916 1,271 2,464 1,042 1,043 1, ,559 2,331 1, ,869 6,431 7,260 7,408 8,474 7,820 8,130 6,486 7,678 6,257 6,257 6,227 6,183 7,773 7,545 6, , , ,471 1,014,738 1,367,162 1,646,628 1,990,570 2,120,001 2,431,076 2,521,258 2,616,623 2,717,605 2,827,270 3,232,590 3,661,395 3,994, , , ,731 1,022,147 1,375,635 1,654,448 1,998,700 2,126,487 2,438,755 2,527,515 2,622,881 2,723,832 2,833,454 3,240,363 3,668,940 4,001,488 34

36 Projected Cash Flow (Teak) USD 000s Cash flow statement Net income 1,908 (711) ,484 44,514 17,721 19,582 27,394 69,933 42,631 45,234 82,045 58,626 Depreciation and amortization 3,390 3,051 2,782 2,540 2,323 2,119 1,907 1,717 1,545 1,391 1,251 1,170 1,053 Changes in working capital 341 (1,070) 691 (3,850) (9,987) 9,197 (387) (2,674) (15,790) 11,108 (1,142) (13,380) 8,365 Total cash from operations 5,638 1,270 4,006 13,174 36,850 29,038 21,103 26,436 55,688 55,129 45,344 69,835 68,043 Capex - (3,839) (3,927) (4,016) (288) (432) - - Income from fixed assets Total cash from investment (3,418) (7,461) (7,763) (8,078) (5,256) (5,217) (5,478) (5,752) (6,039) (6,341) (7,090) (6,991) (7,341) Changes in long-term debt (809) (4,963) (2,515) (2,482) (3,237) (2,444) (3,111) Total cash from financing (809) (4,963) (2,515) (2,482) (3,237) (2,444) (3,111) Net change in cash 1,411 (11,154) (6,272) 2,613 28,357 21,377 12,514 20,685 49,649 48,788 38,253 62,844 60,703 Initial cash 11,126 12,537 1,383 (4,889) (2,275) 26,082 47,458 59,972 80, , , , ,191 Ending cash 12,537 1,383 (4,889) (2,275) 26,082 47,458 59,972 80, , , , , , ,305 67, , , , , , , ,075 90,182 95, , , , , , (15,091) 12,925 (27,170) (7,759) (63,055) 25,796 (21,517) 74,533 (62,072) 75,718 (1,499) (1,492) (2,406) (99,744) (6,382) 32,755 88,161 81, , , , , , , , ,301 94,303 99, , , , , (574) (762) (7,708) (8,093) (8,498) (9,496) (9,369) (9,837) (10,329) (10,845) (11,388) (12,719) (12,555) (13,183) (13,842) (14,534) (15,261) (16,024) ,453 72, , , , , , , , ,583 81,748 86,700 93, , , , , , , , ,289 1,032,967 1,329,004 1,641,649 1,835,263 2,073,324 2,226,906 2,308,654 2,395,354 2,489,126 2,780,485 3,187, , , , ,289 1,032,967 1,329,004 1,641,649 1,835,263 2,073,324 2,226,906 2,308,654 2,395,354 2,489,126 2,780,485 3,187,934 3,538,038 35

37 Projected Income Statement (MDF) USD 000s Income Statement Total revenues 22,211 52,181 78, , , , , , ,806 SG&A 21,371 35,147 42,830 46,602 47,897 47,819 48,963 50,187 51,442 Gross profit ,034 35,484 56,859 57,923 60,414 61,737 63,037 64,364 Total expenses 9,765 14,236 14,122 14,064 13,736 13,559 13,547 13,793 14,330 EBIT (8,926) 2,799 21,362 42,795 44,187 46,855 48,191 49,244 50,034 EBITDA (2,032) 13,365 31,163 51,834 52,558 54,594 55,311 55,798 56,026 EBITDA m argin -9% 26% 40% 50% 50% 50% 50% 49% 48% Net income (6,181) 1,886 15,409 30,685 31,682 28,780 34,590 35,788 35,794 36

38 Projected Balance Sheet (MDF) USD 000s Balance sheet Assets Cash and equivalents 22,093 23,455 34,310 59,527 86, , , , ,919 Accounts receivable 3,702 8,407 12,617 16,669 17,049 17,438 17,835 18,242 18,658 Inventory 6,233 4,881 4,759 3,884 3,991 3,985 4,080 4,182 4,287 Other accounts receivable 13,925 13,925 13,925 13,925 13,925 13,925 13,925 13,925 13,925 Non-current assets 133, , , , , ,466 98,934 94,515 90,749 Total Assets 179, , , , , , , , ,537 Revolving credit line Suppliers 4,749 7,810 9,518 10,356 10,644 10,627 10,881 11,153 11,432 Credit 85,568 81,177 74,922 68,775 62,164 47,449 37,391 27,332 17,493 Total Liabilities 115, , ,872 95,788 86,689 69,180 56,599 44,037 31,700 Total equity 64,225 66,111 81, , , , , , ,837 Total liabilities & equity 179, , , , , , , , ,537 37

39 Projected Cash Flow (MDF) USD 000s Cash flow statement Net income 1,886 15,409 30,685 31,682 28,780 34,590 35,788 35,794 Depreciation and amortization 10,566 9,801 9,039 8,371 7,739 7,120 6,554 5,992 Changes in working capital (3,068) (5,156) (5,114) (2,976) (3,176) (3,015) (3,013) (3,018) Total cash from operations 9,384 20,054 34,609 37,077 33,343 38,695 39,329 38,768 Capex (2,514) (1,771) (2,013) (1,715) (1,222) (1,161) (637) (653) Income from sale of fixed assets Total cash from investment (3,631) (2,944) (3,245) (3,009) (2,580) (2,587) (2,135) (2,226) Dividends paid Changes in long-term debt (4,391) (6,255) (6,147) (6,611) (14,715) (10,059) (10,059) (9,839) Total cash from financing (4,391) (6,255) (6,147) (6,611) (14,715) (10,059) (10,059) (9,839) Net change in cash 1,361 10,855 25,217 27,457 16,047 26,049 27,135 26,703 Initial cash 22,093 23,455 34,310 59,527 86, , , ,215 Ending cash 23,455 34,310 59,527 86, , , , ,919 38