Valuation of assets and businesses

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2 INTRODUCTION VALTEC, S.A., founded over 27 years ago, is a company engaged in the valuation of machinery, industrial assets, industrial and commercial companies, both operating or going into bankruptcy and liquidation, as well as intangible assets, corporate goodwill, complying with ad hoc methodologies originally applied in the U.S. market. Valtecsa s renowned commitment also encompasses advisory services related to large rustic estates of intensive production or leisure, as well as mining operations. The specialization required on these markets had lead Valtecsa to develop its own valuation know-how, which departs on given situations from the Spanish appraisal regulation (ECO normative), thus focusing on the purpose and circumstances affecting the assets under valuation. This converts the company in a singular agent in the sector covering a profitable and growing segment Its professional capabilities have allowed Valtecsa to participate in transnational projects for Spanish and multinational corporations, having conducted valuation assignments in more than fifteen countries all over the world. NEW AGE Since February 2014, Valtecsa is 100% owned by the Spanish appraisal firm KRATA, SA. This acquisition of the firm has not led to the merger of the respective businesses, except for the sharing of locations, overhead expenses, and other general services such as financial management. As a result of this operation, Krata s experience, competence reliability on assets valuation in accordance to the ECO normative have joined together with the specific capabilities provided by Valtecsa, supported by its highly skilled and experienced valuation consultants, and its recognized intangibles, (brand, prestigious name, market recognition, clients portfolio, valuation methodology, data processing tools, singular experience, etc.) to provide the Spanish and European markets with outstanding appraisals services. The Krata-Valtecsa joint venture allows the integration of professional consultants and systems from both firms to assist the market with one of the widest and more specialized ranges of valuation services available in Spain, customized and addressed to meet the requirements of financial institutions and industrial corporations alike: Krata, is the leading company, a technical valuations supplier within the regulated sector (ECO normative, Spanish mortgage legislation...) rendering normative-compliant appraisals for the financial institutions in Spain, as well as all other agents involved in the financial and mortgage systems in Spain. Valtecsa, is a firm engaged in the specialized appraisals advisory and consultancy services. The firm provides expertise to corporations, industry, public administrations, and real estate portfolio managers, implementing world class procedures, and the most advanced valuation methodologies and systems, customized to the circumstances and the requirements of each client. This being the scenario, the krata-valtecsa proposal is not intended to provide the market with an endless amount of services like in a bazaar but rather, this venture aims at MEETING THE NEEDS OF A GROWING NUMBER OF CLIENTS IN A WIDER RANGE OF CIRCUMSTANCES, by focusing on permanent innovation and self-reinvention. 2

3 OFFICE LOCATIONS The company currently has an extensive branch network covering the whole Spanish territory, as well as an office in Portugal (Lisbon) from which the whole country is covered. HEADQUARTERS NORTHWEST REGION: A Coruña, Pontevedra, Valladolid, Palencia, León, Salamanca, Segovia, Lugo, Orense, Soria, Burgos, Zamora, Ávila. HEADQUARTERS CENTRAL REGION: Madrid, Toledo, Albacete, Guadalajara, Cuenca. PORTUGAL HEADQUARTERS LISBON. OPERATED BY KRATA SOCIEDADE DE AVALIAÇAO DEBENS, LDA: Lisboa. HEADQUARTERS NORTH REGION AND CANARY ISLANDS: Vizcaya, Guipúzcoa, La Rioja, Asturias, Las Palmas, Álava, Cantabria, Navarra, Tenerife. HEADQUARTERS SOUTH REGION AND CEUTA & MELILLA: Sevilla, Cádiz, Granada, Córdova, Badajoz, Málaga, Almería, Jaén, Huelva, Cáceres. HEADQUARTERS EAST REGION: Valencia, Alicante, Murcia, Castellón, Baleares. HEADQUARTERS NORTHEAST REGION: Barcelona, Tarragona, Girona, Lleida, Zaragoza, Huesca, Teruel. CORE COMPETENCES OF VALTECSA Within last years, Valtecsa has conducted a great number of assignments for companies operating in different sectors, often out of the strictly real estate sector and the financial system. Significant are some accurate and supportable amortization studies applied to refine tax reporting, reasonable valuation of brand names, impairment analysis of assets in financial statements or the identification of individual risks on industrial facilities (distinguishing construction and structure risks from those associated to machinery, installations and other contents) to establish optimized insurance policies in the case of damage. Valtecsa bets for EXCELLENCE DELIVERY IN VALUATION CONSULTANCY AND IN-DEPTH VALUATION SERVICES on the basis of its own expertise and qualification in the different valuation standards and procedures in the industry, both on a NATIONAL AND INTERNATIONAL level (US appraisal standards RICS s red book, EVS, IVS...), the ability of its technical staff to develop methodologies adapted to each situation, and incorporating to projects external consultants associated to the firm when necessary. Valtecsa s services are essentially addressed to the industrial and entrepreneurial sector, while also crafting solutions to meet the needs arising in the national, regional and local public administrations. The same way, Valtecsa is oriented to provide support to financial institutions in their professional advisory duties when discussing financial alternatives with corporations and public administrations alike; in this line of business banks and other agents benefit from the Valtecsa capabilities by ensuring tailored, cost efficient, customized services to their clients, all in accordance to ACKNOWLEDGED, PROVEN, AND EFFICIENT standards of performance, and fully compliant with each entity s systems and procedures. Shown below are some of the fields where Valtecsa credits experience and technical reliability: 3

4 Valuation of machinery, furniture and fixtures The assessment of the physical and functional depreciation of each item is included in the valuation of this kind of assets, in addition to the estimation of their market value by our exclusive access to real transactions data of machinery and second hand equipment all over the world. Inventory of machinery and furniture. All assets appraised may also be subject to codification, labelling, and assets management programs. Valuations of all types of transport equipment, leisure boats and ships, are regularly conducted by Valtecsa. Valuation consulting services Valtecsa offers consulting services that starting from the market value of assets, delivers tailored applications for accounting, fiscal and legal purposes. Tax reporting optimization associated to the tenancy of buildings. This focus on the individual study of buildings to identify possible differing perceptions between the reasonable value of the assets and the taxable base on which taxes applied are directly related to the tenancy of these. This includes likewise the review of the appropriate cadastral regulation and the evaluation of the viability and relevance of an eventual claim of the property IBI tax, as well as the conduction and monitoring of claims before the pertinent institutions. Valuation for tax reporting where establishing the Reasonable Value according to the. N.I.C./NIIF terminology (Accounting International Regulations) is of necessary application. Adjustment of amortization plans where it is also required the use of the Reasonable Value for the assignment of value to the different concepts applicable to both tangible and intangible assets intended to result in an efficient amortization with application of impairment or depreciation of the value of assets overvalued in financial statements. Valuation for insurance purpose, with detail of values distributed by risk areas, both in terms of real estate property or furniture and fixtures (dwellings and structures, and content) Valuation for Purchase Price Allocation purposes, term and methodology of recent and frequent use which implies the assignment of a new accounting value to the purchased items based on the price paid by the different concepts, both tangible and intangible that result in an efficient accounting amortization. When applying methodologies in the conduction of these services, market and technologic aspects are to be combined and thus different valuation and additional risk identification criteria shall be applied. With this aim, the valuation methodology shall be based on the Market Principles, by using the Market Comparative Approach, the Replacement Principle by application of the Cost of Replacement and the Income Principle which leads to different Methods based on income capitalization, cash flows, or other practices that shall be considered to conclude a final result. Fees for the consultancy services rendered are considered in accordance to the scope agreed upon with the client in the terms of engagement, based on a closed budget proposal and linking a share of the fees to SUCCESS CONSECUTION derived from the technical work developed for the client (prior to such agreements a feasibility study of such a success shall be conducted, free of charge for the client). 4

5 Valuation of businesses, Firms, Brands, and Intangible Assets of all nature : Goodwill, R+D projects, patents, etc. Krata and Valtecsa have a wide experience and competence to professionally solve efficiently business valuations, either in operation or under liquidation. Both have proven experience in the valuation of intangible assets, BRAND NAMES, BUSINESS GOODWILL, OR R+D. In order to better serve such instructions, a joint business unit has been created in which professionals from both firms work on an assignment based manner, thus creating ad-hoc teams for each such an instruction that is received from our clients. The classic methods to appraise a brand name are essentially based on the assignment of the brand value as part of the intangible assets which are valued as the difference between the market value and the equity or accounting value to subsequently separate (within the intangibles group) the value of human capital, patents, and organization from the brand value as the final stage to establish the difference between a company with a brand name and other with the same characteristics already outlined, but using a private brand label. Still, in the valuation of brand names, we are frequently faced with unusual type of cases in relation to the classic manual resulting from circumstances such as the company being under a liquidation process (consequently not generating sales or income) or a company of a singular nature due to the participation of state capital with continued losses through the years. These facts prevent the application of conventional methods used in the valuation of brands and require the application of more specific approaches. In singular type of cases, it is possible to apply comparative and econometric approaches based on data made available by the company or the sector, and following the concluded results apply the pertinent adjustments SOME MARKET REFERENCES Several projects of singular nature undertaken in recent times are shown below to illustrate the technical capabilities of the company: 1. Machinery and equipment in large industries both national and international: Such as PSA Peugeot Citroen; Cepsa, Duro Felguera; Campsa-CLH; El Pozo Alimentación; Día; Red Eléctrica; Alfa Laval; Tate&Lyle; Essentium; General Dynamics-Santa Bárbara; 2. Operating companies. Over the time, Valtecsa have conducted the valuation of industrial corporations due to privatization processes for the governments of Spain, Dominican Republic, Ecuador, Bolivia; In the case of Spain, remarkable were the valuations conducted for companies included in the SEPI group. Likewise, private companies have required Valtecsa over the years to undertake the valuation of hundred of industries of a wide classification of sectors to serve in purchasing processes, business mergers or warranty constitution. 3. Industrial companies under liquidation processes: As an example, in 2013 Valtecsa was engaged to undertake the valuation of PEVAFERSA, integral manufacturer of photovoltaic cells and solar panels. The valuation was based on the machinery technological obsolescence and international second hand market conditions for the transaction of entire manufacture lines with assembly and dissembling. 4. Research projects for sale at the international market, such as the investigations related to Molten Carbonate Fuel Cells halted for years prior to its transaction. This Research was conducted by a number of electric power companies led by Babcock Wilcox included in the SEPI group. 5

6 5. Brand valuation projects: Brand name associated to a group of hundreds of food shops purchased by the DIA chain or the valuation of intangibles for Jotul Ibérica; Inisas; Clinisas and Equipos Termomecánicos are an example of recent engagements. 6. Valuation of many mineral resources reserves and treatment plants. 7. Quarries and cement manufacture plants: A recent example is the Cimpor- Cimentos de Portugal project conducted in Valuation focused on the various plants of this multinational company in Portugal, Spain, Brazil, Mozambique, Egypt and South-Africa, and also those of Intercement in Argentina and Brazil, and the plants of Votorantim in Spain and the Canary Islands. TECHNICAL TEAM Projects coordination is monitored by Iñigo Amiano, a Chief Executive Officer in Valtecsa. Iñigo is an economist with professional experience of more than 15 years in the management of industrial and services companies, among which are Iberdrola, Cementos Lemona and Krata. The technical committee of Valtecsa is presided over by Eduardo Albisu, founder and chairman of Valtecsa through 27 years. Eduardo is a mining engineer and his valuation experience extends over more than twenty countries in Europe, North, Central and South America, Middle East and Africa, mainly developed in American Appraisal y Valtecsa. The technical committee is integrated by: Ana Sancho, Senior Architect, whose professional background includes valuation experience and conduction of supervision teams for over fifteen years. Ana currently holds the position of Managing Director of Regulations and Normative Monitoring in Krata. Her responsibilities include direct coordination with the Bank of Spain and the conduction of internal audits for corporate compliance. Antonio Burgos, Senior Architect and MRICS, is the director of special projects in Krata, his experience in business valuation, goodwill, and real estate properties extends over a period of more than 20 years. Diego Vilaró, Civil engineer and Master in the Valuation of Real Estate Science with experience over 15 years in the sector Enrique Gutiérrez, Economist with a teaching background in Economic Fundamentals at the Carlos III University and an experience of more than 20 years in assets valuation and management. Justo Asensio, Architect and entrepreneur has focused his carrier on both the design and development of real estate property, as well as property management consultancy collaborating with companies such as Auren or Cuatrecasas. Advisor in Special Projects: Vicente Caballer, agricultural engineer, renowned author of books on valuations practices and hundreds of articles, ex Vice-chancellor of Research at the Valencia Polytechnic University, Advisor to the Public Works Ministry for the configuration of the Regulation of a Land Law and frequent speaker on valuation subjects in Spain and South America. 6