August 2014 Coffee Plantations consolidation & development Strategic Business and Marketing Plan for the Purpose of Capital Raising via Bond Issuance
The information in this document is confidential and is to be only read by authorized parties. Please refer to the confidentiality agreement for further details. This business plan is not an offering for securities. Confidentiality Agreement The undersigned reader acknowledges that the information provided in this business plan is confidential; therefore, the reader agrees not to disclose it without the express written permission of or an authorized agent of Ets. Assani. It is acknowledged by the reader that information furnished in this business plan is in all respects confidential in nature, other than information which is in the public domain through other means and that any disclosure or use of same by reader, and may cause serious harm or damage to aforementioned parties. This business plan is not to be copied or reproduced by any means without the sole written consent of an authorized agent of Ets. Assani. Upon request, this document is to be immediately returned. Signature Date Name (typed or printed) 1
Table of Contents 1. Executive Summary... 3 The Services... 3 Financing... 3 Mission Statement... 4 Management Team... 4 Income Forecasts... 4 Expansion Plan... 4 2. Company and Financing Summary... 5 Registered Name and Corporate Structure... 5 Required Funds... 5 Investor Equity... 5 Management Equity... 6 Exit Strategies... 6 3. Operations... 7 4. Strategic and Market Analysis... 8 Economic Outlook... 8 Industry Analysis... 10 Competition... 10 5. Marketing Plan... 11 Marketing Objectives... 11 Marketing Strategies... 11 6. Organizational Plan and Personnel Summary... 12 Corporate Organization... 12 Organizational Budget... 13 Organizational Budget (Cont.)... 13 7. Financial Plan... 14 Underlying Assumptions... 14 Sensitivity Analysis... 14 Key risks... 14 Source of Funds... 15 General Assumptions... 15 Coffee Cultivation newly established plantations... 15 Coffee Cultivation already established plantations... 16 Profit and Loss Statement... 17 Cash Flow Analysis... 19 Balance Sheet (7/1/2014) (converted in EUR by EUR/CDF = 1259 / end of 2013)... 20 Appendix 1 Balance Sheet (2014)... 21 Appendix 2 Ets. Assani Documents (2014)... 22 2
1. Executive Summary The purpose of this business plan is to raise 30,000,000 in the first issue for accelerating the process of development of coffee plantations in the north of the Democratic Republic of Congo, namely the Équateur region. Ets. Assani ( the Company ) is a Kinshasa, DRC based corporation that actively cultivates soft commodities, chiefly coffee (Arabica & Robusta) and cocoa. The Company was founded in 1990 by Mr Ferdinand Assani. The bonds will be emitted via a 100% owned Special Purpose Vehicle Ets. Assani UK Ltd. based in London, the United Kingdom. The Services The primary revenue center for the business comes from the direct cultivation, harvesting and trading of coffee beans on a day to day basis. The Company, through its established relationships with commodity brokers and Futures Commission Merchants, can rather effectively sell the harvested beans overseas through the port in the west. The Company s secondary stream of income will be derived from active trading of coffee beans that are unable to be shipped out of the country. Therefore, they will be offered to the local companies that deal with coffee either in terms of growing or processing. This income will generate approximately 10-15% of the Company s aggregate revenue. The third section of the business plan will further describe the investment management services offered by the Company. Financing At this time, the Company is seeking to raise 30,000,000 in the first bond issue for improving the Company s operations. The majority of the invested capital (75 85%) will be used for direct boosting the Company s land ownership. Briefly, the capital will be used as follows: o Purchase of the land in the Équateur region o Transformation into coffee plantations where needed (consolidation and cultivation) o Mainly purchase of the already-existing coffee plantations in the Équateur region (Gemena city) o Harvesting and other equipment o Shipping and logistics o General working capital 3
Mission Statement Our mission is to develop Ets. Assani into a well-established coffee growing and trading company that is aiming to become a major player in the Democratic Republic of the Congo with the intent to realize sustainable growth of profit over the next years. Management Team The Company was founded by Mr Assani, who has more than 30 years of experience in the commodity trading industry. Through his expertise, he will be able to bring the operations of the business to substantial profitability. Income Forecasts The Company expects a strong rate of growth after having raised the necessary 30,000,000 (the first issue) to expand the land ownership. Below are the expected financials over the upcoming period. Proforma Profit and Loss (follow ing the Bond Issuance) Item EUR Sales 118,941,473 Operating Income 44,127,287 Operating Costs 27,429,336 EBITDA 16,697,951 Taxes, Interest, and Depreciation 9,322,013 Net Profit 7,375,937 Expansion Plan The Company will undergo fairly aggressive expansion after and also during the successful completion of the capital raising period, mainly regarding the land ownership. The land area cultivated for coffee will be expanded by approximately two thirds given the prevailing land prices in Q1 of 2014. 4
2. Company and Financing Summary Registered Name and Corporate Structure Ets. Assani. The Company is registered as a corporation in the Democratic Republic of the Congo with address of 9 Av. Kiduma,Q. Christ - ROI, C/Kasa-Vubu, Kinshasa, DRC. Recently relocated from 19, Av. Kibambi C/Kasa-Vubu, Kinshasa, DRC. Commercial Register Number: 01-93-A47832R Ets. Assani UK Ltd., with its registered address: Dept 757, 196 High Road, Wood Green, London, The United Kingdom. Required Funds At this time, the Company requires 30,000,000 of bond funds. Below is a breakdown of how these funds will be used: Projected Capital Breakdow n 2015 Existing Plantations 19,200,000 New Plantations Development 3,000,000 Working Capital 800,000 Harvesting Equipment 3,700,000 Leasehold Improvements 1,650,000 Insurance 850,000 Marketing Budget 300,000 Miscellaneous and Unforeseen Costs 500,000 Total 30,000,000 Investor Equity At this time, the Company is seeking to raise the necessary monies for expansion of the Company while offering 7% P.A. coupon on the bonds. Guarantees Terre d Investissement is an entity with a majority of shares held by the government (51% by the Ministry of Finance, 34.6% by the Ministry of Foreign Affairs, 14.4% by the management; see the Appendix). This enterprise will serve as a guarantor of specific deals. It is to boost the confidence of investors that are not familiar with the African market. Our company employs skilled and capable people that worked hard to succeed with our bonds emission to be amongst those that will be backed by the government and in case of default, Terre d Investissement will disburse any unsettled balances. This will 5
be specified in the agreements. The assets of the company include 48,244 km² of land in the provinces of Bandundu, Équateur and Orientale. The government provided the enterprise with a credit line of 455 million USD to support local firms dealing with agriculture. Ets. Assani has been one of them since 2012. Management Equity Mr Assani currently owns 100% of Ets. Assani, which is a 100% holder of Ets. Assani UK Ltd. Exit Strategies The management is determined to keep up the operations as it foresees strong growth with sustainable potential over the next years. Therefore, no exit strategy is being discussed at this stage. Initial Public Offering is an option, but is not planned during the upcoming period. 6
3. Operations As stated in the executive summary, the business intends to continue and further cultivation, harvesting and trading of coffee beans. The Company, prior to the onset of the expansion, will further develop new brokerage relationships with major commodities brokers that will place and manage trades on behalf of the Company in terms of hedging (only when necessary). The business will specially select brokers that can offer the Company prime brokerage capabilities. The Company intends to utilize leverage in two ways: hedging to secure the spot price of the coffee contracts foreign exchange hedging 7
4. Strategic and Market Analysis Economic Outlook This section of the analysis will detail the economic climate, the commodities trading industry, the customer profile, and the competition that the business will face as it progresses through its business operations. Currently, the economic market condition in the Democratic Republic of Congo is moderate. The Second Congo War, beginning in 1998, devastated the country and is sometimes referred to as the "African world war" because it involved nine African nations and twenty armed groups. Underdeveloped business climate still prevails, however, this must be seen as an advantage and major opportunity. Inflation is ceasing to be of concern for the country. As the inflation rate increases, the purchasing power parity of the Congolese Franc (CDF) decreases in relation to other currencies. This may theoretically pose a risk to the Company should rampant inflation occur. In fact, the land will be purchased as soon as the capital raising period begins, so we do not expect a major impact on our venture. The denomination of the bond issuance will be in the EURO, so the weakening CDF would mean the inflated land prices will be offset by the weaker CDF since the deposits from investors are going to be in the EURO. The inflation rate in Congo was recorded at 1.21 percent in February of 2014. Inflation Rate in Congo is reported by the Banque Centrale du Congo. Inflation Rate averaged 37.43 percent from 1999 until 2014, reaching an all time high of 511.21 percent in December of 2000 and a record low of 1.21 percent in February of 2014. The inflation rate measures a broad rise or fall in prices that consumers pay for a standard basket of goods. Our trading desk will take care of the FX exposure in the form of multicurrency hedging. 8
News in 2014 Africa has eight of the world s 10 fastest-growing economies and will have a larger workforce than India or China by 2040, Kerry said. Source: http://www.bloomberg.com/news/2014-05-03/kerry-calls-for-u-s-investment-in-africa-warns-on-corruption.html The economy remained strong in 2013 with growth in gross domestic product (GDP) of 8.1% (against 7.2% in 2012), thanks to mining, trade, construction and agriculture. Growth has benefited from the improvement in some aspects of the business environment, the reconstruction of infrastructure and strong demand. Mining has been the main driver of growth, and several mining companies have passed from exploration to production since 2013. Growth is expected to remain at 8.5% in 2014 and 8.6% in 2015. It will be driven by mining (copper, cobalt and gold), reconstruction of roads and energy infrastructure as well as the impact of the agricultural campaign launched in 2012. Under the pressure of overall demand, inflation is expected to increase but remain below the target of 4%. Improved budget planning and a flexible monetary policy should lead to a strengthening of the economy s foundations. Source: http://www.afdb.org/en/countries/central-africa/democratic-republic-of-congo/democratic-republic-of-congo-economic-outlook/ 9
The Democratic Republic of the Congo, which is recovering from two civil wars that shattered its economy, plans to double its coffee output by 2015, the Congo Coffee Board said. The central African country will boost production to 100,000 metric tons by replanting 50,000 hectares (123,553 acres) annually for seven years, Mukuna Kalenda, the board's chairman, said in an interview yesterday at an industry conference in the Ugandan capital, Kampala. Source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awrfes8i_aji Industry Analysis The commodity sector in the DRC has become one of the fastest growing business segments on the whole continent. The country now enjoys multi-billion-dollar investments from overseas chiefly towards agriculture, mining and forestry. In previous decades, the country did not provide much comfort to the foreign investors and access to the business in the DRC was very much denied. This is no longer the case as a firm can access almost every facet of the financial markets through Internet connections and specialized trading and investment management software. With these advances, several new firms have been created to address the needs of people in rural and suburban areas. Within the DRC, there are approximately dozens of companies that independently grow coffee with the intent to generate a profit. Each year, these firms and their farmers aggregately generate tens of millions of EUR in revenue. Current annual production of the country amounts to 75,000 metric tons and still growing. Competition Due to the past instability described in the section 4.1, the competition, it seems, is not growing as expected. In fact, the growth is going to be spurred hugely by the openness of the government. Foreign investors are being attracted and barriers to do business are being dropped on a large scale. Therefore, we are convinced this is the right time to launch our proposed project of purchasing land for coffee cultivation. Research and scanning of the market for competition is being constantly performed. 10
5. Marketing Plan As the Company intends to primarily trade on its own account, the marketing required by the business will be rather minimal. The Company s marketing campaigns will primarily consist of familiarizing the Company s brand name with other commodities traders and brokerages so that future joint ventures and investments can be made in the future. As discussed earlier, there is the possibility that the business may be able to solicit capital from the general public. In that instance, the Company will engage marketing strategies discussed below. Marketing Objectives o Develop ongoing relationships with international commodity brokerages o Develop an informative website Marketing Strategies Foremost, the Company will develop ongoing prime brokerage relationships with several commodity brokerages throughout the United States, Europe, and Asia. This will ensure that the Company can potentially amplify its returns through leverage offered by these firms. Mr. Assani will distribute information, via an information packet, to these firms informing them that Ets. Assani is in business, its capitalization, and what types of trades the company most frequently engages. In regard to raising capital from the general public, the Company will develop an informative website showcasing the operations of the firm, Mr. Assani s experience as a trader, proper investment disclosures, and relevant contact information. If this website is built, the Company will hire an internet marketing firm to properly rank the site via search engine optimization and pay per click strategies. Most importantly, the Company will utilize its own introducing network and will also seek new introducers. 11
6. Organizational Plan and Personnel Summary Corporate Organization Senior Management Operations Administrative Staff Capital Raising Accounting Licensure Acquisitions Marketing Trading Operations + Brokerage relationships + Hedging Administrative Plantations Cultivation & Consolidation Purchasing Harvesting Land Acquisition 12
Organizational Budget Personnel Plan - Yearly Year 1 2 3 Senior Management 150,000 309,000 477,405 Economists 174,000 179,220 184,597 Accountants 270,000 278,100 286,443 Trading Desk 80,000 123,600 127,308 Farmers 10,483,200 15,692,256 18,790,661 Administrative 112,000 144,200 178,231 Total 11,269,200 16,726,376 20,044,645 Numbers of Personnel Year 1 2 3 Senior Management 2 4 6 Economists 6 6 6 Accountants 10 10 10 Trading Desk 4 6 6 Farmers 7280 10580 12300 Administrative 16 20 24 Totals 7318 10626 12352 o number of farmers is not stable as they are hired on a continuous basis according to the current needs in order to remain effective o the trading desk will retain 15% of the gross trading/hedging profit Organizational Budget (Cont.) 13
7. Financial Plan Underlying Assumptions The Company has based its proforma financial statements on the following: The Company will have an annual revenue growth rate of 30% per year. The management will use 30,000,000 of bond funds to develop the business. Sensitivity Analysis The Company s revenues are not sensitive to changes in the general economy. The Company will use a number of strategies to ensure that the business can generate profits despite increases or decreases in the value of any commodity. As such, the business should have no issues with top line income despite inflationary pressures or downward pricing pressure on specific commodities. Key risks Climatic. Many times the DRC is referred to a paradise for coffee as the climate is thought to be protection against coffee rust the most devastating coffee disease. So, this has allowed coffee to be grown in a wider range of locations throughout the DRC. Technical. Good knowledge of coffee physiology, agronomy and pest and disease problems are essential to successful production. Selection of suitable land and varieties to be planted are critical to minimize the risk. The ability of investors to process and market their green bean is essential for farm profitability. The Ministry of Agriculture now has the ability to provide good technical support to coffee development in the DRC. Market. The price stability and its forecast is elaborated on in the next section. Political. The political environment only supports this particular field as it is a part of the governmental goals over the next ten years. Agriculture has been denoted as one of the top priorities for the government. The government plans to focus on raising capital for agriculture and agribusiness, Kitebi said. Agriculture Minister Jean-Chrysostome Vahamwiti in July unveiled a $5.7 billion plan to expand farming in the country, which is about the size of western Europe. 1 1 http://www.bloomberg.com/news/2013-09-12/congo-seeks-s-p-rating-amid-plans-to-boost-investment-sell-debt.html 14
Source of Funds Financing in 2014-2019 Contributions Investors Bond Issuance 30,000,000 General Assumptions Taxation Type Rate Residents General rate DRC-incorporated companies, subsidiaries or 30% branch of foreign companies Dividends 20% Interest 20% Royalties 20% Provision services fee or remuneration 14% Non- Residents Coffee Cultivation newly established plantations 1 acre of a coffee plantation costs 1,400 to set up (seeds and planting) For the sake of this business plan, hectares (ha) are used. Thus; 1ha = 2.47 acres 1ha costs 3,500 to set up incurred over the next four years. Expected yield from each hectare is depicted below in the schedule: Year Yield (kg) 1 0 2 0 3 650 4 1750 5 3100 6 2800 7 up to 15 3100 15
About 20 kg of export ready coffee will be produced from every 100 kg of coffee cherries harvested. (20%) On average, one hectare produces 1,630kg of coffee out of which 20% is 326kg of export ready coffee. With the rising demand, we expect the price of coffee contracts to stabilize around the $2.50 mark per pound which is 4.05 per kg. 1ha will then yield 1,320. Coffee Cultivation already established plantations These yield 3,100kg per 1ha (1.90:1 ratio)/620kg export ready coffee 1ha will then yield 2,511 in revenues. For the already-established plantations, we assume plantations aged 7 and more will be purchased that have a stable yield of approximately 3,100kg per one hectare. Growing Year 7 Green bean kg/hectare 3100 Export ready kg 620 Direct field costs/hectare 624.0 Overhead costs/hectare 395.0 Total field cost/hectare 1,019.0 Gross sale/hectare 2,511.0 Annual profit 1,492.0 We deal only with coffee that passes the industry standards of quality, i.e. we draw up our financials based on the exchange traded contracts (coffee futures). 16
Profit and Loss Statement Projected Profit and Loss after Capital Raising Item EUR Sales 118,941,473 Cost of Goods Sold 74,814,187 Gross Margin 37% Operating Income 44,127,287 Expenses Payroll 11,269,200 Shipping and Transportation 5,593,954 New Plantations Equipment 1,355,180 New Plantations Material 1,179,976 General and Administrative 95,338 Marketing Expenses 377,802 Professional Fees and Licensure 245,952 Insurance Costs 1,308,230 License - Agriculture 512,662 Rent and Utilities 3,689,802 Miscellaneous Costs 110,860 Payroll Taxes 1,690,380 Total Operating Costs 27,429,336 EBITDA 16,697,951 Corporate Tax 5,009,385 Interest Expense 3,244,432 Depreciation Expenses 1,068,196 Net Profit 7,375,937 Profit Margin 6.20% 17
Breakdown of Cost of Goods Sold what is needed to set up a coffee plantation: Land Preparation (Hand labour clearing vegetation) Land levelling (Hand labour) Ploughing (tractor) Harrowing (tractor) Line pegging for coffee Line pegging for shade Digging the planting holes (for shade) Digging the planting holes (for coffee) Refilling the planting holes with soil & manure Transport, plant & firm sticks to coffee and shade Weed the whole farm Watering (4 times x 5 months @ 9 litres/tree) Fertilizer application (3 times per year) Circle weeding coffee plants (3 times per year) Making frost/heat canopy (includes local material) Spraying insecticide, fungicide & foliar Material costs Cattle manure Urea Triple super phosphate Potash Pegs to firm coffee plant & shade trees Insecticide Fungicide Foliar spray Caster waste (soil inoculum) Silver oak seedlings Dadap seedlings Coffee plant seedlings 18
Cash Flow Analysis Projected Cash Flow Analysis Year EUR Cash From Operations 12,359,902 Cash From Receivables 6,232,630 Operating Cash Inflow 18,592,532 Other Cash Inflow s Bond Issuance 30,000,000 Increased Borrow ings 0 Sales of Business Assets 0 A/P Increases 700,000 Total Other Cash Inflow s 30,700,000 Total Cash Inflow 49,292,532 Cash Outflow s Repayment - Coupons 2,100,000 A/P Decreases 3,085,966 A/R Increases 1,134,442 Land Purchases 22,200,000 Harvesting Equipment 3,700,000 Leasehold Improvements 1,650,000 Insurance 850,000 Dividends 0 Total Cash Outflow s 34,720,408 Net Cash Flow 14,572,124 Cash Balance 14,572,124 19
Balance Sheet (7/1/2014) (converted in EUR by EUR/CDF = 1259 / end of 2013) Assets Cash & cash equivalents 478,654 Current securities 136,709 Other receivables 17,654 Current other assets 55,671 Current portion of long-term financial assets 76,009 Trade Receivables 3,098,661 Inventories 658,108 Prepaid Expenses 76,980 Non-current Assets FF&E 2,753,322 Accumulated Depreciation - 670,664 Land 29,136,120 Other investments and long-term financial assets 311,451 Non-current Sec 255,780 Intangible 218,742 Total Assets 36,603,197 Liabilities and Equity Current liabilities 344,019 Debt and Credit Contracts Related 164,861 Short-term financial liabilities 87,889 Trade liabilities 922,290 Current other liabilities 35,558 Current deferred income 341,911 Long Term Liabilities 5,634,308 State Aid 6,453,043 Advanced Payments 54,981 Deposits Received 0 Total Liabilities 14,038,860 Asset Revaluation Reserve 5,000,311 Retained Earnings 7,865,440 Paid-in Capital 9,698,585 Net Worth 22,564,337 Total Liabilities and Equity 36,603,197 20
Appendix 1 Balance Sheet (2014) 21
Appendix 2 Ets. Assani Documents (2014) BUSINESS REGISTER 22
TAX AUTHORITY 23
Appendix 3 Ets. Terre d Investissement Documents (2014) BUSINESS REGISTER *more documents on request 24