Value of the Company – identification of the area, location, channels to sell the production (railroads, pipelines, etc).
The company is divided into two units inside a huge agricultural area. There are two units. Unit number 1 is older and Unit number 2 is newer. The company is in the state of São Paulo located in the sugar cane belt (country side of São Paulo between 300 to 400 km from the city of São Paulo).
The roads are excellent, in great conditions and the capacity and the logistics are very, very, good. The price is US$750,000,000.00 (seven hundred and fifty million dollars) and it includes the industrial project, the land where the industrial projects are located, all the agricultural equipment (harvest machines, etc) and the planted sugar cane.
The agricultural area is 20% owned by the company and 80% leased for 6 years. The owner said that it is very easy to extend the contracts to 18 to 20 years, but he does not do that because of historic price fluctuations on leased areas.
Unit 1 - has the capacity to produce 2 million tons today and this is being increased to reach 3* million tons by 2011. *(the owner has invested already US$10 million in this expansion and another US$50 million is necessary). This increase is programmed to happen in four years because of lack of cash, but if there is cash now, this number can be achieved in 2009. The licenses for that will be ready in one year for this unit. The owner agrees to stay managing the expansion of the factory and leave only after the factory has been expanded.
Unit 2 – has the capacity to produce 2.5 million tons today and this is being increased to reach 3* million tons by 2011. This unit has space to process (agricultural and physical space) to increase to 4 million tons but then you will have to increase the factory. *(the owner has not invested anything yet and since the factory is brand new only US$25 million is necessary for this expansion to take place). This increase is programmed to happen in four years because of lack of cash, but if there is cash now, this number can be achieved in 2009. The licenses for that will be ready in 6 months for this unit. The owner agrees to stay managing the expansion of the factory and leave only after the factory has been expanded.
1.1 - Presentation of the last consolidated balance sheets, income statements, cash flow statements, (2004/2005 and 2005/2006), working capital variation, profits, debts, distribution of profits, ebitda, etc.
From the above points, he only told me the production of 2004, 2005 and 2006. He said that the other stuff will be seen once there is an offer and the buyer hires a third party auditing company. Apparently he hired already a third party auditing company to value his factory. This auditing company is a multi national company and whatever they say the value is, people will agree. He believes this auditing company will value his factory at around US$550 million dollars and he is open to other third party auditing companies.
Production of the last three years:
Year of 2004
Unit 1 produced 1.82 million tons
Unit 2 produced nothing (it was being constructed).
Year of 2005
Unit 1 produced 1.8 million tons
Unit 2 produced nothing (it was being finalized)
Year of 2006
Unit 1 produced 1.7 million tons
Unit 2 produced 850 thousand tons.
Year of 2007 (estimated harvest of 3.4 million tons)
Unit 1 will produce 1.7 million tons
Unit 2 will produce 1.7 million tons
2 – Days of harvest – in which period the harvest starts and ends, including the last two years (where the harvest started and ended in the last two years). What was the production, how many tons of sugar cane?
Two hundred days of harvest starting may 5th.
3 – Regarding the Factory – Industrial Park:
3.1 – Description of the park: How many columns of distillation, sugar factory, etc. It is important that we can double check the information:
Unit 1 – one column of distillation with capacity to process 200 cubic meters per day that is being substituted right now for one that has the capacity of processing 500 cubic meters (hydrated alcohol or anidric alcohol, either one can be done) Capacity of producing 1000 tons of sugar per day.
Unit 2 – one column of distillation that has the capacity to process 300 cubic meters per day. It also has the capacity of producing 1250 tons of sugar per day.
3.2.1 – Tons per hour - Unit 1 – 380 tons per hour
Unit 2 – 480 tons per hour
4. How many megawatts are generated?
Unit II is producing 40 megawatts per hour for 200 days. Unit II uses 15 megawatts per hour and it has 25 megawatts per hour for sale. This unit has a signed contract to sell 83 thousand megawatts per year which accounts for revenues of US$6 million per year.
5 – Agricultural Part
5.1 – Description of the main areas – owned areas and areas that are rented. This is extremely important because it show the independence of the factory and its vertical integration: If you have no supply you cannot guarantee production.
80% leased
20% owned
There are new leasing contracts recently signed to increase the total production to 6 million tons, there is enough land for that today.
5.2 – Data of the age of the sugar cane. The sugar cane will produce well up to the 5th cut, after that the quality of the sugar cane decreases so after it’s 5th cut, it is necessary to re-invest and plant new sugar cane as well as take care of the soil (the soil lasts for 5 years then you have to put nitrate in the soil again).
3 years
5.3 - Average price paid on the rented area.
The calculation is done the following way: You multiply the amount of tons paid per rented ha. Times the amount of TSR (total sugar recovered) fixed in the contract. The result has to be multiplied by the value of the Kilogram of the Total Sugar Recovered given by CONSECANA (Consul of Sugar Cane, Sugar and Alcohol Producers – it varies from state to state) or UDOP (Union of the Bio Energy Producers).
EX:Ton/ha = 40,00
TSR stipulated in the Contract = 110Kg
R$/Kg. TSR = 0,38 (from CONSECANA)
Therefore: 40 x 110 x 0,38 =1.672,00 per ha,
In the rented land he is paying 25 tons per ha. (he uses the amount of the average sucrose in the sugar cane – this is a different method of calculating the price of the sugar cane in the leased area, I can explain you this later in detail).
The average production of ha is 96 tons per ha (which is very high and very few plantations yield that much production, so he has done his plantation right).
6 – Industrial efficiency – Demonstrate here what is the capacity of the raw material processing and the industrial capacity usage for raw material processing (i.e. How many tons per year) and this influences directly the depreciation of the equipments. This depreciation can be subtracted from the real profit before taxes are applied to the profit.
The owner suggested and I agreed that this can be done by the auditing company hired by your buyers.
7 – Systems of co-generation of energy. How many megawatts are produced and can be sold at local market and how many are used by the factory.
Unit 1 – will have in 2011 the production of 75 megawatts per hour. The owner estimates consumption of 18 megawatts per hour so there will be 57 megawatts per hour to be sold on the local market. Today Unit 1 has not production of energy.
Unit 2 – will have in 2011 the production of 75 megawatts per hour and the owner estimates that the unit will use 18 megawatts per hour, so it will also have 57 megawatts per hour available for sale in the local market. Today Unit 2 produces 40 megawatts per hour and it consumes 15 megawatts per hour, so today Unit 2 is selling 25 megawatts per hour in the local market.
8 – Revenues and projected revenues calculated using the last balance statements.
Last year the total revenue was 270 million reals (divided by 2.05 is equal to approximately US$131 million dollars). However, remember that this revenue will increase 25% this year due to increase in the production of Unit 2.
8.1 – Amount of sugar produced and the specifications of the sugar (EX: ICUMSA 45, VHP (Very High Polarization)) and the previous productions as well as its share in the composition of the revenue.
It can produce VHP or Crystal 150 (a common type of sugar in Brazil). The factories can modulate to produce either one of these types of sugars.
In the year 2006
Unit 1 – produced 165 thousand tons of sugar.
Unit 2 – produced 85 thousand tons of sugar.
8.2 – Amount of alcohol produced and the specification of the product (Anidric, Hydrated), previous production, and its share in the composition of the revenue.
Unit 2 – produced 34 million cubic meters
Unit 1 – produced 38 million cubic meters (half was hydrated alcohol and half was anidric alcohol).
8.3 – Definition of the sub products, inverted syrup, white baggage, hydrolyzed baggage, etc.
It currently produces none of the above.
9 – Price R$ 1.500.000.000,00 (um bilhão e quinhentos milhões de reais)
Marcadores: USINAS