Kniazi Lani LLC, 26k ha Farm

1. Strategic background

2. Project description

3. Asset based valuation

2

4. Economics

5. Risk analysis

6. Disclaimer

Appendices

Current situation� After the collapse of the Soviet Union, Ukrainian

agriculture declined for a long time as a result of cuts in state support and lack of investment incentives. According to USDA estimates, the Ukrainian grain production decreased by 50% over the period 1990 – 2000 and fertilizer use fell by 85% during the same period

� As a result, the Ukrainian Ministry of Agriculture developed the Countryside Development Program (CDP) in order to

Yields and productivity rate of major cereal crops in Ukraine, 1990-2007

Strategic backgroundOverview of the agricultural market in Ukraine (1/5)

3,51

2,652,79

3,21

2,682,43

1,96

2,45

2,081,971,94

2,712,73

1,82

2,832,6

2,412,18

3,46

1

1,5

2

2,5

3

3,5

4

20000

30000

40000

50000

60000

3

the Countryside Development Program (CDP) in order to rebuild agricultural sector, which according to EIU forecast will stand at 10% of the country’s GDP in 2009

� The implementation of the CDP was expected to result in a 100% increase in farming exports and 60% increase in the total volume of agricultural production during the period from 2005 – 2015

0

0,5

1

0

10000

Harvested,

tons

Yields,

ton/ha

Source: Ukrstat, 1990-2008

Advantages and disadvantages of agriculture in Ukraine� Apart from convenient geographical location, mild climate

and on-going economic development, the Ukrainian agricultural sector has the following key comparative advantages:

− soil quality

− availability of vast areas of arable land


Potatoes

19 545,40

19%

Vegitables

7 965,10

8%

Crop harvesting in Ukraine by major plant families, 2008

− potential for low cost farming

− prospects of productivity improvement

� Currently, the major weaknesses attributable to the agricultural industry in the Ukraine are:

− low crop productivity

− lack of proper inputs such as chemicals and machinery

− existing infrastructure

− lack of experience in profitable farm management

− insufficient legislative support in development and implementation of state policies and regulations

− absence of land reform

− lack of rural financing

4

Cereals &

legumes

53 290,10

53%

Sugar beets

13 437,70

13%

Sunflower

6 526,20

7%

Source: Ukrstat, 2008

Soil quality� Ukraine owns wide areas of chernozem, a black coloured

soil, characterised by exceptional fertility. According to US Department of Agriculture, about one-third of the world’s supply of chernozem is located in Ukraine

� Chernozem contains a high percentage of humus, an organic material essential to the fertility of soils, which grants a comparative advantage in crop production

� A humus layer of the soils in Ukraine varies in depth from


Humus content in soils by districts of agricultural area of Ukraine

� A humus layer of the soils in Ukraine varies in depth from 15 cm to 150 cm and sometimes more, which is one of the highest indicators in the world, according to Food and Agriculture Organisation of the United Nations

� The high content of humus in the soil produces above average agricultural yields as it:

− provides micro-organisms necessary for healthy level of soil life

− allows to preserve nutrients vital for plant growth

− absorbs moisture up to 80%-90% of its weight, protecting the soil from drought conditions

− grants greater aeration of the soil

5

Humus content (%)1.3% - 2.1% (low)

2.1% - 2.9% (average)

2.9% - 3.7% (increased)

3.7% - 4.9% (high)

Source: Ministry of Agrarian Policy of Ukraine

Existing infrastructure� The Ukraine possesses a developed transportation

network including rail, road and inland / sea waterways for the movement of crops within the country

� Ukrainian port facilities include 17 seaports equipped to handle grain with storage capacity for 1.2 million tons and with a throughput capacity of about 16 million tons, according to AAFC market research

� Most large arable farms have access to storage facilities

Availability of vast areas of arable land� It should be noted that based on Dragon Capital Report

there are 42.9 million ha of agricultural land (71% of total land area) in Ukraine

� With a high supply of available land, domestic agricultural companies have the opportunity to consolidate their land holdings compared to those in EU countries. According to Eurostat, the average agricultural company in the EU owned 20.7 ha. of land in 2005. According to


6

� Most large arable farms have access to storage facilities

� Please also refer to Appendix 5 for precipitation and average temperature maps

owned 20.7 ha. of land in 2005. According to DerzhZovnishInform, a Ukrainian analytical agency, the average Ukrainian agricultural company operated 72 ha. in 2005, resulting in a larger base for the distribution of fixed costs

� Recent developments indicate that a number of private companies tend to lease smaller farms in close to form large-scale agricultural production units operating on a scale of 30,000 to more than 200,000 ha. each

Potential for low cost farming� Major local factors indicating opportunities for low cost

harvesting in the Ukraine are:

− the average rental cost for agricultural land was around UAH300 - 400 per ha. in 2009

− Ukraine has the cheapest labor among its competitors

− chernozem soil requires less mineral fertilizers and lower refinement

Prospects of productivity improvement� We draw your attention to the fact that as a result of lower

level of fertilization treatment of land, machinery utilisation and lack of experienced farm managers; current productivity in the Ukraine is below the level of the EU, regardless of the availability of rich soil and favourable climatic conditions

� According to Eurostat, during the last three years Ukrainian farmers, engaged in harvesting arable crops and


7

lower refinement

� According to analytical agency AAA, the average production cost of wheat in Ukraine was in the range USD75-110 per ton in 2007. For comparison, production cost of wheat in the UK and the USA averaged USD160 per ton in 2006, according to Scottish Agricultural College

Ukrainian farmers, engaged in harvesting arable crops and vegetables, achieved productivity level of 2.6 tons per ha, which is much lower than in the EU (average of 5.9 tons per ha.)

� On the other hand, large private Ukrainian enterprises have begun to apply modern fertilization and chemical spray protection as well as investing in machinery in order to improve harvesting yields




8

4. Economics

5. Risk analysis

6. Disclaimer

Appendices

Target Farm Holding Profile� Kniazi Lani LLC (hereafter referred to as FH, the

“Company” or the “Farm”) currently operates three locations with the total land bank circa 26 th. ha. Two locations in Lviv and one in Zhytomir region

� The Company owns two elevators (storage capacity: 30 and 40 th. tons) and has an opportunity to acquire a small elevator (storage capacity: 5 th. tons) in Zhitomir to support local production for circa USD150 thousand. The

Project descriptionDescription of the Company

9

support local production for circa USD150 thousand. The Farm also has additional opportunities to acquire extra 10 th. ha. of farm land in Ivano-Frankivsk with a new Cimbria elevator facility for circa USD4.5 million

� The Company is currently in the process of acquiring another 4 th. ha. Land Bank inside their territory, for the price of re-registering the land (USD50 thousand)

Management:Strong management team in place with well developed political and financial connectionsProduction: 26 th. ha of excellent soil with the potential increase up to 30 th. ha.)Modern technology in placeStorage capacities:70 th. tons of elevator storage capacity

� The Farm benefits from the following advantages:

− Favourable Company’s location - close proximity to major shipping routes and international grain trading hubs

− Secured large areas of high quality, contiguous agricultural land via long-term lease agreements suitable for a wide range of crops

− Excellent soil structure (pH, humus, calcium and potash), producing high yields

− Close location of the Company’s Land Bank to Landkom International could provide opportunity to merge with the listed Company which will provide immediate liquidity and an exit opportunity

Project descriptionAdvantages of the Company

Land harvested and yields

Land Bank 2009/10, ha

Yields,tons/ha

Winter OSR 6,688 3.39

Winter Wheat 6,688 4.52

10

potash), producing high yields

− Flat fields, which are large enough to allow widest equipment available

− Modern technology in place

− Storage and logistics availability:

� Currently, the Company has its own drying and storage capacity, which is sufficient to support current land bank of 26 th. ha.

� The Company owns and maintains a substantial fleet of its own grain trucks, lowboys, and trailers, capable of servicing current production. Additional needs for logistics are usually outsourced

Winter Wheat 6,688 4.52

Spring Wheat 803 3.77

Winter Barley 4,013 3.94

Spring Barley 2,675 3.65

Corn 3,210 8.89

Buckwheat 1,338 0.79

Soya 535 0.99

Winter Oats 268 4.00

Peas 268 2.53

Forage 268 n.a.

Total 26,750




11

4. Economics

5. Risk analysis

6. Disclaimer

Appendices

Valuation of the Farm� Based on our market research we have identified, that current prices for land lease rights

for large, well-managed farms, in Ukraine, are in the range from USD150 to USD300 per ha. Based on our experience and expert opinion we think that the fair value of the land lease rights for the land controlled by the Farm is at the upper range per ha.

� The Company has two elevators (storage capacity: 30 and 40 th. tons) and several support bases. Its handling facilities include 2 RIELA dryers and 1 large CIMBRIA dryer (all less than 3 years old) We consider that the fair value of the elevator capacity and several support bases approaches its Net Book Value (NBV) in the range of USD7.5 million

Asset based valuation

Valuation summaryLand assumptions

Existing land bank, ha. 26,750

To be obtained, ha. 4,000

Land bank, ha. 30,750

Price per ha, USD 250

Value (in USD million)Land bank 7.7

Storage facilities 7.5

12

support bases approaches its Net Book Value (NBV) in the range of USD7.5 million

� Due to the fact that major part of the Company’s equipment is new and well maintained, we take NBV of the equipment other than storage to be in line with the Fair Value of these equipment – USD5.2 million

� The Farm has seeded 5,150 ha with winter rape equalling an investment of UAH1,700 per ha. The Company also invested approximately USD1 million in winter barley seeding. This makes fair value of Biological Assets USD2.7 million. (this amounts ware confirmed by SAC)

Storage facilities 7.5

Machinery and other 5.2

Biological assets 2.7

Management

stewardship 1.9

Enterprise Value 25.0

Loan with local banks (7.0)

Equity Value 18.0

� In addition, intangible assets such as current management’s expertise and good Company’s reputation should be evaluated. Due to good reputation of management the Company has over EUR1 million in supplier credit available at any given time. We estimate it to be in the range of USD1.9 million

� In order to derive the Equity Value we have deducted book value of the Company’s debt with several prominent local banks used for CAPEX (not working capital or acquisition of the land bank) of circa USD7.0 million

� Based on the above we think that indicative value of 100% of the Farm shares is USD18.0 million




13

4. Economics

5. Risk analysis

6. Disclaimer

Appendices

EconomicsKey assumptions (1/7)

Projected period

� For the purposes of the DCF method of valuation, the forecast period represents the period from 1 Oct 2009 to 31 Dec 2015.Forecast interval is 1 year

� It was assumed that the Company would receive cash flows steadily over each period. Therefore, for discounting purposes weproceeded on the assumption that free cash flows occur at mid-period. All cash flows are discounted to the date 1 Oct 2009

Projectioncurrency

� Financial projections and the assessment of terminal cash flows were prepared in UAH, since Company’s prices as well as expensesare largely set in UAH. Then all figures are translated to USD using 8 UAH/USD exchange rate

Type of cash flow

� Due to high uncertainty as for the inflation rate during the forecasted period, the projections were prepared in real terms, with noaccounting for inflation. Therefore, the discount rate used was also calculated in real terms

14

flow accounting for inflation. Therefore, the discount rate used was also calculated in real terms

Discount rate

� The Company’s forecast of terminal cash flows were discounted to their present value as at the Business Plan preparation date usinga discount rate that reflects the risks related to the achievement of cash flows, thereby forming the present value of the Company

� The Cost of Invested Capital was used as the discount rate and was calculated as the weighted average cost of invested capital(WACC), taking into account the required return on equity and the effective interest rate on borrowed funds

Terminal cash flows

� To determine the terminal cash flows, we assumed a stable growth level of free cash flow on invested capital from 2015 to infinity.When calculating terminal cash flows we assumed that depreciation will equal to capital investments and change of working capitalwas assumed to be zero

� Long-term growth rate of terminal cash flows was assumed to be 0%

Tax rates � The Company is subject for corporate profit taxes (CPT). Although the Company could claim exemption from such a tax in Ukraine and become a fixed agricultural taxes (FAT) payer which is calculated based on 0.15% of the cadastre value of land used

� In this model we have used CPT at 25% rate to be more on a conservative side

� The Group’s projected sales revenue is based on the calculation of expected crop sales as at the Analysis Date, taking into account the Groups’s planed structure of seeding for 26 th. ha. as at 31 Aug 09

� It should be noted that the sales revenue projection was performed separately for each crop types harvested

� All crops are harvested during the third and fourth quarters and the Company’s Management believes that all harvested crops will be sold in three months after being

Harvested land� According to Management, the Company seeded /

harvested and plans to seeded / harvest land as shown in the tale below

EconomicsKey assumptions (Revenue) (2/7)

Planting, ha

2008A 2009A 2010F From 2011F

Winter OSR 4,304 6,293 6,688 7,688

Winter Wheat 3,355 5,270 6,688 7,688

Spring Wheat 565 663 803 923

15

harvested crops will be sold in three months after being harvested. No unsold crop inventory is expected as at year end

� Total sales revenue for each harvested crop is the product of volume of crop sold and crop prices in the third and fourth quarters

� Volume of crops sold during the third and the fourth quarters equals to volume of crops produced which is the product of:

− harvested land for each crop

− yield per crop

Spring Wheat 565 663 803 923

Winter Barley 892 2,047 4,013 4,613

Spring Barley 1,421 2,937 2,675 3,075

Corn 4,000 3,577 3,210 3,690

Buckwheat 175 1,141 1,338 1,538

Soya 85 565 535 615

Winter Oats 38 306 268 308

Peas 346 150 268 308

Forage 575 325 268 308

Total 15,756 23,274 26,750 30,750Source: Company’s Management

A – actual data; F – Forecast

Yield per crop� The projected yield per crop of the Company in 2010 and

2011 were performed by agronomy of the Company. Yields projection for the following years was performed based on (see graph to the right) was based on the product of the following factors:

− yield projection for 2011

− average forecast y-o-y change of the yield in Ukraine projected by FAPRI


Yields, tons/ha 2008A 2009A 2010F 2011F 2012F 2013F 2014F

Winter OSR 3.39 3.00 3.39 3.42 3.46 3.49 3.53

Winter Wheat 4.48 4.48 4.52 4.57 4.62 4.66 4.71

Spring Wheat 3.73 3.73 3.77 3.80 3.84 3.88 3.92

Winter Barley 3.90 3.90 3.94 3.98 4.02 4.06 4.10

Spring Barley 3.61 3.61 3.65 3.68 3.72 3.76 3.79

Corn 8.80 8.80 8.89 8.98 9.07 9.16 9.25

Buckwheat 0.78 0.78 0.79 0.80 0.80 0.81 0.82

Soya 0.98 0.98 0.99 1.00 1.01 1.02 1.03

16

projected by FAPRI

� We consider that the above approach to be more conservative as the Company expects to continue investing in modern land cultivation technologies thereby attaining the average yield per crop levels in major EU countries

Soya 0.98 0.98 0.99 1.00 1.01 1.02 1.03

Winter Oats 3.96 3.96 4.00 4.04 4.08 4.12 4.16

Peas 1.02 2.50 2.53 2.55 2.58 2.60 2.63Source: Company’s Management


Price per crop� Taking into account that we have projections in real terms

we took actual prices per each type of crop based on the information agency ProAgro (www.proagro.com.ua) for Aug 09

� We also made analysis of deviation for crop prices for each month as for Aug using all available data of monthly statistics for 2002-2009. And calculated indices. Please refer to the graph on the left


17

refer to the graph on the left

� Each crop indices per month and prices for Aug 09 we estimated prices per crops for each month Projected price per crop forecast in 2008 is calculated as the product of the following factors:

− the ratio between (a) the average price level of crop futures for the third and fourth quarters of 2008 as at the Valuation Date and (b) the average price level of crop futures for third and fourth quarters of 2007 (source: FT and APK-Inform)

− the historic sales prices of the Company per crop in the third and fourth quarters of 2007

� To forecast prices per crop for the period 2010-2013, we used prices identical to prices for 2009

Prices (net of VAT) 2008A From 2009A

UAH USD UAH USD

Winter OSR 1,975 391 2,245 281

Winter Wheat 788 156 828 104

Spring Wheat 884 175 828 104

Winter Barley 833 165 684 86

Spring Barley 838 166 684 86

Corn 646 128 870 109

Buckwheat 1,111 220 1,667 208

Soya 1,761 349 2,798 350

Winter Oats 773 153 375 47

Peas 1,308 259 1,500 188Source: Company’s Management


� Production (harvesting) costs of the Company are largely attributable to:

− seeds

− fertilizers

− herbicides

− fuel & oil

− labour

− other

EconomicsKey assumptions (Costs, direct) (5/7)

Direct costs, UAH/ha 2008A 2009A 2010F 2011F 2012F 2013F 2014F

Winter OSR 3,139 3,124 3,126 3,126 3,131 3,131 3,131

Winter Wheat 2,169 2,162 2,176 2,176 2,181 2,181 2,181

Spring Wheat 1,797 1,793 1,794 1,794 1,795 1,795 1,795

Winter Barley 1,718 1,724 1,746 1,746 1,749 1,749 1,749

Spring Barley 1,474 1,479 1,475 1,475 1,478 1,478 1,478

Corn 3,396 3,355 3,350 3,350 3,353 3,353 3,353

Buckwheat 1,228 1,237 1,239 1,239 1,240 1,240 1,240

Soya 1,639 1,644 1,644 1,644 1,644 1,644 1,644

18

� The Company’s management has provided us with the average costs per crop types which were used for projection period

Soya 1,639 1,644 1,644 1,644 1,644 1,644 1,644

Winter Oats 428 431 430 430 431 431 431

Peas 2,438 2,433 2,434 2,434 2,434 2,434 2,434Source: Company’s Management


Elevator expenses � Based on the information from market players we

identified that in average expenses for running elevator are in the range of UAH60-70 per tone of storage capacity. We calculated elevator expenses taking average of UAH65 per tone of storage capacity

Overhead expenses� Company’s general and administrative expenses are as

follows:

Capital expenditures� Due to the fact that we did not projected increase in land

bank of the Group, capital expenditure projections were made only with respect to the other than land (buildings, infrastructure, machinery and equipment). The CAPEX could be divided in two parts:− Maintenance capital expenditures− Development capital expenditures

Maintenance capital expenditures

EconomicsKey assumptions (Costs, other) (6/7)

19

follows:

− Operating Costs UAH2.860 thousands per annum

− Audit Costs UAH 160 thousands per annum

− Consultants/Lawyers UAH 400 thousands per annum

Maintenance capital expenditures� We assumed that maintenance expenses would be at half

level of the annual depreciation charge

Development capital expenditures� Development capital expenditures could be divided into

two groups:− CAPEX for storage capacity− CAPEX for other PPE

FAT and CPT� The Company is subject for corporate profit taxes (CPT).

Although the Company could claim exemption from such a tax in Ukraine and become a fixed agricultural taxes (FAT) payer which is calculated based on 0.15% of the cadastre value of land used

� In this model we have used CPT at the 25% level to be more on a conservative side

VAT

EconomicsKey assumptions (Miscellaneous) (7/7)

20

VAT� In order to simplify the Model We performed our analysis

based on the prices net of VAT. Thus no VAT is projected for the Group

EconomicsDetailed business plan (P/L)

PROFIT AND LOSS Annual in kUSD (@ 8 UAH/USD ex rate)2009 2010 2011 2012 2013 2014

Revenue 13,519 15,817 18,439 18,985 19,158 19,333

COS (6,968) (7,819) (8,989) (9,003) (9,003) (9,003)

Gross profit 6,551 7,998 9,451 9,982 10,155 10,330

Gross profit margin 48% 51% 52% 54% 55% 55%

Elevator costs (309) (707) (869) (1,113) (1,113) (1,113)

Maintenance expenses (560) (617) (697) (756) (791) (791)

Other expenses (1%) (135) (157) (182) (184) (186) (188)

Indirect labour costs (1,003) (1,003) (1,003) (1,003) (1,003) (1,003)

21

Indirect labour costs (1,003) (1,003) (1,003) (1,003) (1,003) (1,003)

General and Administrative (428) (428) (428) (428) (428) (428)

EBITDA 4,118 5,088 6,272 6,500 6,636 6,809

EBITDA Margin 30% 32% 34% 35% 36% 36%

Depreciation Amortization (1,119) (1,234) (1,395) (1,511) (1,581) (1,581)

EBIT 2,999 3,855 4,878 4,989 5,055 5,228

EBIT Margin 22% 25% 27% 27% 27% 28%

Interest expenses (1,040) (954) (672) (252) (14) -

EBT 1,960 2,901 4,206 4,738 5,041 5,228

EBT Margin 14% 18% 23% 26% 27% 28%

Taxes (490) (725) (1,051) (1,184) (1,260) (1,307)

Net income 1,470 2,176 3,155 3,554 3,781 3,921

Net income % 11% 14% 17% 19% 20% 21%

EconomicsDetailed business plan (B/S)

BALANCE SHEET Annual in kUSD (@ 8 UAH/USD ex rate)2009 2010 2011 2012 2013 2014

Non-current assets

Land 2,250 2,000 1,750 1,500 1,250 1,000

Fixed Assets, gross 9,031 11,477 11,733 12,571 11,240 9,909

Total Non-current assets 11,281 13,477 13,483 14,071 12,490 10,909

Current assets

Inventory 7,942 8,913 10,246 10,262 10,262 10,262

Biological assets 3,834 4,303 4,946 4,954 4,954 4,954

Other inventory 4,108 4,610 5,299 5,308 5,308 5,308

22

Other inventory 4,108 4,610 5,299 5,308 5,308 5,308

Trade receivables 3,583 4,155 4,824 4,873 4,921 4,970

Cash and cash equivalents 1,438 14 15 16 5,247 10,811

Total Current assets 12,962 13,082 15,085 15,151 20,430 26,044

TOTAL ASSETS 24,243 26,560 28,568 29,222 32,920 36,952

EQUITY

Share capital 1,803 1,803 1,803 1,803 1,803 1,803

Retained earnings 7,378 9,553 12,707 16,260 20,040 23,960

Total EQUITY 9,181 11,356 14,510 18,063 21,843 25,763

Non-current liabilities

Loans and borrowings 7,000 5,852 3,200 193 - -

Total Non-current liabilities 7,000 5,852 3,200 193 - -

Current liabilities

Trade payables 8,061 9,349 10,855 10,963 11,073 11,184

Total Current liabilities 8,061 9,349 10,855 10,963 11,073 11,184

TOTAL EQUITY and LIABILITIES 24,242 26,558 28,565 29,218 32,916 36,947

EconomicsDetailed business plan (CFS)

CASH FLOW STATEMENT Annual in kUSD (@ 8 UAH/USD ex rate)2009 2010 2011 2012 2013 2014

Cash flow from operating activities

Net income 1,470 2,176 3,155 3,554 3,781 3,921

Depreciation 1,119 1,234 1,395 1,511 1,581 1,581

Change in working capital (1,164) (255) (496) 44 61 62

Inventory

Biological assets (1,034) (469) (643) (8) - -

Other inventory (1,108) (502) (689) (8) - -

Trade and other receivables (783) (573) (669) (48) (49) (49)

23

Trade and other receivables (783) (573) (669) (48) (49) (49)

Interest Accrued - - - - - -

Trade and other payables 1,761 1,288 1,505 109 110 111

Cash flow operating activities 1,425 3,154 4,053 5,109 5,423 5,564

Cash flow from investing activities

Capex - (3,430) (1,400) (2,100) - -

Cash flow from investing activities - (3,430) (1,400) (2,100) - -

Cash flow from financing activities

Loans Raised - - - - - -

Loans Repaid - (1,148) (2,652) (3,008) (193) -

Cash flow from financing activities - (1,148) (2,652) (3,008) (193) -

Cash increase/(decrease) 1,425 (1,423) 1 1 5,231 5,564

Cash at b-o-p 13 1,438 14 15 16 5,247

Cash at e-o-p 1,438 14 15 16 5,247 10,811

� Risk-free rate is based on the yields of a 20-year US Treasury bond. As at 30 Sep 09 the nominal annual return for this US Treasury bond was 4.02%

� According to SBBI Valuation Edition 2009 Yearbook, long-horizon expected risk premium (supply side) large company stocks total returns minus long-term government bond income returns was 5.7%

� In order to account for the operating risk of the entities, the unlevered betas of 0.8 was used based on the market

EconomicsWACC analysis

Calculation of the discount rateRisk-free rate 4.14%

Equity risk premium 5.73%

Unlevered beta 0.72

Levered beta 0.81

Size premium 3.74%

Country risk premium 6.36%

Cash-flow currency correction 1.0471

Cost of equity 24.49%

Cost of debt (nominal pre-tax) 4.80%

24

unlevered betas of 0.8 was used based on the market data for listed companies operating in the industry with SIC 0 (according to Damodaran, 2009)

� The size premium for a company in the deciles Micro-Cap 9-10 (Market capitalisation USD1.6 million to USD453.3 million) was equal to 3.74% (SBBI Valuation Edition 2009 Yearbook)

� The country risk was determined based on the rates of return as at 31 Aug 09 of a 15-, 16- and17-year Ukrainian Eurobond and a 20-year US Treasury Bond

� The Company’s projected cash flows were prepared in real terms, and therefore the nominal WACC rate should be adjusted using Gordon's formula to arrive to Real WACC rate

Cost of debt (nominal pre-tax) 4.80%

Tax rate 25.00%

Cost of debt (nominal post-tax) 3.60%

Weight of debt 14.55%

Weight of equity 85.45%

WACC nominal 21.45%

WACC real 13.83%

Valuation summary Annual in kUSD (@ 8 UAH/USD ex rate)SUMMARY 2010 2011 2012 2013 2014

EBIT 3,854 4,877 4,989 5,054 5,227

IT Expenses (725) (1,051) (1,184) (1,260) (1,307)

Depreciation 1,234 1,395 1,511 1,581 1,581

Change in Working Capital (255) (496) 44 61 62

Capex (3,430) (1,400) (2,100) - -

Free Cash Flow 678 3,324 3,260 5,437 5,563

EconomicsDCF (@ WACC=16%)

Discount rate (WACC) 14% 14% 14% 14% 14%

Discount period 0.50 1.50 2.50 3.50 4.50

Discount factor 0.94 0.82 0.72 0.64 0.56

Discounted cash flow 635 2,737 2,358 3,455 3,106

Sum of discounted cash flows 12,292

Terminal value 40,234

Discount factor 0.56

Discounted terminal value 22,464

Enterprise value 34,756

Debt (7,000)

Cash and cash equivalents 1,438

Equity value 100% 29,194

25




26

4. Economics

5. Risk analysis

6. Disclaimer

Appendices

� Sensitivity analysis was performed to analyze influence of changes in external factors on net present value (NPV) of the Project

� Changes in this investment indicator were caused by changes in the following factors:

� Financial

− Discount rate

− Terminal value

Risk analysisSensitivity analysis

Sensitivity analysis (in USD Million)WACC 0

TV (2%) (1%) - 1% 2%

0 (2%) 31.24 28.42 25.96 23.81 21.90

(1%) 33.36 30.20 27.47 25.10 23.01

- 35.84 32.25 29.19 26.56 24.26

1% 38.78 34.66 31.19 28.23 25.68

2% 42.31 37.50 33.52 30.16 27.30

27

� Operational

− Sales

− COS

Sensitivity analysis (in USD Million)Sales 0

COS (10%) (5%) - 5% 10%

0 (10%) 30.12 30.12 30.12 30.12 30.12

(5%) 29.65 29.65 29.65 29.65 29.65

- 29.19 29.19 29.19 29.19 29.19

5% 28.75 28.75 28.75 28.75 28.75

10% 28.30 28.30 28.30 28.30 28.30




28

4. Economics

5. Risk analysis

6. Disclaimer

Appendices

� This document is provided on the basis that it is kept CONFIDENTIAL and its circulation and use are RESTRICTED. It should not be copied or sent to any other person/party without the express permission of the Company

� This document has been prepared because Kniazi Lani LLC intend to find strategic investor

� This document includes the basic information, estimates and forecasts, which have been prepared by Kniazi Lani

Disclaimer

� In providing this document, Kniazi Lani LLC reserves the right at any time to make changes or fully replace it. Nothing in this document may and should be deemed to be or interpreted as an obligation or promise regarding the future

29

and forecasts, which have been prepared by Kniazi Lani LLC. This document is provided exclusively to assist interested party in making decision on the advisability of further study of the investment opportunity. Any recipient of this material should conduct its own analysis of the potential investment, and understand that the receipt of this material from Kniazi Lani LLC in no way signifies confirmation that the Transaction is justified

� Kniazi Lani LLC will not be liable in any way for any representations or warranties directly or indirectly contained/arising from this material




30

4. Economics

5. Risk analysis

6. Disclaimer

Appendices

Appendix 1Air temperature

31

Appendix 1Precipitation

32

Appendix 2Productivity rate of Wheat & Barley by country, 2009/10 (tons per ha)

7,7

6,55,5 5,4 5,4 5,3 4,9 4,7 4,7 4,6 4,5 4,4 4,2 4,1 3,8 3,6 3,6 3,5

3,1 3,0 3,0 2,9 2,9 2,9 2,8 2,8 2,8 2,7 2,7 2,6 2,5 2,4 2,3 2,3 2,2 2,2 2,1 2,1 2,1 2,0 2,0 2,0

Ne

w Z

ea

lan

d

Eg

yp

t

Sw

itze

rla

nd

Sa

ud

i Ara

bia

EU

-27

Cro

ati

a

Me

xico

Ch

ina

Ch

ile

Za

mb

ia

No

rwa

y

Uzb

ekis

tan

Zim

ba

bw

e

Jap

an

Se

rbia

Be

laru

s

Ko

rea

, S

ou

th

Su

da

n

So

uth

Afr

ica

Alb

an

ia

Uru

gu

ay

Ukra

ine

Un

ite

d S

tate

s

Ind

ia

Aze

rba

ija

n

Arg

en

tin

a

Kyrg

yzs

tan

Bo

snia

an

d H

erz

eg

ovin

a

Pa

kis

tan

Leb

an

on

Ba

ng

lad

esh

Mo

ldo

va

Ma

ced

on

ia

Ca

na

da

Arm

en

ia

Mo

rocc

o

Bra

zil

Ne

pa

l

Tu

rke

y

Co

lom

bia

Ira

n

Ru

ssia

Productivity rate of Wheat by country, 2009/10 (tons per ha)

10,0

8,0

6,0

4,3 4,2 4,0 3,9 3,7 3,7 3,6 3,5 3,5 3,4 3,3 3,2 3,2 3,0 3,0 2,9 2,9 2,8 2,6 2,5 2,4 2,4 2,2 2,0 2,0 2,0 2,0 1,9 1,9 1,8 1,8

Zim

ba

bw

e

Ne

w Z

ea

lan

d

Sw

itze

rla

nd

EU

-27

Cro

ati

a

Ch

ile

Ch

ina

No

rwa

y

Ko

rea

, S

ou

th

Arg

en

tin

a

Un

ite

d S

tate

s

Jap

an

Uru

gu

ay

Se

rbia

Eg

yp

t

Uzb

ekis

tan

Alb

an

ia

Be

laru

s

Bra

zil

Ca

na

da

So

uth

Afr

ica

Me

xico

Bo

snia

an

d H

erz

eg

ovin

a

Ma

ced

on

ia

Ukra

ine

Aze

rba

ija

n

Co

lom

bia

Leb

an

on

Mo

ldo

va

Kyrg

yzs

tan

Ind

ia

Ira

n

Ta

jikis

tan

Ru

ssia

Productivity rate of Barley by country, 2009/10 (tons per ha)

33

Bo

snia

an

d H

erz

eg

ovin

a

Source: USDA, 2008

Source: USDA, 2008

Kniazi Lani LLC, 26k ha Farm

Documents

Transcript of Kniazi Lani LLC, 26k ha Farm