Manufacturing Food Flavors in Bahrain: A pre-feasibility

study

Proposal

PREPARED BY ERNST AND YOUNG AND DINARSTANDARD

DRAFT DATED 25th SEPTEMBER 2017

PLEASE NOTE: WHILE SUBSTANTIALLY FINALIZED, THIS REPORT IS STILL A DRAFT AND IS SUBJECT TO FURTHER CHANGE

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Table of Contents

1 Executive Summary ........................................................................................................ 2

2 Key highlights ................................................................................................................. 2

3 Addressable market and landscape ................................................................................. 3

4 Market proposition, customer segments and key customers ........................................... 6

5 Land, set up and production requirements ...................................................................... 7

6 Financial profile ............................................................................................................ 11

7 Key regulatory requirements ........................................................................................ 14

8 Risks and success factors .............................................................................................. 17

9 Objectives and methodology ........................................................................................ 18 9.1 Purpose ....................................................................................................................................... 18 9.2 Methodology ............................................................................................................................... 19 9.3 Acknowledgements ..................................................................................................................... 20

10 Core model inputs ........................................................................................................ 23 10.1 Revenues ..................................................................................................................................... 23 10.2 Direct costs .................................................................................................................................. 24 10.3 Overhead costs ........................................................................................................................... 25 10.4 Capital expenditures and upfront investment ............................................................................ 27 10.5 Other pertinent inputs ................................................................................................................ 28

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1 Executive Summary

Project overview: $4 million in investment is needed to support the production of customized natural food flavors in Bahrain, which can address demand in the MENA region, projected to reach $1.1 billion by 2023, and with the project achieving a market penetration of 2.6% within five years

Potential returns: Producing premium chocolate, by partnering with well-established customized ingredients manufacturers such as Givaudan, would give Bahrain the opportunity to address a high growth market, earning an IRR exceeding 30% over five years

2 Key highlights

Core product Natural food flavors, extracted from underlying ingredients, and an essential part of food manufacturing – sold in multiple formats and production accommodating over 100 flavors

Core go to market strategy

Target B2B enterprises across the MENA region, producing customized flavors. Local companies such as Mondelez will represent a key initial customer base

Robust marketing effort leveraging trade shows, online B2B ecommerce and digital and print advertising

Global sourcing model, working with local distributors such as Trafco group

Investment needed

$4 million in investment needed to fund $2.3 million in upfront set up costs ($1.7 million in operating machinery investment), and a further $1.7 million in funding working capital movements

Summary financial profile*

* Volume in kilograms, price in dollars per kilogram; all other figures in $ thousands.

Projected returns

30-40% IRR

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3 Addressable market and landscape

Core products – Concentrated food flavors packaged in a drum

Product Natural flavor extracts typically sold in multiple formats and sizes

Illustration Bottles Bags

Description Natural flavors, extracted from underlying potent raw materials, and packaged in

multiple formats

Unit size 1 gallon (bottle based on Gourmet Pure Vanilla Extract); 3.5 lb (bag – based on Big Train vanilla Crème Frappe Mix)1

Market opportunity – $1.1 billion MENA-wide market opportunity by 2023

Globally, food flavors represented a $11.8 billion market opportunity in 2015 and is expected to grow by 5.5% CAGR to 2023, to reach $18.1 billion.2 The addressable MENA food flavors market, represents 7 percent or $814 million of the global market in 2015 and is expected to grow by 4.3% CAGR and reach $1.1 billion in 2023.3

Addressable market: The MENA food flavors market in 2023

Bahrain Other GCC Other MENA Total MENA

food flavors

1 https://www.webstaurantstore.com, accessed on 29

th August 2017

2 Allied Market Research Global Food Flavors Market Size, https://www.alliedmarketresearch.com/food-flavors-

market, April 2017. 3 Estimated based on GCC market size, determined in the Market Study based on Allied Market Research, Salaam

Gateway and ITC Trademap, which was $245.9 million in 2015. The MENA flavors market size estimated at $814 million in 2015 was calculated by multiplying the GCC flavors market size by the scale factor (3.3) of total food and beverage consumption the MENA represents in comparison to the GCC from Business Monitor International statistics for 2015.

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market in 2023

$15 million $329.4 million $795.5 million $1,139 million

Competitive landscape – Leading global players have a distribution presence in the GCC, but with

untapped opportunity to establish operations locally

Overall competitive intensity

Medium

Key players Description GCC availability4

Global food flavor share5

Givaudan

Global operations: Givaudan is the largest fragrance and flavor manufacturing company globally, based in Switzerland. Givaudan’s food flavors are customized for food and beverage manufacturers. The company generated an estimated $4.9 billion revenue globally in 2016.6

Givaudan has a representative branch office located in Dubai, UAE.

19%

Firmenich Global operations: Firmenich is the second largest flavors and fragrance manufacturer based in Switzerland. The company manufactures customized flavors for food manufacturers that produce beverages, sweets, and savory products. The company generated $3.3 billion of global estimated revenue in 2016.7

Firmenich has an office located in Dubai, UAE.

13%

IFF (International flavors and fragrances)

Global operations: International Flavors and Fragrances is a flavors and fragrance manufacturer based in the United States. The company manufactures flavors for beverages, sweets, and savory products. The company generated an aggregate $3.1 billion of global estimated revenue in 2016.8

The IFF company has an office located in Dubai, UAE.

12%

Revenue – $30 million (2.6% MENA market share) within 5 years of operation

Food flavors – core inputs by year

4 Based on a review of leading online and brick-and-mortar retailer websites

5 Based on Mordor Intelligence global food flavors market share of key players analysis,

https://www.mordorintelligence.com/industry-reports/global-food-flavor-and-enhancer-market-industry, August 2017. 6 https://www.givaudan.com/investors/financial-information, company website accessed on 25 August 2017.

7 http://forest500.org/rankings/companies/musim-mas, Muslim Mas profile on Forest500.org.

8 https://goldenagri.com.sg/investors/financial-information/financial-highlights/, company website accessed on 25

August 2017.

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Price points - $ per kilogram, showing 2.5% CAGR growth

Volume – Kilograms in thousands, showing 53% CAGR growth

Market penetration – 2.6% by 2023

$26.39 $27.04

$27.72 $28.41

$29.12

$25.00

$26.00

$27.00

$28.00

$29.00

$30.00

2019 2020 2021 2022 2023

$ p

er k

ilogr

am

189.5 369.8

541.1

879.8 1030.1

0

500

1000

1500

2019 2020 2021 2022 2023

Kilo

gram

s in

th

ou

san

ds

0.5% 1.0%

1.4%

2.3% 2.6%

0.0%

1.0%

2.0%

3.0%

2019 2020 2021 2022 2023

Mar

ket

shar

e

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4 Market proposition, customer segments and key customers

Core product value proposition

High quality input, essential to all food producers: Flexibility with various ingredients, tailored

to the needs of customers, manufactured to a global high quality

Halal: Products made without the use of alcohol (for instance, replaced with glycerin) and other

ingredients that are not permissible, such as pork

Local manufacturing: Made in the GCC, with a robust pitch to local Bahrain manufacturers:

supporting local Bahrain-based jobs.

Customer segments – Sales to Food and Beverage Manufacturers

Segment Key targets

Geographical breakdown and distribution channels

The top three markets within MENA by food and beverage spend in 2015 represent the core focus for business9

Key considerations:

Top three markets represent the core focus for the business, representing 55% of total spend on food and beverage in the MENA region in 2015

Sale to Food and Beverage Manufacturers, in particular, local players such as Mondelez. Manufacturers indicatively represented 41.9% of U.S. syrups and flavors sales in 2017.10

Marketing strategy

Marketing represents 1%11 of revenues for similar companies In order to build a robust brand in the GCC, the following key steps must be taken:

Announcements and advertisements: Announcements in leading B2B publications websites MENA-region readers such as Middle East Food Magazine and Trade Arabia

Online business channels: Robust presence on leading online B2B websites, such as Alibaba and Dagang Halal

Critical physical outreach: Presence at trade shows, including GulFood, to reach potential manufacturing customers, leveraging the essential support of the Ministry of Industry, Commerce and Tourism, as well as the BCCI

9 DinarStandard synthesis and analysis; State of the Global Islamic Economy Report 2016/17; BMI Research and

National Statistics accessed on 10 August 2017. 10

Based on IBISWorld’s Syrup and Flavoring production in the US 2017 report: Market segmentation estimates are based on flavored syrup sales. 11

Marketing as a share of revenue based on industry feedback, triangulated with “Syrups and Flavor production in the US (2017)”, IBIS World

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5 Land, set up and production requirements

Potential operating partners – leading global players are top recommendations to lead the inbound

investment and operation of the project

The following manufacturers represent potential operating partners:

Key players Logo Considerations Suggested conversation lead

Givaudan

Leading player with global operations. The company would benefit from a presence in the GCC, especially with a co-location with Mondelez as well as other Bahrain-based companies. Feedback from market participants indicate a very robust demand, and financially feasible proposition from Bahrain, supporting by the projections prepared together with this opportunity.

EDB/ BIIP, supported by EY and DinarStandard

Grupo Carina

Grupo Carinsa is based in Spain, and a leading local player in Food ingredients with substantial exports to the MENA region, and is open to discussion regarding establishing operations in Bahrain.

Location – setting up in Al Hidd12

The Bahrain International Investment Park is the ideal and proposed location for the manufacturing facility, with the following key attributes:

Ideal location: Within five minutes of the airport, Mina Salman Port and Hidd Port, and 15 minutes from Manama City Center, with direct access via Motorway to Saudi Arabia

Co-location with existing food companies with substantial space available: As of June 2017, BIIP has 120 projects from 27 countries, of which 87 are operational; a further 33 companies are at different stages of development, some under construction, some with signed leases and others which are finalizing leases. The projects approved to date account for a total investment amount of $1.8 billion (BHD 686 million). The BIIP has 9 food projects operational, 2 under construction,

Geographical highlight of recommended location

12

Information on location based on BIIP website and discussions with BIIP

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(both will be operational by end 2017) and are in the process of finalizing 6 leases.

Low-cost operations: When Benchmarked against eight other leading manufacturing free zones across the GCC, Bahrain had lowest annual operating cost of $1.65 million

Pre-built units: BIIP offers pre-built units, from 2,114.7 square meters to 9,565 square meters, but smaller industrial units are expected to become available to accommodate smaller projects, eliminating the need to time-consuming construction

Set-up considerations - $2.30 million set up costs envisaged, with 12,000 square feet needed for land

and buildings

Areas Considerations Costs, $ in millions

Land acquisition Approximately 12,000 square feet of land is required, with 10,000 square feet to be set aside for the building. Due to plans for BIIP to pre-construct smaller units, this project does not envisage the need for any construction or property purchase, with a lease being advised.

-

Construction 13 -

Operating machinery Cost of machinery and related Enterprise Resource Planning $1.65

Initial employee hires Minimum of two employees with managerial responsibility to be available and on ground during the set up stage

$0.13

Technology investments Based on survey feedback from nine industry players indicating costs per square foot of operational building space across each area of investment, across technology ($16 per square foot), R&D ($14 per square foot), and other expenses ($10 per square foot)14

$0.25

R&D costs $0.23

Other expenses $0.15

Regulatory approvals Based on a review of key expenses15 $0.001

Total costs $2.30

13

Both lease requirements and machinery costs estimated through conversations with a U.S.-based and Canada-based manufacturing business, with a list of companies referenced in the Appendix of the Associated Market Study. Note that no firm quotes were obtained in the preparation of these estimates. Initial employee requirements discussed with the same companies and additionally validated with the BIIP. 14

The survey was completed in detail by nine companies, comprising two investment firms, one international distributor, one Bahrain-based government entity, and five Bahrain-based Food Manufacturing entities 15

Setting up a business in Bahrain”, Bahrain Investor Center, 2016-17

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Production process

The production process involves four key steps that convert the raw meat and raw materials into a

finished, packaged product ready for shipment, with the following key considerations:

Cost: The cost of machinery is estimated in total at $1.65 million (as referenced above), with a

sample of leading manufacturers listed below which cater to most types of equipment. Note: A

breakdown of cost by machinery is not available in this study, and would be contingent upon

obtaining detailed quotes from manufacturers, which was not done in this study.

Select leading food machinery manufacturers:

Name Country

United Kingdom

Japan

Iceland

United States

Capacity: Given the investment amount and revenue target the manufacturing process will

support annual production of ~1,100 thousand kilograms, or 188 kg per hour, assuming 260

working days with three 7.5-hour shifts per day, with capacity utilization at 94% by year 516.

Such capacity can support the manufacture of over 100 different, customized flavors.

Key steps: Four key steps are outlined below, with additional quality checking required post-

production to identify and address potential product defects. Please note – this is highly

indicative and varies substantially by manufacturer

Table: Production process key steps 17

Process steps Core equipment illustration18 Process description

(1) Initial treatmant of underlying source material

Washing

Machines clean and prepare the underlying materials for extracting, with the use of connected conveyor belts

16

Capacity based on discussion with two industry participants, with 24 hour operations verified through discussions with Mondelez and Awal Dairy; 0.5 hours from an 8 hour shift dedicated to clean-up 17

Based primarily on http://www.machinepoint.com/foodtechnologies/machinery.nsf/beverage_technology/extracting_lines.html, accessed on 29

th August, supported by discussions with three industry participants

18 Individual pictures taken from a range of sources, and represents an illustration, rather than an endorsement of

a specific brand. Sources comprise Alibaba and Made-In-China.com (China-based online commerce website), Tetrapak (leading global machinery manufacturer) and Machine Point Engineering (Spain-based engineering and industrial consulting firm)

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Peeling machine

Sorting/ grading machine

(2) Cold extraction Cold extract machine

Extraction at low temperatures to preserve the contents of the materials, using a mixture of glycerin and water to extract the core flavors Multiple entry points required for the machinery to process multiple flavors

(3) Final sanitization of product

Pasteurizer

Treated at high pressure and high temperature to remove impurities and ensure the product is safe for onward use

(4) Packaging Packaging machine

Packaged into final product form, depending on end client specifications

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6 Financial profile

Profit and loss account

Profitability Profitable business, generating EBITDA of $4.3 million by 2023

Revenues Composite of products has been assumed, at an average price of $26.4 per kilo in the first year, but the project will be able to support production of over 100 flavors

Materials costs Materials represent 60% of revenues, with source ingredients the main driver of costs (for illustrative purposes, a high end product such as vanilla beans, and a lower priced product, such as cinnamon, was selected)

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Employment The production and management team ramps up to 24 individuals by 2023, with personnel cost accounting for 4.4% of revenues

Other overheads Marketing, personnel and production represent the core operating costs, with other costs in line with the food flavors industry, with other including ~10% on R&D

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Balance sheet, cash flow and returns

Balance sheet Total assets build up to $15.1 million by 2023, growing in line with business profitability

Cash flow Negative cash flows in the first two years, but cash profile improves thereafter as the business gains scale Working capital cycle is negative and may require ongoing funding going forwards

IRR Business generates over ~35% IRR after five years, assuming an EBITDA multiple of 5x

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7 Key regulatory requirements

In order to secure a lease on an industrial site, and obtain the necessary approvals to operate an

industrial facility in Bahrain, seven core steps must be taken, which typically take 3-6 months to

complete

Main entities: The Ministry of Industry, Commerce and Tourism is the main regulatory entity

approving commercial registration, supporting by its environmental subsidiary, but with

additional touchpoints with the Ministry of Health, Municipality Affairs, The Bahrain Chamber of

Commerce and Industry, and The Labor Market Regulatory Authority

Main point of contact: The Bahrain International Investment Park is the recommended choice

for location, and provides essential support throughout the process from application through to

establishing operational facilities

Figure: Overview of process for core registration and approvals

Table: Detailed steps in the regulatory approval process

Ref Step Regulatory entity/ counterparty

Description Timing19

1 Site selection

Bahrain International Investment Park

An application must be made to the primary location, with BIIP recommended, although alternatives are available The initial application involves submitting an application form, supported by a feasibility study for the project, details about the existing business of the operating partner/ investor A preliminary industrial license is provided within one month of the application process

2 weeks

2 Cadastral BIIP Property & A survey is needed to establish the boundaries of the 2 weeks

19

Timeline based substantially on report: “Setting up a business in Bahrain”, Bahrain Investor Center, 2016-17, substantiated by review of counterparty websites, and validated through discussion with key Bahrain-based stakeholders

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Survey

Engineering Department (if chosen, otherwise must be carried out independently and share with authorities at the appropriate industrial site)

property. An approved company should be used for the survey A certificate of Survey is then issued

3 Building design

BIIP Property & Engineering Department (if chosen, otherwise must be carried out independently and shared with authorities at the appropriate industrial site)

Appointment of a registered CRPEP architect/ consultant is required should a new facility be constructed The designs must include General Arrangement, Internal and External Layouts, Sections, Elevations, Sewage, Water, Fire Fighting, Landscaping, and Car Parking Drawings, in addition to a #D color perspective of the final proposed design

3 months

4 Commercial registration

Ministry of Industry and Commerce

Company must register for a Commercial Registration, provided by the Ministry of Industry and Commerce Once a business activity, legal structure and name for a Bahrain-based entity is selected, an application must be made, and can be done with the representative office of the MOIC at the BIC Submit:

Passport (U.S./ GCC nationals)

Proof of residency

Company registration application form

Statement of finances

Feasibility study

Financial Auditor’s report

1 to 3 working days

5 Health registration

Ministry of Health Commercial registration application must be submitted – can do so to the representative at Bahrain Investor Center The Public Health Directorate at the Ministry of Health supervises the general health conditions relating to the facility itself as well as the products manufactured The facility, once complete, must be inspected before operations commence Submit:

Commercial registration application form

30 working days

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Passport

Proof of address

Project drawings

6 Environmental approval

Environmental Authority

The Directorate of Assessment and Planning is responsible for granting approval of manufacturing and related activities that may adversely affect the environment. The Directorate assesses the environmental impact of industrial activities and ensures that factories comply with applicable environmental standards regarding processes, materials, waste, and emissions

Up to 60 days for full environmental assessment

6 Site approval

Ministry of Municipality Affairs and Agriculture

Municipality approval is required of the business site for all types of business activity The application for commercial registration is shared with the Municipality by the MOIC Submit:

Copy of rental agreement, upon which cadastral survey and robust building design is contingent

Company application registration form

15 working days

7a Additional commercial registration

Bahrain Chamber of Commerce and Industry

In order to export and import, further registration must be made with the Bahrain Chamber for Commerce and Industry

~1-2 weeks

7b Hiring foreign employee

Labor Market Regulatory Authority

For each new foreign employee, an application must be made to the LRMA to obtain a work permit and residence permit, which is valid for two years. A no objection certificate is also required for entry into the country

7-10 days on average

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8 Risks and success factors

There are several risks and opportunities to explore in a further detailed feasibility study

Table: Exploring risks and success factors

Area Specific considerations Mitigating/ propagating actions

Potential upsides

Exporting beyond MENA: There is a substantial opportunity beyond the MENA region, serving other OIC markets, such as Turkey and Malaysia, as well as Muslim populations in non-OIC countries

Presence in global trade shows will be crucial upfront, with established international business development managers located in robust markets, to secure market penetration beyond MENA.

Securing global operating partners: Leading players can be convinced to establish operations in Bahrain and begin an export-driven operation servicing the MENA region and beyond

The Economic Development Board and BIIP play a crucial role in reaching out to global players, leveraging the success story of Mondelez, to attract leading companies to Bahrain.

Key Risks

Sourcing inputs cost-effectively: Bahrain is at a disadvantage for accessing raw materials, and struggling to scale as projected could affect materials and transportation costs. Variations in energy prices could also impact gross-margin profitability substantially as well

Partnership with Trafco could help mitigate the costs of materials. Trafco has a strategic investment in numerous Bahrain-based companies, and could also take a stake in the venture, being incentivized to import in bulk and provide inputs for this project at reduced costs.

Lack of market acceptance of product and/or pricing: Despite strong market growth projected, the company may struggle to develop robust client relationships

Robust marketing plan is needed with a strong push for an experienced and reputable global meat snacks brand to get involved. The services of an experienced marketing agency is needed to devise an aggressive, feasible plan.

Obtaining reliable machinery: The product requires sophistication, with safety a critical component.

Obtaining reliable quotes from leading European and U.S.-based manufacturers is a critical step, with this study providing overall costs based on discussion with market participants.

Other considerations

Intra-month and month working capital has not been examined. There could be substantial variation in daily and monthly balances that would require additional

Further investigation is required in a full feasibility study.

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funding

9 Objectives and methodology

9.1 Purpose

Objectives

Bahrain’s Economic Vision 2030 underpins the country’s commitment to economic diversification, with the Agriculture and Food and Beverage Processing Industry playing a small but important role in the country’s Economy. Given the country’s high reliance on Food and Beverage imports, there is substantial room for growth in particular in the processing industry. This report examines the pre-feasibility of establishing a Food Manufacturing facility in Bahrain that produces Food Flavor Products that services the broader MENA market, and potentially, global demand for Food Flavors. A separate financial model has been prepared that projects the project performance over the first five years of operation, provided a useful reference point for potential investors. Key caveat: This report does not intend to be a final, feasibility document upon which investors place full reliance, but is meant as an informative guide. In the event that interested parties, including operators and investment firms, seek to pursue this opportunity, full due diligence is required. At this stage, estimates were obtained from numerous credible sources, but if the opportunity is pursued, further detailed investigation, including obtaining quotes and commitments from potential suppliers, would be a necessary step. This report is affiliated with a market study of Bahrain’s Food and Industry, titled “Developing food

Manufacturing Opportunities in the Kingdom of Bahrain: A Sector Study”, prepared by Ernst and Young

together with DinarStandard. The study looks in detail the Food and Beverage Sector Size and Growth

drivers, Export Opportunities and the value chain, before providing a strategic assessment of key

priorities for Food processing and identifying twenty specific opportunities for Food Processing Projects

to be located in the Kingdom of Bahrain. The market study further suggests five specific opportunities,

for which pre-feasibility studies will be prepared for further consideration among investors, government

stakeholders and leading multinational Food and Beverage Companies.

Key stakeholders The report has been commissioned by the Gulf Organization of Industrial Consulting, but among the key stakeholders are the Ministry of Industry and Commerce, the Economic Development Board, as well as potential investors, including Mumtalakat, and international Food and Beverage companies that could be directly involved as operating partners in the opportunities identified.

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9.2 Methodology

This report has been developed based on robust secondary and primary research, substantiated by both Ernst and Young and DinarStandard analysis and expertise, where applicable. Secondary research Several secondary sources were used to support the preparation of this report and the associated

financial model, including but not limited to, Alpen Capital, Business Monitor International (“BMI”),

Euromonitor, IBIS World, Ken Research, KPMG, Nielsen, New York University (“NYU”)

Primary research

Interviews Several interviews were held with industry participants, that were either current or former

employees, at the following organizations:

Food processing entities (including companies that have evaluated, formerly been

involved in, or currently involved in the product category covered in this study):

o Riz Global (Halal Food Distributor), based in Canada

o Grupo Carinsa (Food Ingredients Manufacturer), based in Spain

o DSM Nutritional Products (Food Ingredients Manufacturer), based in

Switzerland

Bahrain-based entities:

o Economic Development Board

o Bahrain International Investment Park

Interviews were help with individuals with the following current or former positions:

Senior Management: CEO/ Founder; COO

Managerial staff: VP of Finance; Marketing Manager; Business Development Manager

Surveys

A survey was completed in detail by nine companies, comprising two investment firms, one

international distributor, one Bahrain-based government entity, and five Bahrain-based Food

Manufacturing entities, providing relevant estimates on set up costs, production capacity, and labor

requirements, used as a benchmark for financial estimates prepared as part of this study.

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9.3 Acknowledgements

Supported by:

The Gulf Organization for Industrial Consulting (GOIC)

The Gulf Organization for Industrial Consulting (GOIC) was founded in 1976 by the Gulf Cooperation Council

(GCC) member states: The United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait, and in

2009, Yemen joined the Organization.

Article I of the Establishment Agreement states that GOIC is a regional organization known as “The Gulf

Organization for Industrial Consulting” hereinafter referred to as “The Organization” and enjoys an

international legal personality.

According to Article III of the Establishment Agreement, the Organization was founded to achieve industrial

cooperation and coordination between member states. In order to do so, it collects and disseminates

information about industrial development projects and policies. GOIC also offers specific suggestions aiming

at establishing joint industrial projects between member states and delivers recommendations to reconcile

industrial development projects. It coordinates and develops technical and economic cooperation between

existing industrial institutions and others that are yet to be established. In addition to that, GOIC offers

technical assistance in preparing and assessing industrial projects and puts together industrial sector-related

data and studies.

GOIC organizational chart includes the Board and the General Secretariat. The Board is formed by member

state representatives appointed by their governments.

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Produced by:

EY

In collaboration with:

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality

services we deliver help build trust and confidence in the capital markets and in economies the world

over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders.

In so doing, we play a critical role in building a better working world for our people, for our clients and

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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst &

Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK

company limited by guarantee, does not provide services to clients. For more information about our

organization, please visit ey.com.

The MENA practice of EY has been operating in the region since 1923. For over 90 years, we have

grown to over 5,000 people united across 20 offices and 15 countries, sharing the same values and an

unwavering commitment to quality. As an organization, we continue to develop outstanding leaders

who deliver exceptional services to our clients and who contribute to our communities. We are proud

of our accomplishments over the years, reaffirming our position as the largest and most established

professional services organization in the region.

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DINARSTANDARD™

Report Team

Report Coordinators

Abdulla Sayyar, Financial Analyst, The Gulf Organization for Industrial Consulting (GOIC)

Adnan Fareed, Senior Financial Analyst, The Gulf Organization for Industrial Consulting (GOIC)

Report Advisors

Ashar Nazim, Partner, EY

Rafi-uddin Shikoh, Managing Director, DinarStandard

Report Authors and Lead Analysts:

Haroon Latif, Director, Strategic Insights, DinarStandard

Shiraz Mohyuddin, Senior Manager, EY

Research Analysts

Yaser Al Mohsen, Senior Analyst, EY

Yasir Malik, Senior Analyst, DinarStandard

DinarStandard™ is a growth strategy research and advisory firm empowering organizations for

profitable and responsible global impact. DinarStandard specializes in the Halal/Tayyab food,

Islamic/Ethical Finance, Halal Travel, Islamic NGOs and OIC member country sectors. Since 2008,

DinarStandard has been advising organizations globally on market expansion, business/investment

strategy, and innovative marketing strategies. Its clients include global multi-nationals, Islamic financial

institutions, halal market startups and NGOs.

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10 Core model inputs

10.1 Revenues

2019 2020 2021 2022 2023 Source/ supporti

Gross revenues

Product – Composite of various flavors

100% 100% 100% 100% 100% Full production focus on pouch

Volume (kgs in 000s) 189.5 369.8 541.1 879.8 1030.1 Prices based on discussions of “average” prices and “typical product mix” for flavors with three industry participantsii Retail price per kg $26.39 $27.04 $27.72 $28.41 $29.12

Price increase % 2.5% 2.5% 2.5% 2.5% Consumer inflationiii

Average price ($/ kg) $26.4 $27.0 $27.7 $28.4 $29.1 Calculation

Gross revenues, $ in millions 5.0 10.0 15.0 25.0 30.0

$30 million considered a key benchmark for sizeiv, with the scale up based on typical maturity profilev

Addressable market size, $ in millions

$963.25

$1,004.67

$1,047.87

$1,092.93

$1,139.93

Synthesis of various sourcesvi

Market share 0.5% 1.0% 1.4% 2.3% 2.6%

Net revenues

Sales channel

Direct to manufacturer 100% 100% 100% 100% 100% Sales would be fully to manufacturing Other 0% 0% 0% 0% 0%

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clients via direct sales initiatives

Sales costs Based on feedback from three credible market participants

Direct retail margin 20% 20% 20% 20% 20%

Distribution margin 15% 15% 15% 15% 15%

10.2 Direct costs

2019 2020 2021 2022 2023 Source/ support

Materials volume (Kg's

per kg of output)

Vanilla beans 0.06 0.06 0.06 0.06 0.06 Based on feedback from two market participants, triangulated with publicly available datavii

Cinnamon sticks 0.24 0.24 0.24 0.24 0.24 Food grade glycerin 1.000 1.00 1.00 1.00 1.00

Boxes 0.100 0.100 0.100 0.100 0.100 Flexible packaging

0.167 0.167 0.167 0.167 0.167

Materials cost ($ per kg of material)

Vanilla beans $158.6 $162.6 $166.7 $170.8 $175.1 Based on discussions with one market participant, triangulated with publicly available dataviii

Cinnamon $11.35 $11.64 $11.93 $12.22 $12.53

Food grade glycerin $0.31 $0.32 $0.32 $0.32 $0.32

Boxes $1.00 $1.03 $1.05 $1.08 $1.10 Based on quotes received from local Bahrain-based packaging firmsix, triangulated by one industry participant

Flexible packaging $0.25 $0.26 $0.26 $0.27 $0.28

Transportation

and other direct costs

(per kg)

Pre 25 tons (3,000 miles)

$2.25 $2.31 $2.36 $2.42 $2.48 Based on a recent quote shared with Ernst and

25 | P a g e

Youngx

Cost inflation 2.5% 2.5% 2.5% 2.5% Consumer inflationxi

Import duty 5% 5% 5% 5% 5% Bahrain customs

10.3 Overhead costs

2019 2020 2021 2022 2023 Source/ support

Personnel costs

Number of employees

Senior Management (CEO/ COO)

2 2 2 2 2 Number of employees based on credible inputs from one market participants triangulated against publicly available dataxii

Marketing Manager

1 1 1 1 2

Sales Manager 1 2 2 2 2 Plant Manager 1 1 1 1 1 Finance Manager 1 1 1 1 1 Shift workers (full-time)

1 2 4 6 8

Administration Staff

1 2 2 3 4

IT staff 1 1 1 4 4

Total staff 9 12 14 20 24

Annual cost per employee ($ in 000s)

Senior Management

180.7 185.0 189.5 194.0 198.7 All salary information based on KPMG Manufacturing studyxiii

Marketing Manager

66.5 68.1 69.7 71.4 73.1

Sales Manager 66.5 68.1 69.7 71.4 73.1 Plant Manager 66.5 68.1 69.7 71.4 73.1 Finance Manager 66.5 68.1 69.7 71.4 73.1 Shift workers (full-time)

15.8 16.2 16.6 17.0 17.4

Administration Staff

14.2 14.5 14.8 15.2 15.6

IT staff 66.5 68.1 69.7 71.4 73.1

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Wage inflation 2.5% 2.5% 2.5% 2.5% Consumer inflationxiv triangulated with a study on wagesxv

Utilities costs

Usage/ volume

Electricity (kwh in 000s) 1,023.2 1,023.2 1,023.2 1,023.2 1,023.2

All utility usage and cost data based on KPMG Manufacturing studyxvi

Water (meters cubed in 000s) 0.84 0.84 0.84 0.84 0.84

Other utilities 0.0 0.0 0.0 0.0 0.0

Costs per unit

Electricity ($ per kwh) 0.05 0.05 0.05 0.05 0.05

Water ($ per meter cubed) 1.06 1.09 1.11 1.14 1.17

Other utilities 0.0 0.0 0.0 0.0 0.0

Inflation 2.5% 2.5% 2.5% 2.5% Consumer inflationxvii

Total utilities cost ($ in millions) $0.1 $0.1 $0.1 $0.1 $0.1

Rental

Land rental ($/ square feet/ yr) 0.25 0.25 0.25 0.25 0.25 Lease costs

information provided by BIIP

Core space rental ($/ square feet/yr) 7.39 7.56 7.74 7.93 8.12

Land requirements (sq feet) 12,000 12,000 12,000 12,000 12,000

Space requirements based on discussions with two industry participants

Facility space (sq feet) 10,000 10,000 10,000 10,000 10,000

Inflation 2.5% 2.5% 2.5% 2.5% Consumer inflationxviii

Total rental cost ($ in millions) $0.1 $0.1 $0.1 $0.1 $0.1

Other operating

costs

Marketing (% of gross revenues)

1.0% 1.0% 1.0% 1.0% 1.0% Based on IBIS World Sector Studies and benchmarksxix

Other (% of gross revenues)

20.0% 20.0% 20.0% 20.0% 20.0%

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Total other operating costs ($ in millions)

$1.1 $2.1 $3.2 $5.3 $6.3

10.4 Capital expenditures and upfront investment

2019 2020 2021 2022 2023 Source/

support Machinery - cost ($ 000s)

Food production total ($ in 000s)

1500.0 Machinery costs based on discussions with three industry participants with respect to output targets over the project life-cycle

Machinery related IT spend ($ in 000s)

150.0

Annual running costs ($ in 000s)

Food production ($ in 000s)

150 150 150 150 150

Associated IT systems ($ in 000s)

15 15 15 15 15

Land and facility

construction expenditure

Physical requirements

Land (square feet) 12,000 12,000 12,000 12,000 12,000 Space requirements based on discussions with three industry participants

Operating space (square free)

10,000 10,000 10,000 10,000 10,000

Other capital

expenditure

Pre-revenue personnel, $ in millions

$0.2 Based on discussion with BIIP confirming need for two managers

Technology investment, $ in millions

$0.1 Survey feedback across nine participants indicating cost per square foot across key categoriesxx

R&D costs, $ in millions

$0.2

Other expenses, $ in millions

$0.1

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Registration expenses, $ in millions

$0.0 Based on registration costsxxi

10.5 Other pertinent inputs

2019 2020 2021 2022 2023 Source/ support

Working capital

Receivable days 27.3 27.3 27.3 27.3 27.3 Working capital assumptions based on a study of ~90 food processing firms by NYUxxii

Payable days 33.8 33.8 33.8 33.8 33.8

Inventory days 39.3 39.3 39.3 39.3 39.3

Other days 24.8 24.8 24.8 24.8 24.8

Depreciation

Property, plant and equipment

16.5 16.5 16.5 16.5 16.5 Savola Group Average Depreciation policyxxiii

Financing

Debt 0% n/a n/a n/a n/a Assumed fully financed by equity Equity 100% n/a n/a n/a n/a

Financing costs 2.9% 2.9% 2.9% 2.9% 2.9% Savola group financing at SIBOR + 1.1%xxiv

Exit multiple

EBITDA multiple n/a n/a n/a n/a 5.0 Lower end of multiple chosen – referenced against average multiple of three inputs – protein processing, one beverage company and one snacks company - derived from Capstonexxv and Harris Williamxxvi studies

29 | P a g e

i Refer to “Objectives and Methodology” for survey description and list of market participants ii Three industry participants confirmed average prices at $20-$30 per kilo paid by manufacturing customers, with

some products selling for significantly higher. To help more accurately determine product gross margins, vanilla extract and cinnamon was chosen as representative products, both popular and commonly used flavors, with vanilla extract at the higher end of the price range (~$300 per kilo), and cinnamon at the lower end (~$30 per kilo), based on discussion with one industry participant, with the typical mix of ~20% higher end and priced products, and ~80% lower priced/ mid-range products, validated by two industry participants. The product mix created a price range that aligned with average prices indicated by three industry participants. iii “GCC Food Industry Report”, Alpen Capital, 2017

iv Revenue size based on feedback from discussion with investment firms on what is attractive size for investment,

triangulated with project coordinators from the Gulf Organization of Industrial Consulting (GOIC) v Maturity profile based on DinarStandard’s synthesized learnings of an appropriate scale-up for new entities,

based on a review of business plans for over five food companies and three startups organizations, triangulated with one credible industry participant vi Estimated based on GCC market size, determined in the Market Study based on Allied Market Research, Salaam

Gateway and ITC Trademap, which was $245.9 million in 2015. The MENA flavors market size estimated at $814 million in 2015 was calculated by multiplying the GCC flavors market size by the scale factor (3.3) of total food and beverage consumption the MENA represents in comparison to the GCC from Business Monitor International statistics for 2015. vii

Usage of cinnamon and vanilla raw materials, as well as glycerin, based on discussions with one industry participant, triangulated with available information on the production of ingredients, based on: http://www.cinnamonvogue.com/cinnamon%20extract%20recipe_1.html, accessed on 28

th August 2017, and

https://www.smallfootprintfamily.com/how-to-make-vanilla-extract, accessed on 28th

August 2017. The accuracy of gross margins, which totaled ~40%, were checked against market leading firms Givaudan, which generated Gross Margins at 45% of revenues in 2016 (http://financials.morningstar.com/ratios/r.html?t=GVDBF, accessed on 28

th August 2017), and Symrise, which generated Gross Margins at 41% of revenues in 2016

(http://financials.morningstar.com/ratios/r.html?t=SYIEY, accessed on 28th

August, 2017). Product mix has also been factored in to usage estimates, with vanilla accounting for 20% of total production, and cinnamon, accounting for 80% of total production. viii

Costs based primarily on publicly available information: Vanilla beans price based on https://www.beanilla.com/, accessed on 28

th August, 2017, at $349/ lb for “Madigascar vanilla beans”; Food grade

glycerin price based on http://www.bulkapothecary.com/, accessed on 28th

August 2017, at $0.68/lb, for 570 lb, for “Glycerin” sold by “Nature’s oil”; Cinnamon price based on https://www.spicesinc.com/, accessed on 28

th

August 2017, at $199.56 for 25 lbs based on “Cassia Cinamon Sticks”. The accuracy of gross margins, which totaled ~40% of revenues, were checked against market leading firms Givaudan, which generated Gross Margins at 45% of revenues in 2016 (http://financials.morningstar.com/ratios/r.html?t=GVDBF, accessed on 28

th August 2017), and

Symrise, which generated Gross Margins at 41% of revenues in 2016 (http://financials.morningstar.com/ratios/r.html?t=SYIEY, accessed on 28

th August, 2017)

ix Based on a recent and credible quote provided by a local packaging company for pouches and corrugated boxes

(Q3 2017) x Based on a recent and credible quote provided by a mature player in the Restaurant industry in Bahrain (Q3

2017)

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xi “GCC Food Industry Report”, Alpen Capital, 2017

xii Triangulated against personnel costs as a share of revenue as detailed in “Syrup and flavor production in the US

(2017)”, IBIS World xiii

“Cost of doing business in Bahrain – Manufacturing”, KPMG, 2016 xiv

“GCC Food Industry Report”, Alpen Capital, 2017 xv

“Bahrain to face the lowest salary hike in the GCC”, News of Bahrain, April 2016 xvi

“Cost of doing business in Bahrain – Manufacturing”, KPMG, 2016 xvii

“GCC Food Industry Report”, Alpen Capital, 2017 xviii

“GCC Food Industry Report”, Alpen Capital, 2017 xix

Marketing as a share of revenue based on industry feedback, triangulated with “Syrups and Flavor production in the US (2017)”, IBIS World; Other based on the weighted average of two Indian edible oil companies with revenues between $130 and $150 million in 2016 – with share of revenue ranging from 7% to 20%, lower end of the scale based on feedback from one credible industry participant and a further 10% added for necessary R&D expense, including investments in tailored flavors for clients that are ultimately not selected. Validated with feedback from two market participants. xx

Based on survey feedback from nine industry players indicating costs per square foot of operational building space across each area of investment, across technology ($16 per square foot), R&D ($14 per square foot), and other expenses ($10 per square foot) xxi

“Setting up a business in Bahrain”, Bahrain Investor Center, 2016-17 xxii

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wcdata.html, accessed on 14th

August 2017 xxiii

Savola Group Financial Accounts, 2016 xxiv

Savola Group Financial Accounts, 2016 xxv

“Food & Beverage Merger and Acquisition Report”, Capstone, Q1 2017 xxvi

“Food and Beverage Study”, Harris Williams Middle Market, Q1 2016