ORGANIZATION OF FULL-CYCLED ENTERPRISE

OF MEAT DIRECTION − SWINE BREEDING

PROJECTS INITIATED BY BUSINESS

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Company’s profile

Small private enterprise LARGO

The main activity is pig breeding in live weight for further realization to processing industries.

Also oil products retailing through its own system of gas stations.

The main customers are provision companies and entrepreneurs of Kryvyi Rih, who sell meat in

the city’s markets.

The company has in its assets:

number of pigs: 600 head;

pig complex in area of 8 hectares (5 industrial buildings and office building for staff needs).

The complex is located in Raipole village of the Sofiivskyi district, and is the biggest

producer of pork in the district;

fuel station.

Date of enterprise foundation – December 13th, 1991.

Since the establishment in 2000 – sales of oil products, paints, flour.

Between 2000 and 2004 the main activity is grain and oil cultures with their further processing

into flour and cooking oil.

Between 2004 and 2009: sale of light oil, rolled metal products, machine tools, mining

equipment, cables and wires products, valves, pigs breeding.

Since 2009 to present: pigs breeding and sale of light oil and oil through its gas stations.

Number of employees – 10 people. Wage fund in 2010 was 178, 3 thousand UAH.

Fixed assets – worth $ 5 081, 9 thousand UAH.

Gross income of the enterprise in 2010 was 4 663.1 thousand UAH.

56,9 thousand UAH were transferred to budgets of all levels in 2010.

In 2009 the company has opened a credit line of $ 4.7 million to replenish current assets that

were repaid in the end of 2009.

Today the company has a credit portfolio at PJSC Ukreximbank in the amount of 700 thousand

UAH, with payback period – the end of 2011.

Banking details: settlement account 2600401594395 in PJSC Ukreximbank in Kryvyi Rih city

MFO 305589, OKPO code 20,193,053

The head of the company: Andrii Papucha.

Contact telephone: +38 067 564 01 11.

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Summary

About project

Indicators of

project efficiency

Mutual partnership

The project plans growing of number of pigs with full production cycle to implement pork meat at a rate of

500-750 head (live weight of 105 kg) monthly.

The stated above requires:

to buy additional biological assets (140 sows);

to build housing for farrowing on 40 head (sows), to reconstruct housing for fattening of livestock –

1420 m2;

to purchase equipment for combined feed production.

Procurement of tractors is required to implement the nearby farm enterprises, that will provide additional

profits and will reduce costs for waste disposal.

The main sales markets:

Provision companies, Kryvyi Rih.

Meat-packing plant Yuvileinyi.

Trade network METRO Cash & Carry Ukraine.

Expected launch date of the project – 01.01.2012.

Project is at the investor searching stage. Business plan is available.

Credit.

United business creation.

Index Unit Value

Payback period (PB) month 23,5

Net present value, NPV thousand Euro 2 964,1

Internal Rate of Return, IRR % 66,1

Profitable index, PI 2,5

Budget, including thousand Euro 1 229,7

own funds thousand Euro 98,4

borrowed current assets thousand Euro 1 131,3

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Essence of the project

Current situation

Proposed solution

Growing of pigs population with complete production cycle for sale in the amount of 500-750 head (live

weight of 105 kg) monthly.

Sale of manure to private farms (with manure amount during the year of one pig close to 1 tonne) that will

provide additional income and reduce costs for waste disposal.

Result

According to global forecasts, demand for pork in the world will continue to grow due to:

nutritive value of meat (large protein content, essential amino acids and high caloric content);

high yield of meat after slaughtering (the amount of meat on bones – 70%, in cattle – 55%, sheep –

50%)

At the same time, the Ministry of Economy of Ukraine at the beginning of 2011 had offered licensing of pork

import. This will improve the competitiveness of the domestic product and at the same time will raise the

price on pork in live weight.

Pig breeding is a key and backbone in agricultural sector of the Dnipropetrovsk region.

The total number of pigs in the area in 01.2012 amounts 545,6 thousand head and is equal to 6.7% of pigs

in Ukraine (the 1st place in Ukraine).

But Kryvyi Rih still has unsatisfied demand for pork.

To provide domestic consumption of the city it is necessary to produce annually about 17.6 tonnes of

pork meat (with given population of 665 thousand people and international health standards of pork meat

consumption – 26 kg per person).

There are 4 registered companies in nearby areas (of Kryvyi Rih city and Sofiivskyi district) which have 6.3

thousand head and are able to produce annually only 0.31 thousand tonnes.

Economic benefit is based on:

additional profits through the sale of pork meat in live weight to

processing plants of Kryvyi Rih;

more profit by selling manure to private farms.

Social benefits are based on:

creation of additional 47 jobs with average gain of 2 073.4 UAH which

is 18% more than the average for agricultural sector in the region (as

of 01.06.2011);

increase of average monthly salary in company on 47%;

increase of receipts in budgets of all levels.

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Production competiveness

Pork in live weight

The cost structure,

UAH / kg 21,97,9

+56%*

1,2

First cost Added value Sale price

100%

14,0

Others

8%

Material

expenditures

8% 1,2

Wage found

28%

3,9

Feeds

56%

7,8

* Planned profitability after running at full project’s capacity (2014)

Main competitors:

Sygma

Demis-Agro

Corporation Agro-Soiuz

The main competitive advantages are:

low transport costs due to favorable locations of the main supplier and manufacturer of legumes for feed

production on their own production facilities;

close location of potential wholesalers, consumers of products (meat) notably, Kryvyi Rih Meat-Packing

Plant Yuvileinyi, Mahrok, major retail chains (Metro, Silpo, Auchan), harvested plants and entrepreneurs

of Kryvyi Rih;

additional revenue through the full cycle of waste treatment in order to use it as fertilizer;

long and successful industry experience.

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Retail market analysis

Consumers

Companies Brief characteristics

Volumes on

existing

contracts in

2010, tonnes

Marketing

strategy

Perspective contracts on the

project, tonnes

2012 2013 2014

Meat-Packing

Plant Yuvileinyi

It occupies one of leading

positions in production of

sausages and meat

delicacies in the

Dnipropetrovsk region.

0,0 Increasing market share 0,0 100,0 120,0

Metro Cash &

Carry Ukraine

Trading network of wholesale

stores of food and nonfood

products intended for meeting

the demand of business

customers

0,0 The conquest of new

market segment 0,0 245,0 368,0

Private companies 58,0 Retention of positions 56,9 32,0 37,0

Total 58,0 56,9 377,0 525,0

5%

47%

20%

28%

Large companies (Demis-Agro,

Sygma, Agro-Soiuz, etc.)

Private small farming

SPE Largo

Unsatisfied demand

9%

40%

19%

32%

Comments

Key sales channels today are private companies.

The main reason – today SPE Largo does not have enough capacity to meet the demand of such consumers

as Meat-Packing Plant Yuvileinyi and company METRO Cash & Carry Ukraine.

Increase in production capacity will enable to conclude long-term contracts that will provide stable and

permanent outlets:

company METRO Cash & Carry Ukraine;

Meat-Packing Plant Yuvileinyi.

Preliminary agreement on supplies is available.

Outlets

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Project’s description

The project in the value chain

Fattening Rearing Inseminated sows

Piglets at the age of 77 days are being

transferred to other, more spacious

facilities, which are different from rearing

sites not only in size but also the feeding

system.

There is a change in the diet of animals.

Fattening pigs rapidly reach the required

condition with a high content of lean meat.

To run this redivision:

reconstruction of building for livestock

fattening.

Will:

keep the number of pigs in sanitation;

receive fertilizer in two fractions (liquid

as urea and solid) for further distribution

to farmers

Elements

of chain

+10% +30% Base – 50% Added value

Piglets at the age of 28 days are being

weaned from the sow and converted into

separate facilities.

Key factor of providing the high average

daily gain is balanced feeding.

To run this redivision:

purchase of feed production equipment

(Zuptor);

hire and train of additional personnel.

Will reduce an expenditure "feed" in

production costs by 10% due to

manufacturing of their own feed

Sows are being transferred to special

building for farrowing.

Key factors are:

technical equipment of the building;

no mechanical traumas in sows.

To run this redivision:

construction of farrowing building for 40

animals.

Will eliminate the risk of death of newly

born piglets after farrowing

Farrow

+10%

After insemination sows are kept during 32

days in individual sections, and only after

determining of the gestation they are

transferred to group sections.

Key factors are:

qualitative and balanced feeding;

constant veterinary control of the sows.

To run this redivision:

Purchase of 140 inseminated sows

Will create a platform for increasing the

number of pigs

CAPACITY EXPANSION CAPACITY EXPANSION CAPACITY EXPANSION CAPACITY EXPANSION

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Budget of key technical elements*

Biological assets (140 inseminated sows)

Construction of building for 40 head farrowing

Reconstruction of building for fattening livestock

Feed production equipment (Zuptor)

75,8

thousand EURO

121,2

379,8

72,7

1 229,7 TOTAL

Mechanical machines: Trailer for pigs transportingTC-3, board MAZ-

trailer, tractor Buhler, car Gazel, car for company needs Renault

Duster, tractor MTZ-82

263,7

*Detailed budget is in Annexes

Others 316,5

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Investment plant

2011

9 10 11 12

Budget,

thousand Euro Arrangement

269,7 Cars purchase

379,8 Reconstruction of building for fattening livestock

1420 m2

221,9 Construction of supporting infrastructure

37,9 Purchase of biological assets (70 inseminated sows)

Construction of building for 40 head farrowing

72,7

12,1 Providing all necessary approvals of the project

9,1 Design documentation

Purchase of biological assets (70 inseminated sows) 37,9

Purchase of equipment

for animal feed production

Purchase of equipment, staff training 74,7

121,2

Schedule of the project

TOTAL, thousand EURO 1 229,7 304,6 227,1 414,1 288,3

Indexes Measure September October November December TOTAL

Budget, including Thousand EURO 304,6 222,7 414,1 288,3 1229,7

own funds Thousand EURO 59,1 1,4 37,9 98,4

borrowed current assets Thousand EURO 245,5 221,3 376,2 288,3 1131,3

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Key indicators

Indexes 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

EBITDA -67,8 886,4 940,1 1124,0 1124,0 1124,0 1124,0 1124,0 1124,0 1124,0

Net income -17,4 742,8 805,9 957,0 954,6 952,8 951,4 950,4 949,6 948,9

FCF -1247,1 742,8 805,9 957,0 954,6 952,8 951,4 950,4 949,6 948,9

DCF (cumulative) -1190,3 -573,8 7,8 608,4 1129,4 1581,5 1974,1 2315,1 2611,4 2868,9

Indexes Unit Value

Discount rate % 15%

Discounted payback period, DPP Months 27,8

Net present value, NPV Thousand EURO 2964,1

Internal Rate of Return, IRR % 66,1%

Profitable index, PI 2,53

-1 500

-1 000

-500

0

500

1 000

1 500

2 000

2 500

3 000

3 500

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

EBITDA Net income FCF DCF (cumulative)

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866,3866,3866,3866,3866,3866,3866,3779,6

656,5

135,9

2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

Dynamics of key indicators of financial and

economic activities

GROSS INCOME, thousand EURO

GROSS COSTS , thousand EURO

NUMBER OF STAFF

NET INCOME thousand EURO

AVERAGE SALARY, EURO

1 990,31 990,31 990,31 990,31 990,31 990,31 990,3

1 719,71 542,8

68,1

2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

57575757575757575757

10

2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

1 124,01 124,01 124,01 124,01 124,01 124,01 124,0

940,1886,4

-67,8

2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

315,1315,1315,1315,1315,1315,1315,1315,1315,1

247,6

94,4

2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

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Terms of mutual cooperation

INVESTOR INITIATOR OF THE PROJECT

Expert knowledge and technologies.

Investments in construction.

Providing the investor with all information required for optimal decision making.

Carrying out the business analysis and risks management

Competence in business management of the sector.

Benefits from successfully functioning business.

Strong positioning of a company for subsequent business expansion in Ukraine.

Creation of advanced experience and image raising.

INTEREST Benefits from successfully functioning

business.

Providing image of a social-responsible company.

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Project’s risks analysis and steps for their

minimization

0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100

Influence

Probability

4

3 2

1

high

str

on

g

we

ak

low

№ Name of risk Probability/

Influence, % Risk profile Steps for risk’s minimization

1

Failure of the project

implementation

schedule

80 / 40

Result: increase of investments and of payback period.

Cause: failure of the project implementation schedule because of the

delay of the process of all approvals required for the project.

Active cooperation with regional authorities

2 Demand decrease 20/ 15

Result: decrease of incomes and profits.

Cause:

closest competitors’ strengthening;

insolvency of potential customers.

Low price with excellent quality – a key

criterion for the products competitiveness

3 Sale price decrease 10 / 5 Result: decrease of incomes and profits.

Cause: the flow of illegal low-quality but cheap pork from abroad.

Concluding of long-term contracts with key

customers with fixed price

4 Production costs

increase 50 / 40

Result: profits’ decrease due to increasing of prices and loss of a part of

marketing outlet.

Cause:

increase of price for materials and raw materials;

bad weather conditions for growing crops for animal feed pigs;

lack of skilled labor.

decrease of energy and material intensity by

using the latest technologies and materials in

the manufacturing process;

improvements in technology and product ‘s

quality;

increase of the efficiency of productive

capacities’ utilization.

Comments

Key risk – failure of the project implementation

schedule because of the delay of all necessary

approval processes while concluding of contracts of

lease and approval of the project of constructuin of

building for farrowing and sanitary inspection room.

To minimize this risk it’s necessary for regional

authorities to provide effective assistance to the

process of all necessary approvals of the project.

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Budget. Borrowed funds

Borrowed funds 2011

№ Title Amount Price per unit,

thousand UAH

Sum,

thousand EURO

1 Reconstruction of building for fattening livestock 3760,0 379,8

slotted floors (materials and labor) 1700,0 171,7

fencing tools 320,0 32,3

feed distribution system (2-line 63 meters long, one-hopper 7.5t) 390,0 39,4

microclimate system 750,0 75,8

construction of holes for storing liquid manure (4 holes on 80 m 3) 450,0 45,5

hydraulic system flushing 150,0 15,2

2 Construction of building for farrowing of 40 animals 1 1200,0 121,2

3 Feed production equipment (Zuptor) 1 720,0 72,7

4 Board MAZ-trailer 1 740,0 74,7

5 Tractor Buhler 1 1450,0 146,5

6 Centrifugal barrel for liquid organic fertilizers and ammonia 1 370,0 37,4

7 Car Gazel 1 120,0 12,1

8 Car for company needs Renault Duster 1 131,0 13,2

9 Trailer for transporting pigsTC-3 1 30,0 3,0

10 Tractor МТЗ- 82 1 140,0 14,1

11 Equipment for heating existing and new structures (mounting hardware) 1 270,0 27,3

12 Construction of a boiler room, storage for solid fuel 1 120,0 12,1

13 Building of sanitary inspection rooms 1 480,0 48,5

14 MSXH mixer for mixing livestock waste 1 70,0 7,1

15 Storage space for storing feed, raw materials and equipment for their production 1 849,0 85,8

16 Analytical equipment 1 110,0 11,1

17 Scales for trucks 1 170,0 17,2

18 Water well with equipment 1 470,0 47,5

TOTAL 1131,3

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Budget. Own resources

Own resources 2011

№ Title Amount Price per unit,

thousand UAH

Sum,

thousand EURO

1 Biological assets (inseminated sows) 140 5,4 75,8

2 Staff Training 14,0 1,4

3 Approvals of the project 120,0 12,1

4 Design documentation 90,0 9,1

TOTAL 98,4

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Dnipropetrovsk

Contact information

DNIPROPETROVSK INVESTMENT AGENCY

49004 Ukraine, Dnіpropetrovsk, 2 Kirova prospect, office 538

Tel: +38 056 742 86 87, +38 056 742 86 21

Fax: +38 056 742 86 87

E-mail: info@dia.dp.ua

Website: www.dia.dp.ua