Tools for commercial project development - pilot project - Netherlands ...

Tools for commercial project development pilot project

Commercial Project Development Tools – August 2012

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Tools for commercial project development – Pilot Project

HOW CAN COMMERCIAL PROJECT DEVELOPMENT TOOLS BE APPLIED TO INCREASE THE CHANCES OF COMMERCIAL SUCCESS OF A PROJECT BOTH DURING AND POST SUBSIDY PERIOD? Colofon

Date

08-08-2012

This study was carried out in the framework of the Netherlands Programmes Sustainable Biomass by Name organisation Contact person

Everest Energy Pjotr Schade

Although this report has been put together with the greatest possible care, NL Agency does not accept liability for possible errors.

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Contact

Netherlands Programmes Sustainable Biomass

Ir. Kees W. Kwant and Drs. Sietske Boschma NL Agency NL Energy and Climate Change Croeselaan 15, 3521 BJ Utrecht P.O. Box 8242, 3503 RE Utrecht The Netherlands Email: kees.kwant@NL Agency.nl Phone: +31 - 88 - 602 2458 www.NL Agency.nl/biomass Organisation 1

Everest Energy Mr Pjotr Schade Dalweg 48, 3707 BJ Zeist, The Netherlands Tel: +31-(0)30-7852409 E-mail: [email protected] Website: www.everestenergy.nl

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Index

Colofon—3 Contact—5 Executive summery—7 1 1.1 1.2 1.3 1.4

Assignment description—9 Assignement describtion General—9 Assignment execution—13 Assignment results-15 Pilot target group -16

2 2.1 2.2 2.3

Commercial Development tools—17 Development Methodology—18 Discounted Cash Flow Methodology—19 Reporting Methodology- 23

3 3.1 3.2 3.2.1 3.2.2 3.3

Project Analysis—24 Development Methodology—24 Usage of DCF models—26 Commercial Value—28 Scalability—28 Reporting Methodology—29

4 4.1 4.2

Gereral remarks and recommendations—31 General remarks—31 Recommendations—32

5 5.1 5.2 5.3 5.4 5.5 Annex Annex Annex Annex Annex

Conclusion—34 Development methodology—35 Disocunted Cash Flow models—35 Bankable reporting—36 Fund for projects—36 Continuation of project—37 Development models-38 Reporting template-40 Reporting template information-47 DCF Model-48 Terminology-51

1 2 3 4 5

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Executive summary The projects that form the portfolio managed by the NL Agency DBI and DBM funds are currently in various stages of development. Despite the different maturity levels of the projects, all of them will at some stage need to continue beyond the guardianship of NL Agency. Towards this end, a clear understanding of both the economic feasibility and scalability of the projects form crucial indicators for future potential success. NL Agency has initiated this pilot project to create a support structure for these projects where contractors can assess commercial opportunities and risks by using project development tools. The aim is to provide maximum support for growth after the subsidy period. Everest Energy has developed pragmatic tools based on fundamental models to provide projects with “hands on” capabilities to analyse their projects. Following this, Everest Energy provided contractors with qualitative support to understand and manage this analysis. The ultimate goal of the assignment was to calculate a project’s Discounted Cash Flow statement and write a bankable presentation about the project. These tools support the project in detailed opportunity assessment, risk, partner choices and future value and strategy. During the pilot three projects were supported with their opportunity assessment and risks. The three projects all indicated that the pilot added value to their project. In particular with: -Structuring of information -General project development support -Business case formation -Explanation and completion of DCF model (calculation model describing profit, risk and future value) -Taking results and guiding projects to an "investment ready" proposition, by writing a bankable project presentation Setting up support tools proved to be effective. Once the contractors became familiar with these tools, they were seen as very useful. Furthermore, combining these tools with the qualitative support during contact sessions was necessary in creating maximum value for the contractors. Everest Energy’s project development experience was seen as crucial in understanding the challenges facing the contractors. Contractors indicated that this pilot has given them insight in their projects commercial value and opportunities and gave them confidence for future planning.

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Everest Energy advises NL Agency to continue beyond the pilot phase. The pilot demonstrated that the combination of qualitative and quantitative support, provided the contractors with a better understanding of their project’s economic and commercial value and scalability. This knowledge will lead to a higher potential for successful growth after the NL Agency subsidy period ends.

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1.

1.1

Assignment description

Assignment description - General The projects that form the portfolio, managed by the NL Agency DBI and DBM fund, are currently in various stages of development. Despite the different maturity levels of the projects, all of them will at some stage need to continue beyond the guardianship of NL Agency. Towards this end, a clear understanding of both the economic feasibility and scalability of the projects form crucial indicators for success. In this assignment, Everest Energy assisted contractors in substantially increasing the “bankability” of their projects. “Bankability” was defined along five dimensions, namely: - potential profit - potential growth - scalability - future value - project risk-profile.

Everest Energy worked with each project team to ensure that the increased understanding of “bankability” within the project teams was translated into a practical presentation in a form familiar to investors and or other partners. With this support the projects are better prepared and have a greater chance of growth after the subsidy period of NL Agency ends. Everest Energy applies different models for the analysis of energy projects. These models collectively provide a comprehensive picture of the opportunities and risks of an individual energy project. The models present:

-

Project opportunities and targets Project risk/ reward information Project cost and duration Insight into the project’s overall Bankability in the form of a final presentation

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The core of the assignment was to offer the contractors quantitative and qualitative support that would substantially benefit the contractor. The role of Everest Energy was to provide conceptual, analytical, process and practical support to the contractor. Assignment description - Models The over-arching aim of the project was to provide hands-on support to project teams in increasing the growth potential of NL Agency projects in a post NL Agency subsidy period. This would be achieved by anchoring insight into the investor demands of “bankability” into the projects. The secondary aim was to assess the value of this ‘action learning’ approach to provide contractors with a stronger commercial sense of where their real project opportunities are and support them in pro-actively dealing with project risks. In order to achieve this, Everest Energy applied development models as tools to generate increased commercial insight. These tools are: 1. Strategic Decision making model 2. Market/Product Model 3. Operational Execution Model As part of the Operational Execution Model (Nr 3), Everest Energy developed a quantitative tool, the DCF tool. This tool combines the information of the three models mentioned above. The DCF tool uses this qualitative information to calculate generic output variables, providing numerical insight into opportunities and risks. “Discounted Cash flow Valuation In discounted cashflows valuation, the value of an asset is the present value of the expected cashflows on the asset, discounted back at a rate that reflects the riskiness of these cashflows.” Source: NYU Stern Each tool is described below. While each can function independently of each other, they should be seen in relation to each other (annex 1).

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Together these models ensure that each project: 1- Is supported in analysing the strengths and weaknesses of their business case. To achieve this the following models were applied: Model 1- Strategic Decision making Model Model 2- Market/Product Model Model 3- Operational Execution Model 2- Is supported by using the DCF Tool to calculate generic output variables and project parameters. 3- Is supported in writing a presentation that combines all of the model inputs in order to present how bankable the projects are.

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The Bankable presentation provides a qualitative summary of all information gathered and is therefore usable in attracting investors and partners. With these tools (DCF + Bankable presentation), the project contractor was given access to (and support in applying) a full toolkit that will support the project in entering into a successful next phase. Using these models and presentation templates leads to the following project deliverables:

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1.2

Assignment execution Everest Energy provided the contractors with intensive hands-on project support in the form of (group) contact sessions, desk research and telephone (skype) support. This support empowered the three projects nominated by NL Agency to apply the development and quantitative tools to their own projects. In order to create a controlled process, Everest Energy broke the project down into phases. Phase 1 Qualitative support by analysing and determining the general business case. It is necessary to create this basis because: 1- It creates the blue print for the project strategy, goals and targets. thus generating data input for other models. 2- It encourages the contractor to implement a result-driven approach 3- It helps the contractor to provide summarized data based on a multitude of diverse project data. During the pilot, there was 1 contact session with the contractor for this phase. Phase 2 In the second phase, the contractors were supported with detailed explanation of the DCF model and the usages of the model. Together, the model was infused with data and evaluated. A direct hands-on and action learning approach was used. The DCF model forms a quantitative tool for determining a project’s economic feasibility and scalability, based on generic indicators. Everest Energy developed a set of 3 DCF models for the contractors to use, based on different feedstocks: 1- Wood for woodpellet production 2- Liquid/Solids for biofuel/biogas production 3-Agro inputs for feedstock production followed by fuel production These models were shared with NL Agency. The feedback was taken on board. Further alignment and coordination with NL Agency ensured the maximum effectiveness of the DCF tool. During the pilot, there was 1 contact session with the contractor for this phase. Phase 3 Phase 3 summarizes all the information, gathered and calculated in the previous phases, into a single bankable presentation that will facilitate a project pitch to potential investors. Contractors were encouraged to make their presentation concise and to the point, highlighting both the risks as well as the rewards. Out of several presentation templates used in the day-to-day world of fundraising, one investment banking template was chosen.

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During the pilot, there was 1 contact session with the contractor for this phase. With this comprehensive form of action learning, project-based support, contractors were able to fill in raw project data and generic indicators that reflected on the economic feasibility and scalability of their projects.

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1.3

Assignment results – The output Phase 1 1-

By using the development tools plus discussions and information provided during sessions, the contractors received support in describing the general business case. A concise blue print of the project was created with project strategy, goals and targets. This was the input for the DCF calculation.

Phase 2 1-

Three variations of the DCF tool for analysis of economic feasibility and scalability were created.

2-

Feedback, alignment and coordination with NL Agency in development of the DCF tools. NL Agency made the tools available to the contractor. Therefore the contractor can hold on to the tools and use them for any project at a later stage.

3-

Contractor receives DCF model specified to their feedstock needs.

4-

Contractor receives quantitative and qualitative support, over multiple sessions, in applying the tool. Practice examples/cases were discussed.

5-

Contractor receives support with the quantitative analysis and interpretation of the outcome of the tool.

Phase 3 1-

Contractor receives presentation templates

2-

Contractor receives qualitative support with report writing, presenting and approaching external parties such as banks and investors.

3-

NL Agency gets qualitative management information about status, economic feasibility and scalability of the participating projects.

The project results reinforce the overall aim of this pilot project i.e. to support projects in becoming bankable and provide them with insight into the chances of scalability and profitability after the NL Agency subsidy period.

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1.4

Pilot target group

Target group Selection NL Agency made a selection of projects for this pilot out of the DBI and DBM fund’s total project pool. Selected projects represent a varied choice based on commodities and organization. The target group was requested to participate by email correspondence, followed by a phone call from the NL Agency case officer. Out of the six projects approached, three accepted the support, two said they preferred to rely on their own models and one project indicated it will not be progressing to a subsequent phase. For the pilot, it was agreed that the projects will receive three times 0.5 day of contact support, preceded and followed up with desk and telephone support. The sessions where divided in: 1 –Introduction and discussion around the project’s business case / objectives 2 –Support working with and completing DCF tool 3 –Analysis / Feedback Models + reporting methods

Target group Project 1 (P1) Dutch-based organisation, setting up a new and certified biomass chain of torrified biomass, based on agricultural residues and short rotation coppice trees. Project 2 (P2) Dutch-based organisation, improving the sustainability of the biomass value chain by creating energy from coffee waste and waste water, by means of gasification. Project 3 (P3) Dutch-based organisation, focusing on the feasibility of certifying a Jatropha oil production value chain.

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2

Commercial Development Tools – Explaining the tools

1-Development Methodology Models 1-Strategic Model

2-Market/Product model

Variations

Example value

Capex WACC Time target Debt requirements Equity requirements Net income DSCR

$6.000.000 6,75% 20 Months 70% 30% $1.525.000 2.23

Commodity Geographical Technology

Biomass Brasil Only proven

Sourcing Site selection Permits EPCM/O&M Logistics Sales Financing Variations

25.000 MT p/a Site allocated 1 pending, 1 received Enginering partner found 100 KM to harbor by truck 2 potential buyers signed LOI Bank loan available, equity needed Example value

NPV EBITDA Depreciation p/a Taxes p/a Risk Free cash flow Variations

$1.100.000 $1.300.000 $100.000 $50.000 High on feedstock continuity, high country risk $1.525.000 Example value

Profit Risk Future value Expansion potential Team experience Funds needed

$1.525.000 Managed and low compared to other projects Project is scalable and demand is increasing 25% in Brasil, 50% in Argentina Senior and international First 2 years $ 500.000

3-Execution model

2-DCF Methodology

3-Reporting Methodology

Models DCF Model

Models Bankable presentation

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2.1

Step 1 - Development Methodology Strategic, Market/Product and Operational Execution Model -Why are development tools valuable?The general development methodology explains the overall goals and objectives of the project and the project organization. It is a blue print for the future development structure, operational implementation and cost/reward structure of the project. It is important for the contractors to use these tools because it helps them to: 1- Establish clear project goals and targets in the beginning and thus prevent miscommunication about deliverables during the project. 2- Set clear responsibilities, reporting lines and hierarchical lines, again preventing miscommunication on deliverables by staff and third parties 3- Set project scope which are acceptable within the organisation. Project’s should not overstretch the organisation i.e. staff-utilization, capital expenditure, regional focus or product-comfort zone. 4- Do an upfront “sanity check”. I.e. check if the basic parameters are realistic and if the basic outcome is positive. 5- Attract project partners (investors) from the start. The earlier an investor can/may be involved in a project the more constructive the involvement will be. 6- The development tools are a route to gather large quantities of diverse project information and guide this information to more summarized data. Standard questions in this phase are: 1- What does the feedstock cost, is there a guaranteed supply of feedstock? 2 - What does the installation/plantation cost? 3 - What are the proceeds of sales? Is there a market? Everest Energy uses a very pragmatic and hands-on approach to project development. The development methodology used is based on three models 1)

Strategic decision model. This is a qualitative model Example variables: -

focussed on strategic decision making. Capex target, WACC target Project operational time target Target Ratio’s : Debt/Equity, Net operating income, DSCR This model clarifies the value of strategic choices of an organisation. Example:

1- How much time and money do you want to spent on the project? 2- What is optimal desired outcome (in products or profit)? 3- Once executed; how long to you wish to stay involved?

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2)

Market / Product Model. This is a qualitative model focused on the optimal market/product mix. Example variables: - Commodity targets - Geographical targets - Technology targets This model clarifies the exact place, product and technology the organization wishes to use for its project. Example: 1- What is the desired input/output product (commodity)? 2- Which region of the world do you (or not) wish to work? 3- Do you want to use innovative technology (or not)?

3)

Execution model (7-by-6 Model). This is a qualitative model representing the building blocks and stage gauges of a project. This model clarifies all the time stages and building blocks each project has to go through in its development cycle. All building blocks have equal importance. x axis = project phases, y axis = project steps Example: 1- What is the status, cost and progress of critical factors? 2- When is the go/no go point for the project? 3- What are the hurdles and risk versus gain during development?

During this pilot the answers to these development questions were sourced by Everest Energy during desk research and discussions with the contractor during the first session. This was an interactive process where the project was discussed and benchmarked against other practical cases. 2.2

Step 2 – DCF Methodology -What is the value of a DCF (discounted cash flow) model? – A DCF model practically presents large quantities of data in a way that facilitates decision-making by management. In short it is a practical information tool, producing numerical insight into project variables from vast amounts of data. A discounted cash flow model is a quantitative model where: 1- The costs are deducted from the income to present a net operational value 2- The net operational value over the life-time of the asset is discounted to a total value at this moment, i.e. presenting the project value today of future earnings. “Discounted Cash flow Valuation In discounted cashflows valuation, the value of an asset is the present value of the expected cashflows on the asset, discounted back at a rate that reflects the riskiness of these cashflows.” Source: NYU Stern

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Example DCF wood pelletizer Revenues Sales Volume Pellet sales FOB Subsidies Total revenues Cost of feedstock pellets Cost of feedstock dryer Cost of Good sold Interest on WC Gross Margin Project expenses Land Lease Water Gas Insurances Laboratorium analysis Labor Costs Other Expenses - Admin/Operational expenses

2012

2013 18.750 € 1.992.188 €0 € 1.992.188 -€ 326.182 -€ 31.843 -€ 358.025 € 12.290 € 1.646.452

2014 22.500 € 2.418.075 €0 € 2.418.075 -€ 391.418 -€ 38.212 -€ 429.630 € 14.061 € 2.002.506

2015 25.000 € 2.710.031 €0 € 2.710.031 -€ 434.909 -€ 42.458 -€ 477.367 € 15.330 € 2.247.995

2016 25.000 € 2.690.332 €0 € 2.690.332 -€ 434.909 -€ 42.458 -€ 477.367 € 15.429 € 2.228.394

2017 25.000 € 2.670.140 €0 € 2.670.140 -€ 434.909 -€ 42.458 -€ 477.367 € 15.530 € 2.208.304

2018 25.000 € 2.649.444 €0 € 2.649.444 -€ 434.909 -€ 42.458 -€ 477.367 € 15.633 € 2.187.711

2019 25.000 € 2.628.230 €0 € 2.628.230 -€ 434.909 -€ 42.458 -€ 477.367 € 15.739 € 2.166.603

2020 25.000 € 2.606.486 €0 € 2.606.486 -€ 434.909 -€ 42.458 -€ 477.367 € 15.848 € 2.144.967

2021 25.000 € 2.584.198 €0 € 2.584.198 -€ 434.909 -€ 42.458 -€ 477.367 € 15.959 € 2.122.790

2022 25.000 € 2.561.353 €0 € 2.561.353 -€ 434.909 -€ 42.458 -€ 477.367 € 16.073 € 2.100.059

€ 260.000

€ 260.000 € 20.100 € 20.100 € 51.250 € 25.625 € 481.750 € 153.750

€ 260.000 € 20.201 € 20.201 € 52.531 € 26.266 € 493.794 € 157.594

€ 260.000 € 20.302 € 20.302 € 53.845 € 26.922 € 506.139 € 161.534

€ 260.000 € 20.403 € 20.403 € 55.191 € 27.595 € 518.792 € 165.572

€ 260.000 € 20.505 € 20.505 € 56.570 € 28.285 € 531.762 € 169.711

€ 260.000 € 20.608 € 20.608 € 57.985 € 28.992 € 545.056 € 173.954

€ 260.000 € 20.711 € 20.711 € 59.434 € 29.717 € 558.682 € 178.303

€ 260.000 € 20.814 € 20.814 € 60.920 € 30.460 € 572.649 € 182.760

€ 260.000 € 20.918 € 20.918 € 62.443 € 31.222 € 586.966 € 187.329

€ 260.000 € 21.023 € 21.023 € 64.004 € 32.002 € 601.640 € 192.013

€ 470.470 € 58.750 € 139.200

€ 470.940 € 58.750 € 139.200

€ 471.411 € 58.750 € 139.200

€ 471.883 € 58.750 € 139.200

€ 472.355 € 58.750 € 139.200

€ 472.827 € 58.750 € 139.200

€ 473.300 € 58.750 € 139.200

€ 473.773 € 58.750 € 139.200

€ 474.247 € 58.750 € 139.200

€ 474.721 € 58.750 € 139.200

Dryer Fuel input SW Chips input feedstock HW Sawdust input feedstock SW Bark input feedstock Urban Residual Wood input feedstock Pallets input feedstock

€ 31.843 €0 €0 €0 € 326.182 €0

€ 39.167 €0 €0 €0 € 401.204 €0

€ 44.607 €0 €0 €0 € 456.926 €0

€ 45.722 €0 €0 €0 € 468.350 €0

€ 46.865 €0 €0 €0 € 480.058 €0

€ 48.037 €0 €0 €0 € 492.060 €0

€ 49.238 €0 €0 €0 € 504.361 €0

€ 50.469 €0 €0 €0 € 516.970 €0

€ 51.730 €0 €0 €0 € 529.894 €0

€ 53.024 €0 €0 €0 € 543.142 €0

Transport Costs Feedstock - Plant Transport Costs Pellets - Port Terminal Charges Ocean Freight

€ 71.605 € 37.500 € 37.500 € 562.500

€ 88.074 € 46.125 € 46.125 € 691.875

€ 100.307 € 52.531 € 52.531 € 787.969

€ 102.814 € 53.845 € 53.845 € 807.668

€ 105.385 € 55.191 € 55.191 € 827.860

€ 108.019 € 56.570 € 56.570 € 848.556

€ 110.720 € 57.985 € 57.985 € 869.770

€ 113.488 € 59.434 € 59.434 € 891.514

€ 116.325 € 60.920 € 60.920 € 913.802

€ 119.233 € 62.443 € 62.443 € 936.647

2013 € 2.748.125 -€ 1.101.673 € 1.175.000 -€ 2.276.673 €0 -€ 569.168 €0 -€ 737.335 -€ 737.335

2014 € 3.012.046 -€ 1.009.540 € 1.175.000 -€ 2.184.540 €0 -€ 546.135 €0 -€ 492.923 -€ 492.923

2015 € 3.213.275 -€ 965.280 € 1.175.000 -€ 2.140.280 €0 -€ 535.070 €0 -€ 451.365 -€ 451.365

2016 € 3.270.032 -€ 1.041.637 € 1.175.000 -€ 2.216.637 €0 -€ 554.159 €0 -€ 489.121 -€ 489.121

2017 € 3.328.192 -€ 1.119.889 € 1.175.000 -€ 2.294.889 €0 -€ 573.722 €0 -€ 547.850 -€ 547.850

2018 € 3.387.792 -€ 1.200.081 € 1.175.000 -€ 2.375.081 €0 -€ 593.770 €0 -€ 608.035 -€ 608.035

2019 € 3.448.866 -€ 1.282.263 € 1.175.000 -€ 2.457.263 €0 -€ 614.316 €0 -€ 669.714 -€ 669.714

2020 € 3.511.451 -€ 1.366.484 € 1.175.000 -€ 2.541.484 €0 -€ 635.371 €0 -€ 732.923 -€ 732.923

2021 € 3.575.585 -€ 1.452.795 € 1.175.000 -€ 2.627.795 €0 -€ 656.949 €0 -€ 797.701 -€ 797.701

2022 € 3.641.308 -€ 1.541.248 € 1.175.000 -€ 953.748 €0 -€ 238.437 €0 € 457.788 € 457.788

€ 50.000

Plant Maintenance - % of CapEx Spare Parts % of Capex Electricity consumption

Development fees 2012 Closing fees

€ 400.000 € 250.000

Valuation Total Expenses EBITDA Depreciation EBIT Taxes exemptions Net Taxes Capex Free Cash Flow Discounted FCF NPV Non discounted NPV

2012 € 960.000 -€ 960.000 €0 -€ 960.000 €0 -€ 240.000 € 11.750.000 -€ 12.470.000 -€ 5.069.180 -€ 17.539.180

Examples management data from a DCF model

Key Numbers NPV WACC EBITDA average p/a Gross margin average p/a

€

2.500.000,00 6,00% € 132.342,71 € 500.000,00

Capex € Revenues average p/a Cost of good sold average p/a

405.501,00 € 800.000,00 -€ 277.478,52

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The discounted cash flow model is important to use because it helps the contractor with: 1- Calculating the cashflow, value, risks and profit of a project 2- It supports the project in presenting generic numerical data which is both easy to evaluate internally but also accessible in an accepted form for external parties such as financiers, engineers, developers and NL Agency. It provides the opportunity to compare apples with apples. Example: NPV (Net Present Value) is the same indicator –explains the same value- in every country of the world, in every language. 3- The DCF supports project management in turning the vast amounts of qualitative project data into a small set of quantitative data/management data. 4- This process forces the project management to work towards a focused business case, relates risk versus reward, upside versus downside and cost versus gain. 5- Financiers and other external partners will require summarized quantitative project data to assess their future involvement in the project.

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By applying this model, contractors are forced to translate their implicit insight on their project’s opportunities and risks into explicit numbers. This is an important step in shaping the thoughts regarding the scalability, profitability and risk of projects in the NL Agency portfolio. Example:

A DCF model for a non-specific wood pelletizer project in the USA. By using a DCF model the contractor can present the numeric values and management data.

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During this pilot the DCF models are explained and filled out in sessions. Followed by feedback, changes and discussions occur either in sessions or by phonesupport.

2.3

Step 3 - Reporting methodology -What is the value of a bankable project report?Bankable reports will lead to a concise and clear presentation of the project plus clear indicators of the risks and rewards. The typical reader will be potential financiers, project developers and NL Agency. The report focuses on the outcomes of:

1) the development models and 2) DCF model

It is important to create a “bankable” presentation by the contractor in order to: 1- Present the project in a way that expresses their individual vision. It gives the contractor the opportunity to present the core of the project, i.e. that which they want to achieve. 2- It creates a summary of all the info gathered thus far, including rewards, risks and future steps, in a form that is universally accepted. 3- It creates a single discussion document usable by multiple audiences all over the world. One document = multiple use (from financier to smallholders) 4-An investor has limited time and resources and thus needs concise information Therefore the reporting is in an “investment pitch” style, aimed at convincing the audience with short and clear information. The reporting template chosen by Everest Energy is in an “investment pitch” style. Aimed at convincing the audience with short and clear information even if all the project details have not yet been developed. There are many reporting forms and methods available. For this assignment the template chosen comes from SVB Capital, Mr Shai Goldman. (Annex 2) As this is a template used in investment banking it is an actual market source. Furthermore contractors were provided with background articles and a TED video on “how to pitch to an investor”. (Annex 2 and 3) During this pilot the templates were discussed during sessions or during phonesupport.

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3

Project Analysis – actual support to the projects

Note: because this report is available in the public domain there is no case specific or commercial sensitive information given. This leads to generic observations and remarks. 3.1

Phase 1 - Development Methodology The general development structure provided by Everest Energy assisted in explaining the overall goals and objectives of the project and the project organization. With a strong business case from the start the operational roll out of the project becomes easier and more efficient. No going back during the project to discuss the base assumptions. Standard questions in this phase are: 1- What does the input cost, there is enough input? 2- What does the installation/plantation cost? 3- What are the proceeds of sales? Is there a market?

The following general observations where made: (based on the work with the three projects) - All contractors showed enormous enthusiasm and motivation for their projects. The DBI and DBM funded projects form central positions in their organisations. Projects are viewed as spring-boards for future business lines. - A lot of time and effort was given to knowledge sharing with project partners. The action learning approach was recognized and welcomed in the various project organisations.

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Examples: - During contact sessions colleagues of the prime contractor joined the meetings and contributed. Learning also occurred within teams. - Furthermore Everest Energy introduced several contractors to each other to share experiences. Learning also occurred across teams. - All projects were open to the support given during the assignment and experienced the support as constructive. The potential value being added to their project was immediately apparent. - A clear written project structure with exact descriptions of project targets, timelines and deliverables for the projects will need attention in the future. The development documents created should be seen as a living document which will need to be updated regularly. - The provided development structure assisted some participants in recognizing that their natural tendency to stick with an original plan (even if this proves to be un-realistic), requires much more flexibility. - Because the projects mostly consisted of several partners, with the involvement of several consultants, it become clear that the day-to-day communication, reporting and hierarchical lines often proved to be in-effective. The existing organisational forms often lead to in efficiencies and scattered project knowledge. - Projects experienced significant changes to their business cases. The main reasons where challenges to their basic assumptions when confronted with the daily reality during the project. - For some projects it become clear that being open to adapting their business plan has led to remarkable new opportunities. The successful projects were the ones able to bend their plans toward a new goal when the old goal proved to be un-realistic. - The development structure showed that for some projects, the project management was too loose. Tighter project management should increase a project’s effectiveness. - The projects expressed that they found it extremely helpful to receive support in detailing the overall project structure/business case in the first session. The contractors experienced added value in getting their business case sharp and improving their focus towards realising targets.

Example:

A project started with a strong development model and clear target. During the development the base case changed. Because they had strong starting goals they changed the business case during the project cycle and now have a domestic case instead of an export case.

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Example:

During the first session in which the various business cases were discussed, Everest Energy was able to make parallels to other similar business cases. The contractor was helped by being able to compare his case to other cases. Later on Everest Energy introduced some contractors to each other in order to exchange specific country or case information.

Supporting the contractors with practical development experience and knowledge of the NL Agency structure resulted in immediate added value.

3.2

Phase 2 - Usage of DCF model A standard DCF model was created for NL Agency to be used for the pilot projects. This model is owned by NL Agency and can be used for future purposes by NL Agency. In first instance the projects where not very familiar with DCF tools and had little experience with the usage of this tool. All the projects had their own excel based calculation sheets. These sheets had organically grown. The quality of these sheets was quite diverse. The advantage of these sheets however is that most of the data is available in some form or another and just needed to be transferred to the DCF model. The fact that contractors did not need to start from 0 when filling in the DCF model increased efficiency substantially. The DCF model allows projects to be managed based on generic data (apples with apples) instead of varied qualitative and quantitative data. After the support session the contractors could work with the DCF models and together with Everest Energy the models where filled in and used. The contractors expressed their appreciation of the DCF models once they experienced the clarity that the numbers provided. The following general observations where made: (based on the work with the three projects) - Once the DCF model was clear, all projects found that the model has great value in: 1- Creating clarity in the project’s numbers 2- Creating clarity in what still needs to be done/researched/developed 3- Generating insight into the project’s risks 4- Generating insight into the project’s main sensitivities 5- Generating insight into the actual project value (current and future) 6- The Model was seen as a strong presentation tool to external partners

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- Working with the model was initially experienced as difficult. Once the model was ammended and explained, parties felt more confident with using it in the future. -For this pilot, the model was made available to the contractors. Primarily the contractors had to understand and work with the model themselves. During the course of the pilot it became clear that elaborate and active – on site - support would be needed (more time then which was budgetted) to fully leverage the strenght of the DCF model. This was especially the case when gathering and presenting management information based on the calculations. Contractors stated that understanding the model and generating management information was more important then the calculation methods. - The pilot started with the assumption that projects would “adapt” the DCF model and use it as their standard. During the project it became clear that it would be wiser and more efficient to use the existing sheets/models of the contractors and insert the numbers into the DCF model. The existing sheets had a “familiarity” for the participants. Everest Energy therefore adapted the appoach: the DCF tool was added to the project’s tools (it was no longer intended to replace an existing sheet or tool). - The DCF model is a powerful supporting tool to view project profit, risk and potential. It is also an elaborate calculation tool and mistakes are easy to make. During the project Everst Energy found that it is important to provide hands-on support to projects with the use of DCF tools to avoid mistakes. - During the sessions the live model could be ammended immediately by Everst Energy. This practical tailored support was experienced as extremely valuable by particpants. -All work was complemented by giving real life examples of other comparable projects. This gave contractors the feeling that “the theory came to life”.

Example With one project Everest Energy was able to change and amend the model during a session. We could “play” with the numbers and create several “what if” scenario’s. This gave the contractor enough insight to be able to present the project to others with confidence. Example Since the basis of the DCF model is always the same, the DCF model can be used for other projects or different versions of the same project. One contractor planned to immediately apply the basis and management data of the DCF model to other cases he had in development.

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3.2.1

Commercial value The pilot proved that commercial value cannot be expressed as a generic variable. For one project profit is X dollars and for another profit is availability of material to the poorest population. In a DCF model profit is described as a positive cash flow coming from the projects. The cash-flow carriers can vary greatly. Example: During the pilot different value drivers were: 1) cash-flow received from selling the end product directly 2) cash-flow received from increase by in-direct product sales because the product is now sustainable (due to implementation of a project). By using the development and DCF tools, projects experienced that the commercial value of their project become very visible and numerical. This helped projects in pushing their current case and helped some other projects realise that they needed to change their approach.

3.2.2

Scalability A project is scalable when it can be duplicated in the same manner as the original. This is the optimal development value since: 1- the development costs are minimal and 2- financiers are willing to go along based on the experience of the first project. Especially when dealing with multiple smallholders it is important to be able to scale up. The DCF model is helpful with calculating a standard case where standard risks and rewards can be used to present investment information. A generic data set (standard case) for 1 project is equal to a generic data set for 50 projects. When aiming for scalability, contractors can use a DCF model to talk to smallholders and banks.

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3.3

Phase 3 – Reporting Methodology - Bankability of projects Most of the projects will require investment in one form or the other. Investors require a specific data set to base their due dillegence on when deciding to invest in a project. By using a DCF model quantitative data is gathered which most investors require. Furthermore by supporting the contractors in preparing a qualitative investment pitch (including numbers) the projects works towards a structured thought process which is needed. Target groups for information are banks, partners, investors, developers and engineers. The final presentation on bankability brought all of the project data together: 1- The qualitative data of the project structure/business plan (Development Methodology) 2- The qualitative data of the DCF model. The aim was to establish and present commercial value, scalability and risks in such a manner that a third party would want to work together with the contractor after the subsidy period. As a template for this presentation an Investment Banking presentation was used. (Annex 2) By using the given templates, the contractor was supported to think in the ‘language’ used by investors, engineers and corporates. This ‘language’ includes perspectives on both risks as well as profit. The following general observations where made: (based on the work with the three projects) - During the pilot considerable support time was spent on the DCF model explanation, usages and final amendments. Time spent on supporting the “bankable” presentation was therefore not equal for all projects. - The idea/ prospect of going to an investor or partner after the subsidy period was rather new for contractors. This pilot has helped raise awareness for this challenge. - Generally the contractors have had few dealings with the financial/investor community nor do they have a large network in this sector. The “bankable” presentation helped to increase their understanding of the demands of the investor world. Most contractors mentioned that this specific part will require outside support in the future. - Being able to have one final, all inclusive, summarized project presentation was experienced as very powerful by contractors. The power of this new information tool was also experienced by the internal organisation. It is anticipated that the tool will also prove its value to external partners and potential investors.

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Especially when dealing with small holders: having one presentation that is applicable to multiple smallholders was experienced as providing strong added value.

Example By having one standard “bankable” presentation one project was able to reach several new international partners. The presentation used a lot of diagrams and pictures this in turn helped to overcome language barriers. Example By having all the information presented in a “bankable” way, one project was able to present to biggest project risks in an understandable manner for the first time. Their partners where now able to really understand the risks and where less reserved and more enthusiastic to invest.

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4

General remarks and recommendations

4.1

General remarks -

The three projects all indicated that the pilot has added value to their project. In particular with: -Structuring of information, -Formulation of the business case -Explanation and completion of DCF model -Taking results and guiding the project to an "investment ready" proposition - The choice made for practical tools meant that the participants experienced added value from day one. The contractor’s appreciated Everest Energy’s operational and pragmatic approach to the assignment. The approach aimed at engaging the participant in a “bottom up” process of “action learning” geared towards tangible results.

This gave immediate value to the projects. Furthermore, the fact that a highly interactive approach was chosen by Everest Energy allowed for: - The elaborate explanation of the models during sessions - Interaction between all members of the group (everybody participates therefore everybody learns). -

The interaction between the contractors and Everest Energy was good. This was due to the deep project development knowledge and experience Everest Energy brings to the table. Thus trust between parties was built up quickly and information was exchanged immediately. It was therefore easy for Everest Energy to step into the world of the contractor and assist in identifying opportunities for their project. Examples of added value based on Everest Energy’s experience: - Ability to provide examples of other projects to demonstrate a point - Knowledge of the NL Agency context to support the contractors in their interaction with NL Agency - Experience and ability to offer a peer network, pushing toward knowledge-sharing between projects, external partners and external network.

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4.2

Recommendations -

The pilot was successful. Contractors experienced general added value to their projects. Specifically this added value related to business case structuring, insights in commercial valuation, DCF usage and creating a single presentation of a bankable project. The result was that the chances of successful project continuation after the subsidy period were substantially increased. NL Agency should continue providing this add-on for other projects thus increasing their chance of success.

-

The experiences from the pilot project, made it clear that the very first step in a development process (structuring the business case before proceeding to a DCF model) often needs the most attention. If this initial business case is well formulated the usage of the DCF model becomes much easier. Encouraging care with the initial formulation of the business case helps the contractor to think in structured patterns and clear reporting lines. This first step is a qualitative step, which should get more attention in the future.

-

Supporting the contractor with the business plan and completing the DCF model is both qualitative as quantitative work. These are important steps to ensure that maximum value is gained from the assignment. Not only quantitative support is needed. The experience from the pilot showed that the focus should be on qualitative support based on a quantitative tool.

-

Qualitative and quantitative support does require time. This initial time investment is needed to create a high sense of understanding and results for contractors. The pilot showed that upfront investment in time increases the change of long-term success. The pilot also showed that real in-depth support during sessions is the best form of knowledge transfer. Achieving results will therefore take more time than originally budgeted.

-

The projects should continue to use their own mathematical models supplemented by the standard NL Agency DCF models. This allows for an efficiency gain.

-

The new projects receiving the add-ons should be contacted/approached/informed both by NL Agency as well as by the future supporting company. The future support company will work with the contractors and can best explain the benefits of the add-on.

-

The future support company should be a group with: - Practical energy project development experience, - Knowledge of the NL Agency surroundings and - The ability to provide direct and hands-on support. Only when all these ingredients are present will the support company be able to correctly serve the contractor in a way that improves their chances of scalability, increases future value and increases their chances of access to future financing by presenting the project in a “bankable” way.

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-

Everest Energy highly recommends that DBI and DBM projects participate in this assignment in the future. Participation will provide clear insight in the commercial opportunities and risks after the NL Agency subsidy period ends.

-

The tools are powerful and provide a strong and needed basis for future project growth. The contractor support is essential for implementing the tools and presenting the case.

Overall: the tool and project support are an easy and hands-on way to increase the potential success of the DBI and DBM projects.

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5

Conclusion - The pilot succesfully added value to the projects in the form of: 1 Business case structuring, -Projects were able to generate core values, growth potential and risk profiles from their overall business case. 2 Insights in commercial valuation, -Projects were supported by formulating commercial targets and sales opportunities. 3 DCF usage -Projects were supported with using and interpreting the DCF tool. Generating numerical insight in their project risk, rewards and sensitivities forced contractors to turn implicit strategy into explicit numbers. 4 Presenting bankable projects -Projects were supported in creating a “bankable” presentation of their project. This included information on the opportunities for investments and partnerships. - The application of the provided knowledge and skills will increase the chances of continuation of the projects after the subsidy period. - The development models provide commercial understanding of the qualitative and quantitative results of the projects. With this knowledge the contractors can manage and grow their projects in a focussed manner. - By using the development models, the contractor is encouraged to think and act in the ‘language’ used by investors, engineers and corporates. - By applying “action learning” with the contractor and a “hand-on” approach Everest Energy was able to speedily transfer knowledge. The interactive sessions accelerated this process further. - By providing these tools NL Agency demonstrates its willingness to pro-actively increase the project’s chances of success after the subsidy period. - The results of the pilot shows that with small adjustments the current program can be continued for other DBI and DBM projects. In short: with the usage and understanding of these tools, the contractors have been given in-depth knowledge on how to structure their projects in such a way that they increase their chances of success. NL Agency should support all its projects with these tools in order to maximise the return on continuation.

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5.1

Development methodology A strong business case from the start creates efficiency and clarity during the execution of a project. It is the blue print for the project’s strategy, goals and targets. During the pilot it was clear that this step in the development cycle needs more attention. Specifically the following questions need to be answered: - What are the project targets? - Who does what? - What do we do when the base case changes? This information is the basis for other development tools. Once this information is available the effectiveness of the other models (such as the DCF model) increases. Supporting this qualitative step should be added to the assignment in the future. Contractors will gain a better understanding of the core commercial targets, goals and risks. With this knowledge contractors can change project execution easily during the proces because the core values are clear and remain the same.

5.2

Disocunted Cash Flow models The DCF model proved to be a valuable tool in structuring and presenting generic project results. Contractors were able to generate numbers on profit, cash flows, risks and investments. Contractors made several “what if” scenarios and could identify the main sensitivities in their projects. All the data gave the contractors numerical insight in their projects. Furthermore, the quantitative data allowed contractors to present management information from the DCF model. This management information proved to be powerful in communication with others. The usage of the model will require support and explanation. The contractors have little experience with the DCF tool and it was initially perceived as ‘difficult’. Contractors will need coaching and “hands on” support when using the tool. Once the contractors got a firm understanding of the tool they experienced it as very valuable and important for completing the project. This points to the strength of the tool itself. Some contractors will use the tool for other cases as well. By using the DCF tool contractors are empowered to calculate and present the core numbers. It provides them with the ability to run “what if” scenarios and investigate the value of risks. When continuing this support to DBI and DBM projects; support in the use of the DCF tool is need. This support should be given in the form of hands-on sessions. The pilot demonstrated the need for qualitative support based on the quantitative tool.

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Furthermore the availability of existing project models proved complementary to the DCF models. It is more efficient to incorporate current excel based calculation models into the DCF model rather than enforcing a new stand-alone DCF model. The DCF models created by Everest Energy for this pilot are owned by NL Agency and can be used for other projects. 5.3

Bankable reporting Bankable reporting is the last and most important step in this process. It accumulates all information from the models. 1- The qualitative data of the project structure/business plan (Development Methodology) 2- The qualitative data of the DCF model The final “bankable” project presentation is for multiple usage: internal communication,, investors, (internal as external) partners and/or engineers. This step requires ample time, fine tuning and practice. During the pilot the contractors became familiar with the “bankable” presentation and found it a powerful tool able to reach a large audience. It allows the contractor to present exactly what the project is about and what the key value drivers are. It is the perfect marketing-pitch. This is a vital step in growing the projects as it allows other parties to evaluate the project in a simple manner. Financial institutions have limited time and resourced for project evaluations. Therefore the presentation of DBI and DBM projects must be concise and to the point if they want to increase their chances of accessing financing. Most contractors were not actively engaged with this step. Via the pilot they were actively steered towards this step for the first time. This tool proved especially valuable for projects with many smallholders: one good presentation is usable for many smallholders, providing enormous efficiency gains. The example template used for creating this “bankable” presentation is one from the investment banking industry. It is an actually used model in day-to-day project evaluations.

5.4

Fund for projects NL Agency is the spider in the web for a large number of projects. All projects have generic development features and most projects have a future funding demand. Investors seek efficiency in targeting projects and compatibility in projects. Furthermore investors seek uniformity in project information. Funders are interested in group deals over individual approaches. The NL Agency could play a facilitating role in investigating if such a fund would be feasible.

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The benefit for the projects is that they will avoid a long and costly market search for funding. A market party will take the lead and responsibility for the initial investigation. 5.5

Continuation of the project The pilot proved successful. The contractors experienced increased chances of success for their projects after the NL Agency subsidy period. The add-on can therefore be of great value to other projects. The focus of the continued support should be: - Qualitative support based on a quantitative tool. Coaching and support is as important as calculations. The contractors do not need a calculator but active coaching from experienced professionals. - Support in three steps: 1- Business case development 2- Usage of the DCF model 3- Writing bankable presentation – Documentation for “investment ready” projects. - Stimulate inter-project knowledge transfer. - The pilot shows that in-depth support (based on contact sessions) is the most effective but will require dedicated advisory time for the projects. The time allocated to the projects during the pilot was too short to provide the support required. - The future support company should create a connection to the financial community to seek support/interaction for the future funding needs of the projects. - Everest Energy would highly recommend that DBI and DBM projects participate in this assignment. It will provide clear insight in the commercial opportunities and risks after the NL Agency subsidy period ends. - The tools are powerful and generate support for growth of the projects. The contractor support is essential for implementing and presenting the case plus avoiding mistakes. Overall: The tools and project support provide an effective, hands-on approach to increasing the potential success of the DBI and DBM projects.

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Annex 1 – Development models

1-Development Methodology Models 1-Strategic Model

2-Market/Product model

Variations

Example value

Capex WACC Time target Debt requirements Equity requirements Net income DSCR

$6.000.000 6,75% 20 Months 70% 30% $1.525.000 2.23

Commodity Geographical Technology

Biomass Brasil Only proven

Sourcing Site selection Permits EPCM/O&M Logistics Sales Financing Variations

25.000 MT p/a Site allocated 1 pending, 1 received Enginering partner found 100 KM to harbor by truck 2 potential buyers signed LOI Bank loan available, equity needed Example value

NPV EBITDA Depreciation p/a Taxes p/a Risk Free cash flow Variations

$1.100.000 $1.300.000 $100.000 $50.000 High on feedstock continuity, high country risk $1.525.000 Example value

Profit Risk Future value Expansion potential Team experience Funds needed

$1.525.000 Managed and low compared to other projects Project is scalable and demand is increasing 25% in Brasil, 50% in Argentina Senior and international First 2 years $ 500.000

3-Execution model

2-DCF Methodology

3-Reporting Methodology

Models DCF Model

Models Bankable presentation

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Annex 2 – Bankable presentation - template Source: http://www.slideshare.net/goldfinger80/investor-presentation-template-1227413

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Annex 3 – Reporting template

1) Article on how to write an investor pitch http://www.venturegiant.com/news-channel-365-writing-the-perfectinvestment-proposal.aspx

As an established Investment network, we have been responsible for reviewing literally thousands of investment proposals and one of the repeating themes that we have been asked over and over is to explain the methods that can be employed to create the perfect investment proposal or investment summary that is almost guaranteed to get the attention of Business angel investors The type of investment proposal that will GRAB a business angel Investor’s interest and have him/her almost demanding to discuss the investment pitch further! Over the years I have seen this occur many times on Venture Giant, and I have seen seemingly weak value propositions receive 9 - 10 angel investor contacts on the day of despatch only because the investment proposal had been well written and well thought out! Is it possible, and can it be learned? I believe that it can be – and this article hopes to explore some of the crucial elements that you should think about whilst crafting your perfect investment pitch. I have also taken the liberty of enclosing a sample investment summary that I am sure will be of great benefit to entrepreneurs looking to create their own investment proposals but not knowing how to apply some of the points that I will talk about below. My main aim with Venture Giant was not only to create a portal that can get entrepreneurs connected with Angel Investors so as to raise the necessary angel funding that they require but to also create more and more resources of useful, actionable articles that can assist entrepreneurs actively to become ‘investmentready’ – and this to all in a very reasonably priced environment. From the feedback we are receiving I am now starting to see more and more entrepreneurs benefiting from the knowledge and experience that is featured in our News Channel. At the very least (according to one of the emails I received recently) entrepreneurs are now demanding more from Angel investors and citing the correct investment terms when doing so, and this is very encouraging. As Venture Giant is primarily an angel Investment deal flow service for angel investors, high net worth individuals and angel syndicates our main aim has always been to send out the most attractive investment opportunities to our investors that read well, make sense, and ARE investable.

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2) TED feature on how to present an investor pitch http://www.youtube.com/watch?v=K3_e9oKKrzc&feature=related

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Annex 4 – DCF Models

Example DCF model Revenues Sales Volume Pellet sales FOB Subsidies Total revenues Cost of feedstock pellets Cost of feedstock dryer Cost of Good sold Interest on WC Gross Margin Project expenses Land Lease Water Gas Insurances Laboratorium analysis Labor Costs Other Expenses - Admin/Operational expenses

2012

2013 18.750 € 1.992.188 €0 € 1.992.188 -€ 326.182 -€ 31.843 -€ 358.025 € 12.290 € 1.646.452

2014 22.500 € 2.418.075 €0 € 2.418.075 -€ 391.418 -€ 38.212 -€ 429.630 € 14.061 € 2.002.506

2015 25.000 € 2.710.031 €0 € 2.710.031 -€ 434.909 -€ 42.458 -€ 477.367 € 15.330 € 2.247.995

2016 25.000 € 2.690.332 €0 € 2.690.332 -€ 434.909 -€ 42.458 -€ 477.367 € 15.429 € 2.228.394

2017 25.000 € 2.670.140 €0 € 2.670.140 -€ 434.909 -€ 42.458 -€ 477.367 € 15.530 € 2.208.304

2018 25.000 € 2.649.444 €0 € 2.649.444 -€ 434.909 -€ 42.458 -€ 477.367 € 15.633 € 2.187.711

2019 25.000 € 2.628.230 €0 € 2.628.230 -€ 434.909 -€ 42.458 -€ 477.367 € 15.739 € 2.166.603

2020 25.000 € 2.606.486 €0 € 2.606.486 -€ 434.909 -€ 42.458 -€ 477.367 € 15.848 € 2.144.967

2021 25.000 € 2.584.198 €0 € 2.584.198 -€ 434.909 -€ 42.458 -€ 477.367 € 15.959 € 2.122.790

2022 25.000 € 2.561.353 €0 € 2.561.353 -€ 434.909 -€ 42.458 -€ 477.367 € 16.073 € 2.100.059

€ 260.000

€ 260.000 € 20.100 € 20.100 € 51.250 € 25.625 € 481.750 € 153.750

€ 260.000 € 20.201 € 20.201 € 52.531 € 26.266 € 493.794 € 157.594

€ 260.000 € 20.302 € 20.302 € 53.845 € 26.922 € 506.139 € 161.534

€ 260.000 € 20.403 € 20.403 € 55.191 € 27.595 € 518.792 € 165.572

€ 260.000 € 20.505 € 20.505 € 56.570 € 28.285 € 531.762 € 169.711

€ 260.000 € 20.608 € 20.608 € 57.985 € 28.992 € 545.056 € 173.954

€ 260.000 € 20.711 € 20.711 € 59.434 € 29.717 € 558.682 € 178.303

€ 260.000 € 20.814 € 20.814 € 60.920 € 30.460 € 572.649 € 182.760

€ 260.000 € 20.918 € 20.918 € 62.443 € 31.222 € 586.966 € 187.329

€ 260.000 € 21.023 € 21.023 € 64.004 € 32.002 € 601.640 € 192.013

€ 470.470 € 58.750 € 139.200

€ 470.940 € 58.750 € 139.200

€ 471.411 € 58.750 € 139.200

€ 471.883 € 58.750 € 139.200

€ 472.355 € 58.750 € 139.200

€ 472.827 € 58.750 € 139.200

€ 473.300 € 58.750 € 139.200

€ 473.773 € 58.750 € 139.200

€ 474.247 € 58.750 € 139.200

€ 474.721 € 58.750 € 139.200

Dryer Fuel input SW Chips input feedstock HW Sawdust input feedstock SW Bark input feedstock Urban Residual Wood input feedstock Pallets input feedstock

€ 31.843 €0 €0 €0 € 326.182 €0

€ 39.167 €0 €0 €0 € 401.204 €0

€ 44.607 €0 €0 €0 € 456.926 €0

€ 45.722 €0 €0 €0 € 468.350 €0

€ 46.865 €0 €0 €0 € 480.058 €0

€ 48.037 €0 €0 €0 € 492.060 €0

€ 49.238 €0 €0 €0 € 504.361 €0

€ 50.469 €0 €0 €0 € 516.970 €0

€ 51.730 €0 €0 €0 € 529.894 €0

€ 53.024 €0 €0 €0 € 543.142 €0

Transport Costs Feedstock - Plant Transport Costs Pellets - Port Terminal Charges Ocean Freight

€ 71.605 € 37.500 € 37.500 € 562.500

€ 88.074 € 46.125 € 46.125 € 691.875

€ 100.307 € 52.531 € 52.531 € 787.969

€ 102.814 € 53.845 € 53.845 € 807.668

€ 105.385 € 55.191 € 55.191 € 827.860

€ 108.019 € 56.570 € 56.570 € 848.556

€ 110.720 € 57.985 € 57.985 € 869.770

€ 113.488 € 59.434 € 59.434 € 891.514

€ 116.325 € 60.920 € 60.920 € 913.802

€ 119.233 € 62.443 € 62.443 € 936.647

2013 € 2.748.125 -€ 1.101.673 € 1.175.000 -€ 2.276.673 €0 -€ 569.168 €0 -€ 737.335 -€ 737.335

2014 € 3.012.046 -€ 1.009.540 € 1.175.000 -€ 2.184.540 €0 -€ 546.135 €0 -€ 492.923 -€ 492.923

2015 € 3.213.275 -€ 965.280 € 1.175.000 -€ 2.140.280 €0 -€ 535.070 €0 -€ 451.365 -€ 451.365

2016 € 3.270.032 -€ 1.041.637 € 1.175.000 -€ 2.216.637 €0 -€ 554.159 €0 -€ 489.121 -€ 489.121

2017 € 3.328.192 -€ 1.119.889 € 1.175.000 -€ 2.294.889 €0 -€ 573.722 €0 -€ 547.850 -€ 547.850

2018 € 3.387.792 -€ 1.200.081 € 1.175.000 -€ 2.375.081 €0 -€ 593.770 €0 -€ 608.035 -€ 608.035

2019 € 3.448.866 -€ 1.282.263 € 1.175.000 -€ 2.457.263 €0 -€ 614.316 €0 -€ 669.714 -€ 669.714

2020 € 3.511.451 -€ 1.366.484 € 1.175.000 -€ 2.541.484 €0 -€ 635.371 €0 -€ 732.923 -€ 732.923

2021 € 3.575.585 -€ 1.452.795 € 1.175.000 -€ 2.627.795 €0 -€ 656.949 €0 -€ 797.701 -€ 797.701

2022 € 3.641.308 -€ 1.541.248 € 1.175.000 -€ 953.748 €0 -€ 238.437 €0 € 457.788 € 457.788

€ 50.000

Plant Maintenance - % of CapEx Spare Parts % of Capex Electricity consumption

Development fees 2012 Closing fees

Valuation Total Expenses EBITDA Depreciation EBIT Taxes exemptions Net Taxes Capex Free Cash Flow Discounted FCF NPV Non discounted NPV

€ 400.000 € 250.000

2012 € 960.000 -€ 960.000 €0 -€ 960.000 €0 -€ 240.000 € 11.750.000 -€ 12.470.000 -€ 5.069.180 -€ 17.539.180

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Management information based on a DCF model

A discounted cash flow model is a quantitative model where: 1- The costs are deducted from the income to present a net operational value 2- The net operational value over the life time of the asset is discounted to a total value at this moment, i.e. presenting the project value today of future earnings. “Discounted Cash flow Valuation In discounted cashflows valuation, the value of an asset is the present value of the expected cashflows on the asset, discounted back at a rate that reflects the riskiness of these cashflows.” Source: NYU Stern

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Annex 5 – Terminology DCF Capex

Discounted Cash Flow Method of valuing a project Capital Expenditure Expenditures creating future benefits

WACC

Weighted Average Cost of Capital

Debt

Obligation owed to third party – Loan

Equity

Ownership of company

DSCR

Debt Service Coverage Ratio The ratio of cash available for debt servicing

S&D

Supply and Demand

EPCM

Engineering, Procurement, Construction and Management

O&M

Operations & Maintenance

EBITDA

Earnings before Income tax, Depreciation and Amortization

EBIT

Earnings before Income tax

Free Cash Flow

Cash flow available for distribution

Net Operating Income

Income after operating expenses are deducted

NPV

Net Present value Time series of cash flows

LOI

Letter of Intent

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