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National export and investment agency “KAZNEX INVEST” JSC Ministry for investment and development of the Republic of Kazakhstan Acquisition and greenfield investment opportunities in grain industry in Kazakhstan Vast farmland areas Agriculture with a potential to increase efficiency Market potential for processed food Significant market consolidation potential Acquisition and greenfield investment opportunities with the range of 0,5 – 400 mln. USD January 2016 This Presentation does not constitute an offer or invitation to the public in any jurisdiction to purchase any shares or assets of any Company, and does not constitute or form any part of any offer or invitation to purchase shares, nor shall it or any part of it form the basis of, or be relied upon, in any way in connection with any contract or investment decision relating to any shares. Information contained herein should be treated as confidential. Copying or distributing without prior written consent from Kaznex Invest is prohibited. CONFIDENTIAL Confidential 1 Agenda 1. Executive summary and basic information 2. Grain production 3. Acquisition and greenfield investment opportunities CONFIDENTIAL 2 Executive summary Kazakhstan is a dynamically developing economy with favorable demographics and low public debt Kazakhstan is the largest economy in Central Asia. The country has got vast oil reserves, deposits of metals and robust agricultural potential with lands suitable for both livestock and grain production. Kazakhstan dynamic economic growth Executive summary Growing demand in regional and domestic markets for higher value and quality food products of packaged food, branded products and retail private labels is an outcome of Kazakhstan’s growing economy and increasing disposable incomes; Kazakhstan has a potential of a springboard for expanding into the entire Central Asian, Caucasus, China and India regions with combined GDP of more that USD 16 trillion, acting as an agricultural hub for the macro region; Attractiveness of the end-consumer market as Kazakhstan represents a relatively large mid-income market with GDP per capita of USD 12,950 in 2014 corresponds to that of most of the benchmark countries. Kazakh potential in agriculture Strong potential for the development of agribusiness in Kazakhstan due to country’s considerable land resources, as Kazakhstan has the world’s 12th largest arable land area, and fifth in the world in terms of pastureland of 182.2 million hectares, but it uses only about 30% of the pastures; Kazakhstan plays an important role in ensuring food security in Central Asia. Taking into account the interaction within the Organization of the Islamic food security, the possibilities of Kazakhstan in this area will increase significantly; Agricultural development program “Agribusinesses 2020” includes state support directed at small, medium and large farms to improve their effectiveness and develop the sector as a broad level; The special program of Plan of the Nations “100 Steps” is being implemented to address the problem of livestock forage and crop production as well as specifically highlights importance to improve the quality of the meat and dairy goods. Summary of projects Capex Grain production required Summary of projects 100 m USD 50 m USD 13 11 12 10 m USD 1 m USD 13 Page number Greenfield Brownfield CONFIDENTIAL 3 Kazakhstan’s economy and basic market data Kazakhstan is a dynamically developing economy with favorable demographics and low public debt Kazakhstan is the largest economy in Central Asia. The country has got vast oil reserves, deposits of metals and robust agricultural potential with lands suitable for both livestock and grain production. Kazakhstan’s economy Economic growth Since 2000 Kazakhstan’s economy has been growing dynamically (among the world’s fastest developing countries) Average GDP growth rate of 7.7% in years 20002014. GDP increase has been driven by favorable market prices for Kazakhstan’s leading exports – oil, metals and grain. GDP growth rate (%) 9.8 13.5 9.8 9.6 9.3 9.7 10.7 8.9 2000 2002 2004 2006 5.0 1.2 2008 2010 6.0 4.3 2012 2014 USD/KZT 190 170 150 130 110 KZT devaluation KZT devaluation 2006 Demographics 2008 2010 2012 2014 Age structure (ths) Population of 17.3 million in 2013 expected to increase to 18.7 million by 2020 90 - 94 75 - 79 60 - 64 45 - 49 30 - 34 15 - 19 0-4 Male Favorable age structure implies a steadily increasing demand for meat and agricultural products Median population age is at 29 years (compared to 46 in Germany, 38 in Poland, 31 in Brazil) 900 Public debt Kazakhstan has been the first former Soviet republic to repay all of its debt to the IMF, 7 years ahead of schedule In 2014 Kazakhstan sold first overseas dollar bonds in 14 years, issuing USD 2.5bn of 10- and 30-year bonds 600 300 0 Female 0 300 600 900 Public debt (% of GDP) 15.5 11.4 8.1 The public debt of Kazakhstan since 2011 remains stable between 12-14% Basic information 7.5 7.3 3.3 2004 10.2 6.7 2006 5.9 13.8 12.6 13.2 12.1 6.7 2008 2010 2012 2014 Basic information Public debt Total area: 2,7 mln. km2 (9th largest in the world); Official language: Kazakh, Russian; Currency: Tenge (₸) KZT); Capital: Astana; Largest city: Almaty; Administrative division: 14 regions + 2 cities of republican significance; Membership in the organizations: UN, IMF, WB, OSCE, OIC, WTO. CONFIDENTIAL 4 Kazakhstan’s food processing industry Market data and value Market data and value For the period 2010-2014 gross production of the agriculture goods in Kazakhstan increased by 1,5 times and reached 8 bln. USD in 2014. Growth and investment attractiveness Agro sector is becoming more competitive and export-oriented. Since 2010 export of agriculture commodities and processed products has increased by 1,5 time and reached 2,6 bln. USD. Food processing total turnover for the year 2014 reached import and export indicators in the year 2015 were 2,9 and 1,1 bln. USD respectively FDI inflow to the sector increased by 2 times and reached 894,5 mln. USD in 2014, out of which FDI into the food processing industry was about 219,4 mln. USD. Currently there are about 1 689 enterprises of small medium and large sizes operating in the sector of food processing in the country Local market provision with domestically produced main categories of goods was around 80%. Average production capacity for companies in 7 subsectors of food processing was around 42%, varying from lowest 16,2% in vegetables processing to highest 66,2% in production of canned meat As of 2014 overall food processing industry of the country increased by 2,9% and reached over 5,5 bln. USD. Agro strategy of Kazakhstan Agro strategy of Kazakhstan Strategy “Kazakhstan - 2050” 10 priority subsectors of To increase the level of state support for agriculture by 4,5 time by 2020; agriculture and food To increase the agro contribution to GDP of the country by 5 times by 2050. Strategy “Agrobusiness - 2020” Investment subsidies to subsectors of crop production and animal feedlots; Investment subsidies; of raw materials for Meat processing Production of fats Deep processing of grain Fruits and vegetables processing Confectionery Fish processing Lowering interest rate on credit lines and lease; Subsidies for purchase companies; Milk processing processing Exemption from income tax on income of smallholders; Processing of hides Sugar production Wool processing Subsidies for the paid VAT CONFIDENTIAL 5 Acquisition and greenfield investment opportunities Allocation of investment opportunities with regard to country’s regions Allocation of investment opportunities with regard to country’s regions Karaganda region – deep processing of wheat projects Kostanai region – grain processing Almaty region is famous for its agricultural complexes, which produce wide variety of meat products, diary and wheat processing facilities. CONFIDENTIAL 6 Agenda 1. Executive summary and basic information 2. Grain production 3. Acquisition and greenfield investment opportunities CONFIDENTIAL 7 Grain market data and financials More than 70% of land in Kazakhstan is occupied by crops and animal husbandry Grain production Agricultural map Over 30% of the agricultural land is farmland (remaining 70% is permanent pastureland) 75% of Kazakhstan’s farmland is sown with wheat, 13% is used for forage crops cultivation and 9% for oilseeds Agriculture in Kazakhstan is characterized by high extensiveness with insignificant consumption of fertilizer (in range of 1-3 kg per hectare) Farmland area (%) Fertilizer consumption (kg per h) Other Meat production and processing market data Oilseeds Grains Legume crops Corn Rice Rapeseed Soya 4 2.6 9% 2 13% Forage crops 1.0 1.9 1.5 1.8 2.4 1.8 1.4 1.6 2008 2010 1.7 1.8 Grain 0 2002 75% 2004 2006 Sunflower Cotton Sugar beat Tobacco Potatoes Forage crops 2012 Kazakh oilseed industry faces a strong underutilization of capacity Vegetable oil production (tons) Refined and non-refined vegetable oil market The vegetable oil market in Kazakhstan grew on the average by 8.5% annually since 2009 Main oilseed processing plants are located in the regions where oilseeds and cotton are cultivated 292,609 203,547 222,943 280,820 234,983 A large part of the domestic production capacity is outdated Vegetable oil prices (USD* per ton) 1,500 1,379 1,020 1,149 1,000 940 500 1,160 1,050 2009 2011 2012 2013 Market prices 1,047 928 686 2009 2010 2011 Non-refined vegetable oil 2010 1,227 2012 2013 Refined vegetable oil Prices of both refined and non-refined vegetable oil since 2012 began to fall due to the underutilization of domestic capacity Government support includes mainly direct payment subsidies to farmers The main goal of recent government support is to increase the efficiency of agriculture production: Subsidies to cut the cost of mineral fertilizers up to 50% - granted directly to farmers to reduce the cost of cultivation Subsidies for modern production technologies –granted in order to reimburse up to 30% of new production equipment cost CONFIDENTIAL Fuel subsidies – granted in order to reduce the cost of mechanizing Kazakh agriculture, up to 40% of fuel cost 8 per hectare Main producers and contact for grain production The largest producers and processors of grain and oilseed are private companies and potential acquisition targets Producer Industry Capacity (ths tones annually) Ivolga Holding LTD Grain processing 420 Shymkent Mai JSC Soybean processing 180 Key producers Cotton seed processing Employment 105 Region - Kostanai region 612 South Kazakhstan Maslodel LLP Rapeseed processing 140 170 Almaty MS LLP Soybean processing 120 - Almaty Alibi LTD Grain processing 115 - Kostanai region TPK Karasu LTD Grain processing 100 - Kostanai region Mart LLP Sunflower processing ca. 100 - East Kazakhstan Tan LLP Sunflower processing ca. 100 - East Kazakhstan Mai JSC Sunflower processing 90 - East Kazakhstan 84 207 South Kazakhstan Kainar Mai JSC Cotton seed processing Sarybulak LLP Soybean processing 75 - Almaty Baumanskoe 07 LTD Grain processing 50 - Akmola region Investment hypothesis Kazakhstan is one of world’s main exporters of wheat and flour Vast farmland and access to raw agricultural products offer investors an opportunity for supplying and providing the market with processed high-margin food products As the agriculture in Kazakhstan is highly extensive, with fertilizer consumption growth, yields per hectare should increase, offering investors an opportunity for further development Contact All producers in this market are relatively small, can be consolidated and scale advantages can be achieved Contact information Veronika Yun Manager at the Department on Pre-investment affairs, KAZNEX INVEST, JSC Mob: +7 771 805 4083 E-mail: [email protected] CONFIDENTIAL 9 Agenda 1. Executive summary and basic information 2. Grain Production 3. Acquisition and greenfield investment opportunities CONFIDENTIAL 1 0 Project information Establishing Wheat Starch and Gluten Plant Project cost: USD 50-60 mln. Location: Almaty region, Yeskeldi District, Baktibay village Implementation period: 2016-2017 Project scope: Construction of a modern wheat starch and gluten plant in Kazakhstan’s Kostanai Region. Being located in the center of wheat harvesting region, the project gains advantage from wheat harvesting farm proximity. Finished product: Gluten, wheat starch, cattle fodder. Production capacity: Gluten – 4 500 t/year, wheat starch – 23 600 t/year, cattle fodder – 23 000 t/year Potential markets: USA, Mexico, Holland, Kazakhstan and CIS countries Provision of land and premises: The company owns land spot for the construction of the plant. Permissions had been granted on infrastructure. The project development team is completed. Required financing: USD 45,5 mln. Required investor type: ☑ Equity ☑ Debt Project initiator Company name AL-BM LLP Year of establishment 2002 Presence on the market: 2002 Current operation: Agricultural complex on production of wheat starch and gluten located in Kostanai Region, Zarechnyi village ☐ Technology transfer ☐ Other Project profitability for the period of 5 years (in th. USD) Project profitability In USD thousands Sales COGS EBITDA Interest, depreciation and other Taxes Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Total 25 045 14 927 10 118 26 297 15 673 10 624 27 612 16 457 11 156 28 993 17 280 11 713 30 443 18 144 12 299 138 390 82 481 55 910 5 120 1 000 3 999 4 096 1 306 5 223 3 584 1 514 6 057 3 072 1 728 6 913 2 560 1 948 7 791 18 432 7 496 29 983 Project profitability Project capex 45,5 mln USD Project IRR 25% Contact Contact information Project initiator’s contacts: AL-BM LLP Kazakhstan, Kostanay City, 71 Mailin street Veronika Yun KAZNEX INVEST, JSC +7 7172 91 90 40 (int. 1124) E-mail: [email protected] CONFIDENTIAL 1 1 Project information Establishment of the factory on deep processing of wheat Project cost: USD 30-40 mln. Location: Karaganda region, Karaganda city Implementation period: 2016 Project scope: Establishment of the modern factory on deep processing of wheat with consequent production of glucose syrup on a basis of existing factory Finished product: glucose syrup, gluten, feed supplement Production capacity: 4 500 tons of gluten, 23 700 tons of glucose syrup, 19 000 tons of feed supplement per annum Potential markets: local market of Kazakhstan, Russia, China and countries of Eurasian union Provision of land and premises: Availability of land and premises required for the project as well as documentation for the required infrastructure of electricity and water. Availability of contract agreements with technology and equipment suppliers. Required financing: USD 35,4 mln. Required investor type: ☑ Equity ☑ Debt Project initiator Company name Nomad LLP Year of establishment 2000 Presence on the market: 2000 Current operation: Deep processing of wheat with consequent production of glucose syrup ☑ Technology transfer ☐ Other Project profitability Project profitability Project profitability Project capex USD 35,4 mln. Project IRR 26% Project NPV USD 36,8 mln. Payback Period 4 years As for confidentiality terms, additional information on financial model and project documentation will be provided upon personal request Contact Contact information Veronika Yun Manager at Sectorial department on agriculture and food processing, KAZNEX INVEST, JSC Mob: +7 771 805 4083 E-mail: [email protected] Project initiator’s contacts: Nomad LLP CONFIDENTIAL 1 2 Project information Construction of a Plant for Industrial Grain Processing Project cost: USD 40-50 mln. Location: Kostanai region, Zarechnoe village Implementation period: 2016-2024 (7-8 years) Project scope: Construction of a plant that will deal with the deep processing of grain into starch, gluten and condensed fodder for domestic animals Finished product: Grain starch, grain gluten and condensed forms of fodder Production capacity: 4500 tones of gluten at 8% concentration; 23600 tones of starch type A with humidity level at 10%; 23000 tones of dry fodder products with humidity level at 12,5% Potential markets: Local markets; Baltic states; Netherlands and Iran Provision of land and premises: A land of 2 hectares has been provided by the local government for the purposes of construction of the plant Required financing: USD 45,4 mln. Required investor type: ☑ Equity ☑ Debt Project initiator Company name “Al Rudan” LLC Year of establishment 2001 Presence on the market: 2001 Developed brands: “Rudan” Current operation: Business plan is being developed. Economic feasibility study is ready ☐ Technology transfer ☐ Other Project profitability Project profitability Project profitability Project capex 20,4 mln Project USD Project IRR 25 % Payback Period profitability 7 years As for confidentiality terms, additional information on financial model and project documentation will be provided upon personal request As for confidentiality terms, additional information on financial model and project documentation will be provided upon personal request Contact Contact information Veronika Yun Manager at Sectorial department on agriculture and food processing, KAZNEX INVEST, JSC Mob: +7 771 805 4083 E-mail: [email protected] Project initiator’s contacts: “Al Rudan” LLC CONFIDENTIAL 1 3