Transcript The Business Case for Investing in the Processing and

The Business Case for Investing in
the Hulling and Export of Sesame
Seeds in Ethiopia
Investor Presentation
May 2012
Hulling and Export of Sesame Seeds
Introduction
Objective of
this Document
This investment case has been prepared by the Monitor Group
as part of Ethiopia’s presentation at the Grow Africa Forum. The
intended audience are Regional and International investors who
are looking for strategic or financial investments in Sub-Saharan
Africa.
Opportunity
Definition
The investment opportunity identified is the establishment of a
sesame hulling plant with an annual output capacity of 10,000
MT through a joint venture agreement with a local partner in
Ethiopia. The high quality hulled sesame seed produced would
be packaged and exported to international purchasers for use in
bakery and confectionary applications. An initial investment of
$7.0 million is projected to return an IRR of 40% without
leverage after five years.
Note: This investment case was prepared by Monitor Group, an independent, global management consultancy firm. Funding for the investment case analysis was provided by the U.S.
Agency for International Development as technical assistance to the Ethiopian Agricultural Transformation Agency
Its findings are based on public and proprietary information, as well as information gathered by Monitor Group through field investigation and qualitative interviews with industry experts and
other key stakeholders. Monitor Group does not make any representation or warranty, express or implied, as to the accuracy, completeness, or correctness of the information contained
herein, nor does it accept any liability for any loss or damage, howsoever caused, arising from any errors, omissions, or reliance on any information or views contained in this document.
Monitor Group is not a financial advisor; therefore, this document does not represent financial advice.
Monitor Group Proprietary
2
Hulling and Export of Sesame Seeds
Summary
1
2
3
Market
Opportunity
Competitive
Advantages
Investment
Highlights

Ethiopia is the world’s 3rd largest sesame exporter, sourcing 14% of the
global market for raw seeds. These seeds are then processed abroad

Sesame is one of Ethiopia’s highest value crops, earning $1,330 / MT raw.
Hulling sesame domestically would add revenue of $180-200 / MT

Current domestic processing capacity is limited, presenting a significant
opportunity to establish a high quality value addition hulling facility

Ethiopia is one of the fastest growing economies in Africa

Political stability and ongoing government infrastructure investments

Large domestic market, and good access to regional and international export
markets

Investors benefit from good agro-climatic conditions and generous
investment incentives

High quality hulled sesame sold to international purchasers can result in
revenue of $21.8M USD by 2018
Opportunity to invest $7.0M into the hulling of sesame seeds, resulting in
forecasted project IRR of 40%1, with net income of $2.1M by 2018

1 IRR
of 40% represents IRR without any leverage
Monitor Group Proprietary
3
Hulling and Export of Sesame Seeds
Market Opportunity
1
2
3
Market
Opportunity
Competitive
Advantages
Investment
Highlights

Ethiopia is the world’s 3rd largest sesame exporter, sourcing 14% of the
global market for raw seeds. These seeds are then processed abroad

Sesame is one of Ethiopia’s highest value crops, earning $1,330 / MT raw.
Hulling sesame domestically would add revenue of $180-200 / MT

Current domestic processing capacity is limited, presenting a significant
opportunity to establish a high quality value addition hulling facility

Ethiopia is one of the fastest growing economies in Africa

Political stability and ongoing government infrastructure investments

Large domestic market, and good access to regional and international export
markets

Investors benefit from good agro-climatic conditions and generous
investment incentives

High quality hulled sesame sold to international purchasers can result in
revenue of $21.8M USD by 2018
Opportunity to invest $7.0M into the hulling of sesame seeds, resulting in
forecasted project IRR of 40%1, with net income of $2.1M by 2018

Monitor Group Proprietary
4
Hulled Sesame Market Opportunity
Global Sesame Exports
Ethiopia is a major supplier in a growing global sesame export market, accounting for 14% of
all raw sesame exports in 2010
Global Sesame Exports
Global Sesame Exports, USD (2006-2010)
USD (‘000)
3,750
3,000
28%
1,500
797
Value of global sesame
market is growing at 28%
and quantity is growing at
10%

Ethiopia is the 3rd largest
global sesame exporter
2,167
2,250
1,593

1,600
1,082
750
0
2006
2007
2008
2009
2010
– Nigeria is the largest
exporter, and India is 2nd
Metric Tons (‘000)
Global Sesame Exports, MT (2006-2010)
2,500
2,000
10%
1,500
1,000
946
1,117
1,057
1,360
1,185
500

0
2006
2007
2008
2009
2010
Export Year
Source: International Trade Centre
Monitor Group Proprietary
– Ethiopian exports in MT
grew at a 10% CAGR 0610, and $ value grew at
25% in the same time
5
Ethiopian sesame is
known within the industry
for its high quality
Hulled Sesame Market Opportunity
Global Price Comparisons
Despite Ethiopia’s prominence in the export market, it earns less per ton than the global
average in key end-markets, due to insufficiently supplying higher earning hulled sesame
Global Price Comparison


Sesame Import Price / Ton by Country (2008)
Ethiopian sesame commands a price
premium in China and Turkey, where it
is processed and re-exported
Importer
Ethiopia
Global
Price
Difference
China
$1,453
$1,164
$289
Israel
$1,789
$1,849
($60)
Turkey
$1,621
$1,529
$92
Mexico
$1,769
$1,643
$126
USA
$1,858
$2,363
($505)
Netherlands
$1,886
$2,072
($186)
In key markets like the US, the
Netherlands, and Israel, which look to
purchase processed goods for endmarket use, Ethiopian sesame is
losing potential revenue by only
exporting it in a raw form
– Investing in a hulling facility will help
close the gap and tap into these new,
high value markets
Source: International Trade Centre, 2009 Oilseeds Business Opportunities, Monitor Analysis
Monitor Group Proprietary
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Hulled Sesame Market Opportunity
Price Benefit of Hulling Sesame
To close the gap between current and potential revenue from sesame exports, Ethiopia must
build processing capacity to add more value through the establishment of more hulling facilities
Potential Export Value of 2010 Production ($USD) by % Sesame Hulled1
Export Value (USD M)
350
300
303
15
306
308
34
51
250
312
86
316
Export value
with 4% hulling
120
200
150
288
271
256
100
226
196
Hulled
50
Raw
0
4%
10%
15%
25%
35%
% Sesame Hulled Prior to Export

1Assumes
Current estimates have
hulling facilities in Ethiopia
processing just 4% of the
total sesame exported
from the country

1 MT hulled sesame earns between $180-200 USD more than 1 MT raw sesame

If 35% of 2010 exports had been hulled, rather than 4%, export revenue would
have been greater by ~$13M USD

Hulling additional 31% of sesame to reach 35% hulled exports would have an
associated cost of $130 / MT, a total of $10.7M
raw seeds earn $1,322 USD / ton and hulled seeds earn $1,502 USD / ton. Using the 2010 production volume, each column estimates potential
sesame market export value at increasing intervals of processed sesame seeds
Source:
Trade Centre, 2009 Oilseeds Business Opportunities, Selet7Hulling Report, Monitor Analysis
Monitor
GroupInternational
Proprietary
Hulled Sesame Market Opportunity
Market Distribution Strategy
Purchase markets for raw and hulled sesame are quite different; Ethiopia can target more
upscale end-markets and earn a price premium for high quality processing
96% Exports,
$1,330 / MT
Value add of
$180-200 / MT
Processor

Companies in India, China,
Israel, and Turkey
purchase raw seeds for
hulling and other
processing
Producer

Ethiopia exports the vast
majority of its sesame raw
to be produced in end
markets
End-Market

4% Exports, $1,530 / MT
Potential to increase value by
supplying directly to end-markets
Purchasers in the US,
Japan, Mexico, and
European Union demand
high quality hulled sesame
for use in bakery and
confectionary applications
Ethiopia is losing out on the opportunity to increase sesame revenues by only
exporting seeds raw. Developing hulling facilities will position the country to grow its
sesame market and better establish its international market position.
Source: International Trade Centre, Investor Interviews, Monitor Analysis
Monitor Group Proprietary
8
Hulled Sesame Market Opportunity
Competitive Landscape
Domestic capacity for sesame hulling is limited, and significant competition will come from
established international processing centers such as India and China
Domestic



International
There are relatively few operational hulling
facilities in Ethiopia
– Selet Hulling PLC
– Agro-Prom International
A few other processing facilities are said to
be in development, including a tahini
factory by Sheba Ltd.
Domestic farming and processing methods
have room for improved operational
efficiency, which will be necessary to
compete against international market prices


Source: Investor and Stakeholder Interviews, Monitor Analysis
Monitor Group Proprietary
9
Competition is likely to come primarily from
international processing hubs like India and
China
– India and China both have wellestablished hulling and other processing
facilities that operate at high efficiency
– The high efficiency and economies of
scale allow for lower prices
Israel, Jordan, and other Middle Eastern
countries are also competitive in sesame
processing, producing end-products like
tahini and sesame oil
Hulling and Export of Sesame Seeds
Competitive Advantages
1
2
3
Market
Opportunity
Competitive
Advantages
Investment
Highlights

Ethiopia is the world’s 3rd largest sesame exporter, sourcing 14% of the
global market for raw seeds. These seeds are then processed abroad

Sesame is one of Ethiopia’s highest value crops, earning $1,330 / MT raw.
Hulling sesame domestically would add revenue of $180-200 / MT

Current domestic processing capacity is limited, presenting a significant
opportunity to establish a high quality value addition hulling facility

Ethiopia is one of the fastest growing economies in Africa

Political stability and ongoing government infrastructure investments

Large domestic market, and good access to regional and international export
markets

Investors benefit from good agro-climatic conditions and generous
investment incentives

High quality hulled sesame sold to international purchasers can result in
revenue of $21.8M USD by 2018
Opportunity to invest $7.0M into the hulling of sesame seeds, resulting in
forecasted project IRR of 40%1, with net income of $2.1M by 2018

Monitor Group Proprietary
10
Ethiopia’s Competitive Advantage
Economy and Business Environment
Ethiopia enjoys strong economic growth and political stability, as well as strong government
emphasis on attracting private sector investment
GDP Growth Rates, 2005-2010
11%
Attractive Performance and Governance
11%

11% annual GDP growth rate since 2005

Ranked as 3rd fastest growing economy
in the world for the next four years by “The
Economist,” behind China and India

Political stability which fosters a peaceful
and secure working environment

Simple taxation structure and tax breaks for
sesame investors

Robust policy framework in the “Growth
and Transformation Plan” which also
focuses on private sector investment
promoting growth

Zero tolerance to corruption and fraud
9%
Percentage
7%
4%
South
Africa
4%
Russia
4%
Brazil
Nigeria
India
Ethiopia
China
Source: World DataBank; Monitor Analysis; The Economist; UN; ICC, Ministry of Finance and Economic Development
Monitor Group Proprietary
11
Ethiopia’s Competitive Advantage
Investment Incentives
Sesame investors in Ethiopia benefit from a generous range of investment incentives,
including affordable land rental rates, tax holidays and import/export incentives
Availability of Resources

More than 80 Mn Ha of arable land
is available
Tax Environment

– Industrial land available at $6-7
per ha per year in Oromia for a
lease period of 80 years

Heavy investment planned by
government in developing roads,
electricity, water ($70B over 5 years)
Young, disciplined and trainable
labor is available at relatively low
cost
– Salaries are $50 – 90 per month
for graduates
– Losses during the tax holiday are
carried forward for half the
exemption period

Simplified tax structures, e.g.
universal corporate income tax rate of
30%
– Good standards of spoken and
written English
100% customs import duty
exemption
– Agricultural and industrial
machinery / equipment imported
for investment purposes
– Raw materials for production of
export goods
– Spare parts worth 15% of total
investment capital goods

Export duty exemptions for
products and services developed
domestically

Export sector benefits include
– Export Credit Scheme, Duty
Drawback Scheme, Foreign
Exchange Retention Scheme,
Foreign Credit and Loan Schemes
– Access to 70% of capital
investment financing at
reasonable rates
Source: Ethiopian Investment Agency
Monitor Group Proprietary

– Companies earning over 50% of
their revenue from exports, like
the planned sesame hulling
facility, receive a tax holiday of
5 years; all others receive a 2
year tax holiday
– In Addis Ababa, industrial land for
hulling facility can be leased for
$12-22 per sq meter

Income tax holiday for ~2-7 years
for manufacturing, agricultural and
agro-industrial investment
Import/Export Incentives
12
Ethiopia’s Competitive Advantage
Market Access
Investors in a sesame processing facility in Ethiopia will also benefit from access to large
domestic, regional, and international markets
COMESA Trading Block and Regional Map
Access to Adjacent Markets

82.9
0.9
71.7
Djibouti
8.1
33.4

Ethiopia
South
Sudan
40.5
10.6
Rwanda
Uganda
Democratic Republic
of the Congo
8.4
Kenya

44.8
Tanzania
Tanzania
Burundi

10.0
Population
(Millions)
COMESA
Members
Other Trade
Countries
Source: World Bank, “Doing Business”, 2012; Monitor Analysis
Monitor Group Proprietary
13
Ethiopia’s population of 82.9M is the
second largest in Sub-Saharan Africa
– 44% of the population is under age 15
and 73% is under 30
Ethiopia is geographically well-positioned
to serve several export markets
– Its location in the ‘Horn of Africa’ places it
at the crossroads between Africa, the
Middle East and Asia
Membership in Common Market for Eastern
and Southern Africa (COMESA) enhances
access to 23 member countries and their
population of more than 420 million
Ethiopia also enjoys Duty Free and Quota
Free (DFQF) privilege extended by
international markets of USA, European
Union, China and India
Ethiopia’s Competitive Advantage
Sesame Supply Dynamics
Sesame is one of Ethiopia’s top performing export crops and shows potential for rapid
increase in cash value and production quantities
Major Exports by Crop, Ethiopia 2011
Strong Supply of Sesame Seeds

Sesame seeds are Ethiopia’s 2nd
largest cash export crop behind
coffee, and largest in terms of MT

Current yields of 0.7 MT / ha have
potential to increase significantly with
use of modern farming practices

385,000 ha under cultivation for
sesame, largely in northwestern and
western Ethiopia, involving 764,000
smallholder farmers

Near-organic production practices
enhance Ethiopia’s global reputation
for producing high quality sesame
MT
365,689
USD (’000)
331,047
255,783
247,149
166,934
129,833
77,682
60,246
44,655
42,293
Sesame
Fresh
Vegetables
Coffee
Dry Beans
Oilseeds, NES
Source: International Trade Centre, Monitor Analysis
Monitor Group Proprietary
14
Ethiopia’s Competitive Advantage
Agro-Climatic Conditions and Land Availability
Ethiopia possesses favorable agro-climatic conditions for sesame production, as well as
abundant land for agricultural activities
Attractive Agri-Climatic Conditions



Land Availability and Climate
Ethiopia is home to 18 major agro-ecological
zones and 49 agro-ecological sub-zones
– The country has the soils and climate
suitable for growing over ~150 types of
crops, including high value commodities
such as coffee, sesame and other oilseeds,
cereals, spices, fruits and vegetables
– Sesame grows particularly well in the
Northern and Western Ethiopia
Ethiopia has two main harvest seasons,
which are heavily reliant on annual rainfall
– The bulk of harvesting is completed from
October to December following the Meher
growing season
Just 21% of arable land is currently under
cultivation, leaving great potential for growth
in the agriculture sector
Key Land Statistics
Land (ha): 111.5M
Arable land (ha): 74.5M
Cultivated land (ha): 15.4M
Annual Rainfall (western region): 200 cm
Primary Harvest Seasons
Belg
Meher
Rainy
Season
February –
June
June –
October
Harvest
Season
Jul - Sept
Oct - Dec
% of Crop
Production
5-10%
90-95%
Source: USDA Foreign Agriculture Service; Oakland Institute: Understanding Land Investment Deals in Africa, Ethiopia Country Report
Monitor Group Proprietary
15
Ethiopia’s Competitive Advantage
Planned Government Enabling Environment Investments
The Growth and Transformation Plan represents an ambitious set of national investments that
will significantly upgrade both hard and soft infrastructure and facilitate sesame processing
Growth and Transformation Plan –
Projected Spending ($B USD)
Key Highlights of Growth and Transformation Plan

16
15
15
16

11




2010/11
2011/12
2012/13
2013/14
2014/15
Building 71,000 km of new roads, including all-weather
roads to virtually all kebele administrations and an
expressway linking Addis Ababa to Adama (a key route
to facilitate export and import trade)
Constructing 2,395 km of new railways linking Addis
Ababa with Djibouti, linking selected domestic cities,
and within Addis Ababa itself
Laying 132,000 km of new electricity distribution
lines and expanding electricity coverage to 75% of the
country
Expanding the water supply infrastructure to cover
99% of the population and the drilling of some 3,000
water wells per year
Increasing irrigation coverage from 3% to 16% of
total farm land
Increasing (net) primary enrollment to 100%; raising
the number of students at government universities to
near half a million students (from 185,000 at present)
Source: Access Capital Macroeconomic Handbook 2011/12
Monitor Group Proprietary
16
Ethiopia’s Competitive Advantage
Support of the Agricultural Transformation Agency
The Agricultural Transformation Agency (ATA) represents a high performance change agent,
tasked with solving the key problems faced by the Ethiopian agricultural sector
Origins of ATA

ATA’s Approach
Established Q4 2010 on the recommendation of a
set of Gates Foundation diagnostics submitted
directly to the Prime Minister

Created as an independent organization modeled
after Taiwan and Korean “acceleration units”

ATA’s overall objective is to support achievement of
the Growth and Transformation Plan agri-related
targets

– Leading problem solving efforts to identify
solutions to systemic bottlenecks
– Supporting implementation by providing project
management, capability building etc.
– Enhancing linkages and coordination among
agri-stakeholders
Enabling Factors for ATA’s Success

Reporting line directly to the Prime Minister

Private-sector orientation, but with strong linkages to
public entities e.g. Ministry of Agriculture

Hybrid staffing model - long-term goal is for ATA to
be fully staffed by Ethiopian civil service, but for
initial give years, a hybrid model of international
staff, local analysts and seconded public sector
“fellows”
Monitor Group Proprietary
ATA’s key activities include:
Example ATA Initiatives

Attracting and facilitating the entry of agri-investors
– Note: Project Management Unit to support agriinvestors currently being developed, to be
housed within ATA

17
Developing systemic interventions for key
bottlenecks like financing, input supply and
extension services, as well as multi-stakeholder
roadmaps for specific crops, like oilseeds
Hulling and Export of Sesame Seeds
Investment Highlights
1
2
3
Market
Opportunity
Competitive
Advantages
Investment
Highlights

Ethiopia is the world’s 3rd largest sesame exporter, sourcing 14% of the
global market for raw seeds. These seeds are then processed abroad

Sesame is one of Ethiopia’s highest value crops, earning $1,330 / MT raw.
Hulling sesame domestically would add revenue of $180-200 / MT

Current domestic processing capacity is limited, presenting a significant
opportunity to establish a high quality value addition hulling facility

Ethiopia is one of the fastest growing economies in Africa

Political stability and ongoing government infrastructure investments

Large domestic market, and good access to regional and international export
markets

Investors benefit from good agro-climatic conditions and generous
investment incentives

High quality hulled sesame sold to international purchasers can result in
revenue of $21.8M USD by 2018
Opportunity to invest $7.0M into the hulling of sesame seeds, resulting in
forecasted project IRR of 40%1, with net income of $2.1M by 2018

Monitor Group Proprietary
18
Hulled Sesame Investment Highlights
Operational Highlights
Investment in a sesame hulling facility, supported by a nucleus farm and corresponding outgrower scheme to ensure quality supply, will open up access to higher paying end-markets
Target
Customers

Hulled seeds will be sold primarily to US, Japanese, Mexican, and
European markets, which demand high quality hulled seeds

Hulled and branded sesame seeds packaged in 100 kg bags and
sold in 1 MT units
Potential expansion to tahini and / or sesame oil product lines
Product


Price


Channel


Processing
Facility
Sourcing
Model



Proposed mark-up of 15% over cost-to-produce, starting at $2,000 /
ton in 2014 (year 1 of operations)
As a commodity, price will fluctuate annually based on global market
Majority of sales to wholesalers and distributors
Direct sales to key end-users (major restaurant chains or food
processors), depending on market relationships
Sesame hulling plant with capacity to produce 10,000 MT annually
(year 5 capacity utilization target of 90%)
Proposed location in Oromia, outside of Addis Ababa to be close to
infrastructure (e.g. electricity, water)
Nucleus farm (or contractual arrangement or cooperative equity
partnership with supply quality assurance) of 300 hectares
Supply supported by arrangements with 4,400 out-growers
Source: Monitor Analysis
Monitor Group Proprietary
19
Hulled Sesame Investment Highlights
Channel Cost Structure
Cost assumptions suggest that 1 MT hulled sesame will sell at a margin of 10% to
international purchasers; procurement will remain the primary cost driver
Channel Cost Structure for 1 MT Hulled Sesame (Year Five)
8%
6%
0%
10%
100%
Margin
Channel Price
3%
2%
Percentage of Unit Price
70%
ProcurementCultivation/Outgrower
Expenses
Labor
Packaging
Transportation
Source: Monitor Analysis
Monitor Group Proprietary
20
Overhead
(SG&A)
Hulled Sesame Investment Highlights
Financial Performance Summary
The 2018 EBITDA margin of 10.1% compares favorably to listed comparatives, and revenues
have been conservatively forecast to ramp up over the first five years
Revenue (Million USD) & EBITDA Margin (%), 2014-2018
100
EBITDA %
21.8
Revenue
19.8
17.9
75
12.4
50
25
9.9%
10.1%
10.1%
10.1%
10.1%
0
2014
2015
2016
Source: Monitor Analysis
Monitor Group Proprietary
21
2017
2018
Percentage
Million USD
16.1
Hulled Sesame Investment Highlights
Capital Investment and Forecast Returns
An initial investment of $7.0M is required to reach revenue forecasts; without leverage the
investment will deliver an IRR of 40% after five years and be cash positive by 2015
Investment (Year 0)
7.01
Internal Rate of Return (IRR)
Plant, Property, and Equipment
1.72
NPV ($M)
4.3
Cultivation Investment
2.7
2018 Revenue ($M)
21.8
Working Capital & Other1
2.6
2018 Net Income ($M)
2.1
Total Capital Investment ($M)


Return (Year 5)
Capital investment assumed to take place in
Year 0; processing begins in Year 1 (2014)
No debt assumed


40%
IRR can be improved to 47% with the
addition of 70% debt (on fixed assets)
Net profit margin ends at 9.5%
Forecast Free Cash Flows (Million USD)
Initial
Investment1
0.5
1.0
1.2
1.8
2015
2016
2017
2018
-2.2
-7.0
2013
2014
1The
assumption that all capital investment will take place in year zero is conservative, and investment can be staggered over the initial business setup phase; 2The model
assumes that the hulling facility will not engage in significant cleaning activities, but a cleaning machine could be purchased for $600,000 USD. This cost covers a new, high
quality cleaning machine that would meet European and Japanese quality standards
Source: Monitor Analysis, Investor Interviews
Monitor Group Proprietary
22
Hulled Sesame Investment Highlights
Key Risks and Mitigation Options
Several key risks have been identified and must be addressed to ensure the success of the
sesame hulling facility
Risk Parameter
High
Med
Low
Mitigation Options
• Leverage government investments in irrigation
Environmental Factors - Droughts or excessive
rains, which may adversely affect sesame harvests
systems under the GTP
• Weather and crop insurance financed by
cooperatives
Supply
Chain
Risks
• Forward agreements / contracts with sesame
Variable Commodity Prices - Breach of supply
contracts when more lucrative prices can be found
elsewhere
producers
• Incentivize quality and quantity of production
• Work with financial cooperatives to provide
Inability to Distribute / Finance Inputs Farmers unable to access necessary financing for
inputs
advance credit to out-growers
• Coordinate with ATA’s Cooperatives Team to
Low Capacity and Productivity of SHFs Outdated agronomic practices and limited
resources lead to reduced yields
Regulator
y Risks
select advanced partner cooperatives
• Invest in training and extension services for
farmers to implement modern practices
• Work with ATA’s planned PMU to secure ECX
exemption
• Participate in Public-Private forums to have a
voice in policy discussions
Uncertain Policy / Regulatory Environment Unanticipated costs from sudden policy changes;
getting exemption from ECX can be a challenge
• Facilitate government involvement and work
Bureaucracy/Lack of Coordination - Delays or
blocks in processes such as land allocation
Market
Risks
closely with the ATA’s planned PMU
• Partner with international traders who have
Access to Export Markets - Slow uptake of
Ethiopian hulled sesame among new international
markets (including U.S., Japan)
existing global relationships
• Invest in marketing and advertising overseas
• Engage in forward contracts with sesame
Financial High Inflation - Cost increase and competitiveness
Risks
erosion from rising inflation
Source: Monitor Analysis
Monitor Group Proprietary
cooperatives, offering market price premium
• Purchase / store stock in advance to hedge risk
23
Hulled Sesame Investment Highlights
Sensitivity Analysis
Sales price, crop production yields, and cost of raw materials have been identified as having
the greatest uncertainty and downside potential, and will necessitate targeted mitigation steps
Internal Rate of Return (IRR)
Input Lever
Downside
Sensitivity
Base Case IRR
39.6%
Crop Yields
Yields
improve
at 0%
Cost of Raw
Materials
Costs
inflate at
15%
Sales Price
13.3%
10%
71.4%
N/A1
73.9%
20%
30%
40%
1
50%
60%
N/A represents a negative Net Present Value for the scenario that was tested which means an IRR cannot be calculated
Source: Monitor Analysis
Monitor Group Proprietary
24
Mitigation Steps

Investment in cultivation
and out-grower scheme
to improve agronomic
practices and resulting
crop yields

Investment in cultivation
to improve yield / ha
and careful negotiation
with co-ops and farmers

Substantial marketing
and advertising efforts
to promote Ethiopian
sesame as premium
Improve operational
efficiency to reduce
COGS and price
sensitivity
Yields
improve
at 10%
51.2%
N/A1
Price
lower by
10%
0%
Upside
Sensitivity
Costs
inflate at
2%
Price
higher by
10%
70%

80%
Hulled Sesame Investment Highlights
Key Enabling Requirements
To support the sesame hulling facility and lower investment risks, multiple interventions are
being considered, and in some cases implemented, by public stakeholders and donors
Public / Donor Initiatives to Satisfy Key Enabling Requirements




SHF access to quality seed inputs,
warehousing, and machinery
SHF access to credit/insurance
Training and education of SHFs in
modern sesame farming practices
Value chain approach to increasing
capacity of sesame producers
Supply




Simplified, transparent and time-bound land
acquisition processes
Simplified, transparent and time-bound businessregistration/licensing processes
Credit/financing availability for sesame processors
Sufficient volume and quality of infrastructure (e.g.
electricity, roads for transportation)
Market Linkage

Processing
Sufficient volume and quality of
infrastructure (e.g. roads) to
support transport from sesame
producing regions to processing
facility
End Market


Negotiation of long-term contracts
Sufficient volume and quality of
infrastructure to deliver hulled
sesame to end market (e.g. ports)
Note: Key public stakeholders and donors include: Ministry of Agriculture, Agricultural Transformation Agency, USAID, DFID, ACDI/VOCA and others
Monitor Group Proprietary
25
Hulling and Export of Sesame Seeds
Who Should Invest?
The sesame hulling investment opportunity will be attractive to operational firms looking to
build scale and sourcing reach, and financial firms driven by high scalability and social impact
Opportunity Attraction
Investor Profiles
Operational Investors
Increased Product Traceability

Local traders looking to backward integrate
into processing to add value to export
products and / or build sourcing base in the
region
Expanded Sourcing Network

International investors looking to gain supply
security by working more closely with
producers and introduce traceability to
sesame export supply
Attractive Returns
Financial Investors
Social / SHF Impact
Monitor Group Proprietary
26

Financial investors looking for projects with
high scalability and return potential

Financial investors looking to drive social
impact to SHFs
Hulling and Export of Sesame Seeds
Way Forward
This investment case is intended to foster interest/awareness; in order to successfully execute,
prospective investors will need to take further steps to realize the attractive opportunity
Initiate Public /
Donor Dialogue

Build relationships with ATA, MoA, MoTI, and USAID, amongst others, to ensure
support for land acquisition and setting up operations
Perform Own
Due Diligence

Perform, or outsource, an independent due diligence process, to identify
operational and capital cost structures, and identify consumers’ willingness to pay
Identify
Procurement
Arrangements

Enter into contractual relationships with cooperatives and out-growers, to ensure
raw material supply

Identify and contract key procurement sources, including packaging and transport

Design and implement sustained advertising and marketing strategy, to build
educate consumers and convert consumer interest to action
Build
Consumer
Market Platform
Contact
Details
Monitor Group Proprietary

Khalid Bomba, CEO, ATA ([email protected])

Mirafe Marcos, Special Programs Officer, ATA ([email protected])
27
Hulling and Export of Sesame Seeds
Appendix
Monitor Group Proprietary
28
Appendix
Abbreviations and Acronyms
ACDI/VOCA
Agricultural Cooperative Development
International / Volunteers in Overseas
Cooperative Assistance
ADB
African Development Bank
ATA
Agricultural Transformation Agency
BOT
Build-Operate-Transfer
CAGR
Compound Annual Growth Rate
COGS
Cost of Goods Sold
CPG
Consumer Packaged Goods
COMESA
Common Market for Eastern and Southern Africa
CSA Ethiopia Central Statistical Agency of Ethiopia
DBE
Development Bank of Ethiopia
DFID
Department for International Development
DFQF
Duty Free and Quota Free
EBITDA
Earnings Before Interest, Taxes, Depreciation,
and Amortization
EIA
Ethiopian Investment Agency
EPOSPEA
Ethiopian Pulses, Oilseeds , and Spices
Producers and Exporters Association
FAO
Food and Agriculture Organization
FMCPG
Fast Moving Consumer Packaged Goods
Monitor Group Proprietary
29
GDP
GOE
GTP
HA
HL
ICC
IFC
IRR
KG
MoA
MoTI
MT
NGO
NPV
PE
PMU
SG&A
SHF
TA
UN
Gross Domestic Product
Government of Ethiopia
Growth and Transformation Plan
Hectare
Hectoliters
International Criminal Court
International Finance Corporation
Internal Rate of Return
Kilogram
Ministry of Agriculture
Ministry of Trade & Industry - Ethiopia
Metric Ton
Non Governmental Organization
Net Present Value
Private Equity
Project Management Unit
Selling, General, and Administrative Costs
Smallholder Farmer
Technical Assistance
United Nations
USAID
United States Agency for International
Development
USDA
WEF
WFP
US Department of Agriculture
World Economic Forum
World Food Program
Appendix
Potential Investors / Partners for Sesame Hulling Plant
Potential investors and partners span the value chain from input supply to end-market offtakers
Input Supply and
Research





Bayer
John Deere
Syngenta
Yara
Midroc
Production



Donors/NGOs
Cooperatives



Financial Investors
Processing

Access Capital
Schulze Global
Investments
Farm Africa
USAID




International
traders/processors
e.g. Olam Trading
Local
traders/processors
e.g. Mullege
End-Market


EPOPSEA
(Exporters’
Association)
Traders e.g.
Hakan Agro
Development Bank of Ethiopia
Zemen Bank
Technoserve
ACDI/VOCA


Gates
IFC

ADB
List of noted investors / partners was developed from initial interest
conversations with no formal or verbal commitments attached
Note: List of interested investors and partners is preliminary and not exhaustive; identification does not imply any form of obligation or concrete commitment on the part of
listed investors and partners
Monitor Group Proprietary
30
Appendix
Key Financial Assumptions (1/2)
The key financial assumptions for the investment case include capital expenditure, cost of the
out-grower program, working capital requirements, inflation and tax treatments
Capital Expenditure ($ M)
Total Capital Investment ($M)
Cost of Out-grower Program ($M USD)
Total Cost to Company (2013)
7.0
$2.7
Building Costs
0.7
Harvest cost / ha (nucleus)
$1,000
Equipment Costs
1.0
Total harvest cost (nucleus)
$300,000
Cultivation
2.7
Harvest cost / ha (out-growers)
$350.00
Working Capital and Other
2.6
Total harvest cost (out-growers)
$2,737,445
Working Capital Requirements
Percent of Sales
Tax Treatments & Inflation
Corporate Tax Rate
Straight Line Depreciation for Plant
(years)
Straight Line Depreciation for
Equipment and
Infrastructure(years)
Carry for Tax Losses (years)
21%
Working Capital Considerations:
Inventory Days
180
Tax Holiday for Export Companies
(years)
Inflation Rate
Source: Team Discussions, Monitor Analysis
31
30%
20
10
5
5
12%
Appendix
Key Financial Assumptions (2/2)
Key assumptions for revenue and investment returns include capacity utilization and costs of
goods sold
Projected Hulled Sesame Investment Revenues
2014
2015
2016
2017
2018
10,000
10,000
10,000
10,000
10,000
Utilization Rate (%)
60%
75%
80%
85%
90%
Unit Sales (MT)
6,000
7,500
8,000
8,500
9,000
Operating Revenue ($M)
$12.4
$16.1
$17.9
$19.8
$21.8
Maximum Capacity (MT)
General and Admin Costs in 2014 ($)
Cost of Goods Sold in 2014 ($ / MT)
Raw Material
Cultivation / Out-grower Costs
$1,378
$170
Indirect Labor
$46,519
Utilities
$77,833
Labor Costs
$7
Maintenance
$28,600
Packaging
$36
Marketing
$32,113
Transportation (Farm to Plant)
$53
Selling Costs (at 2%)
Transportation (Plant to Port)
$151
Total
SG&A Total
$1,795
Source: Team Discussions, Monitor Analysis
32
$247,693
$433,172
Appendix
Financial Statements Under 100% Equity (1/2)
Forecast Income Statement Assuming a 100% Equity–Funded Investment ($M)
Revenue
Total Revenues
COGS - Raw Materials
COGS - Cultivation / Out-grower Expenses
COGS - Transportation (Farm to Plant)
COGS - Packaging
COGS - Transportation (Plant to Port)
Total COGS
Gross Profit
SG&A Total
Indirect Labor
Utilities
Maintenance
Marketing
Selling Costs
EBITDA
EBITDA %
Depreciation
Interest
Earnings Before Taxes
Taxes
Net Income / NOPAT
2014
2015
2016
2017
2018
$12.38
$12.38
$8.27
$1.02
$0.32
$0.22
$0.91
$10.73
$1.66
$0.43
$0.05
$0.08
$0.03
$0.03
$0.25
$1.22
9.9%
$0.14
$0.00
$1.09
$0.00
$1.09
$16.14
$16.14
$10.94
$1.20
$0.40
$0.30
$1.13
$13.98
$2.16
$0.53
$0.05
$0.09
$0.03
$0.04
$0.32
$1.63
10.1%
$0.14
$0.00
$1.50
$0.00
$1.50
$17.88
$17.88
$12.27
$1.22
$0.42
$0.36
$1.21
$15.48
$2.40
$0.59
$0.06
$0.10
$0.04
$0.04
$0.36
$1.81
10.1%
$0.14
$0.00
$1.67
$0.00
$1.67
$19.76
$19.76
$13.70
$1.24
$0.45
$0.43
$1.29
$17.10
$2.66
$0.66
$0.07
$0.11
$0.04
$0.05
$0.40
$2.00
10.1%
$0.14
$0.00
$1.87
$0.00
$1.87
$21.77
$21.77
$15.24
$1.26
$0.47
$0.51
$1.36
$18.84
$2.93
$0.73
$0.07
$0.12
$0.05
$0.05
$0.44
$2.21
10.1%
$0.14
$0.00
$2.07
$0.00
$2.07
Note: The base case assumed a 100% Equity and 0% Debt model, given that excess demand for debt in Ethiopia, and the current lack of capacity in the nation’s banks to process
debt applications, has led to difficulty accessing debt; also modeled for 70% debt, which is the maximum Ethiopian banks are willing to cover for agricultural investors
Source: Team Discussions, Monitor Analysis
33
Appendix
Financial Statements Under 100% Equity (2/2)
Forecast Balance Sheet Assuming a 100% Equity–Funded Investment ($M)
PPE
Net, Other Assets
Working Capital
Total Assets
Long Term Debt
Total Liabilities
2013
$1.70
$0.00
$0.00
$1.70
$0.00
$0.00
2014
$1.57
$0.00
$2.60
$4.17
$0.00
$0.00
2015
$1.43
$0.00
$3.39
$4.82
$0.00
$0.00
2016
$1.30
$0.00
$3.76
$5.05
$0.00
$0.00
2017
$1.16
$0.00
$4.15
$5.31
$0.00
$0.00
2018
$1.03
$0.00
$4.57
$5.60
$0.00
$0.00
Shareholders Equity
$1.70
$4.17
$4.82
$5.05
$5.31
$5.60
Forecast Cash Flow Statement Assuming a 100% Equity–Funded Investment ($M)
Cash Flow from Operations
Earnings from P&L
Depreciation
Net Interest (after tax)
(Change in net working capital)
Total Cash Flow from Operations
Investment (Capex)
Terminal Value
Free Cash Flows
Cumulative Cash Flows
2013
2014
2015
2016
2017
2018
$0.00
$0.00
$0.00
$0.00
$0.00
$1.09
$0.14
$0.00
-$2.60
-$1.38
$1.50
$0.14
$0.00
-$0.79
$0.84
$1.67
$0.14
$0.00
-$0.37
$1.44
$1.87
$0.14
$0.00
-$0.39
$1.61
$2.07
$0.14
$0.00
-$0.42
$1.78
-$4.44
$0.00
$0.00
$0.00
$0.00
$0.00
$19.63
-$4.44
-$1.38
$0.84
$1.44
$1.61
$21.41
Note: The base case assumed a 100% Equity and 0% Debt model, given that excess demand for debt in Ethiopia, and the current lack of capacity in the nation’s banks to process
debt applications, has led to difficulty accessing debt; also modeled for 70% debt, which is the maximum Ethiopian banks are willing to cover for agricultural investors
Source: Team Discussions, Monitor Analysis
34
Appendix
Financial Statements Under 30% Equity (1/2)
Forecast Income Statement Assuming a 70% Equity–Funded Investment ($M)
Revenue
Total Revenues
COGS - Raw Materials
COGS - Cultivation / Out-grower Expenses
COGS - Transportation (Farm to Plant)
COGS - Packaging
COGS - Transportation (Plant to Port)
Total COGS
Gross Profit
SG&A Total
Indirect Labor
Utilities
Maintenance
Marketing
Selling Costs
EBITDA
EBITDA %
Depreciation
Interest
Earnings Before Taxes
Taxes
Net Income / NOPAT
2014
2015
2016
2017
2018
$12.38
$12.38
$8.27
$1.02
$0.32
$0.22
$0.91
$10.73
$1.66
$0.43
$0.05
$0.08
$0.03
$0.03
$0.25
$1.22
9.9%
$0.14
$0.11
$0.97
$0.00
$0.97
$16.14
$16.14
$10.94
$1.20
$0.40
$0.30
$1.13
$13.98
$2.16
$0.53
$0.05
$0.09
$0.03
$0.04
$0.32
$1.63
10.1%
$0.14
$0.11
$1.39
$0.00
$1.39
$17.88
$17.88
$12.27
$1.22
$0.42
$0.36
$1.21
$15.48
$2.40
$0.59
$0.06
$0.10
$0.04
$0.04
$0.36
$1.81
10.1%
$0.14
$0.10
$1.58
$0.00
$1.58
$19.76
$19.76
$13.70
$1.24
$0.45
$0.43
$1.29
$17.10
$2.66
$0.66
$0.07
$0.11
$0.04
$0.05
$0.40
$2.00
10.1%
$0.14
$0.09
$1.78
$0.00
$1.78
$21.77
$21.77
$15.24
$1.26
$0.47
$0.51
$1.36
$18.84
$2.93
$0.73
$0.07
$0.12
$0.05
$0.05
$0.44
$2.21
10.1%
$0.14
$0.08
$1.99
$0.00
$1.99
Note: The base case assumed a 100% Equity and 0% Debt model, given that excess demand for debt in Ethiopia, and the current lack of capacity in the nation’s banks to process
debt applications, has led to difficulty accessing debt; also modeled for 70% debt, which is the maximum Ethiopian banks are willing to cover for agricultural investors
Source: Team Discussions, Monitor Analysis
35
Appendix
Financial Statements Under 30% Equity (2/2)
Forecast Balance Sheet Assuming a 30% Equity–Funded Investment ($M)
PPE
Net, Other Assets
Working Capital
Total Assets
Long Term Debt
Total Liabilities
2013
$1.70
$0.00
$0.00
$1.70
$1.19
$1.19
2014
$1.57
$0.00
$2.60
$4.17
$1.11
$1.11
2015
$1.43
$0.00
$3.39
$4.82
$1.03
$1.03
2016
$1.30
$0.00
$3.76
$5.05
$0.94
$0.94
2017
$1.16
$0.00
$4.15
$5.31
$0.84
$0.84
2018
$1.03
$0.00
$4.57
$5.60
$0.73
$0.73
Shareholders Equity
$0.51
$3.05
$3.79
$4.11
$4.47
$4.87
Forecast Cash Flow Statement Assuming a 30% Equity–Funded Investment ($M)
Cash Flow from Operations
Earnings from P&L
Depreciation
Net Interest (after tax)
(Change in net working capital)
Total Cash Flow from Operations
Investment (Capex)
Terminal Value
Free Cash Flows
Cumulative Cash Flows
2013
2014
2015
2016
2017
2018
$0.00
$0.00
$0.00
$0.00
$0.00
$0.97
$0.14
$0.08
-$2.60
-$1.41
$1.39
$0.14
$0.07
-$0.79
$0.81
$1.58
$0.14
$0.07
-$0.37
$1.41
$1.78
$0.14
$0.06
-$0.39
$1.58
$1.99
$0.14
$0.06
-$0.42
$1.76
-$4.44
$0.00
$0.00
$0.00
$0.00
$0.00
$19.36
-$4.44
-$1.41
$0.81
$1.41
$1.58
$21.12
Note: The base case assumed a 100% Equity and 0% Debt model, given that excess demand for debt in Ethiopia, and the current lack of capacity in the nation’s banks to process
debt applications, has led to difficulty accessing debt; also modeled for 70% debt, which is the maximum Ethiopian banks are willing to cover for agricultural investors
Source: Team Discussions, Monitor Analysis
36
Appendix
Development Benefits
The hulling facility will have significant social returns, increasing annual farmer income by
17.4% and engaging more than 4,400 SHF over the course of the investment
Number of Smallholder Farmers Affected by Out-grower Scheme
Yields
Nucleus Yield
SHF Yield
Annual Production Required
Nucleus Production
SHF Production Required
Smallholder Farmers Involved
Unit
2014
2015
2016
2017
2018
MT / ha
MT / ha
MT / ha
MT / year
MT / year
1.20
1.00
1.25
1.05
1.31
1.09
1.37
1.14
1.43
1.19
7324
360
6,964
9155
376
8,779
9766
393
9,372
10376
411
9,965
10986
430
10,557
# SHFs
3,482
4,200
4,290
4,364
4,424
Projected Income Improvements
2014 (Year 1)
Total SHF Income from Crop (USD)
$2,003
Total Potential SHF Income from
Crop (USD)
$2,351
Total Increase in Income (USD)
$348
Increase in Income (%)
17.4%
Note: Income improvements for growers account solely for wages from sesame production
Source: Investor Interviews, Monitor Analysis
37