Manufacturing Edible Oils in Bahrain: A pre-feasibility

study

Proposal

PREPARED BY ERNST AND YOUNG AND DINARSTANDARD

DRAFT DATED 25th SEPTEMBER 2017

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

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Table of Contents

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

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

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

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

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

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

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

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

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

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

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1 Executive Summary

Project overview: $10 million in investment is needed to support the production of Edible Oils in Bahrain, which can address a market projected to reach $4.9 billion by 2023, and with the project achieving a market penetration of 0.6% within five years

Potential returns: This project, while highlighted as an opportunity, is not feasible, generating insufficient returns relative to investment required, due to high materials and logistics costs resulting in unattractive margins

2 Key highlights

Core product

Sunflower oil sold in a drum to manufacturers, typically $190kg per unit

Core go to market strategy

Target B2B enterprises across the MENA region with sunflower oil products used in food manufacturing

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

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

Investment needed

$10 million needed to cover $3.4 million on capital expenditure (including $2.2 million on machinery), with the balance funding operating losses and working capital needs over the first four years

Summary financial profile*

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

Projected returns

Negative (-12%) return – project is not feasible

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3 Addressable market and landscape

Core products – Sunflower oil packaged in a drum

Product Sunflower oil sold in an industrial scale drum1

Illustration

Description Edible oil packaged in a 190kg sealed drum

Unit size 190kg (Based on Ali Baba Supplier Dalian Linuo Trading Co., Ltd2)

Market opportunity – $4.9 billion MENA-wide market opportunity by 2023

Globally, edible oils was a $83.4 billion market opportunity in 2015, expected to grow by 5.1% CAGR to 2023, to reach $124.1 billion. 3 The addressable MENA edible oils market, represents 4 percent or $3.3 billion of the global market in 2015 and is expected to grow by 5.3% CAGR and reach $4.9 billion in 2023.4 The edible oils market within the GCC represents $988.2 million in 2015 and is expected grow by 6.6% CAGR to reach $1.65 billion in 2023.5

Addressable market: The MENA edible oils market in 2023

Bahrain Other GCC Other MENA Total MENA

edible oils market in 2023

$103.2 million $1,545 million $3,296 million $4,944 million

1 Sunflower oil has greater than 70% of GCC edible oils market share in 2015, based on Transparency Market

Research statistics, http://www.transparencymarketresearch.com/pressrelease/cooking-oil-market.htm. 2 https://www.alibaba.com/product-detail/Refined-sunflower-Cooking-Oil-100-

Pure_60646234819.html?spm=a2700.7724838.2017115.193.3c93b095HSf3hV, product description. 3 Persistence Market Research Global Edible Oil Market Size, http://www.prnewswire.com/news-releases/global-

edible-oils-market-value-to-increase-from-us-834-bn-in-2015-to-us-1303-bn-by-2024---pmr-592605631.html, September 2017. 4 Derived using Transparency Market Research edible oils statistics for the GCC region. Euromonitor CAGR for

MENA Edible Oils growth and the MENA edible oils market was calculated by multiplying the GCC edible oils market by the scale factor (3.3) of total food and beverage consumption the MENA represents in comparison to the GCC from Business Monitor International statistics for 2015 5 According to BMI statistics and DinarStandard synthesis and analysis.

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Competitive landscape – Highly competitive, but leading global players can establish operations and

leverage a well-established supply chain

Overall competitive intensity

Medium

Key players Description GCC availability6 Global edible oil market share7

Adani Wilmar

Global operations: Adamni Wilmar’s ‘Fortune’ brand is the top edible oil brand in India as per the Nielsen Retail Index Report.8 The company generated an estimated $2.8 billion revenue globally in 2016.

Limited (not found on leading retailer websites)

43%

Muslim Mas

Global operations: Muslim Mas is a palm oil manufacturing company based in Singapore. The company is one of the largest vegetable oil refining businesses globally. In aggregate, the company generated $700 million of global estimated revenue in 2016.9

Limited (not found on leading retailer websites)

18%

Golden Agri-Resources

Global operations: Golden Agri-resources is a global agribusiness and consumer products company that offers palm oil products including cooking oil, margarine, shortening and specialty fats. The company generated an aggregate $7.2 billion of global estimated revenue in 2016 across all product categories.10

Limited (not found on leading retailer websites)

14%

Key GCC Players

Key players Description GCC availability

Savola Group

Global operations: Savola Group is a strategic investment holding group in the food and retail sectors across the MENA region. Products include edible oils, sugar, pasta and ghee brands available in over 30 conutries. Oils brands include Afia Oils, Al Arabi, Olie and Leeza. Afia Oils offers olive and sunflower oils. The company generated over $6.7 billion of global revenue in 2016 across all product categories.11

Savola’s edible oils brand Afia oils is available in leading retailers including Lulu, Alosra, and online at WafiApps.com.

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

7 Based on MSCI ESG Research and Chain Reaction Research statistics.

8 http://www.adaniwilmar.com/businesses/consumer-essentials?key=edible_oil, company website accessed on 25

August 2017. 9 http://forest500.org/rankings/companies/musim-mas, Muslim Mas profile on Forest500.org.

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

25 August 2017. 11

https://www.savola.com/en/about-us/savola/history. Company website accessed on 25 August 2017.

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Revenue – $30 million (0.6% of MENA market share) within 5 years of operation

Edible oils – core inputs by year

Price points - $ per kilogram, showing 2.4% CAGR growth

Volume – Kilograms in thousands, showing 52.7% CAGR growth

Market penetration – 0.6% by 2023

$1.20 $1.23

$1.26 $1.29

$1.32

$1.10

$1.15

$1.20

$1.25

$1.30

$1.35

2019 2020 2021 2022 2023

$ p

er k

ilogr

am

4,166.7 8,130.1

11,897.7

19,345.8 22,648.8

-

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

2019 2020 2021 2022 2023

Kilo

gram

s in

th

ou

san

ds

0.1% 0.2%

0.3%

0.5% 0.6%

0.0%

0.2%

0.4%

0.6%

0.8%

2019 2020 2021 2022 2023

Mar

ket

shar

e

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4 Market proposition, customer segments and key customers

Core product value proposition

High product quality, B2B focus: This project will support B2B demand for edible oils across the

region, primarily focused on Food Manufacturers, distinguishing itself from the Savola Group

which has robust retail operations

Local manufacturing: Made in the GCC, with the ability to quickly meet the needs of local

manufacturers, among which Mondelez would be a key manufacturer

Customer segments –

Segment Key targets

Geographical breakdown/ distribution

The top three markets within MENA by food and beverage spend in 2015 represent the core focus for business12

Key considerations:

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

Marketing strategy

Marketing represents 3.2%13 of revenues for similar companies In order to build a robust brand in the GCC, the following key steps must be taken:

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

Online business channels: Robust presence on leading online B2B websites, such as Alibaba and Dagang Halal Critical physical outreach: Presence at trade shows, including GulFood, to reach potential manufacturing customers, leveraging the essential support of the Ministry of Industry, Commerce and Tourism, as well as the BCCI

12

DinarStandard synthesis and analysis; State of the Global Islamic Economy Report 2016/17; BMI Research and National Statistics accessed on 10 August 2017. 13

Marketing as a share of revenue based on “Margarine and cooking oil production in the UK (2017)”,

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5 Land, set up and production requirements

Potential operating partners – leading global players could establish operations in Bahrain, but mid-

sized European players are a more realistic target

The following manufacturers represent potential operating partners:

Key players Logo Considerations Suggested conversation lead

Adani Wilmar

Attract leading global and well-established company to Bahrain to address MENA market. The company can be persuaded by the success story of Mondelez and scale, but will likely also consider other GCC locations.

EDB/ BIIP can lead the conversation, although, this opportunity should be de-prioritized as financial projections suggest it is not feasible. The Kerfoot

Group

Mid-sized UK-based manufacturer which can be convinced to establish operations in Bahrain

Location – setting up in Al Hidd14

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

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

Co-location with existing food companies with substantial space available: As of June 2017, BIIP has 120 projects from 27 countries, of which 87 are operational; a further 33 companies are at different stages of development, some under construction, some with signed leases and others which are finalizing leases. The projects approved to date account for a total investment amount of $1.8 billion (BHD 686 million). The BIIP has 9 food projects operational, 2 under construction, (both will be operational by end 2017) and are in the process of finalizing 6 leases.

Low-cost operations: When Benchmarked against eight other leading manufacturing free

Geographical highlight of recommended location

14

Information on location based on BIIP website and discussions with BIIP

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zones across the GCC, Bahrain had lowest annual operating cost of $1.65 million

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

Set-up considerations - $3.40 million in set up costs envisaged, with 25,000 square feet needed for

land and buildings

Areas Considerations Costs, $ in millions

Land acquisition Approximately 25,000 square feet of land is required (including space for external storage), with 20,000 square feet to be set aside for the building. Due to plans for BIIP to pre-construct smaller units, this project does not envisage the need for any construction or property purchase, with a lease being advised.

-

Construction 15 -

Operating machinery Cost of machinery and related Enterprise Resource Planning $2.20

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

$0.20

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

$0.13

R&D costs $0.18

Other expenses $0.12

Regulatory approvals Based on a review of key expenses17 $0.001

Total costs $3.40

Production process 15

Both lease requirements and machinery costs estimated through conversations with a U.S.-based and Canada-based manufacturing business, with a list of companies referenced in the Appendix of the Associated Market Study. Note that no firm quotes were obtained in the preparation of these estimates. Initial employee requirements discussed with the same companies and additionally validated with the BIIP. 16

The survey was completed in detail by nine companies, comprising two investment firms, one international distributor, one Bahrain-based government entity, and five Bahrain-based Food Manufacturing entities 17

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

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

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

Cost: The cost of machinery is estimated in total at $2.2 million (as referenced above), with a

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

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

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

Select leading food machinery manufacturers:

Name Country

United Kingdom

Japan

Iceland

United States

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

support annual production of ~24,000 thousand kilograms (26.4 thousand U.S. tons), or ~4,100

kg (4.5 U.S. tons) per hour, assuming 260 working days with three 7.5-hour shifts per day, with

capacity utilization at ~94% by year 518

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

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

substantially by manufacturer

Table: Key steps in the production process 19

Process steps Core equipment illustration20 Process description

(1) Oil seed pretreatment

Dehulling and separation

Oilseed cleaning

Seeds are treated to remove any impurities, including the outer cover, leaves, as well as any metal particles

18

Capacity based on discussion with one industry participant, with 24 hour operations verified through discussions with Mondelez and Awal Dairy; 0.5 hours from an 8 hour shift dedicated to clean-up 19

Based primarily on http://www.oilmillmachinery.net, accessed on 29th

August, supported by discussions with one industry participant 20

Individual pictures taken from a range of sources, and represents an illustration, rather than an endorsement of a specific brand. Sources comprise Alibaba (China-based online commerce website) and Henan Kingman M&E Complete Plant (Spain-based manufacturer of edible oils processing machinery)

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(2) Oil press

manufacturing Oil seed extractor

Solvent evaporator

Oil is extracted from the sunflower seeds via an extraction machine, with the illustration show doing so via rapid rotation. Heat and steam treatment is then used to remove any solvents remaining, through

(3) Refining Refining machine with Degumming vacuum

Deodorizer

Further processing removes impurities remaining in the oil, including phospholipids and gums which can be extracted and used for other by-products. The process makes the oil more edible and durable. Additional steps are taken to remove acids (neutralization), residual metals and soap (bleaching), waxes (dewaxing), and removal of any remaining materials and solids still present in the oil (deodorization)

(4) Packaging Filling machine

Places oil into final containers for onward transportation (her, bottle filling machine is shown, but requirements would differ for drum filling)

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6 Financial profile

Profit and loss account

Profitability Profitable business, generating EBITDA of $0.9 million by 2023

Revenues Single sunflower oil product driving revenues of $30 million within five years

Materials costs Materials represent a staggering 83 % of revenues, with sunflower seeds the core driver of costs

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Employment The production and management team ramps up to 19 individuals by 2023, with personnel cost accounting for 4.1% of revenues

Other overheads Marketing, personnel and production represent the core operating costs, with other costs in line with comparable companies in the Edible Oils industry

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Balance sheet, cash flow and returns

Balance sheet Total assets build up to $11.1 million by 2023, growing in line with business profitability

Cash flow Negative cash flows in the first five years, indicative of the financial challenges this venture is likely to face Working capital cycle is substantially negative and may require additional ongoing funding going forwards

IRR The venture is not feasible, generating a negative IRR, with insufficient recovery of investment

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7 Key regulatory requirements

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

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

complete

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

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

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

Commerce and Industry, and The Labor Market Regulatory Authority

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

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

establishing operational facilities

Figure: Overview of process for core registration and approvals

Table: Detailed steps in the regulatory approval process

Ref Step Regulatory entity/ counterparty

Description Timing21

1 Site selection

Bahrain International Investment Park

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

2 weeks

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

21

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

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Survey

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

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

3 Building design

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

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

3 months

4 Commercial registration

Ministry of Industry and Commerce

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

Passport (U.S./ GCC nationals)

Proof of residency

Company registration application form

Statement of finances

Feasibility study

Financial Auditor’s report

1 to 3 working days

5 Health registration

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

Commercial registration application form

30 working days

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Passport

Proof of address

Project drawings

6 Environmental approval

Environmental Authority

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

Up to 60 days for full environmental assessment

6 Site approval

Ministry of Municipality Affairs and Agriculture

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

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

Company application registration form

15 working days

7a Additional commercial registration

Bahrain Chamber of Commerce and Industry

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

~1-2 weeks

7b Hiring foreign employee

Labor Market Regulatory Authority

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

7-10 days on average

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8 Risks and success factors

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

Table: Exploring risks and success factors

Area Specific considerations Mitigating/ propagating actions

Potential upsides

Exporting beyond MENA/ diversifying product and channels: o There is a substantial opportunity

beyond the MENA region, serving other OIC markets, such as Turkey and Malaysia, as well as Muslim populations in non-OIC countries

o Furthermore, other channels can be explored, such as food service and retail, and production can be diversified to include other types of oil

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

An effective R&D/ product development and sales team is needed to drive product and channel diversification

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

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

Key Risks

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

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

Lack of market acceptance of product and/or pricing: Despite strong market growth projected, the brand may not be fully accepted in the MENA market

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

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

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

Other considerations

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

Further investigation is required in a full feasibility study.

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9 Objectives and methodology

9.1 Purpose

Objectives

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

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

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

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

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

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

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

stakeholders and leading multinational Food and Beverage Companies.

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

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9.2 Methodology

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

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

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

Primary research

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

employees, at the following organizations:

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

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

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

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

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

Switzerland

Bahrain-based entities:

o Economic Development Board

o Bahrain International Investment Park

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

Senior Management: CEO/ Founder; COO

Managerial staff: Sales Director; Head of Product; Marketing Manager; Business

Development Manager

Surveys

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

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

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

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

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9.3 Acknowledgements

Supported by:

The Gulf Organization for Industrial Consulting (GOIC)

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

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

2009, Yemen joined the Organization.

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

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

international legal personality.

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

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

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

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

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

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

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

data and studies.

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

state representatives appointed by their governments.

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Produced by:

EY

In collaboration with:

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DINARSTANDARD™

Report Team

Report Coordinators

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

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

Report Advisors

Ashar Nazim, Partner, EY

Rafi-uddin Shikoh, Managing Director, DinarStandard

Report Authors and Lead Analysts:

Haroon Latif, Director, Strategic Insights, DinarStandard

Shiraz Mohyuddin, Senior Manager, EY

Research Analysts

Yaser Al Mohsen, Senior Analyst, EY

Yasir Malik, Senior Analyst, DinarStandard

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

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

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

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

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

institutions, halal market startups and NGOs.

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10 Core model inputs

10.1 Revenues

2019 2020 2021 2022 2023 Source/ supporti

Gross revenues

Product – Edible Oils (drum)

100% 100% 100% 100% 100% Full production focus on drums

Volume (kgs in 000s) 4166.7 8130.1 11897.7 19345.8 22648.8 Volumes are calculated/ Prices based on feedback from one leading market participant, based on review of multiple price quotes Retail price per kg $1.20 $1.23 $1.26 $1.29 $1.32

Price increase % 2.5% 2.5% 2.5% 2.5% Consumer inflationii

Average price ($/ kg) $1.2 $1.2 $1.3 $1.3 $1.3 Calculation

Gross revenues, $ in millions 5.0 10.0 15.0 25.0 30.0

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

Addressable market size, $ in millions 4021.3 4234.5 4458.9 4695.2 4944.1

Synthesis of various sourcesv

Market share 0.1% 0.2% 0.3% 0.5% 0.6%

Net revenues

Sales channel

Direct to manufacturers 100% 100% 100% 100% 100% Initial split based on direct sales in top three MENA Distribution/ Retail 0% 0% 0% 0% 0%

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meat consumption markets, with direct sales operations increasing over timevi

Sales costs Based on feedback from three credible market participants

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

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

10.2 Direct costs

Materials volume (Kg's

per kg of output)

2019 2020 2021 2022 2023 Source/

support

Sunflower seeds 1.5 1.5 1.5 1.5 1.5 Based on feedback from one credible market participant, triangulated with external market datavii

Plastic packaging 0.1 0.1 0.1 0.1 0.1 Total materials delivered by ship 0.500 0.500 1.538 1.538 1.538 Total materials delivered by crate 1.538 1.538 0.000 0.000 0.000

Materials cost

($ per kg of material)

Sunflower seeds $0.50 $0.51 $0.52 $0.53 $0.55

Flexible packaging $4.50 $4.61 $4.73 $4.85 $4.97

Transportation and other direct

costs (per kg)

Pre 25 tons (5,000 miles) $5.25 $5.38 $5.52 $5.65 $5.80

Based on a recent quote shared with market participantviii

1000 tones (10,000 miles) $0.09 $0.09 $0.09 $0.09 $0.10 Full ship (10,000 miles) $0.07 $0.07 $0.07 $0.07 $0.07 Cost inflation 2.5% 2.5% 2.5% 2.5% Consumer

inflationix

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

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10.3 Overhead costs

2019 2020 2021 2022 2023 Source/ support

Personnel costs

Number of employees

Senior Management (CEO/ COO)

2 2 2 2 2 Number of employees based on credible inputs from one market participant, validated against external benchmarksx

Marketing Manager

1 2 2 2 2

Sales Manager 1 3 3 3 3 Plant Manager 1 1 1 1 1 Finance Manager 1 1 1 1 1 Shift workers (full-time)

1 3 3 3 4

Administration Staff

1 2 3 3 3

IT staff 1 1 1 2 3

Total staff 9 15 16 17 19

Annual cost per employee ($ in 000s)

Senior Management

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

Marketing Manager

66.5 68.1 69.7 71.4 73.1

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

15.8 16.2 16.6 17.0 17.4

Administration Staff

14.2 14.5 14.8 15.2 15.6

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IT staff 66.5 68.1 69.7 71.4 73.1

Wage inflation 2.5% 2.5% 2.5% 2.5% Consumer inflationxii triangulated with a study on wagesxiii

Utilities costs

Usage/ volume

Electricity (kwh in 000s) 2,046.5 2,046.5 2,046.5 2,046.5 2,046.5

All utility usage and cost data based on KPMG Manufacturing studyxiv

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

Other utilities 0.0 0.0 0.0 0.0 0.0

Costs per unit

Electricity ($ per kwh) 0.05 0.05 0.05 0.05 0.05

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

Other utilities 0.0 0.0 0.0 0.0 0.0

Inflation 2.5% 2.5% 2.5% 2.5% Consumer inflationxv

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

Rental

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

information provided by BIIP

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

Land requirements (sq feet) 25,000 25,000 25,000 25,000 25,000

Space requirements based on discussions with two industry participants

Facility space (sq feet) 20,000 20,000 20,000 20,000 20,000

Inflation 2.5% 2.5% 2.5% 2.5% Consumer inflationxvi

Total rental cost ($ in millions) $0.2 $0.2 $0.2 $0.2 $0.2

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Other operating

costs

Marketing (% of gross revenues)

3.2% 3.2% 3.2% 3.2% 3.2% Based on IBIS World Sector Studies and benchmarksxvii

Other (% of gross revenues)

5.8% 5.8% 5.8% 5.8% 5.8%

Total other operating costs ($ in millions)

$0.5 $0.9 $1.4 $2.3 $2.7

10.4 Capital expenditures and upfront investment

2019 2020 2021 2022 2023 Source/

support Machinery - cost ($ 000s)

Food production total ($ in 000s)

2,000.0 Machinery costs based on discussions with three industry participants with respect to output targets over the project life-cycle

Machinery related IT spend ($ in 000s)

200.0

Annual running costs ($ in 000s)

Food production ($ in 000s)

200 200 200 200 200

Associated IT systems ($ in 000s)

20 20 20 20 20

Land and facility

construction expenditure

Physical requirements

Land (square feet) 25,000 25,000 25,000 25,000 25,000 Space requirements based on discussions with two industry participants

Operating space (square free)

20,000 20,000 20,000 20,000 20,000

Other capital

expenditure

Pre-revenue personnel, $ in millions

$0.4 Based on discussion with BIIP confirming need for two managers

Technology investment, $ in millions

$0.2 Survey feedback across nine participants

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R&D costs, $ in millions

$0.4 indicating cost per square foot across key categoriesxviii

Other expenses, $ in millions

$0.3

Registration expenses, $ in millions

$0.0 Based on registration costsxix

10.5 Other pertinent inputs

2019 2020 2021 2022 2023 Source/ support

Working capital

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

Payable days 33.8 33.8 33.8 33.8 33.8

Inventory days 39.3 39.3 39.3 39.3 39.3

Other days 24.8 24.8 24.8 24.8 24.8

Depreciation

Property, plant and equipment

16.5 16.5 16.5 16.5 16.5 Savola Group Average Depreciation policyxxi

Financing

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

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

Exit multiple

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

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Harris Williamxxiv studies

i Refer to “Objectives and Methodology” for survey description and list of market participants ii “GCC Food Industry Report”, Alpen Capital, 2017

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

triangulated with project coordinators from the Gulf Organization of Industrial Consulting (GOIC) iv

Maturity profile based on DinarStandard’s synthesized learnings of an appropriate scale-up for new entities, based on a review of business plans for over five food companies and three startups organizations, triangulated with one credible industry participant v Derived using Transparency Market Research edible oils statistics for the GCC region. Euromonitor CAGR for

MENA Edible Oils growth and the MENA edible oils market was calculated by multiplying the GCC edible oils market by the scale factor (3.3) of total food and beverage consumption the MENA represents in comparison to the GCC from Business Monitor International statistics for 2015. vi

Percentage reflects BMI estimates on meat spend by country within the MENA region, 2015 vii

Based on discussions with a credible market participant, who had recently observed quotes from a European and Canadian company and could credible discuss usage requirements, with usage of sunflower seeds per kilo of output validated by http://www.soyatech.com/sunflower_facts.htm, accessed on 28

th August, 2017

viii Costs based on quotes received by credible market participant regarding the cost of shipping 1,000 tonnes

versus a full ship (12,500 ton capacity) ix “GCC Food Industry Report”, Alpen Capital, 2017

x Two Indian Edible Oils manufacturers were used as benchmarks, with revenues ranging from $130 and $150

million in 2016. Employee costs average 4.6% of revenues, broadly in line with 4.1% in this project by Year 5, with proportion further validated by one credible industry participant. xi “Cost of doing business in Bahrain – Manufacturing”, KPMG, 2016

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

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

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

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

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

xvii Marketing as a share of revenue based on “Margarine and cooking oil production in the UK (2017)”, IBIS World;

Other based on the weighted average of two Indian companies with revenues between $130 and $150 million in 2016 – with share of revenue ranging from 7% to 20%, lower end of the scale based on feedback from one credible industry participant

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xviii

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

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

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

August 2017 xxi

Savola Group Financial Accounts, 2016 xxii

Savola Group Financial Accounts, 2016 xxiii

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

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