CASE: Tate and Lyle Introduction The sugar industry Tate & Lyle The company Project History Financing the Project Project Evaluation Conclusion
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
World Sugar Industry in 1997 Among few agriculture commodities: developed countries compete with developing countries
tariff & non-‐tariff barriers Around 1995 1997: drop in sugar price
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
How Do We Get Sugar?
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Developing country Long recession Agriculture contributed nearly half GDP
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Sugar production:
Labor intensive: 1-‐ 7.5 tons/ day vs. modern mill: 5000 tons/ day Low extraction rate
Sugar market:
Demand: high Price: high Import tariff: 30%
Ministry of Agriculture Food Industry: increase domestic sugar production
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Tate & Lyle: -‐ Formed in 1921 -‐ Based in London -‐ and raw sugar -‐ Sales in 1997: 5 047 million
Tate & Lyle: Today
-‐ Sales 3 553 million (year ended 31 March 2009) -‐ Two global business units
-‐ Speciality Food Ingredients (sweeteners, texturants, wellness ingredients) -‐ Bulk Ingredients (high fructose corn syrup, acidulants)
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Tate & Lyle: -‐ Tate & Lyle operates mainly in two industries
-‐ Corn wet milling -‐ High-‐intensity sweeteners
-‐ Over 30 production facilities and network of research centers throughout the Americas, Europe and South East Asia -‐ Four markets:
-‐ Food and Beverage -‐ Industrial -‐ Animal feed -‐ Pharmaceutical and Personal Care
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project History Nghe An
Per capita income: about 2/3 of national average Poor health service 91% literacy rate 75 % farmer households Only basic infrastructure
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Nghe An
Project area
Project History The plan
Built sugar mill and refinery
Better infrastructure built by Nghe An government
Plan to complete it until November 1998 capacity of 330,000 tons of cane for that season Plan to reach ultimate capacity in November 2002 Ultimate capacity of 900,000 tons of cane per year
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project History The plan
Built sugar mill and refinery Outreach program to farmers Better infrastructure built by Nghe An government
Farmers in an area of 50 km To reach full capacity: 18.000 hectares of cane from 22.000 farmers necessary
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project History The plan
Built sugar mill and refinery Outreach program to farmers Better infrastructure built by Nghe An government
Government agreed to spend $800.000 Tate & Lyle expected infrastructure to be ready by 1998/1999 harvesting season 300 trucks necessary to transport cane during harvesting season
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project History Project Risks
Farmers sell (enough) cane Government does not improve infrastructure in time Not enough truck hauliers available Sugar prices might continue falling
Start of construction 1996 Finished 1998
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project Timeline:
Investment license Start of Construction 1st ICF request Bridge loan from Rabobank Completion of Construction 2nd IFC request
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
Financing the Project:
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
In February 1996: Investment license
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project:
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
In September 1996: Start of Construction
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project: -‐ Total cost $90 million -‐ 70% debt Highly leveraged capital structure Equity partner -‐ Mitr Phol Sugar Company -‐ Vietnam Fund Limited -‐ Nghe An Sugar Company Bank debt -‐ Western banks -‐ Thai banks -‐ Bilateral agencies
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project:
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
In October 1996, first IFC request
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
International Finance Corporation (IFC): -‐ Founded in 1956 -‐ Based in Washington D. C. -‐ Member of the World Bank Group -‐ Owned by 182 member countries, authorized share capital of $2,4 billion -‐ financing for private sector projects Aim:
-‐ Reducing poverty and improving lives -‐ Stimulation of economic growth Private sector investments in developing
countries
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Criteria, to be eligible for IFC funding: -‐ Location in a developing country that is a member of IFC -‐ Private sector -‐Technically sound -‐ Good prospects of being profitable -‐ Benefit the local economy -‐ Environmentally and socially sound
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
IFC Participation: -‐ Protection against political risks in Vietnam -‐ Tax advantages
-‐ IFC loans are exempt from withholding taxes -‐ Payments to other foreign banks would be subject to a 10% withholding tax on top of the interest element of debt services
-‐ Reserve requirements eliminated
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project Sources and Uses (US$ millions):
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Major concerns of IFC: -‐ Provision of a sufficient amount of cane from local famers -‐ Implementation of infrastructure by the government -‐ World sugar price is falling -‐ Protection of local sugar production BUT: -‐ Large social benefits
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
In October 1996, first IFC request without success
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
Proceeding with construction due to bridge loan from Rabobank ($40 million) plus equity and local credits
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
End of 1998: Completion of construction
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998
Major concerns: -‐ Not enough cane -‐ No completion of the infrastructure -‐ Need of repayment of Rabobank loan
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Financing the Project
Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998 Second IFC request
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Cash Flow Forecast (if IFC refinances the NATL project)
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Cash Flow Forecast (if IFC refinances the NATL project)
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Cash Flow Forecast (if IFC refinances the NATL project)
-‐ EBITDA: Earnings before Interest, Tax, Depreciation and Amortization = Revenue Expenses (excl. Interest, Tax, Depreciation, Amortization) -‐ EBIT: Earnings before Interest and Tax (Operating Income) = Revenue Operating Expenses ( Expenses, excluding Tax and Interest ) = EBITDA -‐ Depreciation -‐ EBIAT: Earnings before Interest after Taxes = Revenue COGS -‐ Expenses, including Tax and excluding Interest = EBIT -‐ Taxes -‐ Nominal free cash flow: cash flow in absolute terms, without adjusting for inflation -‐ Real free cash flow: cash flow in current purchasing power, adjusted for inflation
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project Evaluation Are falling Sugar prices only temporary or permanent? Does the Project contribute to sustainable development? -‐> Evaluated via the ERR (Economic rate of return) ERR = all costs and benefits from a social perspective (FRR = Financial rate of return)
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project Evaluation ERR
Employees
Financiers (FRR)
Customers
Producers of Complementary
Products
Competitors & New Entrants
Rest of Society
Neighbors
Suppliers
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project Evaluation ERR
Employees
Financiers (FRR)
Customers
Producers of Complementary
Products
Competitors & New Entrants
Rest of Society
Neighbors
Suppliers
Cane farmers Truck hauliers
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Project Evaluation ERR
How would you decide?
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Conclusion
Agree to finance the project Ensure ongoing compliance with World Bank guidelines during the life of the project:
Monitoring reports by NATL Periodic site visits.
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Current situation World standard efficiency and environmental performance Largest sugar producer in Vietnam: 12000 tons/day, 120 000 metric/ year, 10% of domestic production. Sugarcane productivity: 120 130 tons/ha
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Social impact 28,000 cane farmers, 50% minority ethnic groups $16 million per year to farmers and cane transporters
Cash flow into poor area increased x 4 Living standards: motorbikes, TVs, houses, roads Technology transfer
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Thank you for your attention!
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Quiz:
How long did it take to build the plant? How many farmers were needed to produce full capacity?
Name 3 major project risks How is the method to evaluate the project called? Name 3 groups affected by the project
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion
Sources: Internet:
http://www.tateandlyle.com/Pages/default.aspx, 18. April 2011 http://www.ifc.org/, 18.April 2011 http://www.investopedia.com/, 20. April 2011 http://www.isgmard.org.vn/What%20is%20ISG/Plenary2004%20Docs/NAT&L-‐e.pdf , NAT&L, 9 Nov 2004
http://www.tateandlyle.com/InvestorRelations/ResultsandPresentations/Documents/2010/USDResults_for_Six_Months_to_30_Sept_2010PR.pdf, 4 November 2010
http://www.unctad.org/en/docs//webdiaeia20111_en.pdf, 17 January 2011
Books:
Esty, C. E. (2004). Modern Project Finance. Boston: Harvard Business School Publishing
Outline
The sugar industry
Tate & Lyle The
company
Project History
Financing the Project
Project Evaluation
Conclusion