Capital Markets Department

Kodra Wood – investments into a lumber processing complex in Ukraine. The investment opportunity offers to participating in the launch of a high-income lumber processing company in Ukraine. The local partner is one of the largest Ukrainian lumber traders having an average annual turnover of 250 thousand cubic meters. Within the framework of the investment project a full-cycle lumber processing company with 95% usage of raw materialswill be created. The company’s activities will be directed at exporting 36 thousand cubic meters of lumber products to growing Chinese and Turkish markets and processing of production waste in order to ship 36 thousand cubic meters of solid biofuels (pellets, briquettes) to the largest consuming markets of Europe. The advantages of the project: large resource base, cheap production costs, vast experience of the local partner in the timber industry of Ukraine. The company’s investment plan assumes attracting 2.6 mln USD of investment capital for 5 years. The financial forecast provides an IRR above 26.8%. Factors of Investment Attractiveness High income level... Low costs for raw material and high processing levels (up to 95% of raw material usage) allow to obtain an EBITDA margin of 22-23%, providing and IRR of 26,8% (excluding the investor’s exit from the project). Experience of local partner… The local partner of the project is the largest lumber trader certified by the National Forestry Agency of Ukraine, selling annually around 250 000 cubic meters of lumber and lumber products to the China, Turkey and India. The company has recommendations from the largest lumber traders of the Turkish and Chinese markets. Access to a strong resource base… The project will be allocated in one of the richest with woods regions of Ukraine. Deforestation within a 50 km zone from the company exceeds the need of lumber for production by 5 times. In 2012 the local partner exported 100.2 thousand cubic meters of lumber from the region of the projects realization, exceeding the production requirements by 1.7 times. Low costs… Ukraine has one of the lowest levels of wages in Europe. The average monthly salary of a lumber processing complex employee in Ukraine is 240 USD per month, in Russia – 600 USD per month, in Sweden – 3 500 USD per month. Favourable allocation… The company is favourably located for shipment of solid biofuels to Europe - 400 km distance to Poland, and for exporting to Turkey and China - 500 km distance to seaports. Experience in business sale… In 1999-2001 the company’s management team successfully sold a lumber processing plant located in Korostyshiv, Zhytomyrska Oblast, Ukraine. The plant was built and launched within 8 months, annually processed 100 000 cubic meters of lumber, and returned the invested capital within 1.5 years. After 4 years of operation the plant was sold to a local strategic investor. The plant continues to operate as of today. Exit strategy for investor… In 2019, 100% of the company’s capital will be sold to a strategic investor (after a complete investment return and obtainment of profits). Previously, the local partner conducted negotiations which showed that specialized European companies (Schweighofer, Klausner-Group) are interested in entering the Ukrainian market.

Key Figures 2013-2018F

Investment Period

2 672.1

Investment Total, thousand USD

2018F

Exit Year of Project Investor’s Net Profit, thousand USD

5 686.9

Investor’s IRR *

26.8%

Investor’s ROI

209.8%

*excluding the sale of the company's equities Structure of Ownership Post-Money

70%

30%

Local Partner

New Investors

Financial Figures of the Project Thousand USD

2014F

2015F

2016F

2017F

2018F

Income

3 135

9 309

9 309

9 309

9 309

Cost

2 324

6 946

6 946

6 946

6 946

704

2 150

2 150

2 150

2 150

EBITDA Margin, %

22,4%

23,1%

23,1%

23,1%

23,1%

Net Profit

413

1 450

1 450

1 450

1 450

Net Profit Margin, %

13,2%

15,5%

15,5%

15,5%

15,5%

EBITDA

*12 months of project realization are considered in a year.

For investing matters, please address: LLC “PRO-Capital Group” 11 Predslavynska str. Kyiv, Ukraine 03680 Tel.: +38 044 591 52 52 Fax: +38 044 591 52 62 www.pro-capital.com.ua

DmytroOliynyk Cofounder, Managing Partner [email protected]

AntoninaGapchenko Director, Capital Markets [email protected]

Investment Offer“Kodra Wood”

GeneralCharacteristics and analysis of the Target Market The Lumber Market China is one of the largest lumber consumers in the world. As of today, lack of lumber is a serious issue in China. The demand for lumber products by various sectors of the Chinese industry is increasing annually. The forecasted demand for lumber in the construction sector of the People’s Republic of China in 2015 would reach 330-400 mio cubic meters. If considering that the annual demand for lumber in China would be increasing at an average of 34%, then by 2020 the volume in demand would reach 600 mio cubic meters, and the supply and demand misbalance problem will be of even greater concern. In addition, in the past few years, China is not only lacking lumber resources, its own lumber is characterized with poor quality, and it is continuously shortening shipments while the internal demand of the market is growing daily. Therefore, the country is demonstrating a growing tendency of increasing lumber imports.

Consuption of Lumber in China, mio m3. 350

China play a key role in the international trade of lumber products by being the largest importer of business round wood, lumber, paper, and recycled paper as well as by being the largest exporter of wood-based panels. Lumber imports of China have doubled from 2009 to 2011 and reached 23 mio cubic meters, exceeding US imports by 7 mio cubic meters. China’s market share in the global market of lumber imports equalled 16%. Most of the lumber materials shipped to China are exported from North America, Russia, and other countries of Asia. In the past two years these countries withhold 80% of the Chinese lumber imports among themselves.

Resource: FAO

In 2011 China bought a total amount of lumber materials worth USD 6.1 billion, which is more than the previous year’s capacity by 43%. The market cost of imported lumber materials from coniferous tress was worth USD 3.3 billion, while the market cost of imported lumber materials from deciduous trees was worth USD 2.8 billion. The average price of the purchased lumber equalled USD 267 per cubic meters, which is higher than last year’s price by 1%. The average price for imported coniferous lumber equalled USD 210 per cubic meter, while the imported price for imported to China deciduous lumber equalled USD 392 per cubic meter.

Demand

300

Production

250

Import 200 150 100 50 0 2010

2015

Largest Importers of Lumber Materials, m3 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 China 2009

USA 2011

2010

Japan

Resource: FAO

Avg. Price of Imported Lumber Materials to China, USD/m3. 290 279

276

280 270

264

267

260 Key Reasons for China’s Growing Imports: 1. Significant growth of China’s urban population caused high construction growth rates in the country, sharply raising the demand for lumber products. 2. China engaged into consuming the raw material of foreign countries with the aim to increase the exports of ready-made products. This corresponds to not only China’s policies for saving its own forest resources, but also to receiving added value. Policies in China’s interest – production growth, increase in employment rates, development of technologies, increase in treasury revenues. The Chinese lumber processing technologies are predominately orientated on cheaper types of woods for the purpose of providing them exterior characteristics of more expensive types of woods.

250 240 237

230 220 210 2007

2008

2009

2010

2011

Resource: FAO

Urbanization of China, % 70% 60% 50% 40% 30% 20% 10% 0% 1950 1960 1970 1980 1990 2000 2010 2020F 2030F

Resource: FAO

January 2013

2

Investment Offer“Kodra Wood”

Production and Consumption of Pellets in Europe, mio. tons Market of Solid Biofuels The market of solid biofuels of Western Europe has developed thanks to the policies directed to lowering the dependence from Russian gas imports conducted by the EU and separate countries. As of today, Germany and other developed countries have expanded their infrastructure making it possible to lower the shipment costs and use of pellets for private household use and communal thermal electric companies. These measures are acknowledged within the framework of European legislative acts noting that EU countries need to increase the share of alternative energy usage in their energy balance. By 2020 the share of alternative energy in the balance will reach 20%. The consumption of pellets in the EU will rise to 35 mio tons, Europe being already the largest market of solid biofuels will continue withholding the leading position.

40 35 30 25 20 15 10 5 0 2010

2011

2020F

Production

Consumption

Resource: DEPV

Europe’s production of pellets is not capable of supplying the needed demand. The total production of pellets in 2011 totalled 9.2 mio tons while the consumption was 11.4 mio tons, showing a misbalance in European production and consumption of solid biofuels. The average cost of pellets in Germany is stably on one level of around EUR 23 per kilogram, being the largest producer of pellets in Europe it is still unable to satisfy the whole demand on the market. ThecostofonekWhofenergyproducedfrompelletsis 4.66 cents, which is 4.29 cents cheaper than energy produced from fuel-oil. The demand for solid biofuels in thermal power plant usage is continuing to sharply increase as the average cost of 1 kWh of produced energy from gas equals 6.79 cents.

Forest Industry of Ukraine The forest industry is one of the most important elements of Ukraine’s economic potential. The area of Ukrainian woodlands has increased by 11% in the past 20 years and equals 9.6 mio hectares. The percentage of forest land is above 15% committing to a total timber stock of above 2.1 mio cubic meters. The main types of products produced by the forestry enterprises are lumber, chipboard and fibreboard, plywood and furniture. The greater share of the forestry enterprises is located in the western regions of Ukraine (Zakarpatska, Ivano-Frankivska, Chernivetska, Lvivska, Rivnenska, and Volynska Oblasts). These regions produce 41.8% of all of the products in the industry. In addition, large production capacities are located in industrially developed regions – Kyivska, Dnipropetrovska, and Donetska Oblasts. The majority of the produced lumber products are exported. In 2011 the production of lumber products in Ukraine reached 1.9 mio cubic meters, including 1.5 mio cubic meters of lumber products out of coniferous wood and 0.4 mio cubic meters out of deciduous woods. The lumber exports from Ukraine in 2011 increased by 10% and totalled 1.5 mio cubic meters, amounting to USD 285.5 mio. The cost of deciduous woods is twice higher than of coniferous woods in Ukraine. The main importers of Ukrainian lumber products are the following: Romania, Slovakia, and Turkey.

Cost of 1 kWh of Energy Produced from Oil Fuel, Gas, and Pellets 10

Oil Fuel 8.95 cents/kWh

8 Gas 6.79 cents/kWh

6

Pellets 4.66 cents/kWh

4 2

Resource: DEPV

Forests of Ukraine 12,000 10,000

9,400

9,491

9,574

8,621

8,000 6,000 4,000 2,000

1,320

1,736

1,900

2,102

0 1988

1996

Forest area, th. Hectares

2002

2011

Lumber supply mio m3

Resource: National Agency for Forest Resources of Ukraine

In 2011 Ukraine produced 200 thousand tons of pellets. The main production capacities of pellets in Ukraine are situated in the Kyivska and Zhytomyrska Oblasts. Zakarpatska, Chernigivska, and Chernivetska Oblasts are next in production capacity of pellets. The consumers of pellets in Ukraine are predominately private households. The demand for pellets is low due to a lack of awareness among the population and high prices for heating equipment. In this regard

January 2013

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Investment Offer“Kodra Wood”

Ukrainian pellet producers chiefly export the produced products abroad – 90% of produced in Ukraine pellets are exported to European countries. The key sales markets are represented by Poland, Germany, Slovak Republic, Lithuania, Czech Republic, Italy, Denmark, Austria, and Sweden. Pellets produced out of straw are used as technical fuels for heating of companies and thermal power plants. Solid fuels made out of woods are mostly used for heating households, cottage settlements, and partially for entities. Advantages of pellet and lumber product production in Ukraine:  Vast forest areas (large and cheap raw material base).  Favourable allocation, proximity to borders with the EU – main importers of pellets.  Cheap labour, low net costs.

ForestationbyOblasts (2011) Location of Project

33.3% 22.2%

Forestation, % 0-5 5-10 10-15 15-30 30-60

Resource: National Agency for Forest Resources of Ukraine

January 2013

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Investment Offer“Kodra Wood”

Structure Analysis of the Investment Offer Structure of Financing, Investor’s Share InvestorsareofferedaprojectbyPREMIERTRADEANDCONSULTINGLTD, assuming the establishment of a production complex in lumber processing in the North of Ukraine in the Kyivska Oblast. The total amount of required financing – USD 3 872 thousand.  Amount of attracted equity capital – USD 2 710 thousand (70%)  Contribution of the local partner – USD 1 161 thousand (30%)

Structure of Ownership Post-Investment

YuriyDymchoglo Димчогло 30%

New Investors 70%

The distribution of equity capital and profits corresponds to the invested capital. YuriyDymchoglo is PREMIER TRADE AND CONSULTING LTD’s representative in Ukraine and is the local partner of the investment project.

Kodra Wood

PREMIER TRADE AND CONSULTING LTD is the largest lumber trader, authorized by the State Forestry Agency of Ukraine, and exports about 250 000 cubic meters of timber and timber products per year to China, Turkey and India.The company has good recommendations from Latvian banks based on a long-term cooperation. Also PREMIER TRADE AND CONSULTING LTD has active contracts for wood shipping with Ukraine’s largest ports, such as Odessa and Belgorod-Dniestrovsky. Project Team Name

YuriyDymchoglo

Age

39

Education

Higher

Experience 

Since 2009andtillnowisdevelopingtheactivityofthePREMIERTRADEANDCON SULTINGLTDcompany which has been annually dynamically growing its revenues and has been acknowledged as a stable partner of Ukrainian state forest companies for purchase and trade of Ukrainian lumber products to the Turkish and Chinese markets.



Since 2003 tillnowisthefounderanddirectorof “BOSFORLES” company, dealing with lumber trading and servicing of Ukrainian forestry companies.



1997 – 2003 – Deputy executive officer and later chief executive officer of a Ukrainian-Turkish “ASLES LTD” company, owning a lumber processing plant in Zhytomyrska Oblast, Ukraine, and a lumber warehouse in the Belgorod-Dniestrovsky port. Since 1997 is operating in the forest industry of Ukraine.



Experience in establishing lumber processing businesses. In 1999-2001 succeeded in establishing a lumber processing company in Korostyshiv, Zhytomyrska Oblast, Ukraine. The plant was built and launched within 8 months, annually processed 100 000 cubic meters of lumber, and took 1.5 years for the investment payback period. After four years, the plant was sold at exceeding the invested into it capital, and continues to function as of today.

Investment Use The main investment target is the establishment of a production complex in lumber processing for production of lumber products and wooden pellets out of lumber processing waste.

January 2013

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Investment Offer“Kodra Wood”

Target Use of Investments, USD

Direction of Investment Usage

Real Estate

1 176 471

Equipment (pellets)

935 686

Equipment (industrial wood)

852 758

Equipment (briquettes)

277 843

Machinery

323 529

Working Capital

306 373

Real Estate

7% 8%

Pellet Equipment

31%

8%

Lumber Material Equipment Machinery

22%

Current Assets

24%

Briquette Equipment Total

3 872 661

Project Description

Company location

The investment assumes financing the establishment of a lumber processing company with a complete processing cycle: I. Purchase of round wood. II. Processing of round wood into sawn timber (beams, boards, blanks). III. Processing of wood waste into wooden granules (pellets, briquettes). IV. Product export.

Kyiv

Forestation, %

95% of raw material usage.

0-5

Location – Kodra village, Kyivska Oblast, Ukraine.

5-10 10-15

Area of production complex – 9 hectares.

15-30 30-60

Real Estate

Capacity of Equipment

Woodworking Department

1500 кв. м.

Sawn wood, cubic meters.

3000

Pellet Manufacturing Department

1000кв. м.

Industrial pellets, tons.

1000

Administrative Building

500 кв. м.

Consumer pellets, tons.

1000

Briquettes, tons.

1000

Product

Sawn Wood

The project assumes the production of the following sawn timber: 

 

Beams–sawntimberisproducedfromlogs, trimmed at four sies in the factory. Timberbeamsareused for floor beaming, logs, trusses, and stairway supports. Edgedboard–isaboardwithtrimmedoffbarkatthesideedges. Productionofeuropallets– trimming of boards and beams for the use in wooden pallet production.

Pellets-areatypeofsolidbiofuels, produced by mechanical change of biomass. Woodengranules–is a normatively cylindrically pressed product made of wooden waste (flour, chips, wood chips, and forest chips).   

Consumer pellets – used in private households. Industrial pellets – used by industrial companies. Briquettes – usedassolidbiofuelsforfireplaces and stoves of various type, including solid-fuel boiler heating systems.

Pellets

The produced solid biofuels will be export oriented. Therefore, the company will be producing in accordance to European quality standards, in particular: DIN, DINplus, ONorm, SS.

January 2013

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Investment Offer“Kodra Wood”

Resource Base in the Production Region For 100% productioncapacitythecompanywillneed 60 000 cubicmetersofroundwood for the production of lumber and an annual 126 000 cubic meters of lumber waste. Therequiredvolumeofrawmaterialwillbepurchasedfromfourforestryfarmswith ina50 kmradiusfromthecompany:  -

SOE “Makarivskiy Forest Farm” – forest area 26 540 hectares; Coniferous logs – 18 000 cubic meters a year; Deciduous logs – 7 000 cubic meters a year; Coniferous sawlogs – 42 000 cubic meters a year;

 -

SOE “Tetrevskiy Forest Farm” – forest area 35 900 hectares; Coniferous logs – 12 800 cubic meters a year; Deciduous logs – 6 700 cubic meters a year; Coniferous sawlogs – 68 000 cubic meters a year;

 -

SOE “Klavkiivskiy Forest Farm” – forest area 22 090 hectares; Coniferous logs – 15 400 cubic meters a year; Deciduous logs – 6100 cubic meters a year; Coniferous sawlogs – 42 000 cubic meters a year;

 -

SOE “Radomyshlskiy Forest Farm” – forest area 27 720 hectares; Coniferous logs – 14 700 cubic meters a year; Deciduous logs – 5 900 cubic meters a year; Coniferous sawlogs – 38 000 cubic meters a year.

Within a 50 km radius of the company there are four forest farms with a total forest area of 112 250 hectares. The total annual volume of deforestation is 276 600 cubic meters – 4.6 times exceeding the company’s needs. In 2012 the company owned by the local partner exported from the following forest farms more than 100.2 thousand cubic meters of lumber – this volume exceeds the production needs by 1.7 times. Thepelletproductionneedforwoodwaste will be supplied by the company’s own production waste, as well asby purchasing the wood waste from the forest farms.

Production Plan Production Plan The production plan was formed with consideration of the equipment’s production limits and an analysis of the resource base’s sufficiency. Duringtheproductionoflumbermaterial, the raw materials needed for pellet production will also be produced. The financial model of the investment includes the technical maintenance expenses of the production equipment that the company will bear from providing a continuous operating cycle. In addition, all of the equipment to be used will be new, and the company expects that technical problems related to breakdowns in the first 5 years will be less likely.

Lumber products, m

3

2014F

2015F

2016F

2017F

2018F

11000

36000

36000

36000

36000

Industrial pellets, tons

4500

12000

12000

12000

12000

Consumer pellets, tons

4500

12000

12000

12000

12000

Briquettes, tons

4500

12000

12000

12000

12000

*12 months of project realization are considered in a year.

January 2013

7

Investment Offer“Kodra Wood”

Product Sale Pellets Main Export Destinations of Ukrainian Pellets Pellets and briquettes will be exported to countries of the European Union (Polan, Czech Republic, Germany). Today’s average price of wooden granules on the Ukrainian market is USD 104 – 117, while the average prices of such products among the European markets fluctuate between USD 230 and USD 280 per ton. In this regard the company plans to export 100% of the made products with the following pricing policy: consumer pellets – USD 133 per ton, industrial pellets – USD 108 per ton, and briquettes – USD 95 per ton. As of today the company made and continues to update a database of potential clients of its products (Poland, Czech Republic, and Germany). The company has engaged into future product sales negotiations with such clients. LumberProducts LumberproductswillbesoldtoChineseandTurkishcompanieswithwhomexport shipmentshavealreadybeenworked out by “PREMIERTRADEANDCONSULTINGLTD”. Successfulpartnershipexperienceis confirmed by the volumes of realized lumber products that were traded between the company and its partners – 250 000 cubic meters of lumber and lumber products. Revenue, 000 USD

2014F

2015F

2016F

2017F

2018F

Lumber products

1 564

5 118

5 118

5 118

5 118

Industrial pellets

496

1 324

1 324

1 324

1 324

Consumer pellets

662

1 765

1 765

1 765

1 765

Briquettes

414

1 103

1 103

1 103

1 103

3 135

9 309

9 309

9 309

9 309

Всего

*12 months of project realization are considered in a year.

Map: 1-Poland; 2-CzechRepublic; 3-Lithuania; 4-Latvia; 5-Estonia; 6-Denmark; 7-Germany; 8-Netherlands; 9- Belgium. Planned Structure of Revenue, 000 USD (2015F) 10,000 9,000 8,000

Briquettes

7,000 Consumer pellets

6,000 5,000

Industrial pellets

4,000 3,000

Lumber products

2,000 1,000 0

Investment’s Financial Forecast In the basis of the financial forecast the company expects no change in sale prices and production costs. In the occasion of change of prices, the company expects a corresponding change in production costs with a fixed net profit margin. Income Statement Summary, 000 USD

2014F

2015F

2016F

2017F

2018F

Revenue

3 135

9 309

9 309

9 309

9 309

Cost Of Goods Sold

2 324

6 946

6 946

6 946

6 946

Gross profit (excl depreciation)

810

2 362

2 362

2 362

2 362

25,8%

25,3%

25,3%

25,3%

25,3%

Selling General & Admin Exp.

105

211

211

211

211

EBITDA

704

2 150

2 150

2 150

2 150

22,4%

23,1%

23,1%

23,1%

23,1%

Gross Profit margin %

EBITDA margin % D&A

211

423

423

423

423

Operating Income

492

1 727

1 727

1 727

1 727

15,7%

18,5%

18,5%

18,5%

18,5%

492

1 727

1 727

1 727

1 727

15,7%

18,5%

18,5%

18,5%

18,5%

Operating Income margin % EBT EBT margin % Income tax expenses Net Income Net Income margin %

78

276

276

276

276

413

1 450

1 450

1 450

1 450

13,2%

15,5%

15,5%

15,5%

15,5%

*12 months of project realization are considered in a year.

January 2013

8

Investment Offer“Kodra Wood”

Income Structure for 2015F, 000USD 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Revenue

Cost Of Goods Selling General Sold & Admin Exp.

EBITDA

D&A

Income tax expenses

Net Income

Investment Offer The investment assumes a complete return of the invested capital through a distribution of profits from the company’s activities.

Schedule of Investor Repayment Plan Year

At the end of the investment period the investor has several options for his exit strategy:  100% sale of the company’s equity to a strategic investor. SeverallargeEuropeancompanieshaveinformed of their interest in entering the Ukrainian market – Schweighofer (www.shweighofer.at), and Klausner Group (www.klausnergroup.com).  A management buyout (MBO) of the investor’s stake for a previously negotiated price. Investor’s Yield Investment Period Investment Year, thousand USD Exit Year of Project Investor’s Cash Flow, thousand USD

Investor’s Share in Profits

Investor’s Income, thousand USD

2014F

70%

438.15

2015F

70%

1 312.1

2016F

70%

1 312.1

2017F

70%

1 312.1

2018F

70%

1 312.1

Total

5 686.9

2013F-2018F 2 672.1 2018F 5 686.9

Investor’s IRR*

26,8%

Investor’s ROI

209,8%

* Excluding the sale of the production plant Sale of Company The company’s liquidation value for year 2018 – USD 1 965 thousand. Investor’s share in the liquidation value – USD 1 375 thousand (70%). When selling the production plant including all of the equipment at the liquidation value, the investor’s IRR will increase by 4.61 percentile points to 31.45%.

January 2013

9

Investment Offer“Kodra Wood”

Investment Attractiveness 1. Low costs for raw material and high processing levels (up to 95% of raw material usage) allow to obtain an EBITDA margin of 22-23%, providing and IRR of 26,8% (excluding the investor’s exit from the project). 2. The local partner of the project is the largest lumber trader certified by the National Forestry Agency of Ukraine, selling annually around 250 000 cubic meters of lumber and lumber products to the China, Turkey and India. The company has recommendations from the largest lumber traders of the Turkish and Chinese markets. 3. The project will be allocated in one of the richest with woods regions of Ukraine. Deforestation within a 50 km zone from the company exceeds the need of lumber for production by 5 times. In 2012 the local partner exported 100.2 thousand cubic meters of lumber from the region of the projects realization, exceeding the production requirements by 1.7 times. 4. Ukraine has one of the lowest levels of wages in Europe. The average monthly salary of a lumber processing complex employee in Ukraine is 240 USD per month, in Russia – 600 USD per month, in Sweden – 3 500 USD per month. 5. The company is favourably located for shipment of solid biofuels to Europe - 400 km distance to Poland, and for exporting to Turkey and China - 500 km distance to seaports. 6. In 1999-2001 the company’s management team successfully sold a lumber processing plant located in Korostyshiv, Zhytomyrska Oblast, Ukraine. The plant was built and launched within 8 months, annually processed 100 000 cubic meters of lumber, and returned the invested capital within 1.5 years. After 4 years of operation the plant was sold to a local strategic investor. The plant continues to operate as of today.

High income level...

Experience of local partner…

Access to a strong resource base…

Low costs…

Favourable allocation…

Experience in business sale…

InvestmentRiskAnalysis: Planned Measures for Risk Prevention and Mitigation Risks Effect on Entity

Risk Management

Operational Risks

Change of market demand

Change of global prices

Technical risks

Lack of raw material

Decrease in demand

Theriskofadecreaseinmarketdemandcan be lowered by lowering the prices on the made products. The export of lumber materials is mainly directed at China, having growing economic growth rates allows to forecast a growing demand for lumber material, making the following risk less likely.

Decrease of profitability

Theforecastimplieslowpriceexpectations, lowering the probability of the impact of the following risk. The local partner has been dealing with wood trading since 2003, allowing him to have forecasting relations with clients. There is also low likelihood of the following risk due to a deficit of the products among global markets.

Risk of Equipment Breakdown

Riskofequipmentbreakdown in the period of project realization decreases due to the purchasing of new equipment which underlie to guarantee terms.

Lack of raw materials needed to load full production capacity

The local partner of the investment has exported out of forest farms, which will be the raw material base, a total of 100 thousand cubic meters of lumber. The following volume exceeds by 1.4 times the annual production requirements of the project. This allows assuming a low probability of problems with raw materials.

Financial Risks Liquidity risk

Scarcity of funds to make payments

Thecompanyhasdeterminedindetailbudgetingandforecasted funding for its costs and provisions.

Currency risk

Impact of changes foreign currency values

Theminimizationofthe following risk is provided by revenues in foreign currencies (100% of the products will be exported) and orientation on global prices.

January 2013

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