Barbados Sugarcane Executive Summary

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Barbados Sugar CaneIndustry Development, Inc.

Five-Year Business Plan

(FY2004-2008)Prepared by CBET

in cooperation with

4P Group, Inc. April 4, 2003



1.0 Executive Summary

1.1 Description of Business Opportunity

This business plan assesses the feasibility of transforming the struggling and declining Barbados‘Sugar’ industry into a thriving and profitable ‘Sugar Cane’ industry by diversifying into value-

added cane-based products and services and improving the efficiency of integrated operations.The goal of the proposed plan is to provide Barbados with a financial and economic roadmaptoward diversification and to transform the sugar cane industry once more into a leadershipposition. Figure 1.1-1 below depicts a functional diagram of the proposed new integrated sugarcane processing facilities at Bulkeley.

Figure 1.1-1

At the centre of this new operation will be the Tilby Cane Separation System which replaces thetraditional sugar cane crushing machinery with a much more efficient state-of-the-art caneseparation system that will provide high-grade feed stocks to numerous downstream value-added

processing facilities. Since, at the present time, there are no commercial Tilby Cane SeparationSystems in operation; Tilby Systems, Ltd is considering a joint venture. In addition, the planproposes an initial 50 ton per hour Tilby Cane Separation Trial System until its reliability andcommercial performance can be demonstrated.

To accomplish this task requires an infusion of funds from investors and/or lenders and evolvingthe industry from producing traditional commodity raw sugar to producing predominantly cane-based value-added products and services.



Capital costs to deploy all of the proposed options are projected to be US$191.68 million (Phase-1 US$98.84 million; Phase-2 US$56.37 Million, Phase-3 US$36.47). The number of new jobscreated is projected to be in the 200 range once all of the proposed facilities are operational withthe completion of Phase-3. From the point that the decision is made to proceed and funding issecured, the new integrated Phase-1 facilities can be operational within 18 months.

In an effort to have Phase-1 facilities operational in time for the 2005 sugar cane harvest

season an aggressive schedule had to be compiled as shown in Table 10.1-1 of this plan. Due to the limited sugar cane harvesting window on Barbados and new facility installation lead

times, any significant delays in the proposed schedule will result in missing the 2005 sugar

cane harvest, delay the project by an additional year, and forego significant revenue streams.

1.2 Market Needs

Market needs can be categorized into global; regional; country, industry, or consumer specificneeds. However, in most cases, market needs identified with a particular plan are a combinationof needs from all or some of the major categories. This plan is no exception. The following aresome of the identified needs or requirements associated with this plan:

• Efficient low-cost sugar cane production and harvesting;

• Efficient low-cost sugar production;

• Cheaper building construction materials;

• Specialty industrial and pharmaceutical chemicals;

• Reduced greenhouse CO2 emissions;

• Renewable energy resources;

• Domestically produced animal feed;

• Domestically produced direct consumption and specialty sugars.

1.3 Financial Summary

A financial model was used to identify relevant investment needs and expenditures inconjunction with sales and expense projections to generate pro-forma financial statements.Those financial details are included in the Appendix (Sections A-3 through A-9). The followingprovides the reader with a summary of pertinent financial data.

1.3.1 Funding Requirements

To implement all of the proposed options will require US$192.0 million in funding. US$185.2million in start-up costs are predominantly associated with plant and machinery; US$2.50million for miscellaneous start-up expenses; and US$4.30 million to fund eighteen months of BSCIDI and six months of Business Unit headcount expenses. To significantly improve theprobability of success, US$175,000 in funding has been allocated for the following business

health care functions:

Mentoring of BSCIDI management team

CBET deems it critical that Barbados Sugar Cane Industry Development Inc. management teambe trained and mentored in strategic management, marketing, operations (technical,administrative and information technology), human resources, finance, corporate and legal issuesand be trained in numerous aspects of distribution, sales and international business requirements.CBET expects to facilitate the outsourcing of the necessary resources required for this task.



BSCIDI monthly financial monitoring

To ensure that investment funds are utilized properly and efficiently in the interest of BSCIDIgrowth, CBET insists that BSCIDI agrees to utilize the services of an independent accountant,working with management, to ensure that timely financial statements are presented to BSCIDIBoard for monitoring and analysis purposes. The health of a business entity is reflected in itsfinancial position. Deviations from norms raise red flags and, if appropriate, corrective actionscan be quickly implemented.

CBET wants BSCIDI to be successful and believes that CBET’s Business Health Care Program will add to the success of this plan.

1.3.2 Five-Year Revenue Forecast

The following five-year revenue forecast assumes that BSCIDI will start corporate operationduring 2003, however, Phase-1 production will commence with the 2005 sugar cane harvest. Allnumbers shown are in US$ thousands (000).

Total sales summary

5 years

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

2003 2004 2005 2006 2007

Total gross sales

Total cost of goods

Total net sales

1.3.3 Five-Year Profit & Loss Projections

The following five-year profit and loss forecast assumes that BSCIDC will start operation inApril 2003 as a corporate entity and deploy this major project in three phases. The reason forthis phased implementation is to first get BSCIDI established and operational with anopportunity to hire the qualified resources it needs to implement the various services proposed.Secondly, a phased implementation allows BSCIDI to modify this plan based on changingmarket conditions and thereby minimize downside risks.



Profit and Loss projected

5 years

-$20,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

2003 2004 2005 2006 2007

Total sales

Gross profit

Total overheads

Net business result

1.3.4 Break-even point

Break-even occurs at a point where sales revenue equals fixed costs plus variable costs. Thefinancial model demonstrated that the break-even point occurs at approximately US$10 millionin sales, as shown in the following table. With a 2006 net sales projection of US$69.828 millionthe break-even point occurs during the third month of sales.

2003 2004 2005 2006 2007

Gross profit margin % 63.4% 58.9% 58.9%

Break even point N/A N/A $7,780 $9,920 $10,917

1.3.5 Sensitivity Analysis

Sensitivity analysis demonstrates below that the company can operate profitably even if salesrevenues are 45% less than forecast, i.e., sales revenues were reduced by 45% from normalprojections whereas cost of goods sold was not reduced. This demonstrated that the company

would not incur a loss at that level of sales. Additional sensitivity analysis is included in theAppendix.

Profit and Loss projected

-$20,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

2003 2004 2005 2006 2007

Total sales

Gross profit

Total overheads

Net business result



1.4 Return on Investment

Investors are willing to make investments in business ventures as long as the risks are reasonableand the returns on investment attractive. The following tables depicts projected rates of return oninvestment (50% of net earnings distributed in dividends) based on optimistic, most likely andpessimistic sales projections. Table 1.4-1 shows rates of return based on 100% equity financing.

Table 1.4-2 shows rates of return on investment based on 30% equity financing and 70% long-term debt. This does not take into account any potential stock price appreciation:

Table 1.4-1

Fiscal Year 2003 2004 2005 2006 2007

Optimistic (+15%) 0% 0% 20.34% 17.57% 16.11%

Most Likely 0% 0% 15.88% 13.50% 12.42%

Pessimistic (–25%) 0% 0% 8.44% 6.72% 6.27%

Table 1.4-2

Fiscal Year 2003 2004 2005 2006 2007

Optimistic (+15%) 0% 0% 61.65% 54.25% 50.21%Most Likely 0% 0% 58.52% 47.17% 39.20%

Pessimistic (–25%) 0% 0% 21.99% 18.08% 17.39%

1.5 Economic Benefits

In addition to creating 200 incremental jobs on Barbados it is estimated that foreign exchangeearnings over the five-year study period should amount to US$304 million from the sale of specialty chemicals (US$257 Mill.), cane juice beverages (US$5 Mill.), Cane Wax (US$38Mill.), museum tours (US$2 Mill.) and Consulting Services (US$2 Mill.). Foreign exchangesavings should amount to US$90 million as a result of not having to import domestic

consumption sugar, fewer building materials and animal feed as well as fewer petroleumproducts to generate electricity. Furthermore, product sales in the international market willdiversify the economy, promote ancillary services and enterprises, generate tax revenues andhave a ripple effect on the local economy.

1.6 Formal Relationships

1.6.1 Funding

A number of potential domestic and international lenders/investors may need to be approachedwith this opportunity to secure the necessary funding.

1.6.2 Business Champion

A business champion is someone who has the vision, passion, drive, perseverance, leadershipability and experience necessary to launch and grow BSCIDI. It is critical to the success of BSCIDI that the right person be selected to undertake this task. In the event that an idealcandidate cannot be found to lead BSCIDI it is recommended that the board, in addition to hiringa well-qualified CEO, also temporarily hire executive assistants on a consulting basis, with thenecessary expertise to assist BSCIDI’s CEO in successfully launching and growing the company.



Relationships need to be put in place with the proper experts once all consulting needs have beenidentified.

1.6.3 Engineering, Design and Project Management

The implementation of this plan is complex requiring the services of subject matter expertconsultants in addition to a company that can engineer; design and project manage the numeroussugar cane industry related projects. A potential list of candidates is shown in Appendix A-1.

1.6.4 Equipment Suppliers

This plan recommends a substantial amount of new equipment and construction. Request forquotes need to be submitted to the following equipment supplier categories:

• Cane Separation System

• Sugar Mill

• Biorefinery

• Anaerobic Digester Facility

• Power Generation Facility

• Beverage Facility

• Sugar Packaging Facility

• Animal Feed Facility

• Oriented Strand Board Facility

• Cane Wax Processing Facility

1.6.5 Distribution Channels

Distribution channels will be critical to BSCIDI’s success. Relationships will need to be formedand agreements structured with various distribution channels. The following distributionchannels have been identified as potential targets:

• Distributors and Wholesalerso Agricultural Suppliers

o Industrial & Pharmaceutical Chemical Distributorso Domestic Sugar Wholesalerso Domestic Building Industry Supplierso Beverage Distributorso Barbados Tourist Board

1.6.6 Harvesting Cooperative

This plan recommends the formation of a cane harvesting cooperative in an effort to improveharvesting efficiency. A relationship must be formed with this new entity for the harvesting,scheduling and delivery of sugar and fuel cane.

1.6.7 Barbados Light and Power

This plan recommends the deployment of a 22MW power generation plant that will produceexcess electricity year round. A power purchase agreement needs to be put in place betweenBSCIDI and Barbados Light & Power.

1.6.8 Barbados Department of Agriculture

A relationship must be established with the Department of Agriculture to insure that a sugar caneindustry favourable ‘Land Use Policy’ is enacted by the government.



1.6.9 Barbados Agricultural Management Company (BAMC)

This plan has a huge impact on BAMC and its current functions. A relationship needs to beestablished with this organization to assist in the migration to the new BSCIDI.

1.6.10 CBET Services

A formal BSCIDI/CBET relationship needs to be established to:

•

Mentor the Management Team• Practise Preventive Business Health Care

• Advocate Timely Public Sector Support

This will facilitate the monitoring of BSCIDI holistic health (marketing, human resources,operations, IT and finance) thus enhancing the chances of its business success.

Details associated with this plan are presented in the following sections:

Documents

Barbados Sugarcane Executive Summary