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Belarus Elizovo Glass Manufacturing Facility
Minsk, Belarus
Direct Foreign Investment
Funding Request -- $25,000,000
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Section 1 Overview
Section 2 Partners
Section 3 Present Situation
Section 4 Objectives
Section 5 Market Demand
Section 6 Financial Projections
Section 7 Conclusion
Please Note: The information contained in this package is for the purposes of preliminary inquiry into the project proposed herein. Interested parties may obtain further information describing the investment potential in greater detail. In order to obtain this package, please contact:
I. Martin Pompadur Chairman EP Companies 350 Park Avenue, 16th Floor New York, NY 10022 212-980-7110 Fax 212-980-8374 email: [email protected]
Mark Harter President EP Companies 1019 Melaleuca Lane Mill Valley, CA 94941 415-389-8905 Fax 415-389-9774 email: [email protected]
This package has been prepared by EP Compan ies for information purposes only and does not purport to contain all the information necessary to make an investment decision.
In the preparation of this package, every effort has been made to base the data on conservative and realistic estimates. The information contained herein has been compiled by sources EP Companies considers reliable, but is not guaranteed as to completeness or accuracy. No warranty or representation of any kind is made by EP Companies regarding any of the information contained herein.
This package is subject to revisions without notice and does not constitute a recommendation as to the value of the business ventures contained herein. Each user of this package is to rely on his or her own investigation, evaluation and judgment as to the reliabi li ty of information contained in this package.
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This executive summary outlines a request for financing to upgrade and expand an existing glass bottle manufacturing plant in the Republic of Belarus. This project has the full support of the Republic of Belarus government and is ready to proceed immediately. There is extensive unmet demand for bottles in the former Soviet Union from many sources, including large multinational corporations such as Coca-Cola. The project will be managed and owned by a Joint Venture of a Belarussian firm, Lada/ OMC Holding ("LOMCH") and an American firm, EP Companies ("EP"). LOMCH has entered into an agreement with EP to form a joint venture (the "Joint Venture") for the ongoing management of the project.
The bottle manufacturing plant is located in the City of Elizovo, approximately ninety minutes drive from the capital City of Minsk. Originally constructed in 1905, the plant has undergone several series of modernizations, the latest occurring in the 1960' s. The plant is now in need of further upgrading and modernization in order to be competitive in the current European glass bottle market. Once upgraded, the plant will have the capacity to produce one hundred thirty two million (132,000,000) Western standard bottles per year.
The amount of financing sought by the Joint Venture is seventeen million dollars ($17,000,000). The capital shall be used to purchase three bottle manufacturing lines for the Elizovo plant and to upgrade the existing facility to handle this equipment. The funding shall be a combination of debt and equity to be negotiated with the investment sources. The Joint Venture will consider offers for all of the required financing to purchase all necessary equipment in one lump sum, or staged in phases as determined by consultation with specific investment sources. The proposed funding scenario described in this package calls for 40% of the necessary funding to be supplied in the form of equity in exchange for stock ownership in the Joint Venture. The remaining 60% of funding is anticipated to be supplied in the form of senior debt, with a loan term of five years, fully amortized with no grace period for interest payments and principal reduction.
The bottle manufacturing facilities can be expanded and upgraded within approximately ten months. After upgrading and modernization, the revenue stream will be approximately eighteen million eight hundred thousand dollars ($18,800,000) per year. The costs of operations, production and taxes (including loan interest and amortization) will average approximately twelve million six hundred thousand dollars ($12,600,000) per year, leaving an average annual net profit after taxes of six million two hundred thousand dollars ($6,200,000). The equity partner(s) in the Joint Venture shall receive a negotiated ownership interest (assumed for calculation purposes to be 50%) in the Joint Venture in exchange for supplying approximately six million seven hundred thousand dollars ($6,700,000) of equity capital. Cash dividends payable to the equity partner are projected to average approximately three million dollars ($3 ,000,000) per year, equating to an after tax Internal Rate of Return (IRR) of approximately 33-35% for the
The demand for new bottles in the former Soviet Union is enormous. Every major Western beer, wine and soft drink manufacturer has entered, or is now entering, the former Soviet Union market and setting up bottling facilities which require new bottles in their operation. The growth of the bottling industry is heavily dependent upon an obsolete and highly pollutant core of equipment in the bottle manufacturing industry which cannot meet the growing demands of the bottling facilities. Currently, demand for bottles is being met by Central European suppliers who are shipping bottles long distances across international tariff borders at costs 30% higher than the projected costs of the bottles to be produced by the Joint Venture.
LOMCH has already taken the fist step to position itself as the leader in the burgeoning bottle manufacturing industry within the former Soviet Union with the renovation and upgrade of a first bottle manufacturing plant in the Belarussian city of Lida. LOMCH has invested four million dollars ($4,000,000) in the upgrade of the facility and the installation of a state of the art four section bottle manufacturing machine supplied by the American firm Black and Decker. The Lida equipment is now operating at full capacity and is producing twenty four million (24,000,000) vodka bottles annually. LOMCH has a long list of customers in need of bottles, but cannot meet this pent up demand because of lack of production capacity.
The financing now being sought will allow LOMCH to replicate the upgrading of the Lida plant at the Elizovo facility on a larger scale in order to meet demand and further penetrate the vast untapped market for bottles.
Coca-Cola has been actively cooperating with and encouraging the Joint Venture to expand bottle production capacity as quickly as possible. Coca-Cola has a tremendous need for both colored and clear glass bottles within the NIS countries. The state of the art production facilities at the Lida plant have been inspected and approved by the technical division of Coca-Cola. This approval has resulted in the issuance by Coca-Cola of an authorization agreement for LOMCH to become an authorized bottle supplier within the NIS countries. The company is currently forced to import its bottles from Central European suppliers at high cost because no local suppliers (with the exception now of the Lida plant) are able to meet the technical and quality standards imposed by Coca-Cola.
The demand from Coca-Cola, coupled with the demand from local market producers of beer, wine, vodka and soft drinks, will allow the Joint Venture to immediately utilize its entire production capacity that will become available after the installation of the three new bottle production sections in the Elizovo plant as outlined in this summary.
Here is a step-by-step plan of what goes on in a glass con-
' tainer production plant.
Batch Plant (1)
Raw materials such as quartz sand, soda, calcite. dolomite, feldspar and glass cul let are stored in silos. After precise batching and mixture, these raw components are routed by conveyor to the furnace.
Cold End Inspection (10)
Following the lehr, the glass containers are channelled indi-
. vidually through various inspection stations and are checked for dimensional accuracy, body and neck quality. They are also subject to impact testing fo r optimized quality assurance.
(
Batch Charging (2)
A charger continuously feeds the batch into the furnace.
Melting (3)
The batch is melted by gas or oil firing systems. Waste gases are used to preheat the com-bustion air. Such a system is
. not only economical but eco-logical as well.
Handling Systems (11)
After the inspection stations. the glass containers are carefully pal leted and protected with shrink-wrap before being sent to the filler.
Distribution (4)
At the end of the furnace. the glass stream is distributed to different forehearths for the respective production line.
Glass Conditioning (5)
The glass stream is condi-tioned in the forehearth, and its temperature gradient is equalized to ensure uniform temperature homogeneity.
Gob Forming, Cutting and Delivery (6)
Plungers in the feeder system shape the glass stream which is then cut into individual gobs by a mechanical shear. The gob distributor then routes the gobs via a delivery system to the blank molds.
Container Forming (7)
The parison, or partially shaped container, is formed on the blank side of a glass
conta iner forming machine. It is then inverted to the blow side where it is finished. Different forming techniques are used, depending on the container to be produced.
Sweep-out (8) and Thermal Treatment (9)
After sweep-out onto the conveyor belt, the hot glass containers then enter the lehr where they undergo controlled cooling to relieve inherent stresses.
The Glass Bottle Manufacturing Process
10 11
9 II
~ u . ~ ~"U "L(~
(1)
(2)
Unlike existing glass manufacturing facilities in the NIS countries, the modem, state of the art bottle manufacturing process is controlled entirely by computer ( 1 ). The computer monitors proper batch mixture and temperature for the molten glass to be fed into the bottle forming sections (2). The end product bottle can take various shapes and colors depending upon the glass mold employed and the mixture of materials in the glass raw material batch (3).
Green Glass
Amber Glass
(3)
Flint
LOMCH was formed in 1990 and is now one of the leading economic enterprises in the Republic of Belarus. The company recently concluded a major contract with Ford Motor Company and the Government of Belarus for the largest commercial foreign investment project in the history of the Republic. In addition to its extensive interest in automotive sales, assembly and distribution, LOMCH is involved in bottle manufacturing for vodka, wine and champagne, construction of residential and commercial real estate, and the production of vodka. LOMCH has been involved with the bottle manufacturing portion of its business for the past two years.
Currently, LOMCH is the managing general partner of the Bel Euro Tara Joint Venture ("BET"), formed in early 1995 for the purpose of expanding and upgrading bottle manufacturing facility in the city of Lida in the Republic of Belarus. Its partners are LOMCH, two existing vodka manufacturing plants in Minsk and Brest, and the existing Lida and Elizovo glass manufacturing plants.
Complementing the commercial experience ofLOMCH are the current staffs from the Lida and Elizovo bottle and glass plants. Both plants are operational bottle and glass facilities which produce other glass items in addition to bottles. The plant management shall contribute expertise gained in the glass and bottle manufacturing industry since operations in these plants began in 1905 and 1970 respectively.
EP Companies is a Delaware, USA corporation formed in 1990 to pursue business opportunities in the former Soviet Union. EP and its affiliates have been operating in the former Soviet Union continuously since 1990. Operations include cable television, telephone systems, long distance telephone service and wholesale coffee sales and distribution. The Board members ofEP have extensive American experience in investment banking, investment management and operations. In addition, the company has experience in the NIS countries over the past five years in marketing, management and operations. EP and its affiliates currently maintain offices in New York, Moscow and San Francisco and employ fifteen full time employees in Moscow.
The Board of Directors of EP is comprised by individuals with over 100 years combined business experience in a broad group of industries, both in small business enterprise as well as in high level corporate positions. The Chairman of EP has held senior level executive managerial positions with Capital Cities/ ABC and Ziff - Davis publishing, and has served on the Board of Directors for both companies
The Joint Venture intends to enter into a technical management consulting agreement with Gary Hardware of Glass Projects Consultancy. Mr. Hardware is a technical specialist in glass manufacturing and will hold a seat on the board of directors of the Joint Venture. Mr. Hardware has directed and managed glass manufacturing facilities throughout the world for the past twenty years and currently consults with various glass production facilities worldwide.
In the past year, LOMCH has completed the purchase and installation of bottling equipment for the Lida plant. The plant in Lida was originally constructed in 1970. At full capacity, the plant employs approximately 5,000 people. Because of outdated equipment and the current transition occurring in the former Soviet Union economy, the plant is not running at full capacity. Currently, the plant employs 3,000 people and manufactures high quality glass products such as stigmatic optical lenses, crystal, and optical instrument glass in addition to the bottles. The bottle manufacturing facility occupies only a portion of the total square footage available at this facility . The plant is now in the process of converting the majority of its capacity from military use required by the former Soviet Union to consumer goods now in demand in Eastern and Central Europe and the former republics of the Soviet Union. The cost of the equipment, upgrade and installation was four million dollars ($4,000,000). The upgrade consisted of installing a four section, state of the art, bottle manufacturing equipment purchased from EmHart Glass, a German subsidiary of the United States based company, Black and Decker. This new equipment is now operational and producing twenty four million (24,000,000) vodka bottles per year. The newly installed equipment utilizes approximately 160 people, working around the clock in four six hour shifts.
The plant in Elizovo was originally constructed in 1905. Because of outdated equipment and the current transition occurring in the former Soviet Union economy, the plant is not running at full capacity. Currently, the plant employs 3,000 people and manufactures glass products and containers such as jars, bottles, and glass cloth for construction projects. The bottle manufacturing facility occupies only a portion of the total square footage available at this facility.
The plans for upgrading and modernizing the plant call for the installation of three separate glass bottle production lines-- one six section and two eight section machines from the same company (Black and Decker) that supplied the main bottle production machinery for the Lida plant. In addition to the installation of this machinery, the glass melting furnaces, energy systems and auxiliary glass making equipment must be upgraded and, in some cases, replaced in order for the facility to handle an increase in production capacity.
The project has the complete and enthusiastic support of the Belarussian government. The government has issued a decree exempting the Joint Venture from profit taxes (income taxes) for a period of three years from the initiation of Joint Venture activities.
The following pictures are of the Lida Plant in operation after the installation of the 4 section Em Hart Glass Machine from Black and Decker:
1. The four section machine, forming the glass bottles from hot molten glass batch.
2. Bottles entering the quality control line, cooling down after being formed.
3. A Belarussian technician at the Lida plant, using computer diagnostic equipment to run quality checks on the newly formed bottles.
4. Bottles entering the optical sensor control mechanism to check for cracks and imperfections in the bottles not visible to the naked eye.
5. Bottles being grouped and packaged for shipment after passing quality control.
6. Bottles wrapped and crated, awaiting shipment by truck in the Lida shipyard.
(1)
(2)
(3)
(4)
(5)
(6)
..... --<--
There are approximately thirty bottle manufacturing facilities in the territory of the former Soviet Union. With the exception of all but the recently renovated portion of the Lida facility, all of these facilities are now obsolete because the existing manufacturing equipment is outdated, energy inefficient and highly pollutant. The most modern bottle and glass manufacturing facilities in the former Soviet Union are concentrated in the Republic of Belarus because of the availability of necessary sand and raw materials.
The main goal of the Joint Venture is to consolidate bottle manufacturing and raw material activity in the Republic of Belarus, thereby establishing a dominant position in the manufacturing of glass bottles and the sale of raw materials. By establishing modern glass manufacturing plants in Lida and Elizovo, the Joint Venture will be positioned to supply the Eastern European and former Soviet Union market with both colored and clear glass bottles, at prices less than existing Western standard produced bottles.
When upgrade and renovation of the Elizovo and Gomel sites are complete, the Joint Venture will employ over 450 workers and managers. Many of these workers are highly skilled technicians that have become unemployed because of the disruption of the former Soviet Union economy.
The introduction of new state of the art bottle manufacturing equipment will help to reduce pollutants to the environment. The older equipment currently being used in the glass factories of the former Soviet Union operates on oil fuel , which is highly pollutant. As part of the upgrade and modernization of the plant, the fuel system is to be switched from oil to natural gas, which will greatly reduce toxic emissions from the factory. In addition, glass production of containers is encouraged by the government because there is no substantive recycling industry in the countries of the former Soviet Union. Accordingly, reusable beverage containers are preferred to plastic and aluminum containers that cannot be recycled.
Future plans are to further establish a commanding market position in the bottle manufacturing industry in the Former Soviet Union. Upon completion of the three section modernization and upgrade at the Elizovo plant, the Joint Venture plans to make additional upgrades and modernization to the Lida plant (in addition to the upgrades already performed as described above). The Joint Venture is looking to form a long term strategic relationship with an equity partner or partners that will allow such plans to be realized. The Joint Venture will provide a seat on its Board of Directors and a first right ofrefusal for future plant expansions to any such strategic equity partner.
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The market for glass bottles in the former Soviet Union is enormous and growing. This demand cannot be met locally and bottles must be imported from Central Europe at costs 30% higher than bottles produced by the Joint Venture. Bottles imported from Central Europe are subject to additional shipping costs as well as international tariffs imposed by the republics of the former Soviet Union. In many cases, bottling plants are forced to operate at less than optimal capacity because of the unavailability of an adequate supply of bottles within the former Soviet Union.
The demand for bottles comes from a number of sources. In the 89 regions of the Russian Federation, there are an average of 3-5 large vodka bottling plants per region, 4-6 beer plants per region, 5-6 wine plants per region, and 7-8 soft drink plants per region. A similar situation exists in the remaining 14 countries of the former Soviet Union.
Unlike the United States, aluminum cans and plastic bottles are relatively unpopular in the Russian Federation and the NIS. Due to the lack of any substantive recycling industry, these container types are considered ecologically harmful, thus making bottles the preferred type of beverage container today and in the future. Accordingly, with growing demand for bottles and a limited production capacity, bottles being produced locally will remain in great demand.
Coca-Cola has opened two bottling plants in Russia and has six more scheduled to open in Russia alone. Currently, the company is forced to import a majority of its bottles from Central Europe. Coca-Cola has visited the glass plant in Lida to inspect operations, and has given its approval to the technical and ecological aspects of the plant. Accordingly, the company has held numerous meetings with members of both LOMCH and EP in order to encourage the increase of production capacity by any means available.
In addition to the current demand from Coca-Cola, the company will require additional bottles as their other six plants open over the next couple of years-- the purchasing manager for Coca-Cola Export Corporation in Moscow estimates that the demand for bottles from Coca-Cola alone in the next 5 years in the NIS is 2-3 billion bottles. There are other growing markets for bottles since the break up of the former Soviet Union, numerous local and international soda, beer, wine, champagne and vodka producers have been entering the market. All of these producers are facing a shortage of locally produced bottles.
The beer manufacturing facility located next to the Lida bottling plant illustrates the situation faced by many beverage manufacturers. The plant currently operates at 60% capacity because bottle production can not keep pace with beer production. Once the Lida and Elizovo plants are upgraded, this plant will again be capable of operating at full capacity.
The financial projections on the following pages are preliminary and the final financial projections are subject to change. Nevertheless, the enclosed projections give a reasonably accurate picture of the expected financial performance of the Joint Venture.
The projections included are:
Notes to Financial Projections
Income Statement
Balance Sheet
Sources and Uses of Cash Statement
Ratio Analysis Statement
Investment Schedule
Equity Investor Return (IRR) Calculation Statement
The financial structure and arrangement of financing terms is subject to negotiation from various financial sources.
For the purposes of the projections enclosed herein, the financial model assumes that 40% of the necessary funding is supplied in the form of equity in exchange for a 50% ownership in the Joint Venture. The remaining 60% of the required funding is supplied in the form of 5 year loan, secured debt at 10% annual interest, fully amortized with no grace period for commencement of interest repayment.
Note: The financial projections which follow are not intended to present a complete financial analysis of the project. A complete set of financial projections, with supporting schedules and graphs is available in the complete detailed package describing this project.
Notes to Financial Proiections ..
Please note: The financial projections enclosed herein are in summary form. The complete detailed package for the project contains all supporting schedules and detailed financial calculations for the numbers presented in the enclosed projections.
1. Sales of Bottles-- Production of bottles is projected to commence ten months after funding. This period allows for installation of equipment and modernization of facilities. The total projected sales are for three separate bottle production lines-- one six section machine and two eight section machines, for a total of22 sections. Each section has a an annual production capacity of six miJlion (6,000,000) bottles. The 22 sections operating at full capacity will produce one hundred thirty two million (132,000,000) bottles per year. The sales price of this production is calculated at $0.14 - $0.15 per bottle.
2. Sales of Sand-- Sales of sand is included as a line item because the Joint Venture has plans to purchase a controlling interest in a nearby Sand Mine. Funding for this purchase is not addressed in this package.
3. Production Taxes-- Includes all taxes other than payroll and income taxes. Such taxes include items such as VAT tax, agriculture tax, fire and safety taxes, school taxes, etc.
4. Indirect Production-- Includes all production costs not directly attributable to raw materials, cost of goods sold, and direct labor. Such costs include building maintenance and upkeep, electrical and utilities, labor safety programs etc.
5. General and Administrative-- Costs for management of the Joint Venture. G&A is calculated at the greater of $35,000 per month, or 5% of total monthly sales. Such costs include general overhead, accounting, travel, consultants expenses, etc.
6. Interest Income-- Is calculated at 6% annual deposit return on all funds advanced to the Joint Venture. This calculation assumes that the funds are disbursed to the Joint Venture in one lump sum at the funding of the project.
7. Interest Expense-- Expense for the debt portion of funding. The debt funding is calculated at 60% of total funding. Five year loan term, fully amortized, immediate commencement of debt repayment. The interest rate for the loan is calculated at 9%.
..
8. Taxes on Income-- The project has been granted a three year tax exemption by the government of Belarus. The exemption is calculated from the time the first project revenues are generated. Beginning in month 46 of the project, the Joint Venture will be subject to a 30% tax on profits. This profit tax may be subject to a bilateral tax treaty between the Belarus and the United States/ European governments allowing for repatriated funds to be exempt from United States and/ or European income tax.
9. Less Accumulated Depreciation-- Equipment is depreciated on a straight line basis over the useful life of the equipment. Depreciation terms vary depending upon the equipment. A complete depreciation schedule is available in the complete financial package.
10. Cash Dividends-- Dividends are calculated to be paid on an monthly basis after the first year of the project only when the payment of such dividends will not reduce available cash below $800,000.
11. Equipment Purchase and Installation-- Includes all equipment necessary for production of the three separate bottle manufacturing lines. Facility Upgrade and construction covers all other items of improvement. All other amounts funded is working capital to amortize debt financing and cover startup operational expenditure.
Sales Sales of Bottles
% of Total Sales 2 Sales of Sand
% of Total Sales
Total Sales
Cost of Goods Sold Materials and Energy
% of Total Sales Wages (Including Payroll Tax) % of Total Sales
3 Production Taxes % of Total Sales
Total Cost of Goods Sold
Gross P rofit Gross Margin
Operating Expenses Sales and Marketing
% of Total Sales 4 Indirect Production
% of Total Sales Depreciation
% of Total Sales Contingency
% of Total Sales 5 General and Administrative
% of Total Sales
Total Operating Expenses % of Total Sales
Income From Operations % of Total Sales
6 Interest Income 7 Interest Expense
Income before Taxes % of Total Sales
8 Taxes on Income
Net Income After Taxes
% of Total Sales
Year 1
$1,910,000 100.00%
$0 0.00%
$1,910,000
$523,315 27.40%
S77,246 4.04%
$181,215 9.49%
$781,777 40.93%
$1,128,223 59.07%
S244,200 12.79%
$80,847 4.23%
S97,826 5.12%
$38,200 2.00%
$429,096 22.47%
$890,170 46.61%
$238,053 12.46%
$507,284 $840,863 (S95,525)
0.00% $0
($95,525)
0.00%
Year 2
$18,280,000 100.00%
so 0.00%
$18,280,000
$5,152,640 28.19%
$695,218 3.80%
$1,882,515 10.30%
$7,730,373 42.29%
$10,549,627 57.71%
$247,200 1.35%
$484,058 2.65%
$924,361 5.06%
$365,600 2.00%
$763,540 4.18%
$2,784,759 15.23%
$7,764,868 42.48%
$65,884 S683,778
$7,146,974 '39.10%
$0
$7,146,974
39.10%
Year 3
$18,840,000 100.00%
$0 0.00%
$18,840,000
$5,313,660 28.20%
$715,546 3.80%
$1,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
S247,200 1.31%
$491,933 2.61%
S952,417 5.06%
S376,800 2.00%
$786,864 4.18%
$2,855,214 15.16%
$8,012,136 42.53%
$68,246 $511,958
$7,568,424 40.17%
so
$7,568,424
40.17%
<..
Income Statement
Year4
$18,840,000 100.00%
$0 0.00%
$18,840,000
$5,313,660 28.20%
$715,546 3.80%
$1,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
$247,200 1.31%
$491,933 2.61%
$952,417 5.06%
$376,800 2.00%
S786,864 4.18%
$2,855,214 15.16%
$8,012,136 42.53%
$67,267 $324,020
$7,755,383 41.16%
$391,658
$7,363,725
39.09%
Year5
$18,840,000 100.00%
$0 0.00%
$18,840,000
$5,313,660 28.20%
$715,546 3.80%
$1,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
$247,200 1.31%
$491,933 2.61%
$952,417 5.06%
$376,800 2.00%
$786,864 4.18%
$2,855,214 15.16%
$8,012,136 42.53%
$56,347 $118,452
$7,950,031 42.20%
$2,385,009
$5,565,022
29.54%
Year 6
Sl8,840,000 100.00%
$0 0.00%
$18,840,000
$5,313,660 28.20%
$715,546 3.80%
$1,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
$247,200 1.31%
$491,933 2.61%
$952,417 5.06%
$376,800 2.00%
S786,864 4.18%
$2,855,214 15.16%
$8,012,136 42.53%
$67,659 $0
S8,079,795 42.89%
$2,423,939
$5,655,857
30.02%
l.
Year 7
Sl8,840,000 100.00%
$0 0.00%
$18,840,000
$5,313,660 28.20%
$715,546 3.80%
Sl,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
$247,200 1.31%
$491,933 2.61%
$952,417 5.06%
$376,800 2.00%
$786,864 4.18%
$2,855,214 15.16%
$8,012,136 42.53%
$68,702 $0
S8,080,838 42.89%
S2,424,251
$5,656,587
30.02%
Year8
$18,840,000 100.00%
so 0.00%
$18,840,000
$5,313,660 28.20%
$715,546 3.80%
$1,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
S247,200 1.31%
$491,933 2.61%
$952,417 5.06%
$376,800 2.00%
$786,864 4.1 8%
$2,855,214 15.16%
$8,012,136 42.53%
$68,702 $0
S8,080,838 42.89%
S2,424,251
$5,656,587
30.02%
Financial Pro Forrna .Belarus: Lada/ OMC Glass Bottle Exoansion
1114196
Year9
$18,840,000 100.00%
$0 0.00%
$18,840,000
S5,313,660 28.20%
$715,546 3.80%
Sl,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
$247,200 1.31%
$491,933 2.61%
$952,417 5.06%
$376,800 2.00%
$786,864 4.18%
$2,855,214 15.16%
$8,012,136 42.53%
S68,702 $0
$8,080,838 42.89%
$2,424,251
$5,656,587
30.02%
Year 10
$18, 840, 000 100.00%
so 0.00%
$18,840,000
$5,313,660 28.20%
$715,546 3.80%
Sl,943,444 10.32%
$7,972,650 42.32%
$10,867,350 57.68%
$247,200 1.31%
$491,933 2.61%
$952,417 5.06%
$376,800 2.00%
$786,864 4.18%
$2,855,214 15.16%
$8,012,136 42.53%
$68,702 so
$8,080,838 42.89%
$2,424,251
$5,656,587
30.02%
l.
Year 1 Year2 Year3 Assets
Current Assets Cash $1,447,750 $1,710,597 $1,778,842 Accounts Receivable $0 $0 $0 Notes Receivable $0 $0 $0 Other Current Assets $0 $0 $0
Total Current Assets $1,447,750 $1,710,597 $1,778,842
Fixed Assets Equipment Purchase and Installation $9,700,000 $9,700,000 $9,700,000 Facility Upgrade and Construction $4,1 10,000 $4,110,000 $4,110,000
9 Less Accumulated Depreciation $97,826 $1,022,188 $1,974,604 Total Fixed Assets $13,712,174 $12,787,813 $11,835,396
Total Assets $15,159,923 $14,498,409 $13,614,238
Liabilities & Owner Equity
Current Liabilities Debt Financing $8,423,448 $6,591,812 $4,588,356 Accounts Payable $0 $0 $0 Other Payables $0 $0 $0 Accrued Liabilities $0 $0 $0
Total Current Liabil ities $8,423,448 $6,591,812 $4,588,356
Long Term Debt $0 $0 $0 Total Liabilities $8,423,448 $6,591,812 $4,588,356
Owner/Stockholder Equity
Common Stock $6,732,000 $6,732,000 $6,732,000 Retained Earnings $4,475 $7,151,449 $14,719,873
10 Less Cash Dividends $0 $5,976,852 $12,425,991 Total Owners' Equity $6,736,475 $7,906,597 $9,025,882
Total Liabilities & Equity $15,159,923 $14,498,409 $13,614,238
Balance Sheet
Year4 Year5 Year6 Year7
$1,650,215 $1,701,216 $1,977,713 $2,046,414 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
$1,650,215 $1,70 1,216 $1,977,713 $2,046,414
$9,700,000 $9,700,000 $9,700,000 $9,700,000 $4,110,000 $4,110,000 $4,110,000 $4,110,000 $2,927,021 $3,879,438 $4,831,854 $5,784,271
$10,882,979 $9,930,563 $8,978,146 $8,025,729
$12,533,194 $11,63 1,779 $10,955,858 $10,072,143
$2,396,962 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
$2,396,962 $0 $0 $0
$0 $0 $0 $0 $2,396,962 $0 $0 $0
$6,732,000 $6,732,000 $6,732,000 $6,732,000 $22,083,597 $27,648,6 19 $33,304,476 $38,961,062 $18,679,366 $22,748,840 $29,080,6 18 $35,620,919 $10,136,232 $11,631,779 $10,955,858 $10,072,143
$12,533, 194 $11 ,631 ,779 $10,955,858 $10,072,143
Year8
$2,115,116 $0 $0 $0
$2,115,116
$9,700,000 $4,110,000 $6,736,688 $7,073,313
$9,188,428
$0 $0 $0 $0 $0
$0 $0
$6,732,000 $44,617,649 $42,161,22 1
$9,188,428
$9,188,428
\..
Financial Pro Parma Belarus: Lada/ OMC Glass Bollie Expansion
2114196
Year9 Year 10
$2,183,817 $2,252,519 $0 $0 $0 $0 $0 $0
$2, 183,8 17 $2,252,519
$9,700,000 $9,700,000 $4,110,000 $4,110,000 $7,689,104 $8,641,52 1 $6,120,896 $5,168,479
$8,304,713 $7,420,998
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0
$0 $0 $0 $0
$6,732,000 $6,732,000 $50,274,235 $55,930,822 $48,701,523 $55,241,824
$8,304,713 $7,420,998
$8,304,713 $7,420,998
.....
Sources and Uses of Cash
Year 1 Year 2 Year3 Year4 Year5
Source of Funds Net Income After Taxes ($95,525) $7,146,974 $7,568,424 $7,363,725 $5,565,022
Depreciation $97,826 $924,361 $952,417 $952,417 $952,4 17
Funds From Operations $2,301 $8,071,335 $8,520,840 $8,316,141 $6,517,439
Sale of Stock $6,732,000 $0 $0 $0 $0
Lender Proceeds $10,098,000 $0 $0 $0 $0
Funds From Financing $16,830,000 $0 $0 $0 $0
Total Sources of Funds $16,832,301 $8,071,335 $8,520,840 $8,316,141 $6,517,439
Use of Funds 11 Equipment Purchase and Installation $9,700,000 $0 $0 $0 $0
Facility Upgrade and Construction $4,110,000 $0 $0 $0 $0
Debt Reduction $1,674,552 $1 ,83 1,636 $2,003,456 $2,19 1,394 $2,396,962 Dividend Payments $0 $5,976,852 $6,449,139 $6,253,375 $4,069,475
Increased Working Capital* $1,347,750 $262,847 $68,246 ($128,628) $5 1,002
Total Use of Funds $16,832,301 $8,071,335 $8,520,840 $8,316,141 $6,517,439
Summary of Changes in Working Capital:
Cash $1,347,750 $262,847 $68,246 ($ 128,628) $5 1,002
Accounts Receivable $0 $0 $0 $0 $0
Notes Receivable $0 $0 $0 $0 $0
Other Current Assets $0 $0 $0 $0 $0
Accounts Payable $0 $0 $0 $0 $0
Other Payables $0 $0 $0 $0 $0
Accrued Liabilities $0 $0 $0 $0 $0
Increased Working Capital• $1,347,750 $262,847 $68,246 ($128,628) $51,002
Year6 Year 7
$5,655,857 $5,656,587 $952,417 $952,417
$6,608,273 $6,609,003
$0 $0 $0 $0
$0 $0
$6,608,273 $6,609,003
$0 $0 $0 $0 $0 $0
$6,331,777 $6,540,302
$276,496 $68,702
$6,608,273 $6,609,003
$276,496 $68,702 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
$276,496 $68,702
\..
Financial Pro Forma Belaros: Lada/ OMC Glass Bottle Expansion
2114/96
Year8 Year9 Year JO
$5,656,587 $5,656,587 $5,656,587 $952,417 $952,417 $952,4 17
$6,609,003 $6,609,003 $6,609,003
$0 $0 $0 $0 $0 $0
$0 $0 $0
$6,609,003 $6,609,003 $6,609,003
$0 $0 $0 $0 $0 $0 $0 $0 $0
$6,540,302 $6,540,302 $6,540,302
$68,702 $68,702 $68,702
$6,609,003 $6,609,003 $6,609,003
$68,702 $68,702 $68,702 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
$68,702 $68,702 $68,702
l..
Ratios Year 1 Year2 Year3 Year4
Current Ratio 0.17 0.26 0.39 0.69 Quick Ratio (Acid Test) 0.17 0.26 0.39 0.69 Return on Total Assets -0.0 1 0.49 0.56 0.59 Total Assets Turnover 0. 13 1.26 1.38 1.50 Total Debt to Total Assets 0.56 0.45 0.34 0.19
Gross Profit Margin 0.59 0.58 0.58 0.58
Operating Profit Margin 0.12 0.42 0.43 0.43
Net Profit Margin -0.05 0.39 0.40 0.39 Return on Sales -0.08 0.68 0.70 0.68
Return on Owners' Equity -0.01 0.90 0.84 0.73
Total Debt to Owners' Equity 1.25 0.83 0.51 0.24 Dividend Payout Ratio 0.00 0.84 0.85 0.85
(
Ratio Analyses
Year5 Year6 Year7 Year8 Year9 NA NA NA NA NA NA NA NA NA NA 0.48 0.52 0.56 0.62 0.68 1.62 1.72 1.87 2.05 2.27 0.00 0.00 0.00 0.00 0.00
0.58 0.58 0.58 0.58 0.58 0.43 0.43 0.43 0.43 0.43 0.30 0.30 0.30 0.30 0.30 0.51 0.52 0.52 0.52 0.52
0.48 0.52 0.56 0.62 0.68 0.00 0.00 0.00 0.00 0.00 0.73 1.12 1.16 1.16 1.16
Year 10 NA NA 0.76 2.54 0.00
0.58 0.43 0.30 0.52
0.76 0.00 1.16
\..
Financial Pro Form a Belarus: Lada/ OMC Glass Bottle Expansion
2114196
Current Assets I Current Liabilities
Quick Assets (Cash + Receivables) I Current Liabilities
Net Income After Taxes I Total Assets (at year end)
Total Sales I Total Assets (at year end)
Total Liabilities I Total Assets
Gross Profit (Net Sales) I Total Sales
Income From Operations (Before Interest & Taxes) I Total Sales
Net Income After Taxes I Total Sales
Net Income After Taxes I Gross Profit (Net Sales)
Net Income After Taxes I Total Owners' Equity (at year end)
Total Liabilities I Total Owners' Equity
Dividends Paid/ Net Income
FIRST SECTION
Bottle Manufacturing Equipment Auxilliary Manufacturing Equipment Lehr Assembly and Erection Glass Melting Tank Construction Funnel Construction Compound Shop Reconstruction Natural Gas Conversion Working Capital Totals
SECOND SECTION
Bottle Manufacturing Equipment Auxilliary Manufacturing Equipment Lehr Assembly and Erection Glass Melting Tank Construction Funnel Construction Compound Shop Reconstruction Natural Gas Conversion Working Capital Totals
THIRD SECTION
Bottle Manufacturing Equipment Auxilliary Manufacturing Equipment Lehr Assembly and Erection Glass Melting Tank Construction Funnel Construction Compound Shop Reconstruction Natural Gas Conversion Working Capital Totals
Controlling Interest Purchase Upgrade and Construction Totals
TOTALS
Jun-96 Month
I
$700,000 $700,000
$700,000 S700,000
$700,000 $700,000
$300,000 $330,000 $630,000
$2,730,000
Jul-96 Month
2
$0
$0
so
Aug-96 Month
3
$180,000 $650,000 $50,000
$200,000
Sl ,080,000
$0
so
Sep-96 Month
4
$150,000
S200,000
$350,000
$0
$0
Oct-96 Month
5
$2,650,000
S420,000 $3,070,000
$0
$0
Investment and Depreciation Schedule
Nov-96 Month
6
$0
$1,000,000
$250,000
$1,250,000
$0
Dec-96 Month
7
so
$250,000
$250,000
$0
Jan-97 Month
8
$0
$3,050,000
$250,000 $3,300,000
$1 ,000,000
$250,000
$1 ,250,000
Feb-97 Month
9
$0
$0
$250,000
$250,000
Mar-97 Month
10
$0
$0
$3,050,000
$250,000 $3,300,000
WI WI WI WI WI WI WI WI W
SO Sl ,080,000 $350,000 $3,070,000 Sl ,250,000 $250,000 $4,550,000 $250,000 $3,300,000
Apr-97 Month
II
$0
$0
so
$0
$0
May-97 Month
12
$0
$0
$0
$0
$0
\..
Total
$2,650,000 $150,000 $180,000 $650,000
$50,000 $200,000 $200,000
$1 , 120,000 $5,200,000
$3,050,000 $250,000
$0 $1 ,000,000
$0 $250,000
$0 $950,000
$5,500,000
S3,050,000 $250,000
$0 Sl ,000,000
$0 $250,000
$0 $950,000
$5,500,000
$300,000 $330,000 $630,000
s 16,830,000
\..
Financial Pro Forma
Belarus: LodtN O~\·C Glau Bottle Expa1uio11
!!!!!.!!.
Annual
Lifetime Depreciation
15 $176,667 5 $30,000
40 $4,500 15 $43,333 40 Sl ,250 15 $13 ,333 20 $10,000 NA
$279,083
15 $203,333 5 $50,000
40 $0 15 $66,667 40 $0 15 $16,667 20 $0 NA
$336,667
15 $203,333 5 $50,000
40 $0 15 $66,667 40 $0 15 $16,667 20 $0
NA $336,667
NA 20 $16,500
$16,500.00
S968,9 I 7
Loan Terms:
9% Loan Interest Rate Loan Term 60 Months
Equity Percentage of Total Funding 40% Debt Percentage of Total Funding 60% Loan Type Fully Amortized, no grace period
Scenario #1 ( EquityIRR 33.95% 1
Cash Flows - Years 1-10 Price Earnings Multiple on Sale
Year 0
($6,732,000)
Year 1
$0
Year 2
$2,988,426
Year 3
$3,224,569
Scenario #2 I Equity IRR 32.60% I
Cash Flows - Years 1-10
Year 0
($6, 732,000)
Year 1
$0
Price Earnings Multiple on Sale
Year 2
$2,988,426
Year 3
$3,224,569
Scenario #3 !Equity IRR 34.38%)
Cash Flows - Years 1-7
Year
0 ($6, 732,000)
Year 1
$0
Price Earnings Multiple on Sale
Year 2
$2,988,426
Year 3
$3,224,569
\..
Equity Investment Returns
~ 5
Year 4
$3,126,687
-4 3
Year 4
$3,126,687
~ 5
Year 4
$3,126,687
Year 5
$2,034,737
Year 5
$2,034,737
Year 5
$2,034,737
I
I
I
Year 6
$3,165,889
Year 6
$3, 165,889
Year 6
$3 ,165,889
'- .....
!Equity Ownership Percentage 50%
Equity Investment Amount $6,732,000
Year Year Year 7 8 9
$3,270,151 $3,270, 151 $3,270, 151
Year Year Year 7 8 9
$3,270,151 $3,270, 151 $3,270,151
Year Year Year 7 8 9
$14,141,466.33 NA NA
Year 10
$14,141 ,466
Year 10
$8,484,880
Year 10 NA
With the expansion complete, and the Lida facility now operational, the Joint Venture is ready to move forward with further expansion as quickly as possible. There is an enormous demonstrated need, both current and future, for new glass bottles in both Eastern Europe and the republics of the former Soviet Union. With the continued expansion of international companies into this marketplace, demand will continue to grow. The Joint Venture is strategically positioned to take advantage of this unique opportunity. With the experience and local contacts to expand their existing market share, the Joint Venture is ready to move forward and become a major force in the glass bottle manufacturing industry of Central and Eastern Europe.
Please Note: The information contained in this package is for the purposes of preliminary inquiry into the project proposed herein. Interested parties may obtain further information describing the investment potential in greater detail. In order to obtain this package, please contact:
I. Martin Pompadur Chairman EP Companies 350 Park Avenue, 16th Floor New York, NY 10022 212-980-7110 Fax 212-980-8374 email: [email protected]
Mark Harter President EP Companies 1019 Melaleuca Lane Mill Valley, CA 94941 415-389-8905 Fax 415-389-9774 email: [email protected]
