Oil Palm Strategy Presentation (2)

…the next frontier

Xonyx Oil Palm Production Concept for M.I.C

August 29, 2009

NEXTZON BUSINESS SERVICES LIMITEDwww.nextzon.com

Business Concept

The business concept is based on the demand – supply gap for oil palm products due to difficulties experienced by current players in the sector in getting adequate quantity of fresh fruit bunches (FFB), thereby forcing most processing plants to operate far below production capacity

Nigeria used to be the largest exporter of oil palm products until 1934 when the country was surpassed by Malaysia. Africa led the world in production and export of palm oil throughout the first half of the 20th century, led by Nigeria until the discovery of crude mineral oil that eventually led to the abandonment of this sector.

The total annual market demand for palm oil in Nigeria is estimated to be 1.9 million tons, while the country’s production is estimated to be 850,000 tons thereby, leaving a deficit of about 1.05 million tons which is being offset by importation and smuggling.(figures deduced from NIFOR’s report)


Business Model

Oil Palm Cultivation (FFB Production)

Land preparationSeedling sourcingNurseryMaturityHarvesting

Power Generation

Utilizing wastes from the FFB to fuel a bio power plant.

Oil Palm Processing

Crude Palm OilRefined Palm OilPKO

Feed Mill

Palm Kernel Meal

Make use of a Malaysian Technical

partner

Malaysians will oversee operations while Indians will be

in charge of engineering

Partner with Belgians for

overall management and control


Analysis of Key PlayersCompany Profile Business Model Strength Presco Staff Strength: 1,500

Revenue: N2.3BillionPAT: 37.27 MillionProduction Capacity: 9,700 Hectares of Oil Palm Palm oil mill with a capacity of 24T FFB/HrRefinery with a capacity of 60T/dayPKO crushing plant with a capacity of 45T/day

ProductsPalm oilRefined Bleached and Deodorized Oil (RBDO)Palm Fatty Acid Distillate (PFAD)Palm OleinPalm StearinCrude Palm Kernel Oil (CPKO)PKOPower Generation

Large Staff base Access to fund from

overseas Strong management

team with vast experience in agro-allied business

Industry leader High financial turn

over Big asset base Technology

Okomu Oil Palm Plc

Staff Strength: 1,300 permanent & 3,000 contract staff. Revenue: N4.7BillionPAT: N 1.21 Billion (2008)Production Capacity: 25,000 Hectares of Oil Palm & Rubber Palm oil mill with a capacity of 30T FFB/HrPKO crushing plant with a capacity of 60T/Week

ProductsdevelopmentPalm oil processingPKORubber ProcessingPalm Kernel CakePower Generation

Large Staff base Access to fund from

overseas Strong management

team with vast experience in agro-allied business

Technical alliance with foreign partners

High financial turn over

Big asset base Technology


Analysis of Key Players

Company Profile Business Model

Strength Weaknesses

Okitipupa Oil Palm Plc

Financial Performance:

Revenue:N214 Million

PAT: 12.7 Million

ProductsdevelopmentPalm oil processingEdible grade PKOBio diesel Corn oilCoconut oilGroundnut oilJatropha oil Soya bean oilBio diesel oilVegetable oil

Wide Product offerings

Technical alliance with foreign partners

Big asset base

Technology

Poor Management

Just resuscitating from financial mismanagements

Low turn over as a result of past financial misappropriation


Key Success Factors

The following key success factors have been identified among the leading industry players:

Strong capital base Strong management team Good logistics Good Planning Size of plantation Technical expertise


Potters Analysis

•Weak buyers (price)•Fragmented (many but different)•Demand far exceeds supply•Increasing customer sophistication

Competitive Rivalry

relatively low•Low exit barrier

Entrants

Suppliers Buyers

Substitutes

•E.g groundnut, rape, soy oil, etc

•Substitute not as efficient in terms of productivity•Multi use of oil palm unlike substitute

•Very few major players•Moderate effect of substitutes•Growing market•Alternate use as bio fuel

+

+

+

+

High bargaining power of suppliers

Low bargaining power of buyers

Moderate threat from

substitutes

•Very low regulatory requirements •The market is big enough for so many players•Very few serious players•The industry is highly capital intensive•Moderate industry regulation

Moderate threat of New Entrants


Planned Implementation Strategy

8

Acquisition/Leasing of existing palm plantation and processing mill

Palm plantation

Land Acquisition/lease and Oil palm cultivation

Palm Oil Milling and Refining

Out Growers Scheme Formation

Oil Mill

Land Acquisition

Land Preparation

Field growing

3 -4 Years

Palm Oil Milling

Palm Oil RefiningOrganisation of out growers scheme to boost output from

our plantation


Entrepreneur's ProfileName : Lawason, Oladipo AkinwaleAcademic Qualifications : 2003 –2004 University of Lagos, Akoka-Yaba, Lagos Master of Science in Political Science (Public Administration)1999 –2000 University of Lagos, Akoka-Yaba, LagosMaster of International Law and Diplomacy1985 - 1990University of Liberia, Monrovia-Liberia Bachelor of Business Administration (Management/ Public Administration)Professional Qualifications And Affiliations:Nigerian Institute of Management Corporate MemberNigerian Society for International Law Corporate MemberNigerian Institute for Advanced Legal Studies Registered MemberInstitute of Public Administration of Nigeria Corporate MemberWork ExperienceCity Financial Partners (1990 -1993) Business Advisory (Finance)

Financial ConsultantNational Poverty Alleviation Programme LagosSurulere Local Government

CoordinatorTotal Service Station, Alapere (1993 – 2006) Total Service Station, Alapere DealerWallam Inc (June 2005 till date) Business relationships

DirectorXonyx Nigeria Ltd (June 1997 – till date) Business Advisory

MD/CEO


Oil Palm Hectarage in Nigeria by State

State Wild Grove (Ha)

Small Holdings (Ha)

Estates (Ha)

Imo 45,000 27,000 6,000Akwa Ibom 300,000 28,825 1,312Cross River 250,000 15,800 20,149Anambra 200,000 12,000 3,000Oyo 200,000 - -Rivers 150,000 7,000 19,000Abia 150,000 14,000 2,000Osun 150,000 - -Ogun 120,000 - 4,500Ondo 85,000 4,000 14,670Benue 85,000 - -Delta 60,000 8,000 6,500Edo 50,000 - 19,334Kogi 50,000 - 19,334Total 2,300,000 117,625 96,465Grand Total 2,514,090


Market Analysis…for the purpose of this concept and considering the business models of key players in

the industry, it will be expedient to base our target market segmentation on customer behaviour and geographic attractiveness.

Market Segment CharacteristicsEstimated Size (Nos)

Total Market Demand

Food Industry Demand

These are fast moving consumer goods manufacturers that use palm oil and its allied products to produce margarine, noodles, pasta etc. They are more interested in well refined products. This segment includes multinationals (Unilever, Cadbury, Nestle), large local conglomerates (Dangote Industries, Nigerian Flour Mills, Honeywell etc). They are the largest industrial consumer of palm oil.

Over 100,0001.9 million Metric tonnes

Cosmetic Industry This segment consists of body beauty care products manufacturers. This group requires substantial quantities of palm oil and allied products as major constituents for producing creams, lotions, body oil etc.

Over 50

Soap and Detergent PKO and palm oil are major constituents use by soap and detergent industry for the production of different kind of cleaning products

Over 100

Cooking and Frying Demand

Palm oil is used for frying and cooking than for any other purposes. Its uses range from salad and cooking oils in the homes to industrial uses such as frying instant noodles, potato chips, doughnuts, etc. Traditional cooking provides a large market for liquid oil for domestic purposes.

Over 80,000,000

Bio Fuel Demand Bio Energy companies are now beginning to consider oil palm product for the production of bio diesel due to the fact that the yield of palm oil is higher than that of any edible oil.

Over 100


Palm Oil Market Share

Palm oil is the largest vegetable oil by volume globally; with 27% market share (Soybean oil is next largest with 23%).

Production of oils and fats totalled 159.7 million tonnes in 2008 of which palm oil and soybean production were respectively 43.1 million tonnes and 36.9 tonnes, thus accounting for 50% of the total.

Production of palm oil has grown faster than that of any other oil or fat and overtook soybean as the most produced oil in 2008.

World Oils & Fats Production Share


Approximate Financial requirement

Set up cost for a 5 ton FFB/Hr Integrated Palm Oil Mill Processing & Refining Plant

Setup Cost Fixed Assets

Land Acquisition (500 Hectares) 75,000,000 Building, infrastructure and Constructions 21,593,100 Tankers (10) 60,000,000 Palm oil Processing & Refining Plants 385,845,000 Storage Tanks 30,000,000 Agricultural Mchineries & Equipment 75,000,000 Trucks (5) 30,000,000 Motor Vehicle 25,000,000 Office Equipment & Facilities 8,000,000 Others 0 Total Fixed Assets 710,438,100 710,438,100 Seedling Acquisition & Land Preparation Seedling 150/Hectare (N500/seedling) 37,500,000.0 Land clearing & Culturing 20,000,000.0 Working Capital Operating cash needs for 1 year Administrative Expenses 250,000,000.0 Total Working Capital 307,500,000.0 307,500,000 Total Setup Cost 1,017,938,100


Revenue Analysis for CPO Only

Palm Oil Processing Mini-Mill (POPM)5 Metric Tonnes (mt) FFB per Hour

POPM Throughput mt FFB / Hour 5.00

Average Extraction Ratio Oil to FFB 16.0%

Value of Crude Palm Oil (CPO) Naira /mt 105,000

Ratio of Nuts to FFB Nuts to FFB 16.2%

Residual Value of Palm Nuts Naira /mt 5,250

Cost of Fresh Fruit Bunches (FFB) Naira /mt

7,500

Production Costs Naira /mt 3,000

Turn Key Capital Cost of Mill Naira 183,750,000

Variables Per Hour Per Day Per Month Per Year

Utilisation Hours

1

8 22 12

FFB Processed mt 5.00

40.00

880

10,560

Total CPO Produced mt 0.80

6.40

140.80

1,689.60

Total of Residual Nuts mt 0.81

6.48

142.56

1,710.72

Total Value of CPO Naira 84,000

672,000

14,784,000

177,408,000

Total Value of Residual Nuts Naira 4,253

34,020

748,440

8,981,280

Cost of FFB Naira (37,500) (300,000) (6,600,000) (79,200,000)Production Costs (Inc Fuel) Naira (15,000) (120,000) (2,640,000) (31,680,000)

Gross Profit Naira 35,753

286,020

6,292,440

75,509,280

Gross Margin % 40.5% 40.5% 40.5% 40.5%


Why will the Project Work?

This project is presumed to succeed because of the following reasons:

The promoter’s entrepreneurial drive. Promoter’s access and relationship with men of repute and

clout o The above attribute can be leveraged to facilitate fund raising.

Promoter’s business advisory and finance background Alliances and partnership Prevailing market situation i.e. huge demand – supply gap


Actions taken to date

The promoter and Nextzon met with the Economic Adviser to the Governor of Ogun State and we agreed the following:

The economic adviser is compiling a list of the Oil Palm zones and estates in the State and their status to give us information

We intend to use this information to determine our take-off strategy and how to proceed

We are also researching technical partners and conditions of bringing them on board of this project

We are also researching sources of Agriculture funds to aid set up when time comes


Actions taken to dateS/N Fund Provider Fund Characteristics/

and attributesFund Beneficiaries

1. International Fund for Agricultural Development

IFAD in July 2009 gave a loan of USD40 million to the Farmers in Nigeria

The grant is in support of the Federal Government’s Rural Financing Institution Building Program (RUFIN)

Its targeted at 12 States in the six geopolitical zones in Nigeria

Major beneficiaries are the people farmers who have no access to funds.

With about 345,000 house holds to benefit

Other beneficiaries include:1. 70 Micro Finance Banks2. 70 Non Bank Micro Finance

Institutions3. Central Bank of 4. Nigerian Agricultural

Cooperative and Rural Development Bank

5. Research Institutions2. Agricultural

Foundation The grant will finance a

fund for buy back, allow farmers buy improved inputs;

It will also be used for capacity building for farmers, radio adverts etc

The grant from USAAF will be for five years

The foundation recently gave grants to Da All Green Seeds Limited (DAGS) in Kaduna State

DAGS produces sorghum seeds for farmers on credit, the farmers cultivate these seeds and sell back the harvest to the company


Actions taken to dateS/N

Fund Provider Fund Characteristics/ and attributes

Fund Beneficiaries

3. Mechanized Agric Micro Credit Investment Scheme

The organization is an Agricultural fund raiser in Nigeria

Recently it made USD 1 Billion available to Nigerian farmers

The funds were/are made available by investors in South Africa and Dubai who are interested in Agriculture in Nigeria

The investors desire to transform crude farmers to mechanized farmers

The fund will be made available to micro farmers with a minimum of N500,000 and maximum 10,000,000 for each farmers

The funds will be available for farmers who can plant and harvest any crop between 6 to 12 months

It is required that the beneficiaries open an account with a micro finance bank and also contribute 6% of the desired loan

Also the loan applicant must join a recognized cooperative society.

The interest rate will be between 7.5% to 15% per annum, depending on the micro - finance institutions

4. CDC Group CDC is a fund of funds investing their capital with fund managers with expertise in emerging markets.

Invests in small and medium size enterprise (SME) funds in developing countries

SMEs in Emerging economies


Actions taken to date

S/N

Fund Provider Fund Characteristics/ and attributes

Fund Beneficiaries

5. AECF For-profit private companies which have, or intend to, start business enterprises in Sub-Saharan Africa in the field of agriculture, agri-business, rural financial services and media and information services to these sectors.

Provides grants and repayable grants (zero interest loans) up to a maximum of USD $1.5m per company (the average grant size will be US$D750, 000) to the most innovative proposals that are adjudged to have the greatest impact on the largest number of rural poor people.

Agribusiness Rural financial services Rural media other information services

Documents

Oil Palm Strategy Presentation (2)