Barbados Sugar Cane Industry 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 valueadded 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 roadmap toward diversification and to transform the sugar cane industry once more into a leadership position. Figure 1.1-1 below depicts a functional diagram of the proposed new integrated sugar cane processing facilities at Bulkeley.

Figure 1.1-1

At the centre of this new operation will be the Tilby Cane Separation System which replaces the traditional sugar cane crushing machinery with a much more efficient state-of-the-art cane separation 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 Separation Systems in operation; Tilby Systems, Ltd is considering a joint venture. In addition, the plan proposes an initial 50 ton per hour Tilby Cane Separation Trial System until its reliability and commercial performance can be demonstrated. To accomplish this task requires an infusion of funds from investors and/or lenders and evolving the industry from producing traditional commodity raw sugar to producing predominantly canebased value-added products and services.

Capital costs to deploy all of the proposed options are projected to be US$191.68 million (Phase1 US$98.84 million; Phase-2 US$56.37 Million, Phase-3 US$36.47). The number of new jobs created is projected to be in the 200 range once all of the proposed facilities are operational with the completion of Phase-3. From the point that the decision is made to proceed and funding is secured, 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 specific needs. However, in most cases, market needs identified with a particular plan are a combination of needs from all or some of the major categories. This plan is no exception. The following are some 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 in conjunction 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 following provides 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$185.2 million in start-up costs are predominantly associated with plant and machinery; US$2.50 million 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 the probability 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 team be trained and mentored in strategic management, marketing, operations (technical, administrative and information technology), human resources, finance, corporate and legal issues and 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 BSCIDI growth, 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 BSCIDI Board for monitoring and analysis purposes. The health of a business entity is reflected in its financial position. Deviations from norms raise red flags and, if appropriate, corrective actions can be quickly implemented. CBET wants BSCIDI to be successful and believes that CBETs 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 operation during 2003, however, Phase-1 production will commence with the 2005 sugar cane harvest. All numbers shown are in US$ thousands (000).
Total sales summary 5 years
$180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 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 in April 2003 as a corporate entity and deploy this major project in three phases. The reason for this phased implementation is to first get BSCIDI established and operational with an opportunity 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 changing market conditions and thereby minimize downside risks.

Profit and Loss projected 5 years

$180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 -$20,000 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. The financial model demonstrated that the break-even point occurs at approximately US$10 million in sales, as shown in the following table. With a 2006 net sales projection of US$69.828 million the break-even point occurs during the third month of sales.
2003 Gross profit margin % Break even point
N/A N/A

2004

2005
63.4% $7,780

2006
58.9% $9,920

2007
58.9% $10,917

1.3.5 Sensitivity Analysis

Sensitivity analysis demonstrates below that the company can operate profitably even if sales revenues are 45% less than forecast, i.e., sales revenues were reduced by 45% from normal projections 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 the Appendix.
Profit and Loss projected
$100,000 $80,000 $60,000 $40,000 $20,000 $0 2003 -$20,000 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 reasonable and the returns on investment attractive. The following tables depicts projected rates of return on investment (50% of net earnings distributed in dividends) based on optimistic, most likely and pessimistic 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% longterm debt. This does not take into account any potential stock price appreciation: Table 1.4-1 2004 2005 0% 20.34% 0% 15.88% 0% 8.44% Table 1.4-2 2004 2005 0% 61.65% 0% 58.52% 0% 21.99%

Fiscal Year Optimistic (+15%) Most Likely Pessimistic (25%)

2003 0% 0% 0%

2006 17.57% 13.50% 6.72%

2007 16.11% 12.42% 6.27%

Fiscal Year Optimistic (+15%) Most Likely Pessimistic (25%)

2003 0% 0% 0%

2006 54.25% 47.17% 18.08%

2007 50.21% 39.20% 17.39%

1.5 Economic Benefits

In addition to creating 200 incremental jobs on Barbados it is estimated that foreign exchange earnings 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$38 Mill.), museum tours (US$2 Mill.) and Consulting Services (US$2 Mill.). Foreign exchange savings 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 petroleum products to generate electricity. Furthermore, product sales in the international market will diversify the economy, promote ancillary services and enterprises, generate tax revenues and have 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 approached with this opportunity to secure the necessary funding.

1.6.2 Business Champion

A business champion is someone who has the vision, passion, drive, perseverance, leadership ability 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 ideal candidate cannot be found to lead BSCIDI it is recommended that the board, in addition to hiring a well-qualified CEO, also temporarily hire executive assistants on a consulting basis, with the necessary expertise to assist BSCIDIs CEO in successfully launching and growing the company.

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

1.6.3 Engineering, Design and Project Management

The implementation of this plan is complex requiring the services of subject matter expert consultants in addition to a company that can engineer; design and project manage the numerous sugar 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 for quotes 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 BSCIDIs success. Relationships will need to be formed and agreements structured with various distribution channels. The following distribution channels have been identified as potential targets: Distributors and Wholesalers o Agricultural Suppliers o Industrial & Pharmaceutical Chemical Distributors o Domestic Sugar Wholesalers o Domestic Building Industry Suppliers o Beverage Distributors o Barbados Tourist Board

1.6.6 Harvesting Cooperative

This plan recommends the formation of a cane harvesting cooperative in an effort to improve harvesting 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 produce excess electricity year round. A power purchase agreement needs to be put in place between BSCIDI 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 cane industry 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 be established 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: