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Agarwood Oil (Oud) Production in Thailand

Business Approach and Projections

A Pure Touch Of Nature and Intellect

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What is Agarwood?

Agarwood are also known as Agarwood from Aquilaria genus.

Agarwood is a kind of resin which forms a natural consequence of the reaction to the attacks agarwood tree fungus / bacteria (disease). Plants attacked by spreading a smell of oil to protect the injured body part (either the root, stem, branch, etc.) where the oil will eventually become hard (resin). Resin material that is produced consists of a sari or the diffusion of aromatic resin known as agarwood.

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Why Agarwood?

Agarwood is the most expensive resinous wood in the world;

Agarwood consumption has increased 25 times over the last 40 years;

Global demand for agarwood exceeds supply;

We have access to trees in Thailand and to the most advanced technology for production of 100% natural agarwood oil / oud with extraordinary high efficiency.

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Use of Agarwood

Agarwood is used in various ways, including traditional medicine, art and artifacts, artifacts essential oil. Agarwood burned to produce a fragrant odor since time immemorial by the Chinese, Arab, India, Japan and Korea which are widely used in festivals, customs and religion. Starch is extracted from agarwood oil was used as a perfume ingredient. For example, oil "Attar", which is water-based perfume containing agarwood oil extract. Perfumes are widely used by Muslims and other religion.

Based on quality agarwood divided on grades of between $1,000 to $60,000 per kg. Starch extracted oil is also sold on the quality according to certain grades of between $100 -$400 per tola (12 ml). Pieces of wood based on the quality agarwood sold according to grade from $1.5 - $10 per kg.

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Agarwood Oil Production

Production Cycle

1. Buy 7-8 years old trees

2. Inoculate using proprietary fungal formula

3. Wait 9-10 months

4. Harvest trees – 1 week

5. Separate inoculated pieces

6. Produce powder / dust

7. Soaking

8. Distillation of oil

The whole cycle is 1 year

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Agarwood Oil Production

Our Concept1. Produce oil of medium quality

Less than $10k per kg

Easier to sell

Wider market

2. Produce 40 kg oil per month

3. Sub-contract powder preparation for 1st year

To start production immediately

May be consider continue 2nd year, at least partly

4. Target all markets:

Far East

Arab world

Western world

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Capital Investment

Equipment Price/unit Units Cost

Distillation system $55,000 1 $55,000

Grider $2,667 0 $0

Owen $6,667 0 $0

Steenless tanks $100 300 $30,000

General equipment $13,333 1 $13,333

Pick-up car $28,333 1 $28,333

Motocycles $2,000 2 $4,000

Misc $25,000 1 $25,000

Total capital investment $155,667

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COGS

Ingredients Price/unit Units Total cost Time

Trees $67 160 $10,667

Inoculate $17 160 $2,667 2 weeks

Harvest and deliver $333 1 $333 40 weeks

Total $417 $13,667 52 weeks

COGS per kg oil $341.67

Produce podwer, kg 4,000

COGS per 1 kg powder $3.42

During 1st year of operation we will purchase ready powder.

For Business Plan considered cost of powder as THB 400 / USD13.3

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Income Projections

Profit & Loss Years ---> 1 2 3 4 5 6 7 8 9 10

1. Sales

A. Agarwood oil grade A kg 360 480 480 480 480 480 480 480 480 480

Sales $7,000 $2,520,000 $3,360,000 $3,360,000 $3,360,000 $3,360,000 $3,360,000 $3,360,000 $3,360,000 $3,360,000 $3,360,000

B. Treated Powder kg 36,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000

Sales $10 $360,000 $480,000 $480,000 $480,000 $480,000 $480,000 $480,000 $480,000 $480,000 $480,000

Total sales $2,880,000 $3,840,000 $3,840,000 $3,840,000 $3,840,000 $3,840,000 $3,840,000 $3,840,000 $3,840,000 $3,840,000

COGS 400 ($53,333) ($53,333) ($53,333) ($53,333) ($53,333) ($53,333) ($53,333) ($53,333) ($53,333) ($53,333)

Gross Sales $2,826,667 $3,786,667 $3,786,667 $3,786,667 $3,786,667 $3,786,667 $3,786,667 $3,786,667 $3,786,667 $3,786,667

% Gross Profit 98% 99% 99% 99% 99% 99% 99% 99% 99% 99%

2. Operation expenses

Production $70,000 $74,000 $74,000 $74,000 $74,000 $74,000 $74,000 $74,000 $74,000 $74,000

Operation and Admin $88,000 $118,000 $118,000 $118,000 $118,000 $118,000 $118,000 $118,000 $118,000 $118,000

M&S $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000

Total Expenses $196,000 $230,000 $230,000 $230,000 $230,000 $230,000 $230,000 $230,000 $230,000 $230,000

3 Operation Profit Before Tax

Operation profit before tax $2,630,667 $3,556,667 $3,556,667 $3,556,667 $3,556,667 $3,556,667 $3,556,667 $3,556,667 $3,556,667 $3,556,667

% Operation Profit 91% 93% 93% 93% 93% 93% 93% 93% 93% 93%

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Cash-Flow Projection

Cash-Flow Statements Years ---> 1 2 3 4 5 6 7 8 9 10

A. Investment Oultay

Fixed capital investment (155,667)

Net working capital (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333)

Total investment (155,667) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333) (53,333)

B. Annual After-Tax operating cash-flow

Gross Sales 2,880,000 3,840,000 3,840,000 3,840,000 3,840,000 3,840,000 3,840,000 3,840,000 3,840,000 3,840,000

Cash operating expenses (196,000) (230,000) (230,000) (230,000) (230,000) (230,000) (230,000) (230,000) (230,000) (230,000)

Depreciation 10% (15,567) (15,567) (15,567) (15,567) (15,567) (15,567) (15,567) (15,567) (15,567) (15,567)

Operating Income before taxes 2,615,100 3,541,100 3,541,100 3,541,100 3,541,100 3,541,100 3,541,100 3,541,100 3,541,100 3,541,100

Taxes on operating income 23% 601,473 814,453 814,453 814,453 814,453 814,453 814,453 814,453 814,453 814,453

Operating income after tax 2,013,627 2,726,647 2,726,647 2,726,647 2,726,647 2,726,647 2,726,647 2,726,647 2,726,647 2,726,647

Add-back - depreciation 15,567 15,567 15,567 15,567 15,567 15,567 15,567 15,567 15,567 15,567

After tax operating cash-flow 2,029,194 2,742,214 2,742,214 2,742,214 2,742,214 2,742,214 2,742,214 2,742,214 2,742,214 2,742,214

C. Loan & Dividends

Loan 250,000

Loan Repayment (83,333) (83,333) (83,333)

Dividends 100% (1,521,895) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214)

Total 250,000 (1,605,229) (2,825,547) (2,825,547) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214) (2,742,214)

D. TOTAL AFTER-TAX CASH-FLOW

TOTAL AFTER-TAX CASH-FLOW 94,333 423,965 (83,333) (83,333)

Cumulative 94,333 518,298 434,965 351,632 351,632 351,632 351,632 351,632 351,632 351,632 351,632

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Investment Analysis

Based on:1. Loan repayment (3 years) + shareholding (15%)2. Required Return Rate – 10%

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Investment Analysis Years ---> 1 2 3 4 5 6 7 8 9 10

RRR 10%

Lender's shareholding 15%

Loan $250,000

Lender's Loan repayment 83,333 83,333 83,333

Lender's Dividend $228,284 $411,332 $411,332 $411,332 $411,332 $411,332 $411,332 $411,332 $411,332 $411,332

Lender's Cash-Flow ($250,000) $311,618 $494,665 $494,665 $411,332 $411,332 $411,332 $411,332 $411,332 $411,332 $411,332

NPV annual ($250,000) $283,289 $408,814 $371,649 $280,945 $255,405 $232,186 $211,078 $191,889 $174,445 $158,586

Net Present Value1 year 2 years 3 years 4 years 5 years 10 years

$33K $442K $813K $1,094K $1,350K $2,318K

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Contact

www.agaroud.com

tn@agaroud.com

+66 8 9204-1953