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Minkfarms in Iceland

Extract from a Business Plan

KPMG

October 2012

Please note that the following document is an extract only.

To get further information please contact Invest in Iceland

Mink farms in Iceland

Business plan

Promote Iceland

October 2012

3 © 2012 KPMG ehf. the Icelandic member firm of KPMG international, a Swiss cooperative. All rights reserved. Printed in Iceland. The KPMG logo and name are trademarks of

KPMG.

Establishment of a mink farm in Iceland

Summary of conclusions

■ KPMG has prepared scenarios of the operation of six mink farms based on

different sizes and locations in Iceland.

■ Prices for land in South Iceland are higher than in North Iceland. However, the

fertility of the animals is greater in the South than in the North. Production costs

are slightly higher in the South whilst other fixed costs are higher in the North.

■ According to the calculations of KPMG, the rate of return on the equity capital

contribution of investors is higher in larger farms and there is a strong

indication that farms in Iceland should be larger than they are today.

■ It appears that establishing a farm in the South is more economical than in the

North despite higher land prices in the South.

■ There is greater risk in larger farms as the development period is longer.

According to this plan, the development of a farm with 10,000 breeding females

takes eight years, while the development of a farm with 5,000 breeding females

takes half that time.

■ The cash flow is strong once development has been completed; which is

positive for debt financing. Conversely, the mortgage eligibility of assets is

limited and, as a result, only 50% debt financing from Icelandic banks may be

assumed.

■ By 2021, cash and cash equivalents not used in the operation should be higher

than long-term loans on the operation of farms with 2,500 and 5,000 breeding

females. Farms with 10,000 breeding females in South or North Iceland will

require one year EBITDA in order to pay interest bearing liabilities in 2021.

Source: Information from the operation of Icelandic mink farms and KPMG analysis.


Results from the operation of differing scenarios in 2021 (DKK thousands)

N 2,500 N 5,000 N 10,000 S 2,500 S 5,000 S 10,000

Operating performance

Turnover 4.976 9.951 16.856 5.620 11.241 19.113

EBITDA % 37% 42% 44% 37% 41% 43%

Profit/loss 1.270 2.960 4.244 1.539 3.448 4.954

Long-term borrowings 3.162 5.648 8.541 3.220 5.648 7.867

Equity 9.079 16.797 19.020 10.356 18.653 20.117

Equity ratio 65% 65% 55% 66% 66% 56%

Return on equity ROE 14% 18% 22% 15% 18% 25%

Return on assets ROA 21% 25% 17% 26% 29% 20%

Net Debt EBITDA - - 1,3 - - 1,1

Debt EBITDA 2,3 1,9 1,8 2,1 1,8 1,6

IRR project 4,8% 7,6% 7,5% 5,9% 8,8% 8,8%

IRR equity 7,9% 12,2% 15,4% 8,9% 13,4% 16,9%

Total investments in the end of the development period

N 2,500 N 5,000 N 10,000 S 2,500 S 5,000 S 10,000

Mink farm and facilities 5,805 10,563 20,646 5,862 10,619 20,759

Interior fittings 2,548 5,095 10,191 2,548 5,095 10,191

Tools and equipment 860 1,099 2,413 860 1,099 2,413

Working capital for (from) operating activities2,960 2,748 -8,308 3,154 2,823 -9,485

Change in assets and liab. re op. act. 969 1,439 3,084 1,005 1,531 3,367

Total 13,142 20,944 28,026 13,429 21,167 27,245


KPMG.


About the project

Definition and scope

■ The object of this business plan is to prepare a comprehensive plan for the

development and operation of mink farms in Iceland. The plan is prepared for

Promote Iceland (Íslandsstofa), who intends to use it to present Iceland

overseas as a good investment option for mink farmers.

■ Promote Iceland employees have already been involved in targeted

promotional work overseas and are of the opinion that there is considerable

interest in the opportunities within Iceland. This plan is intended to assist

Promote Iceland in its work and to help interested investors make decisions on

investing in Iceland.

■ By increasing the number of mink farms and mink farmers in Iceland, the

sector would be further strengthened, knowledge would be increased and

breeding practices would become more dynamic.

■ It is assumed that the readers of this business plan have a basic knowledge of

mink farming and fur farming in general and its substance is based on this

assumption.

■ This report is also intended to be used in gaining financing from credit

institutions and professional investors, in Iceland and overseas.

■ KPMG has based its work on extensive information gathering from a number of

sources. Considerable focus has been placed on obtaining the most up to date

and correct information from current operators, as well as obtaining other data

as appropriate.

■ Six different scenarios are presented in order to assess the cost-effectiveness

of different options in the development of mink farms in Iceland.

■ The report begins by reviewing the Icelandic environment for foreign investors.

Next, there is a short review of the history of mink farming in Iceland and

possible locations are examined. This is followed by a review of the common

criteria of all scenarios and the risk factors relating to the operation of mink

farms. Then, the attitudes of Icelandic credit institutions are discussed and,

finally, the scenarios themselves are set forth. The scenarios are all

independent of other scenarios.


KPMG.

0

100

200

300

400

500

600

2006 2007 2008 2009 2010 2011 2012

Average pelt price in Iceland


About mink farming in Iceland

■ Mink fertility in Iceland is similar to that in Norway and Finland or about 4.2 to

5.3 kits per mated female at weaning.

■ The fertility rate is highest in South Iceland, where it has remained over 5 kits

per mated female. The lowest fertility rate is in Vopnafjörður.

■ The price of Icelandic pelts has risen in recent years. In 2010, Icelandic

production was in second place in terms of quality, second only to Denmark.

■ This achievement is considered to be the direct consequence of good

production and careful farming. Moreover, the conditions for production in

Iceland are good and the care of the animals is exemplary.

■ There are numerous aspects that support the operation of mink farms in

Iceland.

– There is a large amount of high quality and untainted raw material for feed

manufacture.

– Sufficient land for the necessary buildings and premises.

– There have been no problems with the discharge of waste from farms.

– Climate, access to water and other environmental conditions are beneficial

in Iceland.

– There have been no cases of vandalism or property damage and security

issues are simple and not too expensive.

– Crime rates in Iceland are generally low and it is very difficult to leave the

country with stolen pelts in any great volume.

Source: Kopenhagen Fur and KPMG Analysis.



Fertility 2007 - 2011

IcelandNorth

Iceland

South

Iceland

Vopna-

fjörðurDenmark Norway Finland

2007 4.7 4.8 5.1 3.3 5.3 4.8 4.6

2008 4.5 4.4 5.5 4.9 5.4 4.9 4.3

2009 4.6 4.3 5.2 3.8 5.5 4.6 4.6

2010 4.8 4.4 5.6 4.9 5.5 5 4.7

2011 4.6 4.2 5.1 4.2 5.5 4.8 4.7

Average 4.6 4.4 5.3 4.2 5.4 4.8 4.6

Average pelt price

Finland Denmark Norway Sweden Iceland Poland

2006 269 318 311 289 292 264

2007 201 240 230 199 207 188

2008 209 258 251 221 245 208

2009 160 203 198 169 188 151

2010 277 336 320 293 323 258

2011 319 401 377 348 379 294

Average 239 293 281 253 272 227

150

200

250

300

350

400

450

2006 2007 2008 2009 2010 2011

Average pelt price

Iceland Denmark NorwaySweden Finland Poland


KPMG.


Criteria for location

Location

■ The following are the criteria on which KPMG bases its assessment of the most economical locations for mink farms in Iceland.

Animal feed plants

■ Good quality and secure feed can make all the difference for the size and quality of pelts produced on the farm in question. It is assumed that the new mink farms will take advantage of one of the animal feed producers that are already in place and will not manufacture their own feed.

■ Transportation of feed over long distances is quite costly and it is therefore considered unwise to locate a mink farm further than 50 - 60 km from a feed plant.

■ As previously stated, there are two animal feed producers in Iceland, in Skagafjörður (North Iceland) and in Selfoss (South Iceland).

North Iceland

■ Locations for mink farms in North Iceland are limited to areas with good transport links to the animal feed producer in Sauðárkrókur. Based on this criterion, the best locations for the mink farms are in Skagafjörður, the eastern most part of Húnavatnssýsla and in Eyjafjörður.

■ Eyjafjörður, however, is considered rather far away and requires going over a mountain pass. The indicators recommend that Skagafjörður is the best location for a mink farm in North Iceland.

■ Farming is deeply rooted in Skagafjörður and there is good understanding of the sector's needs and operations. Also, there are individuals in the area that could be involved in the work of developing and operating mink farms.

■ The community's municipal plan provides for large farming areas and there is little likelihood of conflicts with other operations.

■ The price of land is rather lower than in South Iceland.

Source: KPMG Analysis and Samsýn

Location in North Iceland


KPMG.


Criteria for location

South Iceland

■ Locations of mink farms in South Iceland are limited to areas with good

transport links to the animal feed producer in Selfoss. This means that it is

possible to operate mink farms based on the above criteria throughout

Árnessýsla – East to Eyjafjöll and in Suðurnes.

■ All reasoning indicates, however, that the areas closest to Selfoss and

Árnessýsla are the best choice for mink farms.

■ There has been considerable development in South Iceland as regards to

tourism and vacation home development, with the result that in many places

farming operations are being squeezed out. It is therefore advisable in South

Iceland to invest in a spacious plot of land to ensure sufficient space and

operating premises.

■ The local authorities in the area have not formulated clear policies on the

development of mink farms. As a result, it is necessary to ensure that no issues

are unresolved before embarking on an investment.

■ Proximity to the Greater Reykjavik area is an advantage and simplifies a

number of aspects in the operation.

Summary

■ Based on the above criteria, there are two realistic choices with respect to

development plans in mink farming, either in South Iceland near to Selfoss or

in Skagafjörður.

■ The transport of pelts to Denmark is included in the sales cost to Kopenhagen

Fur and is the same for all farmers irrespective of their location in Iceland.

■ There is a broader range of land to select from in South Iceland but prices are

30% higher there, than in the North.

■ The appendix contains examples of land for sale in North and South Iceland.

Source: KPMG Analysis and Samsýn

Location in South Iceland


KPMG.


Criteria for the operating plan

About KPMG's criteria

■ KPMG's criteria are based on actual figures from the operation of a mink farm

with 3,500 females located in the North of Iceland, interviews with farmers in

North and South Iceland, together with other criteria that KPMG has collected.

Scenarios

■ In order to explore different options, a plan has been prepared for six different

scenarios. Three for South Iceland and three for North Iceland, based on

varying production volumes.

■ The reason for presenting different scenarios for North and South Iceland is

that the operating costs, fertility, land prices and other aspects differ between

the areas. Moreover, the decision was made to set up different sizes of farms

to obtain the best idea of the efficiency and return of different options.

■ The following scenarios will be examined.

– North Iceland

■ 2,500 females (N 2,500)

■ 5,000 females (N 5,000)

■ 10,000 females (N 10,000)

– South Iceland

■ 2,500 females (S 2,500)

■ 5,000 females (S 5,000)

■ 10,000 females (S 10,000)

■ There are no specific obstacles to constructing a larger farm and larger farms

are generally considered more economical.

Source: Promote Iceland


KPMG.



General criteria

The following general criteria are used in all six scenarios. They are based on the

experience of mink farmers in Iceland and other data that KPMG has collected.

■ The plan is prepared based on actual facts and extends to 2030. Estimates are

quarterly, to better assess financial requirements and investments during the

development period. The plan assumes that construction will begin in January

2013 and that the first year of operation will be in 2014.

■ All scenarios assume an investment in 1,500 females will be made in the first

year and that their number will be increased by 1,000 in the second year. In the

scenarios that assume a farm with more than 2,500 females, the number of

females is increased by 1,250 per year until the planned size is achieved.

■ The ratio of males to females is 5.5 females to each male. As a result, the

initial number of males is 273 and their number increases in proportion to the

females until the planned farm size is achieved.

■ Each mink shed is a maximum of 2,700 m2 and each shed contains a

maximum of 1,250 females. Each female requires 2.6 compartments. Each pen

contains 6 compartments and each pen requires 5 m2.

■ Two mink sheds are built during the first year, while year two is used solely for

the installation of interior fittings. Thereafter, one shed is built each year until

the planned size is achieved.

■ Fertility is greater in the South of Iceland than in the North or 5.23 kits per

female as opposed to 4.63 kits per female in the North of Iceland.

■ No position is taken on the disposal of profits and, as a result, cash and cash

equivalents mount up in the cases where the operation is profitable. However,

it is assumed that the funds will be invested in some manner and, as a result, a

10% interest rate is assumed on cash and cash equivalents when the

borrowing period ends and the operation has been profitable for two years.

■ An interest rate of 10% should reflect a normal rate of return for tied-up capital,

irrespective of use, although it is unlikely that any deposit account in Iceland

will provide such an interest rate in the next few years.

Production cost

Production costs are calculated per produced pelt.

■ Each produced pelt requires 46 kg of feed. Feed in South Iceland is more

expensive than in the North or DKK 2.3 as opposed to DKK 2.1.

■ Estimated veterinary costs per pelt are DKK 1.4 per year.

■ Feed and veterinary costs are evened out over the year while the cost for

pelting falls in the fourth quarter of each year.

■ There are considerable costs involved in the processing of pelts. Investments

in expensive machines and equipment are required and it is therefore

uneconomical for smaller farms to process their own pelts. Farms in both North

and South Iceland undertake the processing of pelts. This plan assumes that

this part of the operation is outsourced, while assuming that the farms will

slaughter and skin their own animals.

– The estimated cost of processing pelts is DKK 23.5 per pelt.

■ The estimated cost of transporting pelts is DKK 0.3 per pelt. Included in this

cost is the transport of pelts for processing, whilst other transport costs are

included in sales costs.

■ The estimated cost of selling the pelts is DKK 6.82 per pelt, with bonuses and

transport to the auction house included in this price.


KPMG.



Housing costs

Housing cost does not include residential housing, only the cost that relates to the

mink sheds and the facilities used by employees. The size of the shed depends on

the number of animals as discussed earlier.

■ Size of sheds at the end of development.

– For a 2,500 female farm, approximately 5,400 m2



■ Real estate tax is calculated as a percentage of the property valuation.

Property tax is 1.35% of the property valuation in South Iceland, while in the

North the tax is 1.65%.

– Property tax is calculated per mink shed and is divided equally over 12

months of the year. The estimated property valuation is DKK 404 per m2

and is calculated based on the actual property value of a mink farm in

operation in Iceland.

– Property tax per month for one mink shed in the South of Iceland is

therefore DKK 1,230 and DKK 1,504 in the North.

– Property tax for facility buildings are calculated separately, as only one

facility building is required for each mink farm, irrespective of the size of the

farm.

– The size of the facility building is estimated to be 60 m2 and the estimated

property tax for the building per month in the South of Iceland is DKK 364

and DKK 445 in the North.

■ The estimated electricity cost for each shed is DKK 972 per month.

■ Insurance is divided between fire insurance and cessation of operations

insurance, which covers the costs that continue to accrue even if the operation

ceases, i.e. instalment payments on loans, wages, property taxes, etc.

– Fire insurance is 0.063% of the property's fire insurance assessment. The

estimated fire insurance assessment is 448% of the property valuation. This

percentage is in accordance with proportion for Icelandic mink farms where

the property valuation is low. The estimated fire insurance for each shed,

therefore, is DKK 285 per month.

– The cessation of operations insurance is calculated down to each square

metre, as the plan assumes that the mink sheds are full at any time. The

estimated cessation of operations insurance for each shed, therefore, is

DKK 890 per month.


KPMG.



Other operating expenses

Other operating expenses are divided between office and management costs,

agricultural levies, other costs and other unexpected costs.

■ Office and management costs are estimated to be 3% of income.

■ The agricultural levy is estimated to be 1.2% of income.

■ Unexpected events in operations or other unexpected costs are estimated to

be 10% of income.

■ Included in other costs are cleaning and cleaning products, travel costs and

various other costs relating to the operation of the farm. Other operating costs

are calculated as per employee and are estimated to be DKK 118 per month.

Wages and wage-related expenses

■ It is estimated that one employee will be required for every 1,500 female mink.

A 10,000 female farm, however, will probably not require more than five

employees. The estimated wage per employee is DKK 12,692.

■ The assumption is made that there will be one Managing Director with an

estimated monthly wage of DKK 28,205.

■ The work-load increases during harvesting due to grading and skinning. As a

result the plan assumes two extra employees during the fourth quarter of each

year. The estimated wage per extra employee is DKK 11,752 per month.

Source: Information from the operation of Icelandic mink farms and KPMG Analysis.

Operating budget criteria

DKK South Iceland North Iceland

Production cost per pelt

Feed costs 2.3 2.1

Veterinary costs 1.4 1.4

Pelt processing 23.5 23.5

Sales costs 6.8 6.8

Transport costs 0.33 0.33

Building costs per shed

Property tax 1,230 1,504

Electricity costs 972 972

Cessation of operations insurance 890 890

Fire insurance 282 282

Other operating costs as a proportion of income

Administrative expenses 3% 3%

Agricultural levy 1.2% 1.2%

Other unforeseen 10% 10%

Other operating costs per employee 118 118


KPMG.



Purchase of breeding stock

■ It is estimated that around 1,500 females and 273 males will be purchased in

December 2013. The purchase price is based on the earlier experiences of

mink farmers in Iceland. The purchase price for females is estimated to be

DKK 357 and DKK 635 for males.

■ The plan assumes that 20% of the animals invested in for breed improvement

purposes will be female and 80% male. The estimated purchase price for

breed improvement purposes is the same as the estimated purchase price of

breeding stock.

Income

■ The average price of mink pelts has been rising over the past two years. The

price of Icelandic pelts jumped in 2010 as can be seen in the table on the right.

■ The average price for pelts continued to rise in 2012, when the average price

for the pelts of males was DKK 584 and the average price for the pelts of

females was DKK 409.

■ It is believed that pelt prices in the market are at a maximum and will probably

decrease. It is estimated that pelt prices will be up to 15% lower than in 2012.

■ As a result, the sales price for male pelts is estimated to be DKK 500 and for

females DKK 350.

■ It is assumed that the production will be divided equally between males and

females.

Source: Promote Iceland

Source: Kopenhagen Fur and KPMG Analysis

Average pelt price acc. country Average price

DKK Denmark Iceland Norway Sweden Finland Poland Auction Males Females

2006 318 292 311 289 269 264 Des ´11 542 362

2007 240 207 230 199 201 188 Feb ´12 580 446

2008 258 245 251 221 209 208 Apr ´12 692 462

2009 203 188 198 169 160 151 Jun ´12 611 454

2010 336 323 320 293 277 258 Sept ´12 493 319

2011 401 379 377 348 319 294 Average 584 409


KPMG.

0

10

20

30

40

50

60

70

0

50

100

150

200

250

300

350

1 2 3 4

No

of o

uts

tandin

g d

aysD

kk th

ousa

nds

Quarter

Production cost 2014 for S10,000

Production cost

No of outstanding days, production costs per quarter

Average production cost

Tied-up working capital

■ Current assets:

– The estimated number of days of accounts receivable is calculated from

income and is estimated to be on average 61 days.

■ Current liabilities:

– Accounts payable are estimated as a proportion of production costs and the

number of outstanding days is estimated to be 30 days.

■ Production costs are variable over the course of the year as feed and

veterinary costs are more or less evened out over the year, whilst costs

relating to pelting are all in the fourth quarter of the year.

■ As the plan is divided according to quarters, the key figures are higher if

examined based on the end-of-year information as shown in the

business model. The number of outstanding days, however, is 30 days

for each quarter.

– Unpaid costs are estimated as a proportion of housing costs and the

number of outstanding days is also estimated to be 30 days.

– Other short-term liabilities are estimated as a proportion of other costs and

the number of days of outstanding is also estimated to be 30 days.

Inventories

■ Inventories are evaluated at cost price. It is, however, possible to re-evaluate

the stock, as its sales value is higher than its book value. This, however, is not

done here, as the re-evaluation of the stock would only have the effect of

raising the amount of the equity.



Source: KPMG Analysis


KPMG.


Initial costs

Investments

Investments are divided into three categories; mink farm and facilities, interior fittings and tools and equipment.

Mink farm and facilities

■ It is assumed that a farm with 2,500 and 5,000 females will require a minimum of five hectares of land while a farm with 10,000 females will require 10 hectares. The price of land in South Iceland is 30% higher than in the North. This is due to, amongst other things, its proximity to the Greater Reykjavik area, as Selfoss is only 57 km from Reykjavik. The price per hectare is estimated to be approximately DKK 37,606 in the North of Iceland and DKK 48,888 in the South.

■ The construction of the first mink shed is DKK 33 more expensive per m2 due to the installation of three-phase electricity and water, both hot and cold. The estimated cost of erecting a steel-frame building is DKK 799 per m2 in addition to earthworks, which is estimated to cost DKK 67 per m2.

■ The cost of constructing a mink shed falls on the first and second quarter, as the shed will have to be ready when the weaning period begins in July. Two sheds are constructed during the first year in all scenarios and then there is one year when there is no construction. One shed is then built each year until the planned farm size is reached. It is estimated that 1,250 females will be housed in each shed.

■ The estimated cost of constructing a facility building is DKK 4,700 per m2. A 60 m2 facility building is assumed for all scenarios.

■ Investment in manure storage facilities, silos, wells and watering systems is estimated to be DKK 496 thousand and it is assumed that this cost will be accounted in the third quarter of 2013.

■ The maintenance investments in the mink shed and facilities building are estimated to be DKK 9 per m2 per year evened out over the year. The maintenance investment for the shed begins one year after the shed has been built.

■ The mink farm and facilities are depreciated over 20 years.

Interior fixtures

■ The estimated cost of stainless cages and nest boxes is DKK 1,822 per cage.

The plan assumes quality materials in both the cages and nest boxes, which

increases the mortgage eligibility of the investment and its durability.

■ Investment in waste chutes, water systems and suspensions between supports

is estimated to be a total of DKK 828 per cage.

■ Investment in interior fittings is in the third quarter with 2.6 cages estimated for

each female.

■ Fittings are depreciated over 30 years.

Tools and equipment

■ Investment in tools and equipment is the same for all scenarios with the

exception of the feed truck, as a larger farm requires a larger feed truck. A 50%

more expensive feed truck is purchased for a farm with 5,000 females and a

70% more expensive truck is purchased for a farm with 10,000. Further

itemisation of investments in tools and equipment can be seen in the table

below. Investment in a flaying machine is made one year later, as the first

pelting period is in the fourth quarter of 2014.

■ Maintenance of tools and equipment is

estimated to be DKK 22 per m2.

By estimating maintenance per m2 the

item also covers new investments in

tools and equipment as the farm grows.

■ There is no need to invest in software

that manages the stock and the breeding

as it is leased from Kopenhagen Fur.

The resulting cost is included in the

sales cost.

■ Tools and equipment are depreciated

over 10 years.

Source: KPMG Analysis and Jasopels

Investments

Tools and equipment DKK

Feed truck 129,932

Electric wagons 23,504

Euthanasia boxes and conveyor 66,132

Drum and conveyor 81,059

Pelting machine 110,281

High-pressure pump and other 23,504

Shed machine 141,024

Other necessary smaller items 117,520

Total 692,955


KPMG.


Scenario 1 – Criteria

Criteria

■ Scenario 1 is a plan for a farm with 2,500 breeding females in Skagafjörður,

N 2,500. Construction is expected to begin on the 1st of January 2013. Two

mink sheds will be built during the year and their interior fittings installed, the

estimated cost of the sheds and the interior fittings is DKK 7.3m. Approximately

DKK 583 thousand is expected to be invested in all necessary tools and

equipment.

■ An investment will be made in 1,500 breeding females in 2013 and the stock

will be expanded by 1,000 females in 2014 using the best kits of the year to

expand the stock. An increase in the number of males is also planned from the

litters.

■ On weaning during the third quarter 2014, the plan is to invest DKK 1m in

cages and other fittings necessary to enlarge the farm.

Financing and use of funds

■ The total financial requirement of the project is DKK 13,782 thousand over

three years. The main weight of the financing is during the first year, while

extra funding will be needed in 2014 due to the enlargement of the breeding

stock and in 2015 to fund the operation.

■ Ample financing is assumed for 2014 and 2015 in order to meet any

unexpected expenses.

■ The assumption is made that the produce loan will be fully utilised and that the

first produce loan will be paid in 2014, during the first year of operation. The

second loan is expected in 2015 as the production should have increased from

5,763 kits to 11,575 kits.

■ In this scenario, the production is not increased further and the maximum

produce loan is therefore, DKK 1,447 thousand.

2,500

females



0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

10.000

2013 2014 2015

DK

K t

ho

usan

ds

Use of fundsInvestments

Operation

Excess funding

Financing

Use of funds (DKK thousands)

Scenario 1 2013 2014 2015 Total

4,492 1,381 434 6,307

4,492 1,381 434 6,307

0 720 726 1,447

8,985 3,483 1,594 14,062

5,744 12 49 5,805

1,529 1,019 0 2,548

583 149 128 860

443 1,870 647 2,960

687 2 279 969

0 299 341 640

8,985 3,353 1,444 13,782

Instalments on loans

Tools and equipment

Cash for (from) operating activities

Financing

Total

Change in assets and liab. re op. act.

Working capital for (from) operating activities


Interior fittings

Equity

Produce loan

Investments

Total

Loans


KPMG.

Principal results

Scenario 1 2013 2014 2015 2016 2017 2018 2019 2020 2021

0 0 2,539 4,976 4,976 4,976 4,976 4,976 4,976

96% 0% 0% 0% 0% 0%

-213 -1,542 -256 1,834 1,834 1,834 1,834 1,834 1,834

-10.1% 37% 37% 37% 37% 37% 37%

-727 -2,295 -1,111 967 1,053 1,204 1,239 1,172 1,270

45% 31% 23% 31% 39% 47% 54% 59% 65%

- - - 31% 25% 22% 19% 15% 14%

- - - 12% 14% 17% 18% 18% 21%

- - - 3.2 2.4 1.6 0.7 -0.1 -1.0

- - - 3.4 3.2 3.0 2.7 2.5 2.3

Turnover

EBITDA

ROE

Debt EBITDA

Net Debt EBITDA

ROA

Equity ratio

EBITDA %

Profit/Loss

Growth %

■ Other unexpected costs are estimated to be 10% of income and therefore

increase considerably with increased income. The IRR of the project, if no

account is taken of other unexpected costs, is calculated as 7.9% and the IRR

on the equity capital contribution of investors is calculated as 11.5% if other

unexpected costs are not included. Moreover, the EBITDA % would increase to

47% of income.


Scenario 1 – Summary

Principal results

■ The operation is expected to have achieved stability by 2016. By then it is estimated that 11,575 pelts will be produced per year to the end of the planning period and that turnover will be approximately DKK 4,976 thousand per year. The EBITDA margin is expected to reach 37% in 2016 and remain stable throughout the planning period.

■ The gross margin per produced pelt when the operation has achieved stability is approximately 69%.

■ The equity ratio will decrease until 2016 as the operation makes a loss for the first three years. The equity ratio will rapidly increase again when the operation begins to return a profit. The equity ratio should have reached approximately 47% by 2018.

■ No payment of dividends is expected and the equity therefore, rapidly increases between years. This has the effect that the return on equity (ROE) will decrease as the planning period progresses. This plan assumes an equity ratio of 50%. The equity ratio of the project should have reached 47% by 2018 and that year the rate of return is estimated 22%.

■ No position is taken as to how the estimated profits of the company are disposed of. In 2018 the operation should have been returning a profit for two years. Furthermore, a 10% return on cash and cash equivalents is applied to reflect the normal return on tied-up capital.

■ Account is taken of two key debt figures, Debt EBITDA and Net Debt EBITDA as there is considerable extra cash in the operation (see methodology in appendix two). The key figures are negative during the first few years while the operation is being established, by 2016 they are around three. In 2016, approximately three years EBITDA will be required to pay interest bearing liabilities.

■ In order to assess the profitability of the investment, account is taken of the IRR (internal rate of return) for the project as a whole and for the equity capital contribution of investors. The IRR of the project is calculated as 4.8% and the IRR on the equity capital contribution of investors is calculated as 7.9% (see methodology in appendix two).

2,500

females

As no dividends are paid out there is considerable extra cash in the operation. The key figure Net Debt EBITDA decreases significantly between years and by 2019 will be 0.7. Debt EBITDA does not take into account excess cash and is therefore more stable over the period.

By 2018, the equity ratio is expected to have achieved 47% and the return on equity (ROE) 22%.

Source: Information from the operation of Icelandic mink farms and KPMG Analysis.


KPMG.



5,000

females

Criteria

■ Scenario 2 is a plan for a farm with 5,000 breeding females in Skagafjörður, N 5,000. Construction is expected to begin on the 1st of January 2013. Two mink sheds will be built during the year and their interior fittings installed, the estimated cost of the sheds and the interior fittings is DKK 7.3m. Approximately DKK 648 thousand is expected to be invested in all the necessary tools and equipment.

■ On weaning during the third quarter 2014, the plan is to invest DKK 1m in cages and other fittings necessary to enlarge the farm.

■ One shed will be built in 2015 and another in 2016. The plan calls for the sheds to be built during the first two quarters while the fittings will be installed in the third quarter.

■ According to the plan, an investment will be made for 1,500 females in 2013 and the stock will be expanded by 1,000 females in 2014, using the best kits of the year. An increase in the number of males is also planned from the litters. The breeding stock will subsequently be increased by 1,250 females per year, in 2015 and 2016.


■ The total financial requirement of the project is DKK 22,084 thousand over four years. The main weight of the financing is during the first year, while extra funding will be needed in 2014 due to the enlargement of the breeding stock and in 2015 – 2016 to fund the operation and further development.

■ Ample financing is assumed for 2014 in order to meet any unexpected expenses.

■ The assumption is made that the produce loan will be fully utilised and that the first produce loan will be paid in 2014, during the first year of operation. The second loan is expected in 2015 as the production should have increased from 5,763 kits to 10,098 kits.

■ By 2017 the production should have reached its peak with an estimated production of 23,120 kits. The maximum produce loan for this scenario is therefore, DKK 2,894 thousand.




Scenario 2 2013 2014 2015 2016 Samtals

Loans 4,526 1,383 2,259 1,946 10,114

4,526 1,383 2,259 1,946 10,114

0 720 542 723 1,986

Total 9,052 3,486 5,060 4,616 22,214

Investments

5,744 12 2,394 2,412 10,563

1,529 1,019 1,274 1,274 5,095

648 149 128 173 1,099

444 1,872 479 -47 2,748

687 2 442 308 1,439

Instalments on loans 0 302 343 496 1,141

9,052 3,357 5,060 4,616 22,084

Financing


Equity

Produce loan

Tools and equipment




Interior fittings

Total

0

1,0002,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2013 2014 2015 2016

DK

K t

ho

usan

ds

Use of funds Investments

Operation

Excess funding

Financing


KPMG.

Principal results

Scenario 2 2013 2014 2015 2016 2017 2018 2019 2020 2021

0 0 2,539 4,417 6,905 9,951 9,951 9,951 9,951

74% 56% 44% 0% 0% 0%

-213 -1,542 -5 642 1,549 4,162 4,162 4,162 4,162

-0.2% 15% 22% 42% 42% 42% 42%

-730 -2,303 -1,075 -731 110 2,846 2,878 2,730 2,960

45% 31% 31% 32% 31% 42% 51% 58% 65%

- - - - 2% 35% 26% 20% 18%

- - - - 1% 21% 22% 22% 25%

- - - 16.1 6.7 1.8 1.0 0.2 -0.7

- - - 16.1 6.8 2.4 2.2 2.1 1.9

Turnover

ROA

Net Debt EBITDA

Debt EBITDA

EBITDA

EBITDA %

Profit/Loss

Equity ratio

ROE

Growth %

■ In order to assess the profitability of the investment, account is taken of the

IRR (internal rate of return) for the project as a whole and for the equity capital

contribution of investors. The IRR of the project is calculated as 7.6% and the

IRR on the equity capital contribution of investors is calculated to be 12.2%

(see methodology in appendix two).


increase considerably with increased income. The IRR of the project, if no

account is taken of unexpected costs, is calculated as 10.8% and the IRR on

the equity capital contribution of investors is calculated as 16.2% if other


52% of income.



5,000

females

Principal results

■ The operation is expected to have achieved stability by 2018. By then it is

estimated that 23,150 pelts will be produced per year to the end of the planning

period and that turnover will be approximately DKK 9,951 thousand per year.

The EBITDA margin is expected to reach 42% in 2018 and remain stable

throughout the planning period.

■ The gross margin per produced pelt when the operation has achieved stability

is approximately 69%.

■ The equity ratio fluctuates during the development period. However, when the

operation has achieved stability it will rise rapidly and by 2019 is expected to

have reached 51%.

■ No payment of dividends is expected and the equity, therefore, rapidly

increases between years. This has the effect that the return on equity (ROE)

will decrease as the planning period progresses. The plan assumes an equity

ratio of 50%.The equity ratio of the project should have reached 51% by 2019

and the ROE is estimated 26% that year.

■ No position is taken as to how the estimated profits of the company are

disposed of. In 2019 the operation should have been returning a profit for two

years. Furthermore, a 10% return on cash and cash equivalents is applied to

reflect the normal return on tied-up capital.

■ Account is taken of two key debt figures, Debt EBITDA and Net Debt EBITDA

as there is considerable extra cash in the operation (see methodology in

appendix two). The key figures are negative and then high during the first few

years while the operation is being established, by 2018 they are around two. In

2018, approximately two years EBITDA will be required to pay interest bearing

liabilities. As no dividends are paid out there is considerable extra cash in the operation. The key figure Net Debt EBITDA decreases considerably between years and by 2020 will be 0.2. Debt EBITDA does not take into account excess cash and is therefore more stable over the period.




KPMG.



10,000

females

Criteria

■ Scenario 3 is a plan for a farm with 10,000 females in Skagafjörður, N 10,000. Construction is expected to begin on the 1st of January 2013. Two mink sheds will be built during the year and their interior fittings installed, the estimated cost of the sheds and the interior fittings are estimated to be DKK 7.3m. Approximately DKK 673 thousand is expected to be invested in necessary tools and equipment.


■ It is anticipated that one shed will be built each year during 2015 – 2020. The plan calls for the sheds to be built during the first two quarters while the fittings will be installed in the third quarter.

■ An investment will be made for 1,500 females in 2013 and the stock will be expanded by 1,000 females in 2014 using the best kits of the year. An increase in the number of males is also planned from the litters. The breeding stock will subsequently be increased by 1,250 females per year, during 2015 to 2020.


■ The total financial requirement of the project is DKK 32,306 thousand over four years. The main weight of the financing is during the first year, while extra funding will be needed in 2014 due to the enlargement of the breeding stock and in 2015 – 2020 to fund the operation and further development.

■ Ample financing is assumed in 2014 in order to meet unexpected costs while later in the period, as can be seen in the figure on the right, the operation will have begun to return funds to support the investments.

■ The assumption is made that the produce loan will be fully utilised and that the first produce loan will be paid in 2014, during the first year of operation. Another loan is expected in 2015 as the production should have increased from 5,763 kits to 10,098 kits.

■ By 2021 the production should have reached its peak and it is estimated that 46,300 kits will be produced that year. The maximum produce credit for this scenario is therefore, DKK 5,788 thousand.



The operation has begun returning a profit to support

investments


Scenario 3 2013 2014 2015 2016 2017 2018 2019 2020 Total

Loans 4,636 1,388 2,266 1,954 1,577 1,126 622 162 13,730

4,636 1,388 2,266 1,954 1,577 1,126 622 162 13,730

0 720 542 723 723 723 723 723 4,879

Total 9,271 3,497 5,074 4,631 3,878 2,974 1,967 1,046 32,339

Investments

5,932 12 2,394 2,412 2,437 2,462 2,486 2,511 20,646

1,529 1,019 1,274 1,274 1,274 1,274 1,274 1,274 10,191

673 149 128 173 233 292 352 412 2,413

450 1,879 486 -40 -1,111 -2,215 -3,394 -4,364 -8,308

687 2 445 308 408 410 411 412 3,084

Afborganir af lánum 0 309 351 504 637 752 837 891 4,280

9,271 3,371 5,078 4,631 3,878 2,974 1,967 1,136 32,306

Working capital for (from) operating act.

Financing

Equity

Produce loan


Interior fittings

Tools and equipment



Total

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

2013 2014 2015 2016 2017 2018 2019 2020

DK

K t

ho

usan

ds


Operation

Excess funding

Financing


KPMG.

Principal results

Scenario 3 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Turnover 0 0 2,539 4,417 6,905 9,393 11,881 14,368 16,856 16,856

Growth % 74% 56% 36% 26% 21% 17% 0%

EBITDA -213.3 -1,542 -5 642 1,809 2,975 4,178 5,497 7,439 7,439

EBITDA % -0.2% 14.5% 26% 32% 35% 38% 44% 44%

Profit/Loss -746 -2,322 -1,094 -750 131 1,039 2,014 2,774 4,244 4,560

Equity ratio 46% 31% 31% 32% 35% 39% 44% 49% 55% 62%

ROE - - - - 2% 11% 17% 19% 22% 19%

ROA - - - - 1% 5% 9% 11% 17% 19%

Net Debt EBITDA - - - 16.2 6.6 4.4 3.2 2.4 1.3 0.5

Debt EBITDA - - - 16.2 6.6 4.4 3.2 2.4 1.8 1.7


increase considerably with increased income. The IRR of the projects, if no


the equity capital contribution of investors is calculated 20.2% if other


54% of income.



10,000

females

Principal results

■ The operation is expected to be stable by 2021. By then it is estimated that 46,300 pelts will be produced per year to the end of the planning period and that turnover will be approximately DKK 16,856 thousand per year. The EBITDA margin is expected to reach 44% in 2021 and remain stable throughout the planning period.


■ The equity ratio fluctuates during the development period. However, when the operation has achieved stability it will rise rapidly. By 2020 it is expected to have reached 49%.

■ No payment of dividends is anticipated and the equity, therefore, rapidly increases between years. This has the effect that the return on equity (ROE) will decrease as the planning period progresses. This plan assumes an equity ratio of 50%. The equity ratio of the project should have reached 49% by 2020 and the ROE approximately 19%.

■ No position is taken as to how the estimated profits of the company are disposed of. In 2022, the borrowing period will have ended and the operation should have been returning a profit for more two years. After that, the expectation is for a 10% return on cash and cash equivalents to reflect the normal return on tied-up capital.

■ Account is taken of two key debt figures, Debt EBITDA and Net Debt EBITDA as there is considerable extra cash in the operation (see methodology in appendix two). The key figures are negative and then high for the first few years while the operation is being established, by 2018 they are around four. In 2018 approximately four years EBITDA will be required to pay interest bearing liabilities.

■ In order to assess the profitability of the investment, account is taken of the IRR (internal rate of return) for the project as a whole and for the equity capital contribution of investors. The IRR of the project is calculated 7.5% and the IRR on the equity capital contribution of investors is calculated to be 15.4% (see methodology in appendix two).

As no dividends are paid out there is considerable extra cash in the operation. The key figure Net Debt EBITDA decreases considerably between years and by 2022 will be 0.5. Debt EBITDA does not take into account excess cash and is therefore more stable over the period.




KPMG.



Helstu niðurstöður

2,500

females

Criteria

■ Scenario 4 is a plan for a farm with 2,500 females in South Iceland, S 2,500.

Construction is expected to begin on the 1st of January 2013. Two mink sheds

will be built during the year and their interior fittings installed, the cost for the

sheds and interior fittings are expected to be DKK 7.3m. Approximately DKK

583 thousand will be invested in all necessary tools and equipment.

■ The assumption is made that an investment will be made for 1,500 females in

2013 and that the stock will be expanded by 1,000 females in 2014 using the

best kits of the year. An increase in the number of males is also planned from

the litters.




■ The total financial requirement of the project is DKK 14,075 thousand over

three years. The main weight of the financing is during the first year, while

extra funding will be needed in 2014 due to the enlargement of the breeding

stock and in 2015 to fund the operation.

■ Ample financing is assumed for 2014 and 2015 in order to meet any

unexpected expenses.

■ The assumption is made that the produce loan will be fully utilised. The first

produce loan will be paid out in 2014, as it is the first year of operation. The

second loan is expected in 2015 when the production should have increased

from 6,663 kits to 13,075 kits.

■ In this scenario, the production is not increased further and the maximum

produce loan for the scenario is therefore DKK 1,634 thousand.




Scenario 4 2013 2014 2015 Total

4,525 1,452 437 6,415

4,525 1,452 437 6,415

0 833 801 1,634

9,050 3,737 1,676 14,464

5,800 12 49 5,862

1,529 1,019 0 2,548

583 149 128 860

455 2,045 653 3,154

683 -3 325 1,005

0 302 345 647

9,050 3,524 1,501 14,076

Instalments on loans

Tools and equipment


Financing

Total




Interior fittings

Equity

Produce loan

Investments

Total

Loans

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

2013 2014 2015

DK

K t

ho

usan

ds

Use of fundsInvestments

Operation

Excess funding

Financing


KPMG.

Principal results

Scenario 4 2013 2014 2015 2016 2017 2018 2019 2020 2021

0 0 2,926 5,620 5,620 5,620 5,620 5,620 5,620

92% 0% 0% 0% 0% 0%

-224 -1,710 -253 2,060 2,060 2,060 2,060 2,060 2,060

-8.6% 37% 37% 37% 37% 37% 37%

-742 -2,473 -1,120 1,179 1,286 1,476 1,380 1,417 1,539

45% 29% 21% 31% 40% 48% 55% 61% 66%

- - - 36% 28% 25% 19% 16% 15%

- - - 15% 17% 21% 20% 22% 26%

- - - 2.9 2.1 1.2 0.4 -0.5 -1.4

- - - 3.2 3.0 2.8 2.6 2.4 2.1

Turnover

EBITDA

ROE

Debt EBITDA

Net Debt EBITDA

ROA

Equity ratio

EBITDA %

Profit/Loss

Growth %



account is taken of unexpected costs, is calculated as 9.2% and the IRR on the

equity capital contribution of investors is calculated 12.7% if other unexpected

costs are not included. Moreover, the EBITDA % would increase to 47% of

income.


Scenario 4 – Summary 2,500

females

Principal results



■ The equity ratio will decrease until 2016 as the operation is making a loss for the first three years. The equity ratio will rapidly increase again when the operation begins to return a profit. The equity ratio should have reached 48% by 2018.

■ No payment of dividends is expected and the equity, therefore, rapidly increases between years. This has the effect that the return on equity (ROE) will decrease as the planning period progresses. This plan assumes an equity ratio of 50%. The equity ratio of the projects should have reached 48% by 2018 and that year the ROE is estimated25%.

■ No position is taken as to how the estimated profits of the company are disposed of. In 2019 the operation should have been returning a profit for two years, in which case a 10% return on cash and cash equivalents is applied to reflect the normal return on tied capital.

■ Account is taken of two key debt figures, Debt EBITDA and Net Debt EBITDA as there is considerable extra cash in the operation (see methodology in appendix two). The key figures are negative during the first few years while the operation is being established, by 2016 they are around three. In 2016, approximately three years EBITDA will be required to pay interest bearing liabilities.

■ In order to assess the profitability of the investment, account is taken of the IRR (internal rate of return) for the project as a whole and for the equity capital contribution of investors. The IRR of the project is calculated 5.9% and the IRR on the equity capital contribution of investors is calculated to be 8.9% (see methodology in appendix two).





KPMG.


Scenario 5 – Criteria 5,000

females

Criteria

■ Scenario 5 is a plan for a farm with 5,000 females in South Iceland, S 5,000.

Construction is expected to begin on the 1st of January 2013. Two mink sheds

will be built during the year and their interior fittings installed, the estimated

cost of the sheds and the interior fittings is DKK 7.3m. Approximately DKK 648

thousand will be invested in necessary tools and equipment



■ It is anticipated that one shed will be built in 2015 and another in 2016. The

plan calls for the sheds to be built during the first two quarters, while the fittings

will be installed in the third quarter.

■ An investment will be made for 1,500 females in 2013 and the stock will be

expanded by 1,000 females in 2014 using the best kits of the year. An increase

in the number of males is also planned from the litters. The breeding stock will

subsequently be increased by 1,250 females per year, during 2015 and 2016.


■ The total financial requirement of the project is DKK 22,319 thousand over four

years. The main weight of the financing is during the first year, while extra

funding will be needed in 2014 due to the enlargement of the breeding stock

and in 2015 – 2016 to fund the operation and further development.

■ Ample financing is assumed for 2014 in order to meet any unexpected

expenses.

■ The assumption is made that the produce loan will be fully utilised. The first

produce loan will be paid out in 2014, during the first year of operation. The

second loan is expected in 2015 when the production should have increased

from 6,663 kits to 11,598 kits.

■ By 2018 the production should have reached its peak when it is estimated that

26,150 kits will be produced that year. The maximum produce credit for this

scenario is therefore, DKK 3,269 thousand.




Scenario 5 2013 2014 2015 2016 Total

Loans 4,559 1,454 2,242 1,878 10,132

4,559 1,454 2,242 1,878 10,132

0 833 617 817 2,267

Total 9,117 3,741 5,101 4,573 22,532

Investments

5,800 12 2,394 2,412 10,619

1,529 1,019 1,274 1,274 5,095

648 149 128 173 1,099

457 2,047 451 -133 2,823

683 -3 505 346 1,531

Instalments on loans 0 304 348 501 1,153

9,117 3,529 5,101 4,573 22,320

Financing


Equity

Produce loan

Tools and equipment




Interior fittings

Total

0

1,0002,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2013 2014 2015 2016

DK

K t

ho

usan

ds


Operation

Excess funding

Financing


KPMG.

Principal results

Scenario 5 2013 2014 2015 2016 2017 2018 2019 2020 2021

0 0 2,926 5,062 7,872 11,241 11,241 11,241 11,241

73% 56% 43% 0% 0% 0%

-224 -1,710 32 736 1,722 4,612 4,612 4,612 4,612

1.1% 15% 22% 41% 41% 41% 41%

-745 -2,481 -1,051 -648 305 3,331 3,182 3,180 3,448

45% 29% 30% 31% 31% 43% 52% 60% 66%

- - - - 6% 38% 26% 21% 18%

- - - - 2% 24% 24% 25% 29%

- - - 14.4 6.0 1.5 0.7 -0.1 -1.0

- - - 14.4 6.4 2.2 2.1 1.9 1.8

Turnover

ROA

Net Debt EBITDA

Debt EBITDA

EBITDA

EBITDA %

Profit/Loss

Equity ratio

ROE

Growth %




the equity capital contribution of investors is calculated 17.6% if other


51% of income.



females

Principal results



■ The equity ratio will decrease until 2015 as the operation is loss making for the first few years. The equity ratio will rapidly increase again when the operation begins to return a profit. The equity ratio should have reached 52% by 2019.

■ No payment of dividends is expected and the equity, therefore, rapidly increases between years. This has the effect that the return on equity (ROE) will decrease as the planning period progresses. The plan assumes an equity ratio of 50%. The equity ratio of the projects should have reached 52% by 2019 and the ROE approximately 26%.

■ No position is taken as to how the estimated profits of the company are disposed of. In 2019 the operation should have been returning a profit for two years, in which case a 10% return on cash and cash equivalents is expected to reflect the normal return on tied capital.

■ Account is taken of two key debt figures, Debt EBITDA and Net Debt EBITDA as there is considerable extra cash in the operation (see methodology in appendix two). The key figures are negative and then high during the first few years while the operation is being established, though by 2018 they are around two. In 2018, approximately two years EBITDA will be required to pay interest bearing liabilities.

■ In order to assess the profitability of the investment, account is taken of the IRR (internal rate of return) for the project as a whole and for the equity capital contribution of investors. The IRR of the project is calculated as 8.8% and the IRR on the equity capital contribution of investors is calculated to be 13.4% (see methodology in appendix two).

As no dividends are paid out there is considerable extra cash in the operation. The key figure Net Debt EBITDA decreases significantly between years and by 2019 will be 0.7. Debt EBITDA does not take into account excess cash and is therefore more stable over the period.




KPMG.


Scenario 5 – Key figures 5,000

females


Financial ratios

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Key indicators

Current ratio 2.15 0.78 0.75 0.65 0.78 1.47 2.12 2.78 3.49 4.27 5.10 6.01 6.99 8.05 9.19

Equity ratio 0.48 0.33 0.30 0.31 0.31 0.43 0.52 0.60 0.66 0.71 0.76 0.80 0.84 0.86 0.89

Speed of turnover 0.00 0.00 0.74 0.97 1.43 1.27 0.93 0.74 0.60 0.50 0.42 0.36 0.31 0.27 0.24

Return on equity - - - - 6% 38% 26% 21% 18% 17% 15% 14% 14% 13% 12%

Return on total funds - - - - 2% 16% 14% 12% 12% 12% 12% 12% 11% 11% 11%

Rate of return on assets - - - - 2% 16% 14% 12% 12% 12% 12% 12% 11% 11% 11%

Operating items as a proportion of operating income

Production cost - - 52% 49% 48% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34%

Wages and w age-related expenses - - 28% 19% 14% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

Housing costs - - 4% 3% 2% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Other operating expenses - - 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14%

EBITDA - - 1% 15% 22% 41% 41% 41% 41% 41% 41% 41% 41% 41% 41%

Depreciation - - 20% 15% 11% 8% 8% 8% 9% 9% 9% 9% 9% 9% 9%

EBIT - - -19% -1% 11% 33% 33% 33% 32% 32% 32% 32% 32% 32% 32%

Operating result before taxes - - -36% -13% 4% 30% 33% 35% 38% 42% 45% 50% 54% 59% 64%

Operating results (profit) - - -36% -13% 4% 30% 28% 28% 31% 33% 36% 40% 43% 47% 51%

Tied-up working capital (days/turnover)

Accounts receivable - - 61 61 61 62 62 62 62 62 62 62 62 62 62

Inventories - - 119 79 51 36 36 36 36 36 36 36 36 36 36

Accounts payable - 56 55 54 53 53 53 53 53 53 53 53 53 53 53

Unpaid Costs and other current liabilities - 30 33 32 30 30 30 30 30 30 30 30 30 30 30

Current liabilities - 30 29 29 29 29 29 29 29 29 29 29 29 29 29

Loan criteria

Debt EBITDA - - 283.05 15.27 6.75 2.37 2.23 2.08 1.93 1.79 1.64 1.49 1.35 1.20 1.05

Net Debt EBITDA - - 269.81 14.72 5.69 1.54 0.73 - - - - - - - -

Interest coverage - - 15.18 0.82 0.37 0.13 0.12 0.11 0.11 0.10 0.09 0.08 0.07 0.06 0.05

Interest coverage in light of interest income - - 15.12 0.82 0.33 0.09 0.01 - - - - - - - -


KPMG.

The operation has begun returning a profit to support

investments


Scenario 6 – Criteria 10,000

females

Criteria

■ Scenario 6 is a plan for a farm with 10,000 females in South Iceland, S 10,000. Construction is expected to begin on the 1st of January 2013. Two mink sheds will be built during the year and their interior fittings installed, the estimated cost of the sheds and the interior fittings is DKK 7.3m. Approximately DKK 673 thousand will be invested in necessary tools and equipment.


■ It is anticipated that one shed will be built each year during 2015 – 2020. The plan calls for the sheds to be built during the first two quarters while the fittings will be installed in the third quarter.

■ An investment will be made for 1,500 females in 2013 and the stock will be expanded by 1,000 females in 2014 using the best kits of the year. An increase in the number of males is also planned from the litters. The breeding stock will subsequently be increased by 1,250 females per year, during 2015 to 2020.


■ The total financial requirement of the project is DKK 31,491 thousand over seven years. The main weight of the financing is during the first year, while extra funding will be needed in 2014 due to the enlargement of the breeding stock and in 2015 – 2019 to fund the operation and further development.

■ Ample financing is assumed in 2014 in order to meet unexpected costs while later in the period, as can be seen in the figure on the right, the operation will have begun to return funds to support the investments.

■ The assumption is made that the produce loan will be fully utilised and that the first produce loan will be paid out in 2014, during the first year of operation. Another loan is expected in 2015 as the production should have increased from 6,663 kits to 11,598 kits.

■ By 2021 the production should have reached its peak as it is estimated that 52,300 kits will be produced that year. The maximum produce credit for this scenario is therefore, DKK 6,538 thousand.




Scenario 6 2013 2014 2015 2016 2017 2018 2019 Total

Loans 4,697 1,461 2,251 1,887 1,456 942 290 12,984

4,697 1,461 2,251 1,887 1,456 942 290 12,984

0 833 617 817 817 817 817 5,536

Total 9,395 3,754 5,119 4,592 3,730 2,700 1,397 31,504

Investments

6,045 12 2,394 2,412 2,437 2,462 2,486 20,759

1,529 1,019 1,274 1,274 1,274 1,274 1,274 10,191

673 149 128 173 233 292 352 2,413

465 2,056 460 -124 -1,310 -2,534 -3,840 -9,485

683 -3 508 346 456 458 459 3,367

Afborganir af lánum 0 313 357 511 640 749 824 4,252

9,395 3,547 5,121 4,592 3,730 2,700 1,555 31,496

Working capital for (from) operating act.

Financing

Equity

Produce loan


Interior fittings

Tools and equipment



Total

01,000

2,0003,0004,0005,0006,0007,0008,0009,000

10,000

2013 2014 2015 2016 2017 2018 2019

DK

K th

ousan

ds


Operation

Excess funding

Financing


KPMG.

Principal results

Scenario 6 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Turnover 0 0 2,926 5,062 7,872 10,682 13,493 16,303 19,113 19,113

Growth % 73% 56% 36% 26% 21% 17% 0%

EBITDA -224.1 -1,710 32 736 2,016 3,294 4,610 6,041 8,241 8,241

EBITDA % 1.1% 14.5% 26% 31% 34% 37% 43% 43%

Profit/Loss -765.9 -2,505 -1,074 -672 325 1,353 2,455 3,062 4,954 5,300

Equity ratio 45% 30% 30% 31% 34% 39% 44% 50% 56% 63%

ROE - - - - 5% 14% 20% 20% 25% 21%

ROA - - - - 2% 7% 10% 12% 20% 22%

Net Debt EBITDA - - - 14.6 6.1 4.0 2.9 2.2 1.1 0.3

Debt EBITDA - - - 14.6 6.1 4.0 2.9 2.2 1.6 1.5

■ In order to assess the profitability of the investment, account is taken of the

IRR (internal rate of return) for the project as a whole and for the equity capital

contribution of investors. The IRR of the project is calculated as 8.8% and the

IRR on the equity capital contribution of investors is calculated to be 16.9%

(see methodology in appendix two).




the equity capital contribution of investors is calculated as 21.9% if other


53% of income.



females

Principal results

■ The operation is expected to be stable by 2021. By then it is estimated that

52,300 pelts will be produced per year to the end of the planning period and

that turnover will be approximately DKK 19,113 thousand per year. The

EBITDA margin is expected to reach 43% in 2021 and remain stable

throughout the planning period.

■ The gross margin per produced pelt when the operation has achieved stability

is approximately 62%.

■ The equity ratio fluctuates during the development period. However, when the

operation has achieved stability it will rise rapidly. By 2020 it is expected to

have reached 50%.

■ No payment of dividends is expected and the equity, therefore, rapidly

increases between years. This has the effect that the return on equity (ROE)

will decrease as the planning period progresses. The plan assumes an equity

ratio of 50%.The equity ratio of the projects should have reached 50% by 2020

and that year ROE is estimated 20%.

■ No position is taken as to how the profits of the company are disposed of. In

2022, the borrowing period will have ended and the operation should have

been returning a profit for more than two years. After that, the expectation is for

a 10% return on cash and cash equivalents to reflect the normal return on tied

capital.

■ Account is taken of two key debt figures, Debt EBITDA and Net Debt EBITDA

as there is considerable extra cash in the operation (see methodology in

appendix two). The key figures are negative and then high for the first few

years while the operation is being established, by 2018 they are around four. In

2018 approximately four years EBITDA will be required to pay interest bearing

liabilities.




minkfarms in iceland - invest...minkfarms in iceland extract from a business plan kpmg october 2012...

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