HAG A NEW CYCLE OF GROWTH 1 BUSINESS OPERATION Business - - PowerPoint PPT Presentation

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HAG A NEW CYCLE OF GROWTH 1 BUSINESS OPERATION Business - - PowerPoint PPT Presentation

Feb 25, 2023 23 likes •286 views

HAG A NEW CYCLE OF GROWTH 1 BUSINESS OPERATION Business Segmentation Industrial Fruits Cow Property Crops Passion Rubber Myanmar Fruits Banana Palm Oil Vietnam Dragon Fruits Mango In harvest Chili Will harvest before 6 months

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HAG – A NEW CYCLE OF GROWTH

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2 Business Segmentation Fruits Passion Fruits Banana Dragon Fruits Mango Chili Others: 12

  • ther tropical

fruits Industrial Crops Rubber Palm Oil Cow Property Myanmar Vietnam

In harvest Will harvest before 6 months Will harvest after 6 months

BUSINESS OPERATION

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PAST – LESSON LEARNS

DEBT UP- CASH DOWN TO DO: 48,000 HA RUBBER 30,000 HA PALM OIL

  • Mistake in taking extensive debt to build up long term assets
  • Rubber price dropped from $6,000 to $1,000 (now $2000)
  • Planting industrial crops is risky as(1) small product differentiation (2) demand growth is low
  • Debt restructure is done in 2017

WHICH DOES NOT CREATE CASH FLOW UNTIL 2017-18

5.800 27.300 3.588 791 5,000 10,000 15,000 20,000 25,000 30,000 2010 2016

Bil VND

Debt Cash

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HOWEVER OUR EXECUTION ABILITY IS PROVEN

18,000 ha Fruits 49,000 ha Rubber 29,000 ha Palm Oil 150,000 m2 Myanmar

  • We made mistakes, but no one can doubt our execution ability
  • Execution ability is important for the transformation we are telling you later.
  • We were in liquidity problem but our asset value is way over our liability

EXECUTION ABILITY: 2010-17 LIQUIDATION VALUE

Fruits: $595m Rubber: $648m Palm Oil: $128m Myanmar: $500m

LIQUIDATION VS. DEBT

$1870m vs $947m (as of 3Q17) Market Cap: $330m

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LEGACY: RUBBER

  • Ramping up production in 2017-18
  • Rubber price at $1900/ton, good for Cash flow but humble profit due to interest capitalization
  • However, rubber tree prices have skyrocketed

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

Accummulative Plantation (ha) Exploited Area (ha)

PLANTATION AND EXPLOITED AREAS (HA)

  • 500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 2017 2018 2019 2020

VND bn Total Revenue (Mil. VND) Profit before interests (Mil. VND)

RUBBER: REVENUE AND GROSS PROFIT

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LEGACY: PALM OIL

  • Harvest will start in 2018
  • Untested commodity product by HAG, we expect modest cash flow but tiny profit from Palm Oil

5,000 10,000 15,000 20,000 25,000 30,000 2012 2013 2014 2015 2016 2017 2018 2019 2020

Accummulative Plantation (ha) Exploited Area (ha)

PLANTATION AND EXPLOITED AREAS (HA) RUBBER: REVENUE AND GROSS PROFIT

  • 500,000

1,000,000 1,500,000 2,000,000 2,500,000 2018 2019 2020 2021

VND bn

Total Revenue (Mil. VND) Profit before interests (Mil. VND)

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LEGACY: COW

  • Tight cash to raise cow in 2016 – hence low efficiency
  • But cow now is a key component in Global Gap standard for fruits

COW: IMPORTED AND SOLD REVENUE AND PROFIT BEFORE INTEREST

  • 500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 2015 2016 2017 2018 2019 2020

VND bn

Total Revenue (Mil. VND) Profit before interests (Mil. VND)

  • 20,000

40,000 60,000 80,000 100,000 120,000 140,000 2015 2016 2017 2018 2019 2020 Số bò nhập trong kỳ Số bò bán trong kỳ

Number of imported cows Number of cows for sale

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MYANMAR PROJECT: THE GEM OF YANGON

RETAIL: 38,300 m2 Rent: 100% OFFICE: 80,000 m2 Rent: 52% HOTEL: 430 Rooms Occupancy: 40% APARTMENT: 0 Sold: O RETAIL: 29,300 m2 OFFICE: 64,500 m2 HOTEL: NO APARTMENT/ SERVICED APT: 1034

PHASE 1: 2013-15 PHASE 2: 2017-19

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MYANMAR: VALUE AT $500-600M UNDER NEGOTIATION FOR EXIT

42 63 84 33 49 65 12 18 51

10 20 30 40 50 60 70 80 90 2017 2018 2019

Millions Total Revenue (USD) EBITDA (USD) Profit before tax (USD)

PHASE 2 PHASE 2: APARTMENT / SERVICED APARTMENT WILL INCREASE PROFIT SIGNIFICANTLY

  • The best retail mall in Myanmar. All phase 2 retail areas have been reserved.
  • Apartment sold is going to create strong profit in 2018-19.
  • However, HAG is working with a few buyers to partially or fully exit this project to focus on fruits
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  • Change Our Way Of Doing Business:
  • We grow what markets needs.
  • We plant what clients urge
  • Absolute Advantages:
  • Good quality land bank
  • Large scale with low production cost
  • Nearest to China – The largest market
  • One of a few providing Global Gap Standard
  • 18,000ha plantation
  • 19 types of fruits & spices
  • 2,000ha harvest
  • 25 big Partners
  • 50,000tons fruits sales
  • Revenue: $50mil
  • EBITDA: $20mil

TRANSFORMATION: FOCUS ON CONSUMER DEMAND

WHAT WE GOT

FOCUS: BECOMING ONE OF THE LARGEST TROPICAL FRUITS PRODUCERS GLOBALLY

WHAT WE’VE ACHIEVED UNTIL 3Q2017

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HAGL FRUIT - THE BIG PICTURE

  • 3bn population (CN, ID, JP, KO, ASEAN)

Addressable Market

  • Booming Middle Income, Modern Trade

Growing Market

  • 95% farmers with smaller than 5ha

Weak Competitor

  • 100,000ha, cheap labor, and close to markets

Ready Infrastructure

  • Global Gap Standard

High Quality

  • 83 cold storages in 4 countries, 25 big partners

Initial Results

MARKET AND COMPETITOR HAG ADVANTAGES

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SUPPORT BY HUGE INCREASING MIDDLE INCOME CHINA IS A ON SPOTLIGHT

  • China middle class will be added by more than 300mil people (100 mil households)
  • 400 mil ton of fresh fruits consumed globally, China accounts for 40%.
  • Rising middle class, and urbanization will push development of modern supply chain, promoting

high quality of fruits

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VIETNAM FRESH FRUIT EXPORT: BOOMING

  • Vietnam Fruits export grow 7 folds in 7 years, hitting $3.5bnVietnam’s vegetable and fruits

growth 7 folds in 7 years, reaching 7 bil. USD in 2017 (fruits accounts for 85%)

  • China occupies 75% of total export owing to being close and strong demand;
  • The statistics may be understated due to a large export number was border transaction

EXPORT FRUITS & VEGETABLES: BOOMING BUT NUMBERS LIKELY UNDERSTATED AS DRAGON FRUITS ACCOUNTS FOR 61%

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Collectors

…

Big Collector

Wholesalers (packing & grading) Local Distributors Traditional Markets

NO Collector

NO Wholesalers Large Distributors Modern Markets

MOSTLY LOW QUALITY FRUITS HIGHER QUALITY FRUITS

IN IMPORT COUNTRIES IN VIETNAM OR AT BORDER

95% FARMERS WITH LESS THAN 5HA LAND A FEW COMPANIES & COLLECTIVES

SUPPLY CHAIN: SMALL PLAYERS IN TROUBLE

MUCH HIGHER MARGIN

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HAG’S POSITIONING

95% of all farmers in Vietnam Fohla HAGL NAFood PAN Hoang Hau Dragon fruit 20 40 60 5000 10000 15000 20000 25000 30000 35000

Viet Gap Mass Product 100 ha 20,000 ha Viet GAP Global GAP Organic 5 ha Value added Area

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42,134 9,172 47,337 1,163 35 1,057 57,224 40,734 186,834 10,145 27,000 7,332 40,000 80,000 120,000 160,000 200,000 Passion fruit Dragon fruit Banana Mango Chilli Pepper Jack fruit 2017 2018

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AREA OF PLANTATION

  • Except passion fruit, the rest exploited areas in 2017 happens in 2018.
  • Hence 2018 will be a turning year for HAG in term of fruit revenue and profit contribution
  • However, the exploited areas in 2018 is only 9,000 ha out of 18,000 ha has been planting.

EXPLOITED PLANTATION AREAS AND PRODUCTION – 2018 VS. 2017: TURNING POINT IN 2018

ha tons

1,159 713 971 291 35 148 1,635 1,962 2,137 2,000 1,805 773 500 1000 1500 2000 2500 Passion fruit Dragon fruit Banana Mango Chilli Pepper Jack fruit 2017 2018

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CASE STUDIES: PASSION FRUITS

Market Characteristics HAGL Achievements

  • Market size is small: China import 100.000ton in 2016,

mostly from Vietnam.

  • But growth quickly: China import up 50%/year since

2014.

  • Fragmented market: Growers and traders are mostly

small.

  • Logistics is strict for post harvest.
  • Price volatility is big both seasonality and short-term.
  • 1.600ha planted and applying Global GAP, 1.000 ha

harvested, export 30.000 ton, Revenue VND 700bil, EBITDA VND 328bil in 9mth 2017.

  • Built own cold processing factory and storages.
  • Established direct supply chains to big importers in China.
  • Wholesalers pay 20% premium vs. farmer products.
  • Hold 30% of China import – The biggest passion fruit

exporter.

We consider Passion Fruit the first successful example of HAGL Fruit business model

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CASE STUDIES: PASSION FRUITS

PRODUCTION WILL JUMP 35% BUT WITH MUCH HIGHER EXPORT QUALITY EXPLAIN WHY REVENUE JUMPS 45% TO $63M WITH ESTIMATED EBITDA OF $27M

ASSUMTIONS

  • Productivity: 35 ton/ ha vs. average 40 ton /ha by farmers
  • Price: VND 24,000/kg similar to average 2017 expected price
  • Harvest area: discount 10% vs planted area
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CASE STUDIES: BANANA

Banana is a big and competitive business. HAGL has advantages and initial achievements

Market Characteristics HAGL Achievements

  • Market size is huge: 15mil ton trade globally, China

consume 14mil ton/year.

  • Well establish industry: Main Growers and Traders are

big and professional.

  • Product quality: very high standard for premium market.
  • Price volatility: high for lower end segments and less for

premium market.

  • 2500ha planted and applying Global GAP, 400ha

harvested, export 15.000 ton, Revenue VND 230bil, EBITDA VND 90bil in 9mth 2017.

  • Established direct supply chains to big

wholesalers/retailers in China, Vietnam, Cambodia…

  • Pricing equal to Philippine banana.
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CASE STUDIES: BANANA

Sources: DC, GSO, BBG

PRODUCTION JUMPS 4 TIMES MUCH HIGHER EXPLOITED AREA REVENUE WILL TRAIL THE PRODUCTION EBITDA IS EXPECTED TO REACH $57M

ASSUMTIONS

  • Productivity: 40 ton/ ha vs. average 40 ton /ha by farmers
  • Price: VND 15,000/kg, 10% discount to average 2017 expected price
  • Harvest area: discount 20% vs planted area
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CASE STUDIES: DRAGON FRUIT

Dragon Fruit is a big and very potential business

Market Characteristics HAGL Achievements

  • 1.5bil USD market and growing quickly with Vietnam

domination.

  • Rather fragmented: most Growers & Trader are small.
  • Product requirement: getting higher especially premium

segments.

  • Price volatility: Clear seasonal price pattern.
  • 2500ha red & purple meat planted and applying Global

GAP, 700ha start harvesting in Q4 2017.

  • Product quality and productivity are good.
  • Establishing direct supply chains to big

wholesalers/retailers in China, Vietnam, Thailand,…

China import value of dragon fruit(‘000 USD) China import volume of dragon fruit(‘000 tons)

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CASE STUDIES: DRAGON FRUITS

FULL YEAR PRODUCTION AND LARGER HARVEST AREA PUSHES PRODUCTION UP 4.5 TIMES DON’T SURPRISE: HUGE PROFIT MARGIN EXPECTED TO REACH $45M EBITDA

ASSUMTIONS

  • Productivity: 20 ton/ ha vs. average 30 ton /ha by farmers
  • Price: VND 39,000/kg, 10% discount to average 2017 expected price
  • Harvest area: discount 20% vs planted area
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FRUITS BUSSINESS HAS RISKS

Risks and Obstacles HAGL Solutions Market risks:

  • Trade war
  • Technical barriers
  • Demand changes
  • Multi origination: Vietnam, Laos, Cambodia
  • Export through big and official channels
  • Global GAP, post-harvest technologies, internal QC
  • Constant feedbacks from big retailers

Price volatility

  • Seasonality
  • Short-term price shocks
  • Off – seasonal harvesting and processed products
  • Diversified 19 fruits and spices,
  • Sale direct to big importers and retailers
  • High quality with branding

Climate & Natural disasters

  • Typhoon
  • El Nino/drought
  • Land bank located in non-typhoon areas
  • Nearby big rivers and drop irrigation system completed

Disease, pests & insect

  • Global GAP
  • Diversification: 19 fruits and spices; 100 farms in 16 plantation areas
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PLANNING 2017-18: FRUITS

Big contribution of fruits business will be in 2018:

  • Over 300.000 tons products
  • Over VND 7000bil Revenue and VND 4000bil EBITDA
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PLAN OF DEBT REPAYMENT

Going forward, we are confident at debt repayment plan:

  • During the most difficult time of restructuring, we successfully repaid 5.000 bil. VND of debt;
  • In 2018 going forward, we start paying debt in advance owing to strong cash from core operation;
  • If the Myanmar’s real estate exit, assuming 30% at current valuation, we will reduce extra 3.000 bil. VND

27,337 22,337 19,837 15,837

  • 5,000

10,000 15,000 20,000 25,000 30,000 2016 2017 2018 2019 Thousands Bil. VND 1,074 4,043 7,413 5,000 1,500 3,000 2,500 4,000

  • 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 2017 2018 2019 Thousands Bil. VND Cash from Core Operation Repayment of bank debt on due Plan of debt repayment in advance

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CONCLUSION

A FEW KEY POINTS

  • Complete financial restructuring in 2017
  • Turning point for fruits business in 2018
  • Continue to divest from non-core assets: HAGL Myanmar.
  • Focus on building sustainable agricultural ecosystem:
  • Maintain cows, harvest rubber and palm.
  • Further investment on agricultural value chain to become and sustain a top fresh tropical

fruits producer in Asia.