In an investment portfolio, some assets perform better than others. The reasons for the underperformance of an asset are varied. They might have been overlooked during the buyer’s due diligence. We assess the root-cause of underperformance and proposes an execution plan to bridge the gap between current conditions and the Business Plan. Commercial – e.g., overlooked higher-margin products or target markets, low diversification of the customer base, room for pricing optimisation. Technical – e.g., reduced level of maintenance leading to a high frequency of unplanned shutdowns, a limited capital investment plan to support planned revenue streams. Environmental, Health and Safety – e.g., outstanding remediation activities and impact on the cost of decommissioning, poor operating practices.

1. Baobab
Operational Improvement
Prepared for Nexant January 2020
Public
Post-Transaction Support
1

2. In an investment portfolio, some assets perform better than others. The reasons for the
underperformance of an asset are varied. They might have been overlooked during the buyer’s
due diligence.
 The improvement of the asset’s performance depends on the correct identification of the
inefficiencies.
 Since 1964, we have enabled management teams, investors in the energy and chemicals
industry to make better decisions. Commercial and private investors trust us, and its record
includes acting as an advisor in over $100bn worth of successfully financed projects and
transactions such as:
 CDD and TDD to support the sale of AkzoNobel Specialty Chemicals
 Market advisor to support the Covestro IPO
We assess the root-cause of underperformance and proposes an execution plan to bridge the
gap between current conditions and the Business Plan.
 Commercial – e.g., overlooked higher-margin products or target markets, low diversification of
the customer base, room for pricing optimisation.
 Technical – e.g., reduced level of maintenance leading to a high frequency of unplanned
shutdowns, a limited capital investment plan to support planned revenue streams.
 Environmental, Health and Safety – e.g., outstanding remediation activities and impact on the
cost of decommissioning, poor operating practices.
We have completed numerous operational due diligences for private equities, corporate
strategy groups and commercial lenders. Recent experience includes:
 ChlorAlkali/EDC/VCM plant in the Middle East
 Polyolefins plant in South-East Asia
 Isocyanates plant in Western Europe
 Fertilizer plant in North America
 Sodium cyanide plant in Russia.
There is a high probability that some assets in the portfolio are underperforming. We
identify the reasons, recommend changes and enable operational improvement.
Introduction
Operational Improvement
Why?
Asset underperformance
Commercial challenges
Manufacturing excellence
Environmental regulations
2January 20#Baobab
Integration
and/or
restructuring
Operational
Improvement
Exit Strategy
Carve-out?
Due
Diligence

3. Strategic decisions can represent step changes
to the operations of the asset
Assess the implementation roadmap agreed
during the acquisition, and evaluate needed
adjustments to reflect current circumstances
 Divestment/Carve-out?
 Closure of Manufacturing Site?
 Merger and Integration?
 Process technology benchmarking and
innovation?
 R&D Pipeline?
Manufacturing
Excellence
Capital
Expenditure
Strategic
Decisions
Operations Performance
Nameplate capacity and historical performance
– loss of production?
Product quality and customer complaints?
Feedstock and off-take agreements?
Lean manufacturing processes?
Adequate inventory levels?
Maintenance Spend
Decrease in working capital in the pre-deal
period? Expenditure on maintenance and
sustenance? Turn-around schedule?
Safety and Environment
Significant incidents due to Loss of Primary
Containments or injuries? Risk management and
recording of near misses?
January 20
We are independent advisors that drive the creation of value during the holding period
and ensure the exit strategy remains clear, while aware of pitfalls of value erosion.
Operational Improvement
Major Project Participants
From the balance sheet or project financing?
Insurers, EPC contractor, technology licensor?
Technology Evaluation
Configuration and impact on current operations?
Quality of proposed technology?
Execution Plans
Contracting strategy and involvement of the
maintenance/projects teams?
Project Costs and Schedule
Risk of unplanned CAPEX surprises?
Realistic schedule and budget for the
implementation of the Project?
Effective project/program management?
Interfaces and Integration
How does it integrate with existing utility, storage
and logistics and third-parties
Contracts Review
Technical review of key contracts – e.g., licensing
technology agreement, EPC
Licenses and Permits
Review of the necessary licenses and permits
required to construct and operate
Construction/Commissioning/Start-Up
Periodic visit to monitor progress
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4. The operating costs of a chlorine plant were
projected to increase significantly, due to the end
of a discount agreement on the energy price.
 The plant produces chlorine and caustic soda
which are both used across a wide range of
applications such as the vinyl value chain (e.g.
PVC), isocyanates (e.g., MDI, TDI), water
treatment and in the pulp and paper industry.
 Chlorine plants are energy intensive, and their
competitiveness relies on favourable energy
pricing. In this case, the plant had been
operational for over 15 years and benefited
from low-cost electricity, the primary variable
cost.
The announced increase in the cost of electricity
posed a challenge to the competitiveness of the
chlorine plant. We identified and evaluated OPEX
and CAPEX options, such as:
 Close to plant when the electricity price is
increased
 Investments to improve the plant’s efficiency
 Operational changes to enhance the plant’s
operations
 Investments to secure lower-cost electricity
 Investments in new downstream products
We visited the manufacturing assets periodically and interviewed key staff responsible for
operations, such as the directors for operations, maintenance, quality control and EHS.
 We collected and analysed the historical and current operations to establish a baseline for
future operations.
 Reviewed historical and future Capex projects, segregating projects driving EBIDTA growth
and sustenance investments.
 Benchmarked the plant’s performance against global competitors considering the different
OPEX and CAPEX initiatives
We built a financial model for the proposed options and recommended a plan to enhance the
projected financial performance of the manufacturing asset.
 Working closely with the client, we shortlisted 14 initiatives to enhance the plant’s cash flow.
 A DCF model was used to analyse the impact of the electricity price changes on the future cash
flow of the business.
The findings recommending four initiatives were presented to management and shareholders. The
selected option is currently being implemented with our support.
Working closely with management, our team of chemical engineers identifies initiatives
to add value and analyse the quantitative impact they could have on future cash flows.
Case Study – Chlorine Plant
January 20
Chlorine Plant
Caustic
Chlorine
Diverse applications, including chemical
production, soap/ detergents, alumina,
water treatment, pulp & paper, textiles
Salt
For instance, vinyls, propylene oxide,
isocyanates, water treatment,
epichlorohydrin, pulp and paper.
Power
Simplified Manufacturing Diagram
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5. The Client was considering building a new plant
able to produce above 100 kta of TDI and replace
two existing plants owned by the Client elsewhere
which had the same capacity (70 kta + 40 kta).
 The company would design, construct, operate
and maintain the new TDA plant.
The fragmented ownership of the manufacturing value chain, the development of the project
posed several challenges:
 Technology and Design Issues: we reviewed the details of the technology package covering
design, feedstock consumption and product yield, interfaces with existing facilities and
environmental issues – we discussed the risks associated with each section
 Operational Issues: the security of feedstock supply and the competency of the operational
team for the proposed plant were reviewed. The potential risks to Lenders were assessed, and
inputs for the FM prepared by the PE firm were considered.
 EPC Completion Issues: we reviewed the adequacy of the EPC contract and the level of risk to
on-time, on-cost project execution.
Our team visited the construction site on two occasions and held meetings with the project team and
third party companies operating at the site. We have also visited the French environment agency.
We were engaged by a major private equity firm to evaluate a growth capital
investment by a company in their portfolio operating in the polyurethanes value chain.
Case Study – Isocyanates Plant
January 20
Chlorine Plant
Caustic
Chlorine
Brine
Sales: TDI 80/20
Power
HCl
DNT Plant TDA PlantToluene
Owner A
TDI Plant
Nitric Acid
Concentration
Nitric Acid
(Weak)
H2
Cl2
Owner B
Owner C
Sulphuric
Acid
Natural Gas HyCo
Owner D
H2
CO TDI Speciality
Grades
Owner E
Sales: TDI
Speciality Grades
Simplified Manufacturing Diagram
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6. Baobab
Our methodology
Operational Improvement

7. Since 1964, we have supported PE houses and corporate strategy divisions, enhancing
operations of their assets.
Our Methodology
January 20
Business Audit Business Plan Execution
Commercial assessment
Technical assessment
Environmental assessment
Review business plan
Evaluate capital investment plan
Design implementation plan
Set milestones and success criteria
Organise execution team
Quarterly site visits (~3 days)
Review execution progress
Report to managementVisit manufacturing sites
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8. One of the major intellectual triumphs of the modern world is the
transformation of risk, the possibility of untoward events, from a
matter of fate to an area of study. (RAND, 2004)
 Quantitative risk analysis (QRA) is the process of quantitatively
assessing risks. The risk management uses the risk analysis to
devise management strategies to mitigate the risk.
 We may decide to abstain from acting upon a risk identified.
However, it is an informed decision and possibly means that we
can accept the adverse impact of the risk.
We have developed its QRA methodology based on the
implementation of numerous projects worldwide.
 We identify sources of potential uncertainty, such as investment
costs or construction delay. Then evaluate the accuracy of the
estimates and profile the type of risk using probability curves.
 The uncertainty space is then explored using pseudo-random
sequences (e.g., Sobol sequences). Typical outputs are histograms
or cumulative probability curves (S curves).
In the context of the implementation of projects in the chemical
industry, there are three essential types of risks:
 Cost risk – e.g., risk that there will be an overrun to project cost
 Schedule risk – e.g., risk that the project will be delayed
 Performance/Quality risk – e.g., risk that assets built will not
perform as planned, for instance, reduced operating rates.
Case study. The client was considering investing in a new
manufacturing complex. The critical financial indicator was IRR.
 We identified feedstock contract price, projection of product
prices and capital investment as the primary sources of
uncertainty.
 We evaluated the accuracy of the estimates, quantified the
uncertainty and profiled the probability distribution curve
qualitatively for each source.
We concluded that despite the estimated project IRR was 20%, the
level of accuracy of the inputs and the profile of the risk distribution
curves, there was a high likelihood that the IRR would be 10%.
To appreciate the risk of an investment, we have developed a quantitative risk analysis
tool to support the assessment of a company’s valuation or project rates of return.
Quantitative Risk Assessment
Product Price
Forecast
± 5 %
Capital
Investment
- 20 % / +50%
Feedstock
Contract Price
0% / + 30%
Estimate Estimate Estimate
IncreasingLikelihood
IRRIRR = 20%
IRR = 10%
80%
40%
 One likelihood
curve, allows us to
interpret the impact
of the 3 different
risks on our IRR.
 Traditional
sensitivity analysis
neglects the quality
and simultaneous
occurrence of risks.
+40%
Identify
sources of
uncertainty
Evaluate
accuracy of
the
estimates
Profile risks’
probability
curves
Explore
uncertainty
space
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9. Contact details
Email: nfaisca@nexant.com
Telephone: +44 (0) 20 7950 1565
Experience
 Business strategy and operational improvement
 Project finance: commercial and technical due diligence
 Mergers and acquisitions: commercial and technical due diligence
 Venture capital: evaluation of commercial and emerging technologies
Contact details
Contact details
9January 20#Baobab