2. Renewable Energy - Food - Agribusiness
Discussion Outline
Introduction & Experience
Why Value Matters
Market and Plant Value Trends
Value Drivers Like Fingerprints
Driving Superior Value In Good Markets and Bad
Questions and Discussion 2
3. Renewable Energy - Food - Agribusiness
Ascendant Overview & Scope of Services
Ascendant Partners (www.ascendantpartners.com) is a business and financial advisory firm dedicated to helping mid-size agribusiness, renewable fuel and food companies protect and enhance shareholder value.
Ascendant Partners brings the collective experience and resources of more than 75 years of financial advisory experience, including financial planning, investment banking, private equity management, commercial lending and mezzanine financing.
Service Offering
Financial Advisory
Strategic Planning
Capital Planning
Business Valuation
Investment Evaluation
Restructuring/Recapitalization/Refinancing
Capital Formation
Capital Strategy, Structure & Placement
Merger and Acquisition Advisory
Facilitate Successful Restructuring Transactions
Sell-Side Focus
Performance Improvement & Benchmarking
Administer Financial and Operational Benchmarking Platform
Designed to Help Independent Ethanol Plants Improve & Succeed 3
Financial
Advisory
Capital
Formation
Performance
Improvement
Mergers &
Acquisitions
Trusted
Insight
4. Renewable Energy - Food - Agribusiness
4
Biofuel Experience & Resources
More than 175 Ethanol Assignments in Last Five Years
Business and Strategic Planning
Performance Improvement & Benchmarking
Business Valuation/Capital Planning
Plant sales
Refinancing/Recapitalization/Restructuring
Business, Market & Credit Reviews
Maintain Best Practices Performance Benchmarking Platform
Multiple Participating Independent Ethanol Plants
Strong Strategic and Financial Resource Network (>140 qualified groups)
Investor Groups
Lenders and Specialty Financial Services Companies
Strategic & Financial Buyers
Dedicated Market Perspective
Biofuel a core focus in good times and bad
Insight into markets and value drivers over time
Fresh perspective
5. Renewable Energy - Food - Agribusiness
Introduction: Why Value Matters…
Common Misconception:
Measuring the value of your business is only important if considering selling it…
Why Measure Value?
Means to best representing shareholder interests
•
Can’t manage what you don’t measure…
Foundation for supporting commercial loan terms or follow on investments or joint ventures
Baseline for grounding strategic planning discussions
There are multiple methods for estimated business value including discounted cash flow modeling and looking at sales transaction comparables
Both methods can provide insight into the value drivers in your business 5
6. Renewable Energy - Food - Agribusiness
-$0.40-$0.20$0.00$0.20$0.40$0.60$0.80$1.00$1.20$1.40Historical Average EBITDA Margins Per Ethanol GallonPeriod 1Period 2Period 3Period 4
2014 Delivered Second Best Margins in History…
No doubt 2014 market environment has been strong strong
Strong and sustained margins building confidence, driving strong earnings and improved values, especially for high-performing plants
That said, we know the industry is cyclical and today’s strong margins are not likely to persist forever…
6
History tells us the market will cycle…Not a question of if, but when
Does that mean plant values will fall with the markets?
Unlike more stable industries, investors view plant performance over at least one full cycle (3-5 years)
Data source: Historical margin simulation
7. Renewable Energy - Food - Agribusiness
And Plant Vales Improving As Well, At Least at the Top… 7
Transaction values for strong plants are expected to rise going into 2015 reflecting the strong operating environment and margins in 2014
Notes:
The per gallon valuations are for plant assets only and do not include cash or net working capital
Valuations for higher performing operations have improved over time, despite a slight set back in 2013
Ultimately, the business values for a particular operation are a function of EBITDA performance
$1.05 $1.20 $1.35 $1.28 $1.30 $1.35 $0.91$1.31$1.35$1.39$0.75 $1.30$1.40$1.50 $0.75 $0.85 $0.95 $1.05 $1.15 $1.25 $1.35 $1.45 $1.552009201020112012201320142015 $/gal PPE Valuations for Above Average Plants Remain StrongImpliedValuation Range
8. Renewable Energy - Food - Agribusiness
But the Market Doesn’t Tell the Whole Story… 8
VeraSun Collapses
Tax Credit Expires
2012 Drought
Building Margins
Data Sources:
-
Transaction data from Ascendant database
-
EBITDA history based on data from public filing entities
Strong performing plants drive strong values in good markets and bad
Distressed plants are penalized in both good markets and bad
Highlights importance of making sure protect the core business First…
9. Renewable Energy - Food - Agribusiness
What Factors Drive Value for Shareholders?
Cash returns on invested capital
Cash returns driven by:
Product margins (defines profit potential)
Operating efficiencies (ability to convert potential to profits)
A good measure of competitiveness is EBITDA
As it captures both margins and operating performance
Average transaction values over the past five years have averaged around 5X EBITDA (3 yr avg) which is consistent with similar industry type operations
That is NOT to say, all plants have the same value… 9
10. Renewable Energy - Food - Agribusiness
Not All Plants Are Created Equal… 10
Source: API proprietary financial performance monitor
For 60MMGY: 0.25/gal = $15MM/yr = $75MM Value
11. Renewable Energy - Food - Agribusiness
Each Plant is Uniquely Positioned to Drive Value 11
InputAssumptionsOutputAssumptionsFinancialResultsOperationalAssumptions
Corn
Milo
Fiber
Supplies
Ethanol
Distillers
Corn Oil
CO2
Labor
Energy
Yields
Capital structure
Margins
EBITDA
Free cash flow
Distributions
Drives Business
Value
12. Renewable Energy - Food - Agribusiness
What Makes Your Operation Unique?
Where do you fit on the competitive curve (EBITDA curve)?
Remember the Hedgehog Principle?
1)
Determine what you can be best in the world at and what you cannot be best in the world at;
2)
Determine what drives your economic engine; and
3)
Determine what you are deeply passionate about
Don’t be afraid of exposing reality and learning from others
Participate in benchmarking studies
Collaborate with other plants
Avoid complacency
Success breeds complacency. Complacency breeds failure. Only the paranoid survive… Andy Grove 12
13. Renewable Energy - Food - Agribusiness
Scorecard Your Performance to Measure and Set Goals 13
Value Driver ComparisonCompared to Top Tier PerformerValue DriversMy PlantTop TierNotesOperating PerformanceYieldsAverageStrongHow do yields stack upProcess efficiencies/cost baseStrongAverageVariable and fixed cost comparisonsEnergy UtilizationStrongAverageElectricity and gasCompliance/Safety/Environ AverageAverageTrack recordManagement capabilitiesAverageStrongTechnical, leadership, success plansProcess TechnologyICMICMIndustry-standard process technologyEBITDA PerformanceStrongStrongPosition on the 'EBITDA curve'Market Access & LogisticsCompetitive Feedstock AccessAverageStrongCompare delivered prices and contribution to EBITDAEthanol Market AccessAverageStrongCoProducts ContributionStrongStrong- DistillersStrongAverage- Corn OilAverageAverage- Other? AverageAverageCO2? Hi pro feed? Fiber separation? Capital & InfrastructureInfrastructureStrongAverageScalability, unit train capacity, storage, etc. Room to expandWeakStrongSite footprint, room to expand - adjascent acreage available, zoningEfficient site layoutStrongStrongPlant footprint and traffic flow and confirguation Capital ImprovementsWeakStrongStorage, loading/unloading, bolt on operations, co gen turbine, drying capacity Implied OutcomeAveragePremium to AverageHow stack up on the Competitive Curve
14. Renewable Energy - Food - Agribusiness
Capturing Superior Value in Good Markets and Bad…
First, Protect the Core
Covet thy working capital
Invest in the core business to ensure competitive
Maintain capital discipline
Understand and Measure business value and drivers
Can’t manage what you don’t measure
DCF and Comps
Identify Opportunities to Improve
Compare
Map
Confront the brutal truth
Compounding effects of improvements
Develop and execute plans to close gap and build value
Align strategic priorities for maximum value impact 14
15. Renewable Energy - Food - Agribusiness
Summary
Understanding and measuring value important to protecting and improving shareholder interests
Market environment does influence business value but doesn’t tell the whole story
Every business is uniquely positioned to drive value
You do control the levers that drive value in your business
There are steps you can take to protect and improve shareholder values 15