EEP HOUSES IN ARGENTINA, CASE STUDY

ENERGY EFFICIENT PROJECT
www.energyefficient.pro
EEP HOUSES
IN ARGENTINA
case study

the business
environment of EEP

HOMEBUILDING INDUSTRY IN
ARGENTINA:
- Underdevelopment of a
sustainable, energy-efficient
construction projects
- No serious competitors of
EEP installed yet in the
market
- Rising of the utility bills costs
for suburban housing
- Relatively sizeable market of
3,5 millions square meters
per annum for low-rise,
detached housing
the business environment of EEP
©2014 all rights reserved

THE OFFER
- To provide a brand new life
experience to the customers
through the novelty and
excellence of EEP products and
after-sales services
- To integrate into an innovative
product the most prized and
differential attributes sought
after by customers when buying
or building their houses
COMPETITIVE EDGE
- Premium quality
- Sustainability and economy
- Custom-oriented service

STRENGHTS
Business concept. Integration of
existing attributes into an
innovative product. Best
price/savings ratio, plus the added
value of environmental comfort
Management skills of the team to
deal with project development.
Expertise in the proposed type of
construction
WEAKNESSES
Power of big suppliers/providers.
Production concentrated in few
manufacturers
Lack of full understanding in
public opinion about the
advantages of efficient
construction, distorted by energy
subsidies
OPPORTUNITIES
Lack of competence in the
Argentine market for these type of
projects. Opportunity to be a
pioneer
Growing cost of utilities in gated
communities and suburban
developments
THREATS
Potential competition from big
players - having demonstrated the
viability of the business in the
market.
Lack of scale, if targets are not
met because of cyclical economic
downturns
SWOT ANALYSIS

Present products New products
Present
markets
EEP houses in gated communities in
Buenos Aires province. Pre-built
EEP houses in gated communities in
Buenos Aires province. Built upon
request
EEP houses for social housing
EEP houses in high-density
developments
New
markets
EEP houses in rest of Argentina
EEP houses in LatAm
EEP houses world-wide
Vertical integration:
- with providers
- with realtors
- with financial institutions
ANSOFF MATRIX
PRODUCT/MARKET
Growth options after achieving
maturity of business

who are the buyers of
EEP houses ?

EEP houses?
THE MARKET
4800 houses are built every year in
gated communities in the province
of Buenos Aires, Argentina
From this figure is targeted a
market share of 1% (48
households per year) to reach
business sustainability
- The client is an innovator or
early adopter of technology
(Rogers)
- Demographic Class ABC1
- Aged in between 25 to 65 y.o.
- Has higher education at least
- Of both sexes
- Has social consciousness,
subscribing to the concepts of
sustainability and
environmental care

EEP houses?
What do the clients say?
- They have an aspirational drive
to move from an apartment in
an urban area to a larger house
in the suburban area
- Most believe would purchase
their new house without
financing
- A quarter of the sample is
prepared to get a mortgage to
access their new house
- Two thirds prefer to buy a
house built and finished (pre-built)
- A third would build their house
from scratch (built to order)
- The most likely or very likely to
change their housing over the
next 5 years
Average figures extracted from the survey held in
the target market (Argentina, 2014):
Average purchase value of 1197 USD / m2
Average surface area of 133 m2
Synthetic house price of $ 159,201

EEP houses?
Demand and sales forecast
In the first 6 years, demand will
grow exponentially, fueled by the
novelty of the concept reaching a
market share target of 1% (48
houses) by the year of maturity.
To finance the growth yearly profits
will be totally reinvested until
business sustainability is reached.
• 33% built-to-order houses
• 67% pre-built houses
Sales Forecast Year#1 Year#2 Year#3 Year#4 Year#5 Year#6
Business growth
150% 100% 100% 100% 20%
Built-to-order houses - 2 4 8 16 16
Pre-built houses 2 3 6 12 24 32
Total of sales 2 5 10 20 40 48

how will we sell the
EEP houses?

POSITIONING
EEP should be positioned as a
premium brand:
- Segmentation to ABC1
- Appeal to aspirational attributes
- LEED for Homes Certification
from USGBC
Analogy with the automotive
industry:
- Industrialized quality product
- Comfort
- Efficiency
- Customization
EEP houses? ©2014 all rights reserved

EEP HOUSE - BASE PRODUCT
The outer shell is constructed, with
clean, sustainable and non-allergenic
recyclable materials. All
the opening made of high thermal
efficiency joinery.
- Thermal transmittance K
0,233W / m2k.
- Energy savings of 68.35%.
- Meets Energy Efficient Law
13059, Province of Buenos
Aires
- LEED for Homes Silver
Certification
Listing price of based product:
prototype ”La machine à Habiter"
135m2 = 160 000 USD
The house is delivered with finishing details such as:
- hardwood floor in living room
- porcelain tiles in kitchen, toilet and laundry
- suspended ceilings
- wooden interior doors
- kitchen furniture and sanitary ware of higher quality

SCALABILITY
The base product can be improved
by incorporating additional
enhancements, thereby
maintaining a competitive sale
price basis and giving the
customer the ability to finance
itself:
- Efficient air conditioning
systems
- Home automation
- Renewables
- Water management
- Appliances and equipment
- Exteriors and landscaping
Providers of enhancements are
outsourced, EEP monetize them
by charging a fee

AFTER SALES SERVICE
Related to additional
enhancements, after-sales
services are offered keeping a
close business relationship with
the customer:
- Fluid leakage monitoring
- Surveillance and security
- Control of operating costs
- Landscaping and pool
Suppliers of after-sales services
are also outsourced by EEP,
charging them a commission fee
from the value of the service
offered

PROMOTION
To achieve identification and brand
recognition:
- Attributes and comparative
advantages should be
appreciated by potential
customers quickly.
Striking promotion campaigns in
several dimensions simultaneously:
- Promotion via web
- Advertising in magazines of
general interest
- Fairs and Exhibitions
- Showroom
- Mass media PR agent
©2014 todos los derechos reservados Jorge Tofalo
propiedad intelectual protegida bajo ley 11.723 y 22.362
EEP houses?

DISTRIBUTION MODELS
Pre-built: realtors channel:
- agreements with agents acting
in premium locations
- fees incurred each real estate
transaction
Built to order: internet channel:
- capture the market of those
who prefer to build their home
from scratch
- on the Internet, price sensitive
customers are channeled
- Prototype’s construction price
"La machine à Habiter" (land
not included) 135m2 = 101 250
USD
©2014 todos los derechos reservados Jorge Tofalo
propiedad intelectual protegida bajo ley 11.723 y 22.362
EEP houses?

MARKETING EXPENSES
Heavy spending on marketing is
projected around 15% of sales at
the start of activities to stabilize at
1.5% of gross income towards the
maturation of the company. In
nominal terms it keeps stable.
Marketing expenses
(USD) Year#1 Year#2 Year#3 Year#4 Year#5 Year#6
Printed marketing material 2 000 2 000 2 000 2 000 2 000 2 000
Fairs and exhibitions 10 000 12 000 14 000 16 000 20 000 20 000
Mass media PR agent 10 000 10 000 10 000 10 000 10 000 10 000
Website development 3 000 3 000 4 000 5 000 6 000 6 000
Advertisement campaigns 20 000 20 000 20 000 20 000 20 000 20 000
Total annual (USD) 45 000 47 000 50 000 53 000 58 000 58 000

SERVICE COMPANY
Agile and light weighted company
in terms of structure. Key factors to
consider:
- To outsource legal, accounting
and design services to ensure
the best lawyers, accountants,
architects and engineers from
Argentina or the world
- To have in-house control of
planning and quality control,
vital for business success
- To partner with the best realtors
in the provision of land and
commercialization of EEP
products
- To not have fixed assets, to rent
assets if proved necessary
how will EEP work?

LEAN CONSTRUCTION
Minimum inventory: low cumulative
of finished houses in current
assets to maintain a limited
working capital. To implement “Just
in Time” management system.
Key factors to consider:
- Efficient project operation
management
- Timing with the provision of
construction materials
- Marketing analysis to forecast
sales, avoiding unnecessary
inventory of unsold houses
- Minimum waste level in
construction sites
how will EEP work?

yes
no
yes
Market
research
Land
acquisition
Materials
procurement
Design
development
House
construction
House
selling
Realtor
sells?
Enhance-ments?
Enhancements
installation
Client
Post-selling
services?
Utilities
maintenance
Surveillance
and security
Leak
monitoring
Renew
services?
End
End
End
End
no
yes
yes
no
no
how will EEP work?
FLOW CHART CYCLE
- Concatenated tasks’ scheme
for design, development,
construction, sale and after-sales
services of a single EEP
house, pre-built distribution
model

how will EEP work?
IMPLEMENTATION SCHEDULE
Forecast of the time needed to
start the company after initial
capital funding obtained.
Expected construction time for the
standard prototype "La machine à
Habiter" (135 m2) is 4 months
using 4 skilled workers and the
expected selling time within 8
months from start of construction.
Stage
Month -4
Month -3
Month -2
Month -1
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Registration of the company
Selecting of the initial staff
Market Analysis
Design development
Negotiations with suppliers
Partnership with realtors
Adquisition of first landplot
Construction of first prototype
Sale of first prototype
Adquisition of second landplot
Construction of second prototype
Sale of second prototype
Adquisition of third landplot
Construction of third prototype
Sale of third prototype

how will EEP work?
COST ANALYSIS
These administrative costs are
considered necessary to launch
and run the business over the first
six years of incubation. The
estimate is based on the projected
head-count growth within the
company.
Estimated cost of goods sold
based on the prototype "La
machine à Habiter" with an area of
135 m2. It is expected a gradual
reduction of such costs as the
sales volume grows into a
economy of scale, till reaching a
plateau level by the fifth year of
development of the company.
Administrative expenditures
Accounting 4 500 6 500 11 250 18 900 32 000 32 000
Legal services 2 250 3 250 5 000 8 400 12 000 12 000
Training 2 000 4 000 7 200 14 400 25 600 25 600
Office rental 5 000 5 000 9 000 10 000 16 000 16 000
IT 1 250 1 250 2 250 2 500 4 000 4 000
Furniture 500 500 900 1 000 1 600 1 600
Supplies 2 000 2 000 3 600 4 000 6 400 6 400
Utilities 2 500 2 500 4 500 5 000 8 000 8 000
Total annual 20 000 25 000 43 700 64 200 105 600 105 600
Cost of goods sold
House’s built area in sq.m. 135 135 135 135 135 135
Costs of materials and equipment per sq.m. 500 450 400 350 300 300
Total cost of materials and equipment 67 500 60 750 54 000 47 250 40 500 40 500
Landplot area 800 800 800 800 800 800
Land cost per sq.m. 40 38 36 34 32 32
Cost of landplot 32 000 30 400 28 800 27 200 25 600 25 600
Architectural sevices 3 375 3 038 2 734 2 460 2 214 2 214
Taxes and approval fees 3 000 3 000 3 000 3 000 3 000 3 000
LEED for Homes certification 5 000 4 000 3 000 2 000 1 000 1 000
Cost of goods sold per house 110 875 101 188 91 534 81 910 72 314 72 314

how will EEP work?
PRICING
Data analysis to calculate margins
of both distribution models, namely
the pre-built and built to order.
It is expected an increase in the
margin levels towards the years of
maturity of the company, as it
gains market share and the costs
and expenses are optimized,
thanks to better negotiations with
suppliers and economy of scale.
Pre-built margin calculation
Direct cost of labor 15 500 16 275 17 089 17 943 18 840 18 840
Selling price of a pre-built house 160 000 160 000 160 000 160 000 160 000 160 000
Margin per pre-built house 33 625 42 538 51 378 60 146 68 845 68 845
Selling price per sq.m. (including land) 1 185 1 185 1 185 1 185 1 185 1 185
Built-to-order margin calculation
Direct cost of labor 15 500 16 275 17 089 17 943 18 840 18 840
Selling price of a built-to-order house 101 250 101 250 101 250 101 250 101 250 101 250
Margin per pre-built house 18 250 24 225 30 161 36 057 41 910 41 910
Selling price per sq.m. (land excluded) 750 750 750 750 750 750

CONTINUOUS IMPROVEMENT
Continuous Pursuit of Excellence:
Energy Efficient Project is a
service company first of all, so
human resources are key to
achieving the strategic objectives
Key factors to consider:
- To have employees fully
committed to the values of the
company
- Constant motivation, salary
increases and / or awards
- Ongoing training to keep pace
with cutting edge of technology
and quality of service
the people behind EEP

Design
Outsourced
Managing
Director
Start-up
Secretary
Start-up
HR Director
Vacant
Administration
Manager
Vacant
HR Manager
Economic
Planning
Director
Vacant
Vacant
Procurement
Director
Vacant
Quantity
Surveyor
Start-up
Marketing
Director
Vacant
Marketing
Manager
Vacant
Operations
Director
Vacant
Construction
Manager
Start-up
Foreman
Start-up
Workers (x3)
Start-up
Foreman
Vacant
Workers (x3)
Vacant
Foreman
Vacant
Workers (x3)
Vacant
Foreman
Vacant
Workers (x3)
Vacant
Construction
Manager
Vacant
R&D/Quality
Director
Vacant
Architect /
Engineer
Start-up
Architect /
Engineer
Vacant
Legal services
Outsourced
Accounting
Outsourced
ORGANIZATION CHART
At the time of start of activities (in
yellow) till the year of maturity

WAGE COSTS
over the years of company’s
incubation period
Operations
Foremen headcount 1 2 4 8 16 16
Foreman monthly wage 1 000 1 050 1 103 1 158 1 216 1 216
Social security 55% 55% 55% 55% 55% 55%
Foremen Annual Wage 18 600 19 530 20 507 21 532 22 608 22 608
Workers headcount 3 6 12 24 48 48
Worker monthly wage 500 525 551 579 608 608
Social security 55% 55% 55% 55% 55% 55%
Workers Annual Wage 9 300 9 765 10 253 10 766 11 304 11 304
Annual Direct Labor Cost 46 500 97 650 205 065 430 637 904 337 904 337
Construction Managers headcount 1 1 2 2 2 2
Construction Manager monthly wage 1 500 1 575 1 654 1 736 1 823 1 823
Social security 30% 30% 30% 30% 30% 30%
Construction Managers
Annual Wage 23 400 24 570 25 799 27 088 28 443 28 443
Operations Director monthly wage - - - - 2 500 2 500
Social security - - - - 30% 30%
Operations Director Annual Wage - - - - 39 000 39 000
Annual Office Staff Labor Cost
Operations 23 400 24 570 51 597 54 177 95 886 95 886
R&D / Quality Control
Professional Staff headcount 1 1 2 2 2 2
Architect/Engineer monthly wage 1 000 1 100 1 210 1 331 1 464 1 464
Social security 30% 30% 30% 30% 30% 30%
Professional Staff Annual Wage 15 600 17 160 18 876 20 764 22 840 22 840
R&D/Quality Director monthly wage - - - - 2 000 2 000
R&D/Quality Director
Annual Wage - - - - 31 200 31 200
R&D/Quality Control 15 600 17 160 37 752 41 527 76 880 76 880
Procurement
Quantity Surveyor monthly wage 1 000 1 100 1 210 1 331 1 464 1 464
Social security 30% 30% 30% 30% 30% 30%
Quantity Surveyor Annual Wage 15 600 17 160 18 876 20 764 22 840 22 840
Procurement Director monthly wage - - - - 2 000 2 000
Procurement Director
Annual Wage - - - - 31 200 31 200
Procurement 15 600 17 160 18 876 20 764 54 040 54 040
Marketing
Marketing Manager monthly wage - - 1 200 1 320 1 452 1 452
Social security - - 30% 30% 30% 30%
Marketing Manager Annual Wage - - 18 720 20 592 22 651 22 651
Marketing Director monthly wage - - - - 2 000 2 000
Marketing Director Annual Wage - - - - 31 200 31 200
Marketing - - 18 720 20 592 53 851 53 851
Economic Planning
Economic Planning Director
monthly wage - - - - 2 000 2 000
Economic Planning Director
Annual Wage - - - - 31 200 31 200
Economic Planning - - - - 31 200 31 200
Human Resources
Administrative Staff headcount - - 1 2 2 2
Administrative Staff monthly wage - - 1 200 1 320 1 452 1 452
Social security - - 30% 30% 30% 30%
Administrative Staff Annual Wage - - 18 720 20 592 22 651 22 651
HR Director monthly wage - - - - 2 000 2 000
HR Director Annual Wage - - - - 31 200 31 200
Human Resources - - 18 720 41 184 76 502 76 502
Management
Secretary monthly wage 500 550 605 666 732 732
Social security 30% 30% 30% 30% 30% 30%
Secretary Annual Wage 7 800 8 580 9 438 10 382 11 420 11 420
Managing Director monthly wage 3 000 3 300 3 630 3 993 4 392 4 832
Social security 30% 30% 30% 30% 30% 30%
Managing Director Annual Wage 46 800 51 480 56 628 62 291 68 520 75 372
Management 54 600 60 060 66 066 72 673 79 940 86 792

valuation and capitalization
of EEP

COMPARABLES IN NYSE
To gauge the potentiality of a
company such Energy Efficient
Project, we ought to analyze
comparable companies listed on
NYSE in the Homebuilding
industry, the chosen ones are:
- D.R.Horton (DHI)
- Lennar Corporation (LEN)
- PulteGroup (PHM)
valuation and capitalization of EEP

FREE CASH FLOW
It is obtained after integrating the
projected sales against the cost
assumptions for each area and at
each stage of the incubation
period.
No additional request for debt is
needed to leverage growth, but
much of the net income shall be
reinvested in the early years of
business incubation.
After the first early years of high
annual growth, perpetuity is
provided as an annual 3% growth
when reaching the maturity of the
business.
FCFF calculation (USD) Year#1 Year#2 Year#3 Year#4 Year#5 Year#6
Sales 320 000 682 500 1 365 000 2 730 000 5 460 000 6 740 000
Cost of Goods Sold (221 750) (182 063) (333 203) (604 925) (1 087 544) (1 666 059)
Direct Labor Cost (46 500) (97 650) (205 065) (430 637) (904 337) (904 337)
Other Direct Costs (2 000) (4 000) (8 000) (16 000) (32 000) (32 000)
Gross Cash-Flow 49 750 398 788 818 733 1 678 439 3 436 119 4 137 605
Administrative Salaries (54 600) (60 060) (103 506) (175 633) (286 796) (293 648)
Technical Salaries (54 600) (58 890) (108 225) (116 468) (226 806) (226 806)
Administrative Expenses (20 000) (25 000) (43 700) (64 200) (105 600) (105 600)
Marketing Expenses (45 000) (47 000) (50 000) (53 000) (58 000) (58 000)
Operational Cash-Flow (124 450) 207 838 513 302 1 269 139 2 758 918 3 453 551
Income Tax 35% - (29 186) (179 656) (444 199) (965 621) (1 208 743)
Income After Taxes (124 450) 178 652 333 646 824 940 1 793 297 2 244 808
Working Capital (221 750) (101 188) (274 601) (491 462) (867 772) -
FCFF (346 200) 77 464 59 045 333 478 925 525 2 244 808
Perpetuity (3%) 12 965 405
Total FCFF (346 200) 77 464 59 045 333 478 925 525 15 210 213

COST OF CAPITAL
The formula for cost of capital rate
(WACC for its acronym in English,
Weighted Average Cost of Capital)
will be used to valuate the
company worth.
It is used financial parameters
applicable to the homebuilding
industry in the US and Argentina.
These data allow us to include in
the valuation of the company's
calculation of implicit and known
risks in the construction industry.
Discount rate for undiversified investor
Rf US (30Y T-bond) April the 1st 2014* 3,60 %
Unlevered US industry beta (Homebuilding) 1,23
Target Market-Based Employer's D/E 56,6%
Target Market-Based Employer's D/A 36,1%
Relevered employer's beta 1,69
Correlation coefficient ( Rho ) 44,41%
Relevered total employer's beta 3,80
(Rm-Rf) US 4,04%
Sigma return Argentina market 29,85%
Sigma return US market (S&P500) 19,55%
Ce 27,05%
Cd employer ($-based) (%) 13,54%
Tax rate employer (%) 35%
WACC of employer (%) (preliminary) 20,45%
Bradley-Jarrell patch (%) 0,38%
WACC of employer (%) (final) 20,83%

VALUATION BY DISCOUNTED
CASH FLOW
Free cash-flows at the rate of
WACC rate are deducted to give
the net present value of the
company by this method.
VALUATION BY MULTIPLES
An estimate of the value of equity
valuation is done as multiples
compared to listed companies in
the capital market in the United
States.
Equity as per DCF (USD)
Weight--> 50%
Enterprise Value (PV of Total FCFF)
5 202 452
Initial Debt
0
Preliminary equity
5 202 452
IRR
129%
Discount for illiquidity (on equity) 49,2%
Increase for control (on equity)
23,0%
Discount for hazard (on equity)
39,3%
Equity for undiversified control investor 1 973 175
Implied Ce (approx.)
41,30%
Equity as per multiples (USD)
50% 50%
EV/Sales (Year#6) 1,68 4 006 262 96% 3 846 011
EV/EBIT (Year#6) 18,72 184 512 3% 5 499
EV/EBITDA (Year#6) 18,06 191 256 1% 1 900
Synthetic EV via multiples (year#6) 3 853 459
WACC (%)
20,83%
Synthetic EV via multiples (year#0) 1 238 033
Initial Debt
0
Preliminary equity
1 238 017
Discount for illiquidity (on equity) 49,2%
Increase for control (on equity) 23,0%
Discount for hazard (on equity) 39,3%
Equity for undiversified control investor 469 558

FINAL VALUATION AND
CAPITALIZATION
To launch the project will be
required to raise a total of USD
346,200.
The composition of this investment
will be given for 81.51% of foreign
investment, which will be provided
by an investor group or angel
investor in USD 282,200.
To the angel investor or investor
group will be offered an annual
return of 50% at three years,
enabling an expected cash-out in a
second round of investment of
USD 952,425.
Synthetic venture results (USD)
Equity as per DCF (50%) 1 973 175
Equity as per multiples (50%) 469 558
Enterprise Value for equity investors 1 221 367
Venture Financing (USD)
Initial investment (Year#0) 346 200
Debt 0
Equity 346 200
Angel's initial investment (angel inv) 282 200
Entrepreneur’s initial investment 64 000
Angel’s IRR 50%
VC’s equity (Year#3) 952 425
Venture’s equity (Year#3) @ implied Ce 3 445 661
Angel’s share, Year#3 (=Year#0) 27,64%
Entrepreneur’s share (=Year#0) 72,36%
Post-Money valuation (angel inv/Angel %) 1 020 937
Pre-Money valuation (=Post-Money – angel inv) 738 737

for more information
please contact us
info@energyefficient.pro
+7(903)139-7887

EEP HOUSES IN ARGENTINA, CASE STUDY

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