新大洲Ａ：乌拉圭Lorsinal公司评估报告_股票频道

Montevideo, 29th June 2016

The objective of the present report is to expose the results of the company valuation

process held for LORSINAL S.A., Abattoir in Uruguay, considering company’s financial

information, management statements and actual macroeconomic information.

In order to determine the value of the company, professional practices of major acceptance

in the matter where considered, being trading and transaction multiples, based on market

information, and Discounted Cash Flow model (DCF).

Within the market approach two methods were used: Comparable Trading Analysis, and

Acquisition Comparable Analysis. Strengths and weaknesses of each of these methodologies

are exposed in the report.

The DCF methodology considers future cash flows of the company, regarding operating and

financial situation for the next ten years at its present value, at a discount rate that reflects

the risk involved in the market and this particular business.

There is not a unique value for a firm, so we express the results of our analysis within a range

of probable values for LORSINAL S.A.

Acc. Virginia André Carriquiry

Partner

AUREN has not audited or independently verified the information and numbers within this

presentation. They are included exclusively for informative purposes. AUREN makes no

declaration or guarantee regarding the accurancy, veracity or integrity of these information.

AUREN does not assume any responsability over the statements (explicit or implicit) contained

in, or for any omission incurred in this Valuation Report.

This document contains forward looking statements which reflect the current expectations of

management regarding future growth, results of operations, performance and business

prospects and opportunities. Wherever possible, words such as “may”, “would”, “could”, “will”,

“anticipate”, “believe”, “plan”, “expect”, “intend”, “estimate” and similar expressions have

been used to identify these forward looking statements. These statements reflect

management’s current beliefs with respect to future events and are based on information

made available to LatAm Value Partners Ltd. by the Frigorifico Lorsinal S.A. and the companies

of Sundiro Holding Co. LTD. as described below.

Forward looking statements involve significant known and unknown risks, uncertainties and

assumptions. Many factors could cause actual results, performance or achievements to be

materially different from any future results, performance or achievements that may be

expressed or implied by such forward looking statements including, without limitation, those

risk factors listed in the document. Should one or more of these or any other risks or

uncertainties materialize, or should assumptions underlying the forward looking statements

prove incorrect, actual results, performance or achievements could vary materially from those

expressed or implied by the forward looking statements contained herein. These factors

should be considered carefully and prospective investors should not place undue reliance on

these forward looking statements. Although the forward looking statements contained in this

document are based upon what management currently believes to be reasonable

assumptions, prospective investors cannot be assured that actual results, performance or

achievements will be consistent with these forward looking statements. These forward looking

statements are made as of the date of this document and neither Frigorifico Lorsinal S.A.,

Sundiro Holding Co. LTD. nor LatAm Value Partners Ltd. assume any obligation to update or

revise.

Sundiro Holding Co. LTD. (“SUNDIRO”) and LatAm Value Partners Ltd. (“LAVP”) have

come together with the objective of acquiring 100% of the equity capital of Frigorifico

Lorsinal S.A., owned by Mr. Roberto Perez.

This report presents the valuation assessment resulting in the estimated Enterprise

Value of Lorsinal Beefpacking operations.

The valuation was based on the use of two techniques, the “market approach” relying

on trading multiples of public companies and transaction multiples and the Discount

Cash Flow model.

While the estimated EV ranged from US$ 25 MM up to US$ 57 MM, the Mean value

resulted in US$ 33.3 MM.

Mean Value =

33,3

Transaction Multiples (Pure Comparables) 26.5 45.4

Transaction Multiples (All Comparables) 26.4 45.3

Trading Multiples (incl. BRF) 33.3 57.0

Trading Multiples (excl. BRF) 28.8 49.3

Discounted Cash Flow 25.1 34.7

20 30 40 50 60

We have decided to use two different analytic techniques to value Lorsinal: the market

approach through trading and transaction multiples and the Discounted Cash Flow model

(DCF). Each method has its strengths and weaknesses and a combination of both provided

insights to us, not obtainable from a single technique.

On the other hand, the “market approach” invokes the law of one price, according to which

identical assets must have identical prices. In practice, we estimated the value of Lorsinal by

observing prices paid for similar companies. Within the market approach we used two

methods: (a) Comparable Trading Analysis (allows for relative comparisons between similar

companies); and (b) Acquisition Comparable Analysis (allows for relative comparisons

between similar transactions).

We believe the market approach has several strengths. It is very objective, since the market

and not the buyer and sellers views of the future, is the one driving the estimated value.

Therefore, it embodies market consensus about discount rates and growth rates, allowing for

direct comparison to true and actual market evidence.

One of the main weaknesses of the market approach is that it may be difficult to find

comparable companies or transactions. However, we believe that we were able to identify a

set of publicly-traded firms and pure comparable transactions that resemble closely Lorsinals

operations, business and economic environment.

Within the market approach we decided to use the Enterprise Value/EBITDA multiple because

of the following reasons:

– Gives a more consistent treatment of leverage; where companies with different

leverages will have different P/E multiples, even though they will have same business

risks and growth trendlines.

– While through accounting net earnings multiples can be easily manipulated, EBITDA

Multiples limit discretion.

The underlying concept behind the use of the DCF model is that Lorsinal will create a stream

of future benefits (cash flows) for SUNDIRO and LAVP, with its value simply being the present

value of the projected future stream, considering a discount rate according to the industry.

The key strength of the DCF approach was that it forced us to explicitly forecast the operating

and financial nature of the upcoming 10 years, by means of which we carefully analyzed a

wide array of issues critical to Lorsinals internal and external environments. On the

downside, the forecast is set on a myriad of assumptions, where relatively small variations in

some assumptions may change significantly the value stream.

Assumptions implied in forecasted cash flows were defined by SUNDIRO and LAVP,

considering their knowledge of the company under analysis, the industry and the economic

environment.

We found a set of three public companies (Marfrig Global Foods, Minerva S.A. and JBS S.A.)

that meet three key “comparable factors” that were identified as critical for comparability

purposes: (a) The firms should operate in the Meat Protein sector with a defined focus on

beef; (b) Operations should be mainly in South America, and (c) should hold a diversified

worldwide customer base.

A fourth company (BRF –Brazilian Foods) was also included as a comparable firm since,

although it is not focused on beef, it still meet the three factors, and most importantly

resembles the downstream operating model of the target once integrated into SUNDIRO’s

worldwide operations.

Stock Geographic

Name Description

Exchange Scope

Engaged in the processing and distribution of meat. The

Company's activities are divided into 2 operating

segments: Marfrig Beef and Keystone. The Marfrig Beef

segment is responsible for the slaughter, manufacture, Key

distribution, import, export and marketing of beef and operations in

Marfrig lamb meat. The Keystone division focuses on producing Brazil,

Global SAO PAULO and developing multi-protein foods to serve global Uruguay, and

Foods restaurant chains, including McDonald's, Subway, Argentina.

ConAgra Foods, Campbell's Soup, KFC, Taco Bell,

Wendy's, Heinz, and Burger King, among others. It

retails meat under a range of brand names, such as

Pampeano, La Morocha, Montana, Hamby, Bernina,

Bassi, GJ, Angus, South Lamb, as well as Tacuarembo.

Engaged in the slaughtering of livestock and processing of

meat, the sale of chilled, frozen and processed meats, and the Key operations

exporting of live cattle. The Company's industrial facilities have in Brazil,

Minerva a daily slaughtering capacity of approximately 17,330 head of Uruguay,

SAO PAULO

SA cattle and daily beef deboning capacity equivalent to over Paraguay and

20,320 head of cattle. The Company operates approximately Colombia.

17 slaughter and deboning plants, one processing unit and over

13 distribution centers.

Processes and sells beef, lamb, and poultry products in Brazil

and internationally. The company offers ready-to-eat meal,

super chilled, cooked meat, individually quick frozen products,

portioned cuts for school meals, industrial kitchens, butchers,

supermarkets, restaurants, hotels, distributors, and consumer

markets under the Swift and Friboi brands. It also provides

various food products, including ready meals, margarines and Key operations

patés, super chilled and breaded products, and fresh products, in Brazil,

JBS SA SAO PAULO as well as ham, salami, mortadella, sausages, and other Uruguay,

processed meat products under the Seara, Fiesta, Doriana, Paraguay and

Rezende, LeBon, Frangosul, and other brands. In addition, the USA and

company produces and sells leather for automotive, furniture, Australia.

footwear, and leather goods industries. Further, it

manufactures and supplies casing materials for the processed

meat industry to make items, such as salami, sausages, and

hot dogs; produces biodiesel based on animal fat; offers bovine

collagen,

Focuses on the production and sale of poultry, pork and

processed foods. The Company produces fresh and frozen

protein foods, with a portfolio of over four thousand stock Key operation

keeping units. It sells margarine, sweet specialties, in Brazil and

sandwiches, mayonnaise and animal feed. The Company holds Argentina.

brands, such as Sadia, Perdigao, Qualy, Chester, Perdix and

Patty. In the domestic market, it operates approximately 35

BRF S.A SAO PAULO meat processing plants, three margarine processing plants,

three pasta processing plants, one dessert processing plant

and three soybean crushing plants. It is involved in the

production and sale of whole poultry and in-natura cuts. It is

involved in the production and sale of frozen and processed

products derived from poultry, pork and beef and other

processed foods, such as margarine and vegetable and

soybean-based products.

Name Market Cap* P/E Ratio*

Marfrig Global Foods 912.30 MM NA

Minerva SA 711.25 MM NA

JBS SA 7.04bn 5,42

BRF S.A 10.86bn 15,69

* May 2016

Based on the trading multiples of the selected companies we estimated the range EV value of

Lorsinal creating 6 different scenarios:

(I) Using the 2008-2015 EV/EBITDA average of Minerva, Marfrig and JBS (excluding BRF)

and combining that with Lorsinals 3-year (I.1), 5-year (I.2) and 8-year (I.3) EBITDA

average.

(II) Using the 2008-2015 EV/EBITDA average of Minerva, Marfrig, JBS and BRF and combing

that into Lorsinals 3-year (II.4), 5-year (II.5) and 8-year (II.6) EBITDA average.

Minerva Marfrig JBS BRF

2008 6.20x 11.04x 17.86x

2009 9.09x 8.52x 11.79x 14.15x

2010 8.45x 10.11x 16.36x 23.36x

2011 7.48x 7.04x 8.62x 12.95x

2012 7.07x 7.06x 10.89x 13.77x

2013 6.97x 9.29x 8.13x 17.46x

2014 6.74x 8.70x 7.40x 15.27x

2015 7.45x 8.68x 6.66x 13.94x

2008-2015 average 7.43x 8.81x 10.96x 15.84x

I. Lorsinal EV: Excluding II. Lorsinal EV:

Trading Multiple

BRF Including BRF

average

million dollars million dollars

Excluding Including 3-yr 5-yr 8-yr 3-yr 5-yr 8-yr

BRF BRF [I.1] [I.2] [I.3] [II.4] [II.5] [II.6]

2008 11,70x 37,1 36,8 63,7

2009 9,80x 10,89x 31,1 30,8 53,3 34,6 34,24 59,23

2010 11,64x 14,57x 36,9 36,6 63,3 46,2 45,81 79,26

2011 7,71x 9,02x 24,5 24,2 42,0 28,6 28,36 49,07

2012 8,34x 9,70x 26,5 26,2 45,4 30,8 30,50 52,76

2013 8,13x 10,46x 25,8 25,6 44,2 33,2 32,89 56,90

2014 7,61x 9,53x 24,2 23,9 41,4 30,2 29,96 51,83

2015 7,60x 9,18x 24,1 23,9 41,3 29,1 28,87 49,95

2008-15

9,07x 10,48x 28,78 28,51 49,32 33,26 32,95 57,00

average

We complemented the trading multiples valuation with the assessment of comparable

transactions. We screened the market place identifying 7 transactions that fulfill three key

factors needed to meet the “comparability” definition: (a) Should operate in the Meat Protein

sector (b) the Americas should the geographical location of the targets operations, and (c)

the transaction had to occur within a 10-year timeframe to trail as much as possible the

current economic and supply-demand conditions. We then refined down the list to a group of

4 transactions that meet the “pure comparability” definition whereby the main business line

of the target has to be “beef”.

Date Target Country Acquirer Business Line EV/EBITDA

set-13 Carrasco UY Minerva Beef 5.3x

may-13 Smithfield US H. Shineway Pork 9.2x

mar-11 Pulsa UY Minerva Beef 4.8x

set-09 Seara BR Marfrig Pork, poultry, 7.0x

set-09 Bertin BR JBS Beef 12.3x

may-09 Sadia BR Perdigao Pork & Poultry 8.9x

nov-07 Quickfood AR Marfrig Beef 11.0x

Company

Description

Name

At the time of the purchase, Frigorífico Carrasco was a local family- owned

corporation based in Uruguay. The firm owns a processing and cattle slaughter

(~1000 head/day) plant in Montevideo, and has prominent brands in the domestic

Carrasco and international markets. 2013 Revenue was approximately $140 million, with the

domestic market accounting for one third of total sales. The main export markets

were the EU, China, Israel and NAFTA countries, among others.

At the time of the sale, Smithfield was a publicly-traded US Corporation with +US$

Smithfield 13 Bn in Revenues. It is a hog producer and pork processor marketing fresh and

packaged meats products domestically and across the world. The Company

conducts operations through 4 segments: Fresh Pork, Packaged Meats, Hog

Production and International. The first 3 segments are US-based operations. The

International group comprises its meat processing and distribution operations in

Poland, Romania and the UK, interests in meat processing operations in Western

Europe and Mexico, hog production in Poland and Romania, and interests in hog

production operations in Mexico.

At the time of the acquisition, PULSA was owned by a Brazilian entrepreneur (Mr.

Correa). The facility was a 1000-head/day abattoir in the Province of Cerro Largo

(Uruguay). The company has long track record on producing high quality beef from

PULSA grass-fed Angus and Hereford cattle, targeting both the domestic and international

customer base. It also has some value-added programs such as Organic beef mainly

targeting the US market.

At the time of the transaction Seara Alimentos Ltda was owned by US Cargill

Corporation and was one of Brazil's largest meat processors producing frozen,

refrigerated, pre-cooked, and processed chicken and pork for the worldwide retail

SEARA and wholesale food and foodservice markets. Its products include whole chickens,

chicken cuts, sausage, pork smoked ham, cold cuts, salami, hot dogs, and frozen

entrees. The company also operates a port terminal that has refrigerated-meat

warehousing capacity.

At the time of the sale, Bertin was a leading Brazilian cattle slaughterer and exporter

with operating units in Brazil, Uruguay, Paraguay and China, and exporting to more

than 110 countries. Its production capacity was 16,450 head of cattle a day. Its

Bertin products included raw and processed beef, leather, cleaning products, personal

protective equipment, and dog toys. Established in 1977, Bertin operates 38

production units and employs 28,000 people, selling under several nationwide well-

known brands — Bertin, Vigor, Leco and Danúbio.

At the time of the purchase the firm was one of Brazil's largest pork, poultry, and

beef processors supplying +70,000 domestic and 200 export customers. It

produced more than 1.3 million tons of protein-based offerings, including processed

Sadia foods (frankfurters and sausages), as well as frozen convenience foods (such as

hamburger patties, pizzas, and ready-to-eat meals). The company's other products

include frozen desserts, pasta, and margarine.

Argentina-based company engaged in the food processing sector, specialized in the

manufacture and commercialization of beef and pork products under the Paty,

Quickfood PatyViena, Faty and ICB brand names, among others. Its product portfolio includes

hamburgers, Frankfurter sausages, cold cuts and frozen vegetables. The Company

supplies mainly supermarkets, retailers and fast-food restaurants.

Based on the transaction multiples of the selected companies we estimated the range EV

value of Lorsinal creating again 6 different scenarios:

(I) Using the average EV/EBITDA multiple of the 7 “comparable firms” and combining it with

Lorsinals 3-year (I.1), 5-year (I.2) and 8-year (I.3) EBITDA average.

(II) Using the average EV/EBITDA multiple of only the 4 “pure comparable transactions” and

combing that with Lorsinals 3-year (II.4), 5-year (II.5) and 8-year (II.6) EBITDA average.

I. Lorsinal EV

Transaction Multiple

million dollars

Target [all companies] [EV/EBITDA] 3-yr [I.1] 5-yr [I.2] 8-yr [I.3]

Carrasco 5.30x 16.8 16.7 28.8

Smithfield 9.17x 29.1 28.8 49.9

PULSA 4.80x 15.2 15.1 26.1

Seara 7.00x 22.2 22.0 38.1

Bertin 12.30x 39.0 38.7 66.9

Sadia 8.90x 28.2 28.0 48.4

Quickfood 11.00x 34.9 34.6 59.8

Average 8.35x 26.5 26.26 45.44

Transaction Multiple II. Lorsinal EV

million dollars

Target [Beef companies] [EV/EBITDA] 3-yr [II.4] 5-yr [II.5] 8-yr [II.6]

Carrasco

5,3x 16,8 16,7 28,8

PULSA

4,8x 15,2 15,1 26,1

Bertin

12,3x 39,0 38,7 66,9

Quickfood

11,0x 34,9 34,6 59,8

Average

8,35x 26,50 26,26 45,43

In order to determine Lorsinal’s value by the DCF methodology, free cash flows should be

forecasted, considering assumptions described below.

These future benefits, and the residual value, discounted by the required rate of return for

investors (cost of equity) results on the company’s value.

FREE CAPITAL

CASH FLOW

DISCOUNTED BY

THE REQUIRED RESIDUAL FIRM MARKET

RATE OF RETURN VALUE VALUE

FOR INVESTORS

(Cost of Equity)

Relatively small variations in assumptions to be described below may change significantly

the value stream. Regarding this fact, three different scenarios are considered in order to

provide a range of possible values for Lorsinal by this methodology. The assumptions and

P&L presented below correspond to the Base scenario, although in order to provide the range

referred above a Pessimistic and an Optimistic scenario is considered.

Business plan assumptions (Base scenario):

Parameter Comments

Revenue drivers

+ The current base 2015 number corresponding to 234 head/day (60%

operating level*) is forecasted to increase to a maximum of 425

head/day in a 3-year period taking the operating level to 85%.

Production levels: + The phase-out increase in slaughter levels considers the need to slowly

Daily Slaughter expand the cattle supplies while strengthening the brand of the new

owners.

+ The annual projected slaughter will be scaled from 61,000 up to

110,500 on that same period, expanding Lorsinals slaughter share

from 3 to 5%.

+ Lorsinals will continue to supply more than 30 countries worldwide

including the Uruguayan and Chinese markets.

Sale Prices + Since the average price is decomposed in more than 300 items to be

supply to +30 markets (~900 possible price combinations), we

understand it is factually impossible to predict the supply/demand

forces driving those prices across the globe.

Parameter Comments

+ Therefore, the current base 2015/16 mean price is adjusted following

the projected USCPI index.

+ We use Deloittes projections at 1.5% for 2017 and 2% from 2018

USA CPI Index and onwards.

Costs & Expenses

Steer-to-Cow + 75% steers and 25% [based on 2011-2015 average]

slaughter share

+ Starting point is set at US$ 1.82 and 1.54 /kg liveweight for steers and

cows, respectively.

Liveweight Prices + Since projecting cattle prices it not a realistic exercise we set them to

track gross margin target levels.

Slaughter + 520 kgs-steer and 458 kgs-cow [based on 2011-2015 average].

Liveweight

Dressing yields + 54%-steer and 49%-cow [based on 2011-2015 average].

+ The current base 2015 number corresponding to 278 variable labor

force is adjusted as a function of slaughter to 505 employees in 2019.

Fixed labor head count is 107 in 2015 and remains at that level.

Labor + Salaries are paid in pesos and adjusted by local Salary Index (IMS)

projections made by Deloitte. Cost in pesos is translated into US$ by

FX projections that assume an average annual 8% devaluation during

the period under consideration.

Working Capital

Receivables,

Payables and + Days sales outstanding are set at 30 days, Payables at 39 days and

Inventory Inventory (measured in COGS days) at 30 days.

Operating working + Operating working capital results in 6% of the annual revenue, growing

capital levels from US$ 5.7 MM up to US$ 9.6 MM.

+ Interest rate on short-term working capital lines is set at 4.75%.

* Operating level = Actual Slaughter/Slaughter capacity

Business plan Projections:

Projected P&L (Base scenario)

set-17 set-18 set-19 set-20 set-21 set-22 set-23 set-24 set-25

Revenues 97,8 116,4 144,1 147,0 150,0 153,0 156,0 159,1 162,3

Costs

Livestock 74,1 89,2 111,4 113,9 116,4 119,0 122,0 124,5 126,9

Comission 0,4 0,5 0,6 0,6 0,6 0,6 0,6 0,6 0,6

Freight 1,2 1,3 1,6 1,6 1,6 1,6 1,6 1,6 1,6

Total livestock,

% Revenue 77,3% 78,2% 78,9% 79,0% 79,1% 79,2% 79,6% 79,6% 79,6%

Labor 7,4 7,9 9,0 8,9 8,9 8,9 9,0 9,2 9,4

Production

Costs 4,5 5,4 6,7 6,8 6,9 7,1 7,2 7,4 7,5

Commercial. 2,2 2,6 3,2 3,3 3,3 3,4 3,5 3,5 3,6

Others 2,0 2,4 3,0 3,0 3,1 3,2 3,2 3,3 3,4

Total Costs 91,7 109,2 135,5 138,1 140,9 143,7 147,1 150,1 153,1

EBITDA 6,1 7,1 8,7 8,9 9,0 9,2 8,9 9,1 9,3

EBITDA Margin 6,2% 6,1% 6,0% 6,1% 6,0% 6,0% 5,7% 5,7% 5,7%

Depreciation 0,65 0,86 0,86 0,86 0,86 0,86 0,86 0,86 0,86

EBIT 5,44 6,28 7,82 8,09 8,18 8,36 8,04 8,23 8,42

Interests 0,87 0,78 0,65 0,41 0,42 0,43 0,44 0,45 0,45

PBT 4,57 5,50 7,16 7,68 7,76 7,93 7,61 7,78 7,96

Taxes 1,14 1,38 1,79 1,92 1,94 1,98 1,90 1,95 1,99

Tax rebate

Net Income 3,43 4,13 5,37 5,76 5,82 5,95 5,70 5,84 5,97

Net Income, % 3,5% 3,5% 3,7% 3,9% 3,9% 3,9% 3,7% 3,7% 3,7%

500 85% 85% 85% 85% 90%

85% 85%

85%

400 425 425 425 425 425 425 80%

350 425

300

300 70% 70%

234

200 60% 60%

100 50%

47%

0 40%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Slaughter, head/day Operating Level, %

200 35%

162 166

156 159 30%

29% 150 153

160 144 147

25%

24%

116

120

98 20%

19%

76 15%

10%

2% 2% 2% 2% 2% 2% 5%

0 0%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Revenue, MM US$ Annual Revenue growth

10,0 8,9 9,0 9,2 9,1 9,3 6,5%

6,1% 8,9

8,7

6,2%

8,0 5,7% 6,0%

7,1 6,0%

5,5% 6,0% 6,1%

6,1 6,0%

6,0 5,5%

4,2

4,0 5,0%

2,0 4,5%

0,0 4,0%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

EBITDA, MM US$ EBITDA Margin, %

9,6 9,8

10,0 9,2 9,4

8,9 9,0

8,5 8,7

8,0

6,9

5,8

6,0

4,0

2,0

0,0

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Working Capital, MM US$

Discount Rate:

The discount rate is determined applying the Capital Asset Pricing Model (CAPM), adapted

to Emerging Markets, where:

Ke= rf + βL * (Rm – rf) + IP rf = Expected Risk Free return (US Treasury 10Y)

βL = Unlevered Beta (Specific Risk of the Project: Sector

of activity, operative leverage) – Aswath Damodaran

Rm = Return of the market

(Rm – rf) = Risk premium of market assets

IP = Ibbotson Premium (captures the resulting high

correlation between the returns in case of SMEs due

to high transaction costs, illiquidity and limited

information)

Considering Lorsinal, the Discount rate is calculated below.

LORSINAL Average 2016 2017 2018 2019 2020 Rest (for

(5 first years) Residual Value)

Expected Risk Free return (Rf) 2,69% 1,74% 2,24% 2,74% 3,24% 3,50% 4,50%

Beta Food processing 0,74 0,74 0,74 0,74 0,74 0,74 0,74

Greater Growth Volatility 0,30 0,30 0,30 0,30 0,30 0,30 0,30

Adjusted Beta 1,04 1,04 1,04 1,04 1,04 1,04 1,04

Market Return 4,9% 3,91% 4,41% 4,91% 5,41% 5,67% 6,7%

Uruguayan higher risk Premium 1,4% 0,5% 1,0% 1,5% 2,0% 2,0% 2,50%

Adjusted Market Return (Rm) 6,3% 4,4% 5,4% 6,4% 7,4% 7,7% 9,2%

Liquidity Premium (IP) 1,0% 1,0% 1,0% 1,0% 1,0% 1,0% 1,0%

Long Term Premium (IP) 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 2,0%

Discount Rate 7,4% 5,5% 6,5% 7,6% 8,6% 8,8% 12,4%

Terminal Value:

Perpetuity is calculated by considering the discount rate defined above, and a business

annual growth rate of 2%.

Lorsinal’s EV:

As follows, three scenarios were defined in order to provide a range of probable EV for

Lorsinal. Assumptions exposed above are to be considered in all scenarios, except for the

Daily Slaughter that varies as exposed below.

Parameter Comments

+ Base scenario: Slaughter levels are smoothly increased from 234

head/day in 2015/16 up to 300 head/day (2017), 350 head/day

(2018) and 425 head/day onwards.

+ Pessimistic scenario: Slaughter levels are increased from 234

Production levels: head/day in 2015/16 to 250 head/day (2017), 300 head/day (2018),

Daily Slaughter 350 head/day (2019), 400 head/day onwards.

+ Optimistic scenario: Slaughter levels are rapidly scaled from 234

head/day in 2015/16 to 350 head/day (2017), 375 head/day (2018),

400 head/day (2019), 425 head/day (2020) and 450 head/day

onwards.

Optimistic 34.7

Pessimistic 25.1

Base 30.9

0,0 10,0 20,0 30,0 40,0

Lorsinals plant is strategically located within a 250-km radius of two of the largest cattle

producing regions of the country, and only 30 km from the main ocean export gateway.

The plant was fully repurposed and upgraded in 2002, previously it was a cold-cuts facility.

Lorsinal is a top financial performer relative to industry peers.

The facility holds abundant frozen storage capacity (2,980 tons) and carton freezer.

Lorsinal has been fully focused on targeting the export markets being approved to export

to all key markets such as China, HK, EU, South Korea, Russia, the African Continent,

USA, Mexico, Canada, Israel, all Central & South American nations, being Japan the only

market pending to gain access.

Profile

Production

Species Cattle

Total Area 31 hectares

Built Area, m2 11,151

Slaughter Capacity, daily (heads) 500

Slaughter capacity, Heads/hour 60 cattle

Deboning capacity (Q/hr) 125

Ageing Capacity 500

(carcass/day, 36hrs)

Ageing Chambers and total carcass capacity 4 chambers holding 1,000 carcasses

Frozen tunnels capacity (tons/day) 100 tons (carton freezer)

Final product capacity (tons) 2,980

Quality Assurance programs SSOP'S, GMP, HACCP, PCNCU

Profile

Commercial & Personnel

Cattle Direct Sourcing, % 58%

% Steers / total Slaughter 75%

Export, % of total sales 83%

Export markets (fresh beef) All destinations except Japan

Tariff Rate Quotas (type and volume) 281 tons Hilton (2015/16) and 851

tons (USA)

Value added portion-controlled line (under

and 851 USA (2015)

construction) and Kosher

Branding Lorsinal SA-EcoMeat

N° of Employees 385

Slaughter, 000 heads Revenue, MM US$

74,2

85,6 80,6

61,8 60,8 76,8

56,6 55,8

70,8 75,8

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

EBITDA Margin EBITDA Margin (average

2008-14)

16,36%

8,4%

14,10%

13,4% 9,07%

4,2%

5,34% 5,49%

2,82%

Lorsinal Industry Average

Lorsinal was incorporated as a Uruguayan corporation with bearer shares, entitling each

holder to one vote; with 100% of the shares belonging to 1 Uruguayan citizen, Mr. Perez

Paternoster.

The Company sells its products in different export countrires and the domestic market. In the

last 5 years, exports and domestic sales accounted for an average of 85% and 15% of the

sales revenue, respectively.

Its business drive is to provide greater value to its customers by offering products with higher

quality than the average local industry, a variety of cuts, better packaging and a superior

service. Therefore, the Company places special emphasis in the quality and type of animals

slaughtered to produce its products, as well as in customer service relationships.

The Company offers a variety of beef products, which include all types of cuts, and that may

be classified in 5 major categories: (i) Fine cuts, (ii) Boneless forequarter cuts, (iii) Boneless

hindquarter cuts, (iv) Offal, (v) Beef byproducts (hides, tallow and bones).

a. International Markets

The Company exports its products through wholesalers and brokers to different countries.

The most important export destinations are China, the European Union, the United States,

Brazil, Venezuela, and Israel. While Russia has been the main destination in terms of exported

volumes for many years, the European Union has been the primary source of exports revenue

due to higher prices for the Hilton and 481 quotas. In the last 3 years, China has become a

prominent destination, sourcing bone-in frozen rib plate, offal and byproducts, and it is

particularly paying higher prices for offal than other markets. The Company has been assigned

a quota of about 851 tons to USA and 281 tons of Hilton quota for 2015 year, as well as

exporting high quality 481 quota to the European Union (481 quota allows to sell 17 cuts

unlike Hilton quota, which only allows 3 cuts). The 481 quota is allocated to European

importers for the purchase of high quality cuts from only 6 countries in the world: Uruguay,

Australia, New Zealand, USA, Canada, and very recently Argentina. In 2012, importers were

allocated 45,975 tons of 481 quota beef, since 2013 the quota has remained at 48,200 tons.

The high quality quota is basically a quota of feedlot-finished animals, which must meet

certainl production requirements. In 2010, Lorsinal invested and obtained authorization to

export Kosher beef-cuts to Israel. Currently, when the Company slaughters to export to Israel,

processes and cuts are certified by an intermediate Kosher certification in order to gain access

to a wider market. The season for this market is from April to September.

2012 Exports 2013 Exports

Others;

Others; China; 864 ; 10% China;

542 ; 6% 658 ; 7% Venezuel 1.540 ;

a, 1.923,0 17%

Venezuela; USA; 595 , 22%

2.246,9 ; ; 6%

23% USA; 490

Russia; ; 5%

Israel; 140 ; 2%

Russia; 2.343 ;

1.011 ; 25% Brazil; Israel;

11% 156 ; 2% 2.087 ;

Brazil; EU; 1.893 EU; 1.623 24%

243 ; 2% ; 20% ; 18%

Others;

Others; 2014 Exports 1.163 ; 2015 Exports

1.374 ; Russia; 13%

12% 328 ; 4%

China;

Venezuel 3.023 ;

a; 1.322,0 27% China;

; 12% 4.091 ;

Brazil;

118 ; 1% 47%

Russia;

713 ; 6% USA;

1.152 ;

10% EU; 1.161

Brazil;

; 13%

363 ; 3%

Israel; Israel; USA; 648

1.838 ; 1.279 ; ; 7%

EU; 1.525 16% 15%

; 14%

b. Domestic Market

Sales in the domestic market are carried out mainly through supermarket chains or other

distributors. The Company’s main customers are 2 of the largest national retail chains as well

as several distributors that reach the capital city and the rest of the Provinces. The Company

uses the brand name Lorsinal S.A.-Eco Meat in the local market.

a. Location

The Company operates a plant in the province of Montevideo, located 22 kilometers from

Montevideo’s ocean port. The structure was originally built in 1982 and has a total floor area

of 11,155 square meters on a plot of 31 hectares. It has excellent access routes, both from

the countryside and the port, which are fundamental for the company’s export activity.

Lorsinal has consistently invested in the plant, making it one of the most modern plants in

the country as of today. It has cutting-edge chilling equipment and has recently inaugurated

an automatic storage facility. The floor is made of waterproof, non-slip concrete. It has

automatic doors, and the entire lighting is electrical. The plant has been approved and

certified by national authorities (MGAP – Ministry of Livestock, Agriculture and Fisheries and

DINAMA, National Environmental Agency). The plant has sanitary filters in all entrances

(Slaughter, manufacture, plant). In 2010, among other investments, Lorsinal expanded the

deboning room and the storage for packaging materials, and also developed a Kosher

salting chamber to enter the Israeli market. In 2013, Lorsinal inaugurated an automatic

frozen meat storage facility, with capacity for 1,280 tons, and a Kosher-salting chamber for

red offal. In the present, a portioning room for high-quality cuts was recently built.

Moreover, the company has just completed a set of investments deployed to enhance

environmental security as well as improving animal welfare, totalizing + US$ 2.5 MM.

b. Deboning and Slaughtering Capacity

Since the beginning of its operations, Lorsinal has continuously invested in its plant, having

today a daily slaughtering capacity of 500 heads of cattle in a single shift of 8 hours, and a

daily deboning capacity of 500 heads in two shifts of 8 hours.

Shift / # of Shift / # of

Slaughtering Deboning

hours per hours per Area (m2)

Capacity Capacity

shift shift

500 1/8-9 500 2/8-2009 11,155

Considering that the company normally operates 5 days a week, its slaughter capacity

amounts to 130,000 heads a year. This capacity is considerably higher than the present

slaughtering levels of 61,000 animals, which would enable increasing slaughtering and

deboning significantly without the need of expanding its facilities (during high seasons, idle

capacity is less). If necessary, the Company could expand its deboning capacity without a

significant investment.

c. Animal Reception and Storage Capacity

The following table briefly describes the facilities for animal reception and storage of products

in process and finished:

Area Capacity

Animal Reception 20 pens with a capacity for 605 animals

1 Scale

Meat storage 8 chilling chambers with the following capacities:

a. 4 chambers with capacity for 1,000 carcasses submitted

for ageing

b. 1 chamber with capacity for 80 carcasses to supply the

domestic market

c. 1 chamber with capacity for 448 quarters, plus 80

boneless quarters

d. 3 chambers with capacity for 730 carcasses to be used

during the deboning process (Pulmon)

Offal Storage 1 chilling chamber with capacity for 10.5 tons

1 static freezing tunnel with capacity for 10.5 tons

1 Kosher offal salting chamber

Storage of Finished 1 continuous freezing tunnel (carton-freezer) with capacity for

Products 100 tons per day, and a total capacity for 235 tons.

2 static freezing/chilling tunnels with capacity for 50 tons each.

2 frozen storage facilities with capacity for 1,700 tons

1 chilling storage facility with capacity for 100 tons

1 new frozen storage facility (brand new) with Storax shelf

system, and capacity for 1,280 tons

Freezing tunnels serve multiple purposes, as they are also used

for chilling.

d. Energy

The plant uses electric energy from UTE’s distribution network for all its equipment and lights.

Cold is generated by electrical compressor systems with ammonia gas, which have sufficient

capacity to supply the whole slaughterhouse, chilling chambers, freezing tunnels, chilling and

frozen storage facilities, and a continuous freezing tunnel. Finally, steam and hot water are

generated by means of a high-efficiency wood boiler, which covers the entire slaughterhouse

demand. Wood is the most affordable source of energy in Uruguay due to is vastly developed

and sustainable Eucalyptus-Pines forestry industry.

e. Water Supply and Treatment

Lorsinal draws surface water from quarries for the production process, and then makes it

drinkable in its water treatment plant (with a treatment capacity of 50,000 liters/hour) and

stores it in its own tanks. The approximate water consumption is 500 cubic meters per day.

Cleaning of water tanks is done monthly. In case of cleaning or repair of the water treatment

plant, there are two entry lines from OSE (National Water Supply and Monitoring System)

with a pumping capacity of 25,000 liters/hour.

f. Wastewater Treatment

The Company treats wastewater from the manufacturing process (water, rumen, etc.) in

several pools, first decanting solid waste with a decanter, with fittings and settlers, then odors

are eliminated and the organic load is reduced oxygenating water to meet current water

control standards (microbiological and physicochemical controls are performed). Finally,

treated and cleaned water is channeled into Las Piedras creek. This entire system has been

upgraded and approved by DINAMA.

During the 1st semester of 2015, US$ 0,9 MM were invested in the upgrading of the sewage

water treatment including ponds, power engines, pumps, transformers, lightening and roads.

g. Sanitary Authorizations

The Company’s plant is certified under the HACCP standards and has sanitary authorization

to export all of its products to the most demanding markets (EU, USA and Korea). Some of

these products include chilled and frozen meat, offal and vacuum-wrapped cooked meat. The

company is also authorized to export ovine meat and hamburgers to Russia. Furthermore, it

has also been approved to export to the Israeli market. When the company slaughters for

Israel, processes and cuts are certified with an intermediate Kosher certification, in order to

gain access to a wider market.

a. Cattle

Lorsinal purchases 58% of the cattle through 64 local brokers, 20% directly from large cattle

producers, and 20% from the owners own feedlot. Furthermore, 40% of purchases are based

on live weight of the animal, while the remaining 60% are based on carcass weight.

Lorsinal deals with more than 100 producers, from whom it purchases cattle directly and 90%

of these purchases are concentrated in 33 firms.

The company does not directly own a feedlot, but its shareholder owns a feedlot facility with

a one-time capacity to feed 4,500 animals, located in Joanicó, 40 kilometers from Montevideo.

Lorsinal purchases animals for slaughter from that feedlot at market value.

b. Transport

The slaughterhouse pays for the transport of the animals. The Company works with 4

transport companies that provide their services. Transport of packed meat to the port is

outsourced to external freight companies (freight companies are different from cattle

transport companies). The company uses only refrigerated containers.

a. Manufacturing process

The manufacturing process involves several stages. Cattle arrive to the plant at night and

remain in the pens until the following morning. During the morning, cattle are weighted,

receive electrical shocks and enter the slaughtering process. Once cattle have been

slaughtered, hides are removed and carcasses are divided in two sides and hung in the hooks.

Then, they are washed and weighted to determine the “carcass weight” price to be paid to

the producers, and they are labeled with the animal’s information. Next, sides move through

a corridor that enables drying before they are stationed for 36 hours in a cold tunnel for beef

aging.

Once aged, sides are separated depending on the product planning. Sides to be sold in the

domestic market are processed and then go to a storage chamber within the plant until the

products are picked up by the distributors or delivered to the supermarkets in trucks owned

by Lorsinal (to Tienda Inglesa and Macro Mercado). Sides to be processed go to the deboning

sector. Before entering that process, they are divided in quarters, as some of them are sold

in the domestic market (bone-in cuts). During the deboning process, employees manufacture

the different cuts placing them in a conveyor belt that takes them to the packaging and

labeling sectors. The different cuts are packaged, labeled, vacuum-wrapped, and packed in

different cuts – fore cuts and hind cuts – according to their final destination (local market,

export, bone- in and boneless cuts, offal). Next, fore cuts go through a metal detector and

fat meter in order to ensure product quality. Boxes are then sealed and go through a scanner

to be classified according to their destination. Boxes with frozen cuts are stored in the frozen

products chamber, recently built by the Company, and boxes with chilled cuts are stored in

Lorsinal’s chilling chambers, from where they will depart to their final destination, either the

local market or the port for shipment and export.

b. Quality Control

The Company uses international control standards (according to HACCP production

standards). Moreover, all activities carried out in the plant are monitored by the MGAP

(Uruguay National Ag Service), which supervises all stages, from the arrival of cattle to the

plant to the exit of products for the local market and for export. Lorsinal also has its own

internal quality control area and a laboratory to perform routine controls, and carries out

certain mandatory analyses in the national laboratory “Laboratorio Instituto Rubino”.

a. Employees

The company has a total of 385 employees. Prior to being hired, employees undergo a

compulsory medical checkup and are required to present medical certificates of fitness to

perform their jobs. Additionally, Lorsinal conducts annual health checks for all staff. The

number of employees of the Company and their distribution according to their function is as

follows:

Operations Administration Controllers Storage Maintenance Total

278 21 16 11 59 385

In terms of staff turnover, approximately 80% of the operative staff has remained in the

Company for more than one year, whereas the remaining 20% has high turnover levels. Every

six months, the Company offers its employees training on products as well as quality and

hygiene in manufacturing.

Income Statement

US$ MM sep-08 sep-09 sep-10 sep-11 sep-12 sep-13 sep-14 sep-15

Revenues 68,7 60,6 61,5 70,8 85,6 80,5 76,8 75,8

Export Sales 58,5 52,1 52,9 59,8 72,1 65,3 60,2 60,2

Domestic Sales 5,8 6,0 4,7 6,9 7,7 10,1 10,9 10,6

Subproducts 4,4 2,4 3,9 4,1 5,8 5,2 5,7 5,0

Cost of Goods Sold (51,1) (45,9) (44,2) (58,1) (77,9) (77,2) (65,4) (67,0)

Gross Profit 17,6 14,7 17,3 12,7 7,7 3,4 11,4 8,7

Gross Margin 24,2% 28,1% 18,0% 9,0% 4,2% 14,9% 11,5%

SG&A (8,8) (5,2) (9,0) (9,3) (5,8) (5,6) (5,1) (5,2)

Operating Profit 8,8 9,5 8,3 3,4 2,0 (2,2) 6,4 3,5

Operating Margin 12,8% 15,7% 13,6% 4,8% 2,3% -2,7% 8,3% 4,6%

Finan. Expenses,

others 0,8 (0,5) 0,7 (0,0) 0,1 0,2 0,3 0,3

Earning before taxes 9,6 9,0 9,0 3,4 2,0 (1,9) 6,7 3,2

Taxes (2,6) (2,0) (1,8) 0,0 (0,4) 0,5 (1,5) (1,4)

Net Income 7,1 7,1 7,2 3,4 1,6 (1,4) 5,2 1,79

Net Margin 10,3% 11,7% 11,7% 4,9% 1,9% -1,7% 6,7% 2,3%

EBITDA 9,2 9,9 8,7 3,8 2,4 (1,6) 7,0 4,1

EBITDA Margin 13,4% 16,4% 14,1% 5,3% 2,8% -2,0% 9,1% 5,5%

Balance Sheet

US$ MM -Sept 30 sep-08 sep-09 sep-10 sep-11 sep-12 sep-13 sep-14 sep-15

Operating Cash 4,7 8,7 5,0 1,9 2,3 3,4 7,5 4,3

Short- term Investments 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Accounts Receivable 6,6 3,9 3,0 7,7 7,4 4,5 5,3 5,5

Fiscal Credits 2,0 4,7 3,2 4,5 4,7 4,4 2,0 2,6

Inventory 8,4 7,4 10,6 6,7 13,4 10,1 8,5 8,0

Other Current Assets 0,1 0,8 1,3 1,8 2,5 0,7 1,2 0,3

Current Assets 21,8 25,5 23,2 22,6 30,3 23,0 24,5 20,7

Gross PPE 5,9 4,2 4,6 6,3 7,6 8,7 9,1 10,4

Accumulated -3,5

Depreciation -0,6 -1,0 -1,1 -1,5 -1,9 -2,5 -2,9

Net PPE 5,3 3,2 3,5 4,9 5,7 6,3 6,2 6,8

Diferred Taxes 0,4

Intangibles

Other non current Assets 0,0 0,1 0,4 0,8 0,6 1,2 0,9 0,09

Non current Assets 5,4 3,8 3,9 5,6 6,3 7,4 7,0 6,9

Total Assets 27,2 29,3 27,1 28,2 36,6 30,5 31,6 27,7

ST Necessary to Finance

Bank Debt 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Trade Finance Debt 1,3 0,0 0,0 1,6 4,1 4,6 1,0 5,8

Accounts Payable 2,7 3,6 2,5 0,8 6,3 3,4 4,5 5,2

Tax Payable 3,0 3,9 0,5 0,2 0,2 0,5 0,2 0,0

Provisions 0,7 0,0 0,9 1,2 0,2 0,1 0,0 0,04

Other Current Liabilities 0,2 3,1 6,4 4,2 4,0 1,6 1,7 1,9

Current Liabilities 7,9 10,6 10,3 8,0 14,8 10,1 7,4 13,0

Bank Debt 0 0 0 0 0 0 0 0

Trade Finance Debt 0 0 0 0 0 0 0 0

Accounts Payable 0 0 0 0 0 0 0 0

Other non current

liabilities 0 0 0 0 0 0 0 0

Non current Liabilities 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Total Liabilities 7,9 10,6 10,3 8,0 14,8 10,1 7,4 13,0

Capital Stock & paid in

capital 1,5 1,1 1,1 1,1 1,1 1,1 1,1 1,1

Adjustments 2,6 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Reserves 1,9 1,3 1,3 1,5 1,5 1,5 1,5 1,5

Retaines Earnings 6,3 9,2 7,2 14,2 17,6 19,1 16,4 10,2

Net Income 7,1 7,1 7,2 3,4 1,6 -1,4 5,2 1,8

Net Worth 19,3 18,7 16,8 20,2 21,8 20,4 24,1 14,7

Liabilities & Net Worth 27,2 29,3 27,1 28,2 36,6 30,5 31,6 27,7

Uruguay is a country in the southeastern part of South America. It is home to 3.43 million

people, of which 1.8 million live in the capital city of Montevideo and its surroundings. An

estimated 88% of the population is of European descent. GDP per capita is approximately

US$15,000 and the country has lower poverty rate (9.7% of population) and less social

inequality measures (gini index of 42) than other Latin American countries.

BOLIVIA BRAZIL

PARAGUAY

ARGENTINA

URUGUAY

ATLANTIC

Montevideo

OCEAN

With 176,214 km2 of continental land and 142,199 km2 of jurisdictional water and small river

islands, Uruguay is the second smallest country in South America (after Suriname). The

landscape features mostly rolling plains and low hill ranges with fertile coastal lowland. A

dense fluvial network covers the country, consisting of four river basins, or deltas. Uruguay

has 660 km of coastline.

Uruguay has a climate that is relatively mild and fairly uniform nationwide, but the absence

of mountains, which act as weather barriers, sometimes make it vulnerable to high winds and

rapid changes in weather as fronts or storms sweep across the country. Seasonal variations

are pronounced, but extreme temperatures are rare. As would be expected with its abundance

of water, high humidity and fog are common. The mean annual precipitation is generally

greater than 40 inches (1,000 mm), decreasing with distance from the seacoast, and is

relatively evenly distributed throughout the year. The average temperature for the midwinter

month of July varies from 12 °C (54 °F) at Salto in the northern interior to 9 °C (48 °F) at

Montevideo in the south. The midsummer month of January varies from a warm average of

26 °C (79 °F) at Salto to 22 °C (72 °F) at Montevideo.

Uruguay’s economy is characterized by an export-oriented agricultural sector, a well-educated

work force, and high levels of social spending, with service sector accounting for 50% of GDP.

While Agricultural and Livestock related industries represent only 10% of GDP, it is the largest

source of exports (48% of the total). In 2015, exports amounted to approximately US$9

billion, while imports reached US$8,5 billion. Uruguay’s largest trading partners are China

(23% of exports and 18% of imports), following by Brazil (14%/15%) and United States

(7%).

2012 2013 2014 2015*

Population 9,0% 70,0

3,42 3,43 3,42 3,43

(MM) 8,0% 7,8% 57,5 57,5 60,0

GDP 53,4

$14.792 $16.421 $16.199 $15.414 7,0% 51,3

(US$/capita) 48,0 50,0

Inflation (CPI 6,0%

8,1% 8,6% 8,9% 9,4% 40,3

yoy) 5,2% 40,0

5,0%

Trade 4,6%

Balance (% -5,8% -4,3% -4,0% 0,1% 4,0% 30,0

GDP) 3,5%

3,0% 3,2%

20,0

Fiscal Balance 2,0%

-3,0% -2,6% -3,4% -3,6%

(% of GDP) 1,0% 1,0%

10,0

Current 0,0% 0,0

account -5,2% -5,1% -4,6% -3,6% 2010 2011 2012 2013 2014 2015

(% of GDP) GPD USD Bns - right GPD annual growth - left

Public debt

42,6% 40,1% 40,7% 43,5%

(% of GDP)

Exports

26,0% 23,7% 23,6% 17,0%

(% of GDP)

Source: EIU, Global Insight

*UruguayXXI.gub.uy, BCU

The increase in domestic demand and disposable income, as well as the recent US dollar

appreciation has been slowly pushing the inflation up. However, the government policy has

been aimed at smoothing that upward trend by means of selling US dollars as well as

establishing voluntary price control programs with the retail sector. Inflationary pressures will

begin to ease as a result of the expected slowdown in domestic demand and policymaking

ensuring monetary and fiscal instruments working in synchrony.

Source: EIU, Global Insight

While the fiscal deficit increased to 3.5% of GDP in 2015, the Public Debt has increased as a

percentage of GDP to 43,5% from 40,7% previous year due to government fiscal deficit,

among others.

The country has a strong foreign exchange position, with central bank reserves increasing

from US$ 7.85 billion in 2010 up to US$15,6 billion last year.

Uruguay is an investment-grade rated economy and one of the most politically stable and

pro-business countries in the region. The country consistently ranks at levels comparable to

the US and above those of other Latin American countries in surveys conducted by the World

Economic Forum and Transparency International, covering: rule of law, corruption and

institutional strength. In addition, Uruguay is one of the top five jurisdictions globally in terms

of freedom of capital flows.

Socially and politically, Uruguay ranks at the top of the Latin American nations, even

outperforming many of the most developed countries. The respect for property rights as well

as the efficiency of the legal system has been of paramount importance for the Uruguayan

government.

Finland 1 Finland 2

USA 15 Uruguay 20 N° 1 in Latin America

Chile 26 Austria 27

3 in Latin

Uruguay 40 America USA 28

Spain 49 Chile 31

Brazil 64 Brazil 92

0 20 40 60 80 0 20 40 60 80 100

Finland 2 HK 1

Austria 16

Uruguay 5 N° 1 in Latin America

USA 16 Top-5 in the World

Uruguay 21 N° 1 in Latin America

Switzerland 6

France 23

USA 54

Chile 23

Perú 88 Brazil 91

0 20 40 60 80 100 0 20 40 60 80 100

Source: World Economic Forum; Transparency International, International

Property Rights Index

Uruguay has long favored a prime investment climate for international investors. Sound

macroeconomic policies and a predictable legal system have resulted in an Investment Grade

classification.

Moodys S&P Fitch

Uruguay Baa2 BBB BBB-

Chile Aa3 AA- A+

Brazil Ba2 BB BB

Argentina B3 B- B

Uruguay encourages FDI along the following guiding principles:

National Interest Investments in the national territory are declared to be of

Categorization “national interest”

Non-Discrimination Equal treatment to domestic and foreign investors

Absence of Special There are no mandatory permits for foreign investors

Registration Requirements

Fair Treatment The Government commits to granting fair treatment to

investments, without unjustified prejudicial or discriminatory

measures;

Free Capital Flows The Government guarantees the transfer of capital and profits

abroad in freely-exchangeable currency – no restrictions

towards imports or capital repatriation

As a consequence of the aforementioned factors Uruguayan FDI grew 8x in the 2001-2014

period, reaching in 2013 and 2014 an all-time record of US$3.0 billion and US$2.2 billion,

respectively. In 2015 the FDI decreases a 27% in comparison with the previous year.

Because of the high rate of foreign investment, total factor productivity in Uruguay has grown

by 3% annually since 2005. During this period, the rate of innovation has been most prevalent

in the agricultural, renewable energies, forestry and logistics sectors of the economy.

3500

3000

2500

2000

1500

1000

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Central Bank of Uruguay (BCU).

Investment in Uruguay, both national and foreign, is declared of national interest by law.

Thus, foreign investors are granted the same incentives as local investors and there is no tax

discrimination or restrictions for transferring profits abroad.

Corporate income tax (IRAE) in Uruguay is 25%. The Tax Reform Law expanded the

framework of automatic investment exemptions, granting IRAE exemptions of up to 40%

according to the type of investment (if revenues under USD 1,1MM approximately).

Furthermore, there are several exempt income and expenditure calculated for one and a half

of its actual amount. These include, but are not limited to, training personnel in priority areas,

improving working conditions and environment, research projects and scientific and

technological development, technicians’ fees for assistance in priority areas or certification

under international quality standards.

Apart from the automatic income tax exemption, Uruguay has a wide range of incentives

adjusted to different types of productive activities, from industrial to commercial and service

activities performed within the country. Arrangements provided for by the Investment Law,

duty free zones, free port and free airport structures, public-private partnership agreements,

industrial parks and temporary admission are some of the main incentive arrangements

available in the country. Furthermore, in Uruguay several sectors enjoy specific incentive

structures including, but not limited to, external financial intermediation, afforestation,

graphic industry, maritime and air navigation, software, vehicles or auto parts, biofuels,

communication and housing industry.

The investment promotion system is provided for by Law No. 16,906, whereby the promotion

and protection of investments made by national and foreign investors in the national territory

are declared of national interest. The Law is actually regulated by Decree No. 002/012.

The Law on Investments provides for the granting of the following benefits, when some

objectives are accomplished:

- Exemption of Wealth Tax (IP) regarding personal property directly intended for any

productive cycle and equipment for electronic data processing.

- Exemption of Value Added Tax (VAT) and exemption of Excise Tax (IMESI), corresponding

to imports and refund of VAT included in purchases of goods intended for any productive cycle

and equipment for electronic data processing.

In the particular case of IRAE exemption, the granting of this benefit is subject to the score

obtained in the matrix of objectives and indicators created by COMAP, based on the

information provided by the investor. Tax exception can reach up to 100% of the amount

actually invested in the assets detailed in the project. This amount cannot exceed 60% of that

payable in each period included in the promotional declaration.

Under the temporary admissions system, goods can enter the country free of import duties,

as long as these goods are involved in the manufacturing and are in contact with the end-

product to be exported. The range of goods subject to temporary admission includes: raw

materials, parts, spares, engines, packages and packaging materials, matrixes, molds and

models, half-finished and intermediate products, agricultural products and inputs for the

production process.

Pursuant to Law 16,246 of May 1992, the movement of goods in Uruguayan ports and port

terminals that are suitable to receive overseas ships is free and not subject to authorizations

or government approvals. Goods shall be exempt from import duties, related taxes, and the

Net Worth Tax (under some conditions), while they remain in the port customs area.

Furthermore, port services are not subject to VAT.

Tax free zones are regulated by Law 15,921, and government decrees 454/88, 57/993 and

209/94. Uruguay has established 13 tax free zones that are in most cases privately held.

Large investments like UPM’s pulp mill in Fray Bentos, or the WTC site in Montevideo have

received tax free zone status. There is a government-owned tax free zone in Nueva Palmira

that contains a port terminal and grain silos.

The establishment of new tax free zones must be preapproved by a committee formed by

representatives of the Corporacion Nacional para el Desarrollo and the Ministry of Finance.

The tax benefits are not extended to the company managing the tax free zone, only to its

users. The managing company must develop and upkeep common infrastructure and pay a

fee to the government. In exchange, the company collects dues from tax zone free users.

Tax free zone user applicants must present a business plan to the Ministry of Finance. Eligible

projects must exceed US$10mm of investment, employ at least 75% of Uruguayan nationals,

and export at least 95% of the products or offshoring services rendered (e.g. call centers).

The following benefits apply to users of tax free zones:

Exemption from income tax, asset tax, VAT and all existing and future taxes, other than social

security payable by local employees:

Products or inputs that enter or leave the tax free zone are not subject to taxation

Exemption from taxes on dividend payments abroad, unless the foreign company has to pay

a tax on its home country on dividends received from Uruguay

Products manufactured inside tax free zones are not subject to minimum local component

requirements or other regulations.

Uruguay is a democratic republic organized under a presidential system. The president is

directly elected by the national electorate for a term of 5 years, and may not be reelected

consecutively. If no presidential candidate receives an absolute majority of 51 percent of the

vote, there is a runoff election between the top 2 candidates. The country is organized into

19 regional departments or states, each headed by an elected governor.

The government of Uruguay operates under three independent branches: Executive,

Legislative and Judicial. The Executive Branch is held in the hands of the President and his

cabinet of Ministers. The Legislative Branch rests with the parliament, which is composed of

the senate (31 members) and the chamber of representatives (99 members).The Judicial

Branch is headed by the Supreme Court of Justice. Each of the above branches is autonomous

as regards the duties entrusted to them by the Constitution.

All of Uruguay's major political parties support economic reforms and free trade. There are 3

main political parties /coalitions. There are no dominant parties and the three coalitions have

run the country at least once since 1990. Consensus among political parties is high. As a

result, public trust in institutions and government branches remains significantly stronger

than in other countries in the region. A summary description of each party is presented below:

Colorado Party: has traditionally represented the urban areas and the working class. In the

1990s, this party increased its support for smaller government and less state control.

The National Party (or “Blanco”): is the main party of rural voters, and is generally regarded

as the most conservative of the nation's parties and a staunch supporter of free enterprise.

Encuentro Progresista-Frente Amplio (“EP-FA”): is a leftist coalition that supports limited free

trade and private enterprise, but favors the implementation of an income tax as a means to

redistribute wealth and increase social spending.

Tabaré Vazquez, from the EP-FA party won the 2015 presidential election and took office as

President on 1st March 2015. The EP-FA party has ruled the country since 2004, and although

a leftist coalition, its economic policy has become a bastion of pragmatic economic policies

that favor business and foreign investments.

Although the global beef industry has not been alien to those factors driving the global

commodity price downward trend, there is a set of strong underlying elements shaping sound

prospects for the entire beef value chain.

On the demand side, population growth, higher disposable income, urbanization, changes in

lifestyles are expanding beef demand. Also changes in consumer patterns with beef dishes

becoming more and more common in the diets of the emerging market homes, retail stores

and the entire foodservice segment.

According to FAO (2013), while consumption of all types of meat is forecasted to increase,

beef is the only category expected to show accelerated growth for the 2013-22 decade.

2003-12 2013-22 % Change

160

Beef 0.2% 0.5% 150%

Kg per capita

120

Pork 0.7% 0.4% -43%

Poultry 2.5% 0.9% -64%

Sheep 1.0% 0.3% -70%

Source: FAO, 2013

0 30.000 60.000 90.000

GDP (PPP) per capita

Source: LAVP analysis

based on FAO and World Bank

The expansion of meat demand and

specifically beef consumption has been

5,0 6000

driven by the economic growth of the Beef, kg/capita/yr

GDP U$S/capita 5000

Emerging Economies. As the purchasing 4,0

power improves, consumers shift their diet 4000

3,0

decreasing consumption of cereal-based 3000

dishes while increasing meat consumption. 2,0

2000

In this respect the case of China is probably

1,0 1000

one of the most outstanding.

0,0 0

Source: FAO, World Bank &

OECD

Chinese beef demand is expected to grow from 7 million tons in 2014 to 8.5 million tons in

2018. Rabobank expects imports to continue to grow at 10-15% per year (Rabobank report,

2014).

1.700

5,4x

550 2,0x

412

1,3x

29 99

2011 2012 2013 2014E 2018E Beef Pork Poultry

On the supply side, in the medium and long-term world expansion in cattle and feedstuff

production depends on two fundamentals drivers, more available land and productivity

growth. A significant part of the developed world such as European Union, Japan, South Korea,

among others, face strong land and water availability challenges. Moreover, the uninterrupted

growth in the Asian population is and will continue to constraint the potential to expand cattle

and feedstuff production.

In the short-to-medium term, world demand is expected to faced tight supplies from many of

the key world players (US, Australia and EU), which together account for more than 35% of

world beef production.

The US, 2nd largest beef producer in the world, and currently showing the lowest inventory

levels since 1960, has just began a herd rebuilding process that will further tight world beef

supplies.

115 12,0

11,0

105

10,0

9,0

85 8,0

2002

2000

1996

2004

2006

1990

1992

2008

2010

2012

1994

2014

1980

1988

1998

1982

1984

1986

Source: USDA, 2014 Source: MLA, ABARE, 2015

Due to prevailing droughts and market dynamics, Australia has shown record slaughter and

live exports since 1979 that has pushed cattle inventory numbers to the lowest in 15 years,

which will severely constraint beef supplies in the upcoming 3-4 years.

Finally, the European Union, the 3rd largest

8,8 world cattle producer, has shown an

uninterrupted decrease in production for the

8,3 8,3

8,1 8,1 8,1 last 25 years. The drivers of this trend -

7,9

insufficient land availability, strict

7,4 environmental regulations, and high labor costs

– are expected to continue and even intensify

in the future.

2003

2010

2011

2012

2013

2014

2002

2001

2004

2005

2007

2000

2006

2008

2009

1999

Source: FAO, 2014

The Uruguayan cattle and beef industry developed long before the country was even

established as a nation, becoming one of the main drivers of economic and social development

during the last 100 years.

A century of development and growth allowed the cattle industry to be at the forefront of

industry productivity driven by the adoption of well adapted British breeds, genetic

improvements, high yield pastoral species, grazing management, as well as modern industrial

processes.

As a consequence, cattle industry has become one of the most cost competitive globally,

further supported by the country’s temperate climate allowing for year-round grazing

systems. Uruguay also benefits from lower transportation costs due to a very compact cattle

raising area, a flat landscape, and a well-developed truck transportation network.

100

6,0

75 Operating costs Labour Land Capital

4,5

3,0

1,5

0,0

Brazil

Colombia

Ireland

Ukraine

Uruguay

Argentina

Indonesia

Australia

Namibia

Source: Beef Farming systems across the world;

Debiltz & Parton

Source: AgriBenchmark, * Average 2011 -2013

Due to the fundamental importance of exports to the country’s economic growth, the beef

industry has diligently worked to achieve its current prime sanitary status. Uruguay’s herd

sanitary status, comparable to that of the US and Australia, grants access to every market in

the world with the exception of Japan, which is currently being negotiated.

Because of its pasture-based feeding technologies and the country’s long prohibition against

the use of animal byproducts on feed, Uruguay holds the highest BSE status (negligible BSE-

risk status) according to the World Animal Health Organization (OIE ).

The aforementioned results in the fact that Uruguay currently exports to more than 101

countries, a diversification strategy that has proved successful to maximize carcass value.

Mercosur Yes

101

NAFTA Yes

EU Yes

Russia Yes

Africa Yes

China/Hong Kong Yes

South Korea Yes

Japan Negotiation undeway*

1980 2000 2014

Source: INAC

Driven by the strong world beef demand and the transformation of Uruguay’s agricultural

sector, the cattle industry is undergoing profound changes. Uruguay currently holds the

largest total cattle and breeding stocks since available records exist.

4.3 11.9

4.1 4.0 11.6

4.1 4.0 11.5 11.4

3.8 3.8 11.1 11.0

3.4 3.6

3.4 10.5 10.6 10.5

10.2

Source: Dicose Source: Dicose

The high profitability of lands used for crop production set during the last decade a “large

opportunity cost” for cattle ranching that ignited a technological change within beef production

systems.

The calving rate has consistently increased since the mid-1990s, While between 1995-2005

it averaged at 61%, since then the average has been in the 66-68% range.

That large opportunity cost also drove a widespread adoption of animal management

technologies that has both increased cattle stocking rates (+40%) and animal growth rates

(+ 87%).

70%

Liveweight kg/ha per yr

Liveweight kg/head per yr

66%

62%

124,5

91,7 58%

65,8 66,6

54%

1995 1998 2001 2004 2007 2010 2013

1999 2006-12 average

Source: Dicose; Variabilidad regional de la

Source: Dicose

productividad ganadera, OPYPA (Bevejillo)

Finally, the dramatic expansion on grain production has created an abundant supply of

feedstuffs strengthening the economics of supplementation in cow-calf and finishing

operations.

3,5 76

Corn, Sorghum

3,0

Wheat 72

2,5

2,0 68

1,5 64

1,0

0,5

0,0 56

2002 2005 2008 2011 2014 2007-2009 2010-2013

Source: Diea

Source: Anuario Opypa 2013, 2014

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