Business Plan Proposal – Acquisition of 12 Containerships

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Cass Business School Academic Year 2005-2006 MSc Shipping, Trade & Finance MSc Energy, Trade & Finance Academic Year 2005 -2006 Business Plan Proposal: Acquisition of 12 Containership vessels to participate in the “Motorways of the Seas” European Union Programme. Group 17 International Commodity Trade Coursework — Business Plan Cass Business School Academic Year 2005-2006 Table Of Contents EXECUTIVE SUMMARY……………………………………………………………………………………………………………… INTRODUCTION………………………………………………………………………………………………………………………….. 3 HISTORY: WHAT IS SHORT SEA AND COASTAL SHIPPING? …………………………………………………. 3 COMPANY SUMMARY………………………………………………………………………………………………………………… 4 SWOT ANALYSIS ………………………………………………………………………………………………………………………… SERVICE SPECIFICS …………………………………………………………………………………………………………………… 6 CUSTOMERS OF THE SERVICE……………………………………………………………. …………………………………… 6 INDUSTRY……………………………………………………………………………………………………………………………………. 7 COMPETITION ……………………………………………………………………………………………………………………………. MARKETING ……………………………………………………………………………………………………………………………….. 8 COST STRUCTURE ……………………………………………………………………………………………………………………… 8 PROFIT POTENTIAL …………………………………………………………………………………………………………………… 9 ADDITIONAL EXPANSION …………………………………………………………………………………………………………. INSURANCE…………………………………………………………………………………………………………………………………. 9 TAXATION …………………………………………………………………………………………………………………………………… 9 CORPORATE STRUCTURE……………………………………………………………………………………………………….. 10 PROPOSED FINANCING ……………………………………………………………………………………………………………. 0 RISK FACTORS………………………………………………………………………………………………………………………….. 10 FINANCIAL CALCULATIONS …………………………………………………………………………………………………… 11 CAPITAL STRUCTURE ……………………………………………………………………………………………………………… 11 LOAN AGREEMENT ………………………………………………………………………………………………………………….. 1 BREAK EVEN ANALYSIS ………………………………………………………………….. ……………………………………… 12 DCF AND NPV…………………………………………………………………………………………………………………………….. 12 ASSUMPTIONS: …………………………………………………………………………………………………………………………. 12 OUTFLOWS & INFLOWS ………………………………………………………………………………………………………….. 2 PRO-FORMA FINANCIAL STATEMENTS AND RATIO ANALYSIS ………………………………………… 13 BIBLIOGRAPHY ………………………………………………………………………………………………………………………… 14 APPENDIX 1 – TECHNICAL PROPOSITION FOR NEW BUILDING ORDER …………………………… 15 APPENDIX 2 ……………………………………………………………………………………………………………………………….. 9 APPENDIX 3 ……………………………………………………………………………………………………………………………….. 19 APPENDIX 4 ……………………………………………………………………………………………………………………………….. 20 APPENDIX 5 ……………………………………………………………………………………………………………………………….. 21 FINANCIAL APPENDIX 1 – B/E ANALYSIS, LOAN REPAYMENT & DCF VALUATION ………… 22 FINANCIAL APPENDIX 2 – CASS PLC.

FINANCIAL DATA……………………………………………………… 23 FINANCIAL APPENDIX 3 – CASH FLOW STATEMENTS ………………………………………………………… 24 International Commodity Trade Coursework — Business Plan 1 Cass Business School Academic Year 2005-2006 Executive Summary Eurokout Ltd. is a new shipping company that will operate within the scope of the European Union Programme “Motorways of the seas”. The company’s goal is to provide regular sailings from the port of Antwerp to the port of Bilbao in order to alleviate the traffic congestion caused by the moving of containers by road and rail.

Based on our research and projections, the tonnage capacity of container vessels in the EU in the near future will not be adequate to satisfy demand for shipping. By entering the shipping sector and establishing our presence in the specific route, we anticipate gaining substantial profits from the rising demand for shipping services. Furthermore, the quality of our vessels and the quality of the services that we plan to offer will offer us a significant competitive advantage over our potential competitors in the sector.

The anticipated EU programme will also be beneficial to our operations, since it will increase demand for shipping services, which promote environmental friendliness and cost & time efficiency and it will offer incentives for the construction of better infrastructure, which in turn will enable us to provide an even better service. The project demands $175m with a Debt to capital of 60%. The cost of Debt is 6. 5%, a cost of capital of 12%. The break even TC Rate is $ 6,825 on 2009. This project gives a NPV of $30. 9m through the Discounted Free Cash flows to the firm and offers an average return on Equity of 13%.

International Commodity Trade Coursework — Business Plan 2 Cass Business School Academic Year 2005-2006 Introduction Eurokout Ltd. is a shipping company with the aim to serve a specific trade corridor in Europe in order to reduce the congestion caused by the high volume of containers, which are transported daily to and from the main ports of Europe. The company will operate on the coastal route of Antwerp-Bilbao offering daily regular sailing under the specifications of the European Union’s programme “Motorways of the seas”. History: What is Short Sea and Coastal Shipping?

Short sea and coastal shipping is based on the concept of carrying freight door-todoor, or factory to factory, like road transport Short-distance shipping has been around for a very long time: there are thousands of wrecked vessels around the Mediterranean dating back to Roman times. Shortsea shipping carries 41% of goods traffic within the Community. It is the only mode of goods transport with a growth rate between 1990 and 1998 (+27%) approaching that of road transport (+35%). In millions of tonne-kilometres, the volume of trade carried between 1970 and 1998 increased by 2. , representing 44% of the total volume and 23% of the total value of the goods transported within Europe. The European Commission is attempting to extend the concept of Short sea shipping and introduce a concept called Motorways of the Sea, which will take effect in the following under the following requirements: High quality of service in ship, cargo and client operations High quality freight reception facilities Vessels (feeders) should be capable of a transit speed between18-22 knots Minimum of three sailings each day per port Vessels must promote safety and environmental friendliness • • • • International Commodity Trade Coursework — Business Plan 3 Cass Business School Academic Year 2005-2006 The main purpose of this programme is the transport of goods by sea in order to reduce inland road congestion. For the programme’s first phase four corridors have been agreed: ? Motorway of the Baltic Sea (linking the Baltic Sea Member States with Member States in central and western Europe, Including the route through the North Sea/Baltic Sea canal) ? Motorway of the sea of Western Europe (leading from Portugal and Spain via the Atlantic Arc to the North Sea and the Irish Sea) ?

Motorway of the sea of Southeast Europe (connecting the Adriatic Sea to the Ionian Sea and the eastern Mediterranean, including Cyprus) ? Motorway of the sea of Southwest Europe (Western Mediterranean, connecting Spain, France, Italy and including Malta and linking with the motorway of the sea of south-east Europe and including links to the Black Sea) “Motorways of the Sea” is a highly competitive programme, which will eventually concentrate many customers. This will be accomplished by using fast, modern ships, incorporating intermodal transport for collection and delivery.

Transit time is shorter than road transport and the cost can be considerably cheaper, up to 25%, in some instances. The advantages of short sea and coastal shipping are: • • • • Cheaper than road transport; Reliable with guaranteed transit times; Environmentally friendly; Flexible, utilizing more than 300 European inland and coastal ports reducing road congestion through modal shift. Company Summary Eurokout Ltd. will be formed on the 1st July 2006 and begin its operations thereafter.

The company will be registered in Panama and based in Athens, Greece and will carry out its operations in the Antwerp-Bilbao route, offering three daily sailings on its container vessels. Twelve container vessels (300 TEU) will be ordered and delivery will be scheduled for the 1st January of 2009, when the normal operations of the company will begin. The company will be a subsidiary of International Commodity Trade Coursework — Business Plan 4 Cass Business School Academic Year 2005-2006 the Cass Plc. Company, which will provide the necessary equity.

The total capital requirements of Eurokout Ltd. will amount to $175 million. SWOT Analysis The following table exhibits a SWOT analysis, which was performed in order to assess the potential of Eurokout’s entrepreneurial move. Strengths Location The busiest sea corridor – Increased Supply of cargoes Weaknesses Reputation, presence and reach No previous exposure to shipping sector Financial reserves Low cost of funds Reliability of data, plan predictability Highly volatile market Working under the framework of a new programme Competitive advantages

Cheaper than road transport Reliable with guaranteed transit times Reducing road congestion through modal shift High quality Lack of competitive strength Road transport is cheaper on short journeys Resources, Assets, People High quality human resources Innovative aspects New high speed ships Incorporation of the most recent technological features Environmentally friendly Opportunities Market developments Expected huge growth in the years to come Threats Legislative effects Restrictions on flags of registry Cabotage Competitors’ vulnerabilities Old ships Ships under flags of convenience

Volatility of freight market Uncertainty concerning freights New building prices 2nd hand prices Scrap prices Bunker prices Technology development and innovation Development of cargo handling gear Development of new faster ships Development of environmental friendly engines International Commodity Trade Coursework — Business Plan 5 Cass Business School Academic Year 2005-2006 Service specifics The new company will provide Short Sea services between Antwerp and Bilbao1, serving the hinterland of Benelux and German areas and Spain and Portugal.

Though short sea and coastal shipping as mentioned above has been around for a very long time, our company will introduce to the feeder market new innovative and high quality vessels, which are going to be build under the specifications2 highlighted by the “Motorways of the Sea” programme. The new vessels will have a service speed of 18kn and will be environmental friendly with low sulphur engines. There will be three sailings per day serving the corridor on prescheduled time tables. These, together with the new freight reception facilities, which will be funded by the E. U. , make our service much more competitive.

By placing our vessels on this route before the start of the programme we want to make certain that we will be the only existing company in the area, which operates under the following quality criteria: Newly built high speed vessels Vessels incorporating the most recent technological features Reduced time of transportation ISM/ISPS compliance High quality corporate structure High quality human resources (On-shore personnel and off-shore crew) o Officers, Master and Crew will be highly qualified European citizens • Vessels operate under Greek Flag, Piraeus as port of Registry o Avoidance of flag of convenience • • • • • Customers of the service Our scope is to time charter our vessels to the designated companies by the European Union, which will begin to enforce the motorways of the sea programme. The purpose of these companies or organizations with the help and funding of the E. U. will be the accumulation of cargo, which will be bound to be transferred by road and its shipping utilising short sea shipping companies. 1 2 Appendix 2 Appendix 1 – Technical Analysis of new building orders International Commodity Trade Coursework — Business Plan 6 Cass Business School Academic Year 2005-2006 Industry

Analysis of predicted regional trading requirements for feeder and intra-regional operations indicates a doubling of trade volume during the period 2002-2012. This is a substantial increase, which cannot be met by the current fleet, even allowing for some larger ships cascading down into the feeder trades. Up to 40% of the world’s feeder fleet is comprised of vessels of at least 15 years old3, and much of this tonnage will be removed from the market by 2010, which means that in addition to the expected rise in trade volumes, there will also be a significant replacement demand to be met4.

The future demand for feeder vessels simply to accommodate demand growth is in the region of 1,300 new vessels by 2012. However, the number of vessels required to replace old tonnage is expected to be around 600, leading to an overall demand of nearly 2,000 ships. If these ships were to be delivered at a constant rate from now until 2012, this would mean more than 200 new feeder vessels entering the market each year. The lack of efficient modern feeder tonnage is a major threat to the container sector, which could potentially compromise the industry’s investment in new large post-panamax tonnage.

Taking into consideration the above analysis, we can conclude that there is a clear need for modern feeder designs, which are flexible yet targeted, but so far there is little evidence that this opportunity has been realised and few orders have been placed. Competition The service that we provide becomes almost a necessity since the competition is the rail services between Cologne and Irun, between Antwerp and Irun, door-todoor road transport and the option of Ro-Ro ferries, which all are far more expensive than container transportation.

The following figures present the level of competition between the above different modes of transport. Door to door service (Single Route) Journey time (Days) Road € 1,551 2 Rail € 813 2 Ro-Ro Ferry € 1,340 2 Feeder € 589 2 3 4 Appendix 3 – Containership & Capacity Availability Charts Appendix 3 – Containership & Capacity Availability Charts International Commodity Trade Coursework — Business Plan 7 Cass Business School Academic Year 2005-2006 The short sea service5 is especially competitive for the regions in the Northwest of the Benelux and in the Northwest of Spain and Portugal.

The area of Southern France and Cataluna and Pyrenees is the least attractive for this short sea service between Antwerp and Bilbao. Furthermore the short sea operation with container vessels (300 TEU) is competitive to rail transport for all regions. Marketing The company will follow a moderate marketing strategy, which will address a specific audience, like intermodal transport companies and large goods companies, which are active in the intra-Europe container shipping business sector.

The way to market the company’s services will be by promoting its comparative advantages, namely the environmental friendliness of maritime transport, the quality of service provided, the benefits of avoiding congestion in intra-European rail and road routes and of course the lower cost factor. Cost Structure The service offered by Eurokout Ltd. will consist of two basic elements, the shipment of containers from Antwerp to Bilbao and the logistics management of the containers from loading to discharging.

Consequently, the cost of providing the service can be broken down to these two basic elements and from there it can be further analysed to greater detail. The basic costs that cover the shipment of the containers involve the operating expenses of the vessels along with the crew wages, the bunker fuel costs and any port dues that will be incurred. The logistics management will face the cost of specialised personnel who will be in charge of organising and running the logistic process of the service.

In addition, the cost of the acquisition of the vessels must be included in the service along with the basic expenses – salaries, rents and miscellaneous expenses, which will be incurred by the general operation of the company. The nature of the above costs is leaning more towards the classification of fixed costs and thus the company will greatly depend on its performance and the availability of cargo to be shipped. 5 Appendix 4 International Commodity Trade Coursework — Business Plan Cass Business School Academic Year 2005-2006 Profit Potential Based on the abovementioned industry analysis and on our projections for future performance, we strongly believe that the opportunity for profit is quite high in this specific sector. The anticipated growth in demand for container carriers in the intra-European routes along with the initiative undertaken by the E. U. are clear indicators of the potential benefits that Eurokout Ltd. can enjoy.

Furthermore, our projections for the future performance of the company and the opportunity of being one of the first companies to enter this specific sector make a strong case for investing in this project. Finally, the generally good performance of the shipping sector and the potential of creating a business with long term scope of operations are factors that we believe support this investment. Additional Expansion In the years to come a possible expansion through high performance and good reputation can take place to the rest three corridors of the “Motorways of the Sea” with the order of more ships of the same type.

Other alternatives for Eurokout in the future would be a possible change of its profile as a strictly shipping company and become involved in the other sectors of the container industry such as port infrastructure, handling, consolidation and delivery of the cargo. Insurance The vessels will be insured against Hull and Machinery (H) risks, which protect the owner of the vessel against any damage to the vessel and its machinery. The vessels will also be insured against Protection and Indemnity (P) risks, which provide coverage for liabilities to third parties.

We propose the Alston Gayler & Co Ltd to be our H underwriters and the UK P club to cover our P risks. Being a new company with high quality newly built ships, we will have the advantage of paying a lower premium, which will consequently reduce our operational costs. Taxation Eurokout Ltd. as a shipping company will be exempted from the obligation of corporate tax. The tax payable will only be the tonnage tax, which will be imposed International Commodity Trade Coursework — Business Plan 9 Cass Business School Academic Year 2005-2006 the flag state authority.

This tax amounts to $10,000 per year for each vessel. Depreciation of the vessels will be equal to the value of the ships minus their scrap value over a 25-year period. We assume that the scrap value of the vessels in 25 years will be no less than $350. 00 per metric ton, based on a current value of $400. 00 per metric ton. Corporate Structure6 Eurokout Ltd will be the holding company of the managing company Eurokout Management S. A. and of each vessel’s company. Both Eurokout Ltd. and Eurokout Management S. A. will be based in Panama and have their headquarters in Athens, Greece. Cass Plc. hareholders will own all the company’s shares. Each vessel will be a one-ship company in order to protect the beneficial owner (Eurokout Ltd. ) from claims involving other ships of the company. The holding company will be incorporated in a favourable tax jurisdiction for the purpose of owning and operating ships7. Finally the branches, which are proposed to be at Bilbao and Antwerp, will be subsidiaries of Eurokout Ltd. Proposed Financing The total initial capital with which the company will begin its operations will be $175 million. This amount will be financed in two ways, debt and equity.

Debt assumed by the company will count for 60% of the total capital, while the remaining 40% will be provided by equity directly from Cass Plc. , the beneficial owner of Eurokout. Ltd. Risk factors We have identified two major risk factors that our company will face in proceeding with this project. The first major risk that we face is the possibility of the European Community not proceeding with the improvement and funding of port facilities. In this case the transportation time will not be reduced and sea transportation will lose its competitiveness against road and rail transportation.

The second risk lies in the general nature of the shipping market and its highly volatile character. That 6 7 Appendix 5 Stopford, Martin, Shipping Economics, Second Edition p. 438 International Commodity Trade Coursework — Business Plan 10 Cass Business School Academic Year 2005-2006 makes the estimation of future freights, new building prices and scrap prices extremely difficult. Financial Calculations Capital Structure The capital Budget for our investment project is $175m accounting for $165 for the vessel acquisition and $10m for working capital.

Those needs will be financed 40% by equity provided by CASS LTD and 60% through debt. Even though there is no tax shield advantage to Debt the later is a cheaper financing method relative to equity as the cost of Debt is a 6. 5% and the required return of investors in the high-risk profile shipping industry is above 12% (CAPM – beta book reference). Loan agreement Currency: The Company will borrow in USD so as to hedge naturally it’s expenses that are in USD. Loan Period: The loan will be repaid in 10 years. It is a realistic period attributed to the high economic life of a NB vessel.

Pricing of the Loan: The cost of Debt is the 6 month Libor as the loan is on a floating rate agreement with semi-annual payments plus a spread of 125 basis points assessed by the leverage of the company (60% Debt) and the riskiness of the new SBU (Strategic Business Unit) of the company. Revolving credit: As the capital needs follows the shipyard payment stages the company pays interest on the cumulative withdrawn valance of the loan and pays a commitment fee for the rest of the granted credit. Grace Period: Due to the lagged operation of the vessels (2. years, Delivery Dec08) the company will have a grace period of the above mentioned duration in which it will pay only Interest and not Principal. The loan is amortized by $ 9. 6m per year. Balloon Payment: Even though the forecasted value for the second hand price of vessels is $ 7. 3m the Balloon Repayment is based on the scrap value that is $ 0. 560m calculated through the Ls/t that is 1600 per vessel and Bangladesh Scrap value of 350$/t. International Commodity Trade Coursework — Business Plan 11 Cass Business School Academic Year 2005-2006 Break Even Analysis The B/E TC Rate for each year has 2 pillars.

The Cost of Operation is found on a 345 basis added to the Cost of Capital on a 345 basis to give the B/E TC rate. The Cost of Capital is the annual principal repayment plus the interests of the semi annual instalments. DCF and NPV Even though the cost of debt of Cass is low, the evaluation of the new project should take into consideration the credit profile of the new company and the riskiness of the shipping industry. That is why all the financial calculations are made through a simulated cost of debt for the new holding company. In reality, Cass Ltd can be the borrower and can charge an internal rate to the debt of the

Assumptions: The TC/d is assumed to grow at 3% for 2 years, then at 5% for the next 8 years. The Cost of Operations, today $2300 for our feeders, escalates at 3%. Discount Rate: As a starting rate we use the WACC cost of capital of CASS as it is calculated through CAPM (9. 86%). We conclude to a discount rate of 12% as appropriate of the leverage and business of the project. Outflows & Inflows Shipyard staged Payment: The repayment of the new vessels was assumed to take place according to the established market practice taking into consideration that due to increased new building activity the payment is comparatively front ended.

The following table shows the time structure of the payments. The Inflows begin with the operation of the vessels from Jan 2009. Terminal Value: The project is evaluated on a 12. 5-year horizon. The terminal value is the forecasted second hand price of vessels at the year 12. 5. NPV: The free cash flows to the new firm a give a NPV of $30. 9m. This means that this project will increase the value of CASS by the above amount. It is considered rather high for the capital employed ($175m) International Commodity Trade Coursework — Business Plan 12 Cass Business School Academic Year 2005-2006

Pro-Forma Financial Statements and Ratio Analysis Through the above assumptions we constructed projected financial statements, including Income Statement, Balance Sheet, and Cash Flow Statement for the first 2. 5 years of no revenues and the 9 years that the vessels operate to test the ability of the company to generate cash. International Commodity Trade Coursework — Business Plan 13 Cass Business School Academic Year 2005-2006 Bibliography ? ? ? ? ? ? Grammenos, Costas. The Handbook of Maritime Economics and Business. London: MPG Books Ltd, Bodmin, Cornwall, 2002.

Stopford, Martin. Maritime Economics. 2nd ed. London & New York: Taylor & Francis Group, 1997. Brealey R and Myers S, Principles of Corporate Finance, 6th edition, Mc Graw-Hill, 2000. Buckley at al, Corporate Finance Europe, 1st edition, McGraw-Hill, London 1998. Copeland T and Weston F, Financial Theory and Corporate Policy, 3rd edition, Addison Wesley,1992. Papanikolaou A. ,Meleti Ploiou Tomos A Methodologia Promeletis, edition Symeon, Athens ,1994. References ? ? ? ? ? Clarksons www. clarksons. net Trans-European Network TEN http://europa. eu. int/comm/ten/transport/index_en. tm Man B Engine Manufacturers http://www. manbw. com Lloyds’ Register Lloyd’s Register Container Ship Focus August 2005 International Commodity Trade Coursework — Business Plan 14 Cass Business School Academic Year 2005-2006 Appendix 1 – Technical Proposition for New building Order The proposition of Eurokout to Peene Werft comprises the new building of 12 sister Feeder Container vessels. The naval architects and marine engineers of the company performed a short technical analysis for the purposes of a detailed order placement to the shipyard.

The requirements for Feeder Container vessels, which conform to EU directives for TEN-T program are: Service Speed (VS) = 18kn, Operating capacity = 300 TEU, Range = 3000nm The Length between perpendiculars (LBP) of fast feeder vessels range between 100-120m (1) and the Block Coefficient (CB) range between 0. 56-0. 64 (2) CB can be estimated by Alexander-Watson formula: CB = k1 ! k 2 ” V / L BP ,LBP(ft),V(kn) (3) ( ) Feeder vessels service mainly ports were the bigger container vessels cannot access due to restrictions on draught and breadth. Thus, the design draught (T) has to be the lowest possible.

The selected draught and breadth (B) is set respectively equal to: T = 5. 5m (4) and B = 19m (5) The displacement (? ) of the vessel can be defined either as geometrical (? G) or as weighted (? W). The geometrical displacement is calculated by the following formula: International Commodity Trade Coursework — Business Plan 15 Cass Business School Academic Year 2005-2006 ?G = CB x LBP x B x T x 1. 030, (6) and the weighted displacement: ? W = DWT + LS, DWT = DeadWeight, LS = Light Displacement (7) Deadweight and Light Displacement can be split into the following weight categories DWT = WF? +WDO+WLO + WPR. + WF.

W. + WCREW + WSTORES +WPAYLOAD (8) WF? : WDO: WLO: WPR: WF. W: WCREW: WSTORES: WPAYLOAD: Fuel Oil weight Diesel Oil weight Lubricants weight Provisions weight Fresh Water weight Crew weight Stores weight Payload weight LS = WST + WOT + WM (9) WST: WOT: WM: Steel weight Outfit weight Machinery weight According to E. Strohbusch and H. Schneekluth, the ratios of Light Displacement weight groups for small container vessels must be in the following range: DWT/? WST WOT/WL WM/WL = 0. 60-0. 76 (10) = 0. 15-0. 20 (12), = 0. 09-0. 22 (13) = 0. 58-0. 71 (11), International Commodity Trade Coursework — Business Plan 6 Cass Business School Academic Year 2005-2006 In order to secure the sea worthiness of the vessel the two different expressions of displacement have to be equal: ? G = ? W (14) A sensitivity analysis conducted by using formulas (3), (4), (5), (6), (7), (8), (9), (10), (11), (12), (13) and (14) in order to obtain acceptable values for LBP, CB, ? , DWT, LS. The optimum combination is: LBP CB LS ? B&W: P = 0,0114 ! V 3 ! DWT 0,55 ” P = 0,0114 ! 183 ! 51000,55 ” P = 7276PS ” P = 5351KW = 115m =0. 567. =1914t =7014t DWT =5100t For the estimation of vessel’s propulsion the following formula is provided by MAN

International Commodity Trade Coursework — Business Plan 17 Cass Business School Academic Year 2005-2006 From MAN B&W engine program of four-stroke medium speed engines the following type is selected: MAN 8L40/54, 5600 KW, 500r/min The Gross Register Tonnage will be approximately equal to 3100GRT, which is derived through analysis on the GRT’s of existing feeder container vessels. The table below summarizes vessel’s specifications FEEDER CONTAINERSHIP 300TEU Yard Flag Classification Operating Capacity Service speed Gross Tonnage DWT Light Ship Displacement LBP B T Block Coefficient A.

R Engine Peene Werft, Germany Greek DNV 300 TEU 18 kn 3100GRT 5100tons 1914 tons 7014tons 115 m 19 m 5. 5 m 0. 567 3000 nm MAN 8L40/54, 5600 KW, 500r/min Table: Vessel’s specifications International Commodity Trade Coursework — Business Plan 18 Cass Business School Academic Year 2005-2006 Appendix 2 Short sea service Antwerp – Bilbao and railway service Cologne – Irun Appendix 3 International Commodity Trade Coursework — Business Plan 19 Cass Business School Academic Year 2005-2006 Appendix 4 International Commodity Trade Coursework — Business Plan 20 Cass Business School Academic Year 2005-2006

Appendix 5 EUROKOUT LTD SAFETY OPERATION TECHNICAL CREW ACCOUNTING ADMINISTRATION Corporate Structure CASS PLC EUROKOUT S. A. VESSEL EUROKOUT LTD Note: Vessel implies all the 12 new buildings – “each ship one company” International Commodity Trade Coursework — Business Plan 21 Cass Business School Academic Year 2005-2006 Financial Appendix 1 – B/E Analysis, Loan Repayment & DCF Valuation Capital Requirements No of Feeders Current Price Premium over Specifications Total Price Total Capital Requirements Additional Capital needed Total Capital Needs Financing Equity Debt Total

Financial Structure & Cost of Debt (In 000s) 12 $12,500 10% $13,750 $165,000 $10,000 $175,000 (In 000s) $70,000 $105,000 $175,000 1. 0% % 40% 60% 100% Loan Terms Libor Rate Spread Rate Semi annual rate Installments Years Frequency Installments % 5. 00% 1. 25% 6. 25% 3. 13% Semi annual 10 2 20 Year 0 0. 5 1 1. 5 2 2. 5 Stage Signing of Contract 1st installment 2nd installment 3rd installment 4th installment Delivery Shipyard Stage Payment Period % Jun-06 20. 00% Dec-06 10. 00% Jun-07 10. 00% Dec-07 15. 00% Jun-08 15. 00% Dec-08 30. 00% Total 100%

OPEX Amount $35,000 $17,500 $17,500 $26,250 $26,250 $52,500 $175,000 Debt payable $21,000 $10,500 $10,500 $15,750 $15,750 $31,500 $105,000 Equity $14,000 $7,000 $7,000 $10,500 $10,500 $21,000 $70,000 in 000s $0. 350 1962 $687 $8,240 $8,500 Growth 2006 2007 2008 2009 3% 2. 400 2. 472 2. 546 2. 623 Tax Rate 0. 00% Balloon Calculation Scrap $/t Ldt/vessel Scrap Value (Bangladesh) All vessels Balloon (approximation) Working Capital (Percentage over Sales) Year Period Month Change in Credit Outstanding Debt Interest Payment Total Payment per Period Interest Payments over Grace Administation % 0ver COPS Administration cost for Grace Period

Schedule of Term Loan Repayments (in 000s) Grace Period 2006 2007 0 0. 5 1 1. 5 Jun-06 Dec-06 Jun-07 Dec-07 $21,000 $10,500 $10,500 $15,750 $21,000 $31,500 $42,000 $57,750 $0 $656 $984 $1,313 0 $656 $984 $1,313 $7,055 12% 100 100 Cost of Capital Grace Period 2006 $656 $55 $0. 1498 2008 2 Jun-08 $15,750 $73,500 $1,805 $1,805 2. 5 Dec-08 $31,500 $105,000 $2,297 $2,297 Payment Period 2009 3 3. 5 Jun-09 Dec-09 -$4,825 -$4,825 $100,175 $95,350 $3,281 $3,130 $8,106 $7,955 2010 4 Jun-10 -$4,825 $90,525 $2,980 $7,805 4. 5 Dec-10 -$4,825 $85,700 $2,829 $7,654 5 Jun-11 -$4,825 $80,875 $2,678 $7,503 2011 5. Dec-11 -$4,825 $76,050 $2,527 $7,352 6 Jun-12 -$4,825 $71,225 $2,377 $7,202 2012 6. 5 Dec-12 -$4,825 $66,400 $2,226 $7,051 7 Jun-13 -$4,825 $61,575 $2,075 $6,900 2013 7. 5 Dec-13 -$4,825 $56,750 $1,924 $6,749 8 Jun-14 -$4,825 $51,925 $1,773 $6,598 2014 8. 5 Dec-14 -$4,825 $47,100 $1,623 $6,448 9 Jun-15 -$4,825 $42,275 $1,472 $6,297 2015 9. 5 Dec-15 -$4,825 $37,450 $1,321 $6,146 10 Jun-16 -$4,825 $32,625 $1,170 $5,995 2016 10. 5 Dec-16 -$4,825 $27,800 $1,020 $5,845 11 Jun-17 -$4,825 $22,975 $869 $5,694 2017 11. 5 Dec-17 -$4,825 $18,150 $718 $5,543 2018 12 12. 5 Jun-18 Dec-18 -$4,825 -$4,825 $13,325 $8,500 $567 $416 $5,392 $13,741

Balloon 100 Year Cost of Capital/year/fleet Cost of Capital/year/vessel Cost of Capital/day(365 days)/vessel 2007 $2,297 $191 $0. 5244 2008 $4,102 $342 $0. 9364 Payment Period 2009 $16,062 $1,338 $3. 6671 COPS 2010 $15,459 $1,288 $3. 5294 2011 $14,855 $1,238 $3. 3917 2012 $14,252 $1,188 $3. 2540 2013 $13,649 $1,137 $3. 1163 2014 $13,046 $1,087 $2. 9786 2015 $12,443 $1,037 $2. 8409 2016 $11,840 $987 $2. 7032 2017 $11,237 $936 $2. 5655 2018 $19,134 $1,594 $4. 3684 COPS Escalate at 3. 0% COPS/day (basis 365)/vessel COPS/year/vessel COPS/year/fleet Break Even based on 345 days Grace Period 2006 $0. 159 $0. 00 2. 5% $0. 163 2009 $2. 623 $957. 23 $11,487 Payment Period 2009 $3. 880 $2. 775 $6. 825 2010 $2. 701 $985. 95 $11,831 2011 $2. 782 $1,015. 52 $12,186 2012 $2. 866 $1,045. 99 $12,552 2013 $2. 952 $1,077. 37 $12,928 2014 $3. 040 $1,109. 69 $13,316 2015 $3. 131 $1,142. 98 $13,716 2016 $3. 225 $1,177. 27 $14,127 2017 $3. 322 $1,212. 59 $14,551 2018 $3. 422 $1,248. 97 $14,988 Year Cost of Capital/day/vessel COPS/day/vessel ShipBroker’s Commission B/E Daily TC Rate(345 day) 2007 $0. 555 $0. 000 $0. 569 2008 $0. 991 $0. 000 $1. 016 2010 $3. 734 $2. 858 $6. 761 2011 $3. 588 $2. 944 $6. 699 2012 $3. 43 $3. 032 $6. 640 2013 $3. 297 $3. 123 $6. 584 2014 $3. 151 $3. 216 $6. 531 2015 $3. 006 $3. 313 $6. 481 2016 $2. 860 $3. 412 $6. 433 2017 $2. 714 $3. 515 $6. 389 2018 $4. 622 $3. 620 $8. 453 Year TC/day/vessel (345 days) TC/year/fleet Surplus Daily Income/vessel Surplus Yearly Income (345 days)/vessel Surplus Yearly Income (345 days)/fleet Surplus Income 2009 $6. 600 $27,324 -$0. 225 -$78 -$931 2010 $6. 798 $28,144 $0. 037 $13 $154 2011 $7. 138 $29,551 $0. 439 $151 $1,816 2012 $7. 495 $31,028 $0. 854 $295 $3,537 2013 $7. 870 $32,580 $1. 285 $443 $5,321 2014 $8. 263 $34,209 $1. 732 $598 $7,171 015 $8. 676 $35,919 $2. 196 $757 $9,090 2016 $9. 110 $37,715 $2. 677 $924 $11,082 2017 $9. 565 $39,601 $3. 177 $1,096 $13,152 2018 $10. 044 $41,581 $1. 591 $549 $6,585 TC Growth Assumption premium for high specs TC conventional TC year 0 Growth for 1st TC Growth for 2nd TC Growth for 2nd TC 0% $6. 600 $6. 600 3% 5% 5% Year Period Month Annual Income Tax Income After Tax Plus: Interest+Principal Income After Tax + I+P Plus: Depreciation Less: Net WC Free Cash Flow WACC Discount Factors PV of Cashflow Sum Of PVs Terminal Value Net Present Value Break Even based on 345 days Grace Period 2006 0 0. 1 Jun-06 Dec-06 Jun-07 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -$35,000 -$17,500 -$17,500 12% 1 0. 9449 0. 8929 -$35,000 -$16,536 -$15,625 $8,416 $22,577 $30,993 2007 1. 5 Dec-07 0 0 0 0 0 0 0 -$26,250 0. 8437 -$22,146 2008 2 2. 5 Jun-08 Dec-08 0 0 0 0 0 0 0 0 0 0 0 0 0 $0 -$26,250 -$52,500 0. 7972 -$20,926 0. 7533 -$39,547 Payment Period 2009 -$931 $0. 00 $0 $16,062 $16,062 $16,500 $273. 24 $32,288 0. 71178025 $22,982 2010 $154 $0. 00 $154 $15,459 $15,613 $16,500 $281. 44 $31,831 0. 63551808 $20,229 2011 $1,816 $0. 00 $1,816 $14,855 $16,671 $16,500 $295. 51 $32,876 0. 56742686 $18,655 2012 $3,537 $0. 0 $3,537 $14,252 $17,789 $16,500 $310. 28 $33,979 0. 50663112 $17,215 2013 $5,321 $0. 00 $5,321 $13,649 $18,970 $16,500 $325. 80 $35,144 0. 45234922 $15,897 2014 $7,171 $0. 00 $7,171 $13,046 $20,217 $16,500 $342. 09 $36,375 0. 40388323 $14,691 2015 $9,090 $0. 00 $9,090 $12,443 $21,533 $16,500 $359. 19 $37,674 0. 36061002 $13,585 2016 $11,082 $0. 00 $11,082 $11,840 $22,922 $16,500 $377. 15 $39,045 0. 32197324 $12,571 2017 $13,152 $0. 00 $13,152 $11,237 $24,389 $16,500 $396. 01 $40,493 0. 28747610 $11,641 2018 $6,585 $0. 00 $6,585 $19,134 $25,719 $16,500 $415. 81 $41,803 0. 25667509 $10,730 $87,960

Depreciation Rate Book Value of Fleet 10% $165,000 Terminal Value Selling price per Vessel Fleet Terminal Value $7,330 $87,960 International Commodity Trade Coursework — Business Plan 22 Cass Business School Academic Year 2005-2006 Financial Appendix 2 – Cass Plc. Financial Data Dec-05 Group Turnover (incl. share of joint ventures and associates) Assets Current Assets (incl. stocks, debtors, investments and cash at bank and in hand) Fixed assets (incl. intangibles, tangibles, investments in joint ventures and associates) Total Assets Liabilities Billion $ 24. 9 57% 9. 2 34. 4 43. 6 21% 79% 100%

Liabilities due within one year Short-term borrowings Other current liabilities Total Current liabilities Liabilities due after one year Long-term borrowings Provisions for liabilities and charges Total Long term liabilities Total Liabilities Equity Equity minority interests Total shareholders’ funds (equity) Total Equity Total Capital Other Relevant Information Beta ROE EPS (U$) Market cap (U$) billion Price change (12M) (U$) Average number of shares outstanding (bl) Share Price P/E Latest price in pence (end Nov-04) S rating (Oct-2002) WACC Debt MV of Equity Total Assets Rf beta E(Rm)-uk E(Re) E(Rd) Alternatively: Capm with beta of debt of 0. 4 E(Rd) Tax rate WACC 4. 1 5. 2 9. 3 6. 7 3. 9 10. 6 19. 9 3. 4 20. 4 23. 8 43. 7 12/2005 1. 462 10 $1. 23 $36. 75 16. 70% 1. 5 $24. 50 18. 8 1298 A-/Stable/A-2 $ billion 10. 6 36. 75 47. 35 3. 00% 1. 462 6. 00% 11. 77% 3. 60% 9% 12% 21% 15% 9% 24% 46% 8% 47% 54% 100% Typical bond issues – EUR1 bil 3. 625% med-term notes due 06/05/2010 ! Rating! A- on May 23, 2005 – EUR20 mil fltg rate med-term notes due ! Rating! A-! on! Nov 12, 2005 % 22. 39% 77. 61% 100. 00% 5. 40% 40. 00% 9. 86% International Commodity Trade Coursework — Business Plan 23 Cass Business School Academic Year 2005-2006 Financial Appendix 3 – Cash Flow Statements

Projected Financial Data Projected Income Statement (31/12) Revenues Less: Costs EBITDA Less: Interest + Principal Less:Depreciation EBT Less: Tax Operating Profit Dividend Proportion Dividends paid Retained Earnings Projected Balance Sheetv (31/12) Assets Non Current Assets Depreciation Net Non Current Assets Net Working Capital Total Assets Liabilities Long Term Intrerest-bearing Liabilities Equity Share Capital Retained Earnings Total Sharehoder Equity Total L + E Statement of Projected Cashflow Cash Flow From Operating Activities Increase in Working Capital Net Increase (decrease) in cash equivalents Change Beginning End $70,000 -$756 $69,244 $100,744 $70,000 -$2,397 $67,603 $125,353 $70,000 -$4,202 $65,798 $170,798 $70,000 -$224 $69,776 $165,126 $70,000 $629 $70,629 $156,329 $70,000 $3,138 $73,138 $149,188 $70,000 $7,363 $77,363 $143,763 $70,000 $13,365 $83,365 $140,115 $70,000 $70,000 $21,211 $30,972 $91,211 $100,972 $138,311 $138,422 $70,000 $70,000 $70,000 $42,720 $56,533 $63,993 $112,720 $126,533 $133,993 $140,520 $144,683 $142,493 2006 0 100 -$100 656 -$756 0 -$756 $0 -$756 2007 0 100 -$100 2297 -$2,397 0 -$2,397 $0 -$2,397 2008 0 100 -$100 4102 -$4,202 0 -$4,202 $0 -$4,202 2009 $27,324 $11,487 $15,837 $16,062 -$224 $0 -$224 $0 -$224 2010 $28,144 $11,831 $16,312 $15,459 $854 $0 $854 $0 $854 2011 $29,551 $12,186 $17,365 $14,855 $2,509 $0 $2,509 $0 $2,509 2012 $31,028 $12,552 $18,477 $14,252 $4,224 $0 $4,224 $0 $4,224 2013 $32,580 $12,928 $19,651 $13,649 $6,002 $0 $6,002 $0 $6,002 2014 $34,209 $13,316 $20,893 $13,046 $7,846 $0 $7,846 $0 $7,846 2015 $35,919 $13,716 $22,204 $12,443 $9,761 $0 $9,761 $0 $9,761 2016 $37,715 $14,127 $23,588 $11,840 $11,748 $0 $11,748 $0 $11,748 2017 $39,601 $14,551 $25,050 $11,237 $13,813 $0 $13,813 $0 $13,813 2018 $41,581 $14,988 $26,593 $19,134 $7,460 $0 $7,460 $0 $7,460 2006 $165,000 $0 $165,000 $0 $165,000 2007 $165,000 $0 $165,000 $0 $165,000 2008 $165,000 $0 $165,000 $0 $165,000 009 $165,000 $16,500 $148,500 $273 $148,773 2010 $148,500 $16,500 $132,000 $281 $132,281 2011 $132,000 $16,500 $115,500 $296 $115,796 2012 $115,500 $16,500 $99,000 $310 $99,310 2013 $99,000 $16,500 $82,500 $326 $82,826 2014 $82,500 $16,500 $66,000 $342 $66,342 2015 $66,000 $16,500 $49,500 $359 $49,859 2016 $49,500 $16,500 $33,000 $377 $33,377 2017 $33,000 $16,500 $16,500 $396 $16,896 2018 $16,500 $16,500 $0 $416 $416 $31,500 $57,750 $105,000 $95,350 $85,700 $76,050 $66,400 $56,750 $47,100 $37,450 $27,800 $18,150 $8,500 0 0 0 0 0 0 -$224 -273 -$498 0 -$498 $854 -281 $572 -$498 $75 $2,509 -296 $2,214 $75 $2,288 $4,224 -310 $3,914 $2,288 $6,202 $6,002 -326 $5,676 $6,202 $11,879 7,846 -342 $7,504 $11,879 $19,383 $9,761 -359 $9,401 $19,383 $28,784 $11,748 -377 $11,371 $28,784 $40,155 $13,813 -396 $13,417 $40,155 $53,573 $7,460 -416 $7,044 $53,573 $60,617 -656. 25 -2296. 88 -4101. 56 Interest 656 2297 4102 6412 5809 5205 4602 3999 3396 2793 2190 1587 984 Ratio Analysis Long term solvency Total liabilities / Total assets = Debt ratio 19% Times interest earned – income (interest coverage) Measures the ability to pay interest out of profits. EBITDA / Interest expense = Times interest earned – income (interest coverage) -0. 15 Times interest earned – cash flow (interest coverage) Measures the ability to pay interest out of cash flow.

Cash flow from operations and interest / Interest expense = Times interest earned – cash flow (interest coverage) Total asstes to equity Total assets / Total stockholders equity = Total assets to equity 238% Total liabilities to total assets Total liabilities / Total assets = Total liabilities to total assets 19% Total liabilities to equity Total liabilities / Total stockholders equity = Total liabilities to equity 45% Interest bearing debt to total assets Interest bearing debt / Total assets = Interest bearing debt to total assets 19% Profitability Ratios Return on assets Measures the effectiveness of assets used to produce profits. Net income / Average total assets = Return on assets 0% Return on equity Measures the profitibility of owners investments. Net income / Average stockholders equity = Return on equity -1% EBITDA / Revenues = Gross margin % Operating margin Operating profit / Revenues = Operating margin Total asset turnover Measures the efficiency of assets used to produce sales.

Revenues / Average fixed assets = Fixed asset turnover Current asset turnover DuPont Return on Investment Operating Profit / Average total assets = Return on investment 0% Modified DuPont – Return on Equity Net profit after tax / Average stockholders equity = Return on equity -1% 35% 64% 64% 65% 66% 67% 69% 71% 75% 83% 107% -0. 04 -0. 02 2. 47 2. 81 3. 34 4. 01 4. 91 6. 15 7. 95 10. 77 15. 79 – – -8% 1% 44% 135% 297% 571% 1031% 1834% 3376% 244% 251% 213% 187% 158% 128% 99% 73% 49% 30% 13% 35% 64% 64% 65% 66% 67% 69% 71% 75% 83% 107% 85% 160% 137% 121% 104% 86% 68% 52% 37% 25% 14% 35% 64% 64% 65% 66% 67% 69% 71% 75% 83% 107% -1% -3% 0% 1% 2% 4% 7% 12% 20% 35% 82% -4% – -6% 0% 58% 1% 58% 3% 59% 5% 60% 7% 60% 9% 61% 10% 62% 10% 63% 11% 63% – – -1% 3% 8% 14% 18% 23% 27% 31% 35% – 18%

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