Investment Philosophy

I am a firm believer in looking at potential investments from a global macro

framework. Mutual funds tend to be esoterically divided into such strategies as “US
Mid-cap Value” or “Emerging Markets Microcap Growth”; it is my opinion that with
such a restricted potential asset base, it can be extremely difficult for a portfolio
manager to be able to extract alpha. Global Macro is a broader framework, which
divides investing into a three tiered analysis: firstly, the manager decides which
currencies are likely to outperform. Secondly, the manager decides what asset
class can offer the best return in the said currency zone. And finally, an instrument
is picked within the asset class decided. It is commonly said that “60% of the return
on an equity investment is based upon the performance of the market as a whole,
30% is based on the performance of the industry, and only 10% on stock picking
ability”. Global Macro is a means to extract alpha from not only the final 10%, but
also by analyzing the former two.

Yet I do not see Global Macro and Classical Value Investing as necessarily
incongruent strategies. Indeed, given the historical outperformance of Value
Investing, it appears likely to me that a successful manager could perhaps blend the
two strategies into a broader framework. It is from this perspective that I
approached this analysis.

Macroeconomic Overview
It is often a difficult, some say impossible task, to predict currency fluctuations. I
agree while that attempting to guess short term fluctuations is often a fool’s game,
the currency market has show some long term trends as well as historical dynamics
which can be learned from.

From a GBP perspective, I am very bearish on the USD, both in the medium and the
long term. In the medium term, it is likely that the recent surge in the value of the
USD is unsustainable. Due to the dollar’s role as the world’s reserve currency, US T-
Bills are often seen as the world’s risk-free asset. Indeed, whenever a crisis hits
(whether the 2008 crisis, the dot-com crash, or the Asian/LTCM financial crisis of
1997-98) investors throughout the world drop their risky assets and pile into
Eurodollars. This dynamic is well known. Yet as the world reaches the light at the
end of the proverbial tunnel, investors are likely to sell their Eurodollar holdings and
start investing again in risky assets. This will undoubtedly cause the value of the
Dollar to decline in the medium term.

While I am also bearish on the USD in the long term, I am not as confidant about
this projection. In my estimation, the long term downward trend in the USD could
be due to one of two reasons – what I call the “capital flows approach” versus the
“financial innovation approach”. If the first hypothesis is correct, the dollar’s role as
the world’s reserve currency has built up massive macroeconomic imbalances which
are being slowly alleviated ever since the fall of the BrettonWoods scheme. In other
words, the USD’s role is being replaced, not necessarily by one specific currency,
but by a basket of major currencies. It should be noted that the Pound Sterling, the
world’s reserve currency at the turn of the last century, has experienced an 80%
reduction in value, top to bottom. So when one asks the question, “how low could
the value of the USD fall?” the answer could be quite a bit.

Alternatively, the steady decline of the value of the USD could also be due to the
past 30 years of financial innovation, reducing long term interest rates and thus
raising risk tolerance. That theUSD is the world’s reserve currency – this dynamic
means that for financial institutions all other currencies pose exchange rate risk.
The fall in interest rates means that such institutions are more likely to take on
exchange rate risk, and divest their USD holdings. If this hypothesis is correct, the
long term value of the USD could hold steady, as I doubt regulators will allow further
financial innovation given the current political climate.

Regardless, the risks are sufficient that a GBP investor should likely avoidUSD
investments, at least in the medium term. Unfortunately, this also means that such
an investor should steer clear of currencies directly tied to the USD, such as the
RMB, the HKD, or the BRL. If the investor simply must buy a security in one of these
currencies, the instrument must provide a sufficient margin of safety to cover the
cost of hedging away the exchange rate risk.

The currency zone decided upon for the sake of this analysis was the Chilean Peso,
or CLP. The Chilean Peso has very little history of large current account deficits,
usually runs large trade surpluses, and has an extremely well-governed fiscal
situation. Unlike many of their Latin American counterparts, over the past 10 years
the Chilean government has built up large surpluses, so the country is uniquely
positioned to provide a fiscal stimulus to respond to the current economic climate.
One risk factor, however, is inflation, which peaked at over 9% in 2008. Yet it is my
opinion that this was largely caused by the speculative run-up in copper prices, of
which Chile is a large exporter.

Because of the current interest rate climate, equities were chosen as the target
asset class to invest in. In particular, I wanted to find a company in Chile that had
been harmedby the recent run-up in copper prices. I figured that as Chile was a
large producer of copper, there surely had to be manufacturers in Chile that had
been squeezed by the recent price surge. I therefore started looking at
manufacturers of nonferrous metals to attempt to find a company that was beaten
down by the recent commodities boom.

I ended up finding a company that was indeed harmed by the recent boom in
copper – Madeco SA (although this affected one of their secondary rather than their
primary business unit). Yet the metrics for this company indicated a prime deep
value play:
• Trailing P/E: 2.0
• Price/Book Value: .51
• Price/Sales: .29
• Price/Net Working Capital: .93

Company Overview
Madeco SA is a Chilean manufacturing firm, with three primary segments: Flexible
Packaging, Brass Mills, and Profiles. Recently, they sold off their largest business
unit, Wire & Cable, to Nexans, a French cablemaker. 76% of the proceeds of the
sale were distributed to the shareholders in the form of a special dividend, with the
remainder of the cash going towards improving the company’s balance sheet. In
addition, Madeco SA also received an equity position in Nexans equal to 8.91% of
the French wiring company – it should be noted that this equity makes up 18% of
Madeco SA’s assets (see: “Risk Factors”). Between this sale and a corporate
restructuring they had undergone in 2006, Madeco SA has dramatically reduced
their debt load, from a D/E ratio of 1.1 in 2004 to a ratio of .27 in 2008. Yet also
during this period earnings have been erratic: Net Income grew by 44.76% in 2005,
137% in 2006, fell by 41% in 2007, and skyrocketed by 209% in 2008. However,
much of the variability in earnings has been obviously due to the company’s
restructuring. Therefore, the purpose of this financial analysis is to ask the
question: how much have Madeco SA’s continuing operations been worth from a
discounted cash flow perspective, and where can one reasonably expect these
earning to go in the future?

First, I rewrote the Income Statements from over the past three years in order to
strip away the Wire & Cable unit and arrive at the numbers for just the remaining
three units. Once these figures were arrived at, I also needed to adjust the effect
that the restructurings had on the company’s balance sheet – the overriding
question was how the company would have looked over the past three years if it
had simply been in its the current state. Once these effects were accounted for, I
could start to determine the “Owner Earnings” of the company (a figure used by
Warren Buffet, “Owner Earnings” is practically the same as FCF, but simply uses
forward looking Capex, or a historical average, rather than the current year’s).
Once these figures were arrived at, the DCF matrix could be computed (UK 30 Yr
Gilt at time of writing, 4.60%):
DCF Matrix Growth Rate: 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%
UK30yr Gilt: - - - - - -
4.00% 330,943,303.01 367,714,781.12 413,679,128.76 472,776,147.15 551,572,171.68 661,886,606.01
4.25% 300,857,548.19 330,943,303.01 367,714,781.12 413,679,128.76 472,776,147.15 551,572,171.68
4.50% 275,786,085.84 300,857,548.19 330,943,303.01 367,714,781.12 413,679,128.76 472,776,147.15
4.60% 266,889,760.49 290,301,142.99 318,214,714.43 352,067,343.62 393,980,122.63 447,220,679.74
4.75% 254,571,771.54 275,786,085.84 300,857,548.19 330,943,303.01 367,714,781.12 413,679,128.76
5.00% 236,388,073.58 254,571,771.54 275,786,085.84 300,857,548.19 330,943,303.01 367,714,781.12
5.25% 220,628,868.67 236,388,073.58 254,571,771.54 275,786,085.84 300,857,548.19 330,943,303.01
5.50% 206,839,564.38 220,628,868.67 236,388,073.58 254,571,771.54 275,786,085.84 300,857,548.19

All figures are in GBP. At the end of trading last Friday, Madeco SA had a market cap
of GBP237,146,341.50. Therefore, a margin of safety could also be computed.
Marginof Safety Growth Rate: 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%
UK30yr Gilt: - - - - - -
4.00% 39.55% 55.06% 74.44% 99.36% 132.59% 179.10%
4.25% 26.87% 39.55% 55.06% 74.44% 99.36% 132.59%
4.50% 16.29% 26.87% 39.55% 55.06% 74.44% 99.36%
4.60% 12.54% 22.41% 34.18% 48.46% 66.13% 88.58%
4.75% 7.35% 16.29% 26.87% 39.55% 55.06% 74.44%
5.00% -0.32% 7.35% 16.29% 26.87% 39.55% 55.06%
5.25% -6.97% -0.32% 7.35% 16.29% 26.87% 39.55%
5.50% -12.78% -6.97% -0.32% 7.35% 16.29% 26.87%

The red box could be considered the worst case scenario from a DCF perspective,
and yellow box is what I consider most likely given the conclusions of the Pro Forma
financial statements (target long term growth rate: 2.46%).

The following details my analysis and assumptions for the Pro Forma Financial
statements. The actual statements, as well as the restatements for the previous
three years, are attached at the end. Following the forward projections is my
discussion of the Management as well as potential risk factors.

Brass Mills Unit

• Between 2006 and 2008, the brass mills unit languished under the increased
competition from PVC and CPVC piping. In plumbing circles, there is a
healthy debate between the benefits and costs of PVC and CPVC piping as
compared to copper pipes. To summarize, the benefits of CPVC and PVC
piping include:
○ Low cost and price stability over time
○ Less subject to on-the-job theft
○ Ease of installation
○ Because it is not metallic, CPVC will never pit, scale, or corrode
○ CPVC can maintain drinking water even when the Ph of the water
source falls below 6.5
○ CPVC is more energy efficient than copper due to its improved thermal
insulation properties
On the other hand, the benefits of copper piping over PVC and CPVC include:
○ Long term durability; much sturdier (can even set in concrete)
○ Historic use ensures compliance with building codes in the United
States and other countries
 ○ Copper piping much more durable on the jobsite (CPVC pipes are
subject to cracking if stepped on or not handled carefully; CPVC must
be stored properly to prevent UV degredation)
○ Copper piping more versatile: used for portable water supply,
drain/waste/vent applications, natural gas supply, high pressure steam
applications, etc.
○ Copper is biostatic, and therefore doesn’t support bacterial growth
○ PVC and CPVC are likely to melt or break in a fire or earthquake (Chile
experiences earthquakes often)
In a final analysis, it appears that both pipes offer benefits and costs in
certain applications. In my opinion however, the languishing profitability of
the Brass Mills unit can largely be traced to the skyward ascent of copper
prices over the past three to five years:

Of course, since 2008 copper prices have plummeted, from a high of in

excess of $4 per pound (as traded on COMEX) to $1.25 per pound last fall.
While there has been a rebound in copper prices since the November low
(now trading at around $2.5 per ton), many posit that this is due to
stockpiling from Chinese firms that seek to take advantage of the current
price environment. All in all, there is still a marked overcapacity in the
copper mining industry, as evidenced by the excess inventory that the
industry still needs to work through:
 While it is perhaps unknowable where copper prices are headed in the
medium term, itis my opinion that the historically high price of copper seen
over the past three years was an unsustainable anomaly. The switch from
the more durable (and some say, vastly superior) copper pipes to PVC and
CPVC piping should be seen, therefore, as a price-driven rather than
permanent phenomenon. To this end, it is foreseeable that the Brass Mills
unit rebound nicely in 2009 and into the future, although one should be
cognizant the commodity price risk faced by Madeco SA.
• The dynamic of a price-driven product substitution hurt the copper mills unit
two ways: falling volumes and squeezing margins. Over the past three years,
the Brass Mills unit’s sales declined considerably:

Both PBS and the coins unit faced plummeting demand, although the coins
unit’s fall was a bit more spectacular (the coins unit has a more discrete
rather than continuous sales dynamic – sales are usually done by bidding for
contracts, and many contracts were lost to companies that blend copper with
other, cheaper metals). And yet, even more dramatic was the unit’s declining
margins:
Year: 2008 2007 2006
Gross Margins: 4.069% 6.324% 14.525%

Year: 2008 2007 2006

Sales Volume (w/o coins) 17,209.00 20,511.00 26,400.00
Implied price per ton $ 5.17 $ 5.47 $ 5.29
 The company uses weighted average cost accounting, so the recent rise in
copper prices has indeed negatively affected the firm’s profitability. So while
sales are sticky and sometimes difficult to regain (e.g. a construction
company switching to CPVC pipes may not immediately switch back to
copper once there’s a shift in price), it is conceivable that margins should
quickly improve to their pre-bubble level. Supposing that this is the case, the
unit’s operating income (whilst holding everything else constant) in 2008
would have been a far more respectable CLP3.01 million (as compared to a
loss of CLP 6.28 million).
• A conservative estimation for the growth rate of the unit’s revenues would be
stagnant growth from this point forward. It is likely that the use of brass
pipes may turn around, but for the purpose of this analysis we will assume
that revenues will stay at their 2008 levels into the future. The unit’s
products have had an expanding market share in Chile, growing by 2.75% per
year over the past three years (2008 market share of 59% as compared to a
2006 level of 56%), and have stagnated in Argentina, hovering around 9% of
the market.
• As explained above, it is likely that the unit’s margins will return to their pre-
bubble levels. It is assumed that the gross margin will improve to 9.297% in
2009 (simply the average between their current and pre-bubble margin) and
14.525% in 2010, 2011, and thereafter.
• It is assumed that SG&A expenses will be equal to roughly the average of the
past three years.
• In 2008, the unit’s capital expenditures were equal to 48.8% of the unit’s
depreciation (compared to 38.1% in 2007 and 21.7% in 2006). This shows a
rising age assets. Therefore, it is estimated that Capex will grow from its
2008 levels at a rate of 10.35% per year, as is the current trend.
Depreciation expense is assumed to be roughly that of the average of the
past three years, as the unit does not foresee any significant increase in
capacity in the near future (indeed, the PBS factories are currently running at
about 67% of capacity).
• Interest expense for the unit is assumed to stay constant at the three year
average.

Flexible Packaging Unit

• With the sale of the Wire & Cable unit to Nexans in 2008, the Flexible
Packaging unit became Madeco SA’s largest in terms of assets and revenues.
The Flexible Packaging unit operates in three countries in Latin America:
Chile, Argentina and Peru. The Flexible Packaging market tends to correlate
strongly with economic growth, although the industry tends to grow and
contract slower than the overall economy. Over the past three years, the
Chilean, Argentinean, and Peruvian flexible packaging markets have
 experienced growth rates of 3.31%, 2.53%, and 3.75% (respectively). For the
sake of this analysis, it is assumed that all three of these markets will
contract by 1% in 2009, and then grow at a rate of 2.5% per year thereafter.
• Madeco SA has a strong foothold in each country. In 2008, the company’s
market share in Peru was 58%, in Chile 32%, and in the highly fragmented
Argentinean market 7%. The average growth rate in market share for each
country was -1.68% in Peru (where the company has come under attack from
low cost competitors), 5.06% in Chile, and 8.33% in Argentina. In is assumed
for this analysis that these trends will continue into the future.
• In addition to these markets, Madeco SA has experienced strong export
growth, which it defines as sales to any country besides Chile, Peru, or
Argentina. Export volumes increased 160.68% between 2006-2007,and
75.58% between 2007-2008. Yet it is assumed for this analysis that exports
will contract 10% in 2009 (congruent with the collapse in global trade brought
about by the financial crisis), grow 3% in 2010, and grow by 9% thereafter.
2009 2010 2011 Thereafter
Size of Market - - - -
Chile 32,967.00 33,791.00 34,636.00 2.50%
Argentina 100,980.00 103,505.00 106,092.00 2.50%
Peru 25,134.00 25,764.00 26,407.00 2.50%
Market Share - - - -
Chile 33.62% 35.32% 37.11% 5.06%
Argentina 7.58% 8.21% 8.90% 8.33%
Peru 57.03% 56.07% 55.13% -1.68%
Implied Volume - - - -
Chile 11,083.24 11,935.09 12,852.57 -
Argentina 7,657.41 8,502.70 9,441.19 -
Peru 14,332.81 14,445.25 14,557.03 -
Export 9732.6 10024.578 10926.79002 9.00%
Implied Price - - - -
Chile $ 3.41 $ 3.41 $ 3.41 -
Argentina $ 3.41 $ 3.41 $ 3.41 -
Peru $ 2.64 $ 2.64 $ 2.64 -
Export $ 3.03 $ 3.03 $ 3.03 -
Revenue - - - -
Chile $ 37,793.85 $ 40,698.67 $ 43,827.26 -
Argentina $ 26,111.78 $ 28,994.21 $ 32,194.47 -
Peru $ 37,838.63 $ 38,135.46 $ 38,430.55 -
Export $ 29,489.78 $ 30,374.47 $ 33,108.17 -
Total Revenue: $ 131,234.04 $ 138,202.80 $ 147,560.45 -
Growth Rate of Revenue: 0.60% 5.31% 6.77% 6.77%
 • Using the average over the past three years, the implied price per unit is CLP
3.41 million per unit in Chile and Argentina, CLP 2.64 million per unit in the
more price sensitive Peruvian market, and CLP 3.03 million per unit for their
exported goods. Using these implied prices, it is estimated that Revenues for
the Flexible Packaging unit will increase .60% in 2009, 5.31% in 2010, and
6.77% thereafter. Margins were assumed to be equal to the average of the
previous three years.
• Madeco SA’s flexible packaging plants are currently running at 92% of
capacity in Peru, 89% in Chile, and 86% in Argentina. Therefore, unlike their
other units, it is likely that the flexible packaging unit will have to expand
their capacity in the future. To this end, it is assumed that over the next
three years and into the future, the unit’s SG&A, Capex, and interest charges
will start at their three year average and growth by the long term growth rate
in revenues, i.e. 6.77%.
Profiles
• The profiles industry is at a crossroads, as PVC profiles are starting to replace
the more traditional aluminum profiles. Unlike the debate between copper
and PVC pipes, PVC profiles offer obvious advantages over aluminum ones.
In addition to being cheaper, PVC profiles are also drastically more energy
efficient. To this end, the aluminum profiles industry in Chile faces two
competitive challenges: firstly, it is coming under direct attack from the PVC
profiles industry. Secondly, local producers face intense cost pressures from
Chinese competitors.
• Madeco SA has responded to the Chinese threat by focusing more on
distribution, and importing the aluminum profiles from China. Madeco has
also invested heavily in PVC profiling; the unit had just come online in 2008
and almost immediately grabbed 11% of the Chilean market share (the rest
of the market is serviced by imports, uniquely positioning Madeco SA to take
advantage of this expanding market).
• At first glance the Chilean aluminum profiles industry appears to be in
decline. Yet under a closer examination, it seems not that the industry is
contracting but rather that its makeup is shifting:
2006 2007 2008
Size of Market - - -
Sizeof Total Market 19,190.00 19,280.00 19,700.00
Sizeof PVCMarket 1,390.00 17,300.00 2,700.00
Sizeof AluminumMarket 17,800.00 1,980.00 17,000.00
• Therefore, for the purpose of this analysis it is assumed that the overall
profiles market contracts by 1% in 2009, and expands by 1.325% per year
(the three year average, 2006-2008) thereafter. Yet one could also expect
that the makeup of this market radically shifts: from a base of 13.72% of the
market in 2008, it is assumed that this share to grow by 30% year over year.
Furthermore, as Madeco SA is uniquely positioned to take advantage of the
 lack of domestic competitors in the PVC profiling industry, it is assume that
Madeco’smarket share in this industry experiences a phase of supernormal
growth, expanding by 30% per year until reaching 20% of the market in 2011.
• After Madeco had been experiencing a rapidly dwindling market share in the
Aluminum profiles industry (falling from above 70% of the Chilean market to
67% in 2006, dropping to a low of 60% in 2007), their shift in strategy caused
the unit to rebound a bit in 2008. It is assumed that this modest rebound
continue, growing by 1.67% per year. In sum, the estimates for the unit’s
forward looking revenues are as follows:
2009 2010 2011 Thereafter
Size of Market - - - -
Sizeof Total Market 19,503.00 19,761.41 20,023.25 1.33%
Sizeof PVC Market 3,476.02 4,578.70 6,031.18
Sizeof Aluminum Market 16,026.98 15,182.71 13,992.08 -
Market Share - - - -
PVCMarket 11.55% 15.02% 19.52%
AluminumMarket 61.00% 62.02% 63.05% -
Implied Volume - - - -
PVCProfiles 401 687 1,177
AluminumProfiles 9,776 9,416 8,823 -
Combined Volume 10,178 10,104 10,000
Implied Price - - - -
PVCProfiles $ 4.38 $ 4.38 $ 4.38 -
AluminumProfiles $ 3.41 $ 3.41 $ 3.41 -
Revenue - - - -
PVCProfiles $ 1,758.48 $ 3,011.21 $ 5,156.38 -
AluminumProfiles $ 33,337.72 $ 32,108.98 $ 30,085.14 -
Total Revenue $ 35,096.21 $ 35,120.19 $ 35,241.52
Growth Rate of Revenue: 0.068% 0.345% 0.345%
• The interest expense, depreciation, gross margin, and SG&A for the unit are
all assumed to continue at the average level of the past three years.

Non-operating Items
• The “Government Fines, Interest, and Other Taxes”, the Depreciation of the
Unused Argentinean Assets, the Asset Rental Income, and Madeco’s writeoffs
are all assumed to be the average level of the past three years.
• While Net Working Capital usually increases along with revenues, it seems
unlikely that Madeco SA will add to their net working capital given their large
cash balance. It seems far more likely that the company will decrease this
figure, but the figure is conservatively estimated to remain constant.
• Taxes are assumed to be 17%, the going corporate tax rate in Chile. The
Nexans dividend is assumed to be taxed at 25% in accordance to Frenchtax
 laws. In addition, the Nexans dividend is valued at an exchange rate of 602
CLP/EUR, its 10yr high.

Management
While a deeper analysis of the management is necessary, I feel that given the
recent restructurings, Madeco SA is repositioning itself in a healthy manner. The
sale of the Wire & Cable unit brings up three questions: first, why did Madeco decide
to sell off the unit? Second, why did Madeco then decide to take a large position in
Nexans? And finally, why has Madeco SA decided to hold such a large cash position
in a low interest rate environment?

My answers to these questions are largely speculative. To answer the first and
second questions, Madeco SA may have thought of the Wire & Cable business to be
a good one (as evidenced by their growing earnings), but decided that the
investment in further capacity that was needed was either outside of their area of
expertise, or perhaps financial position. Nexans is a global leader in the Wire &
Cable industry, and had a cash position requisite to buy the unit and make the
necessary capital expenditures. Yet Madeco SA also took a large equity position in
Nexans, possibly to partake in the growth of the Wire & Cable industry in the form of
Nexans’ large dividend, which is EUR 2/share. Lastly, Madeco now has the cash
necessary to invest in other areas of their company, such as increasing the
operational efficiency of their Brass Mills unit (a stated goal in their 2008 annual
report), or by increasing the capacity of their Flexible Packaging or PVC profiles
units.

Furthermore, the decision to distribute 76% of the proceeds of the Wire & Cable sale
in the form of a special dividend proves, in my opinion, the rationality of
management. While there are areas for which Madeco SA certainly has room to
invest, the manufacturing business in Chile is not a high growth industry, and
carrying a cash balance any larger than Madeco currently has would not be in the
best interests of the shareholders. It is my opinion that this rationality stems from
the fact that Madeco SA has one large majority shareholder, the Quiñenco Group,
which holds 47.7% of the company and has significant influence of the board of
directors.

Risk Factors
Madeco SA’s annual report carries a far more detailed summary of potential risk
factors, but in my opinion there are three of which are primary concerns.

Firstly, and most importantly, due to the low percentage of ADR ownership (roughly
8%) and the high cost of complying tothe U.S. GAAP, Madeco is discontinuing their
ADR program. Therefore, unless one can speak Spanish with fluency, it will be
difficult to obtain further information about the company from this point forward.
Madeco SA will still be traded on Chilean exchanges, but will unfortunately no longer
issue financial statements in English will accordance to the US GAAP.

Secondly, as seen from the performance over the past three years, the profitability
of the Brass Mills is highly susceptible to changes in the price of copper. It is my
belief that what we had seen in commodities in 07-08 was an unsustainable bubble,
but there are those that believe otherwise (e.g. Jim Roger’s “supercycle” theory).
Many people seem to have accepted the narrative that demand from a growing
China would raise commodities prices indefinitely whilst forgetting that the
production of commodities ca expand. Yet one can also not forget that commodities
prices seem to always rise upwards toward the end of a business cycle; therefore,
the effect that this has on the Brass Mills unit must be watched closely.

Lastly, Madeco’s investment in Nexans represents 18% of Madeco’stotal assets.

While Madeco has very little leverage, the same cannot be said of Nexans, which
has a D/E of 1.65. This situation should be watched closely, however, one positive
data point is that France’s SWF recently made an investment in Nexans equaling 5%
of the French Wire-maker’s capital.
Exhibit 1: Historical Performance Without Wire & Cable
2008 2007 2006 3 Year Average
Sales - - - -
BrassMills 88,909.00 112,202.00 139,626.00 113,579.00
Flexible Packaging 130,445.00 96,921.00 54,033.00 93,799.67
Profiles 36,650.00 38,259.00 38,990.00 37,966.33
Total Sales: 256,004.00 247,382.00 232,649.00 245,345.00
Cost of Goods Sold - - - -
BrassMills 85,291.00 105,106.00 119,346.00 103,247.67
Flexible Packaging 102,468.00 76,558.00 42,063.00 73,696.33
Profiles 28,582.00 29,123.00 30,125.00 29,276.67
Total COGS: 216,341.00 210,787.00 191,534.00 206,220.67
Gross Income - - - -
BrassMills 3,618.00 7,096.00 20,280.00 10,331.33
Flexible Packaging 27,977.00 20,363.00 11,970.00 20,103.33
Profiles 8,068.00 9,136.00 8,865.00 8,689.67
Total Gross Income: 39,663.00 36,595.00 41,115.00 39,124.33
Gross Margin: 15.49% 14.79% 17.67% 15.99%
BrassMills 4.07% 6.32% 14.52% 9.10%
Flexible Packaging 21.45% 21.01% 22.15% 21.43%
Profiles 22.01% 23.88% 22.74% 22.89%
SG&A Expenses - - - -
BrassMills 7,557.00 5,864.00 6,057.00 6,492.67
Flexible Packaging 7,207.00 5,618.00 3,410.00 5,411.67
Profiles 5,427.00 5,385.00 4,066.00 4,959.33
Total SG&A Expenses: 20,191.00 16,867.00 13,533.00 16,863.67
Depreciation Expense - - - -
BrassMills 2,342.00 2,712.00 2,769.00 2,607.67
Flexible Packaging 5,942.00 5,180.00 2,947.00 4,689.67
Profiles 1,723.00 1,408.00 1,240.00 1,457.00
Total Depreciation Expense 10,007.00 9,300.00 6,956.00 8,754.33
OperatingIncome - - - -
BrassMills (6,281.00) (1,480.00) 11,454.00 1,231.00
Flexible Packaging 14,828.00 9,565.00 5,613.00 10,002.00
Profiles 918.00 2,343.00 3,559.00 2,273.33
Total OperatingIncome: 9,465.00 10,428.00 20,626.00 13,506.33
Interest Expense (Income) - - - -
BrassMills (2,068.00) 423.00 2,222.00 192.33
Flexible Packaging 2,655.00 1,919.00 1,137.00 1,903.67
Profiles 1,017.00 561.00 539.00 705.67
Unallocated (note: consolidated) 4,173.00 (175.00) 2.00 1,333.33
Total Interest Expense 5,777.00 2,728.00 3,900.00 4,135.00
OngoingNon-OperatingItems - - - -
Depreciation of Unused Agentinian Assets (733.00) (683.00) (1,100.00) (838.67)
Government fines, taxesand interest (330.00) (45.00) (761.00) (378.67)
Obsolescenceand Writeoffs (551.00) (178.00) (1,091.00) (606.67)
Asset rental income 154.00 153.00 - 153.50
Tax Expense - - - -
BrassMills (742.00) (533.00) (1,385.00) (886.67)
Flexible Packaging 3,809.00 1,561.00 640.00 2,003.33
Profiles 15.00 201.00 429.00 215.00
Unallocated (note: unconsolidated) 3,112.00 (4,405.00) 116.00 (392.33)
Total Tax Expense 3,082.00 1,229.00 (316.00) 1,331.67
Net Income Before MinorityInterest (854.00) 5,718.00 14,090.00 6,369.17
Net Income Before MinorityInterest (estimatedt=.17) 1,849.24 5,766.01 11,432.42 6,391.69
Minority Interest (%share of NI) 6.08% 21.93% 15.95% 14.65%
Net Income Available to CommonShareholders $ 1,736.81 $ 4,501.52 $ 9,608.95 $ 5,455.10

Capital Expenditures - - - -
BrassMills 1,141.00 1,034.00 602.00 925.67
Flexible Packaging 6,067.00 4,550.00 7,732.00 6,116.33
Profiles 1,579.00 4,341.00 3,407.00 3,109.00
Total Capex: 8,787.00 9,925.00 11,741.00 10,151.00
Owner Earnings (w/o Nexans Dividend or Change in W. Cap.): $ 2,876.81 $ 4,511.52 $ 8,604.95 $ 5,503.76
EstimatedNet Change in WorkingCapital w/o Restructurings: $ 506,000,000.00 (2004-2005)

NexansDividend, A/T (@ current mkt price of 765 CLP/EUR): $ 2,947,882,500.00 Note: tax rate on French Dividends =25%
NexansDividend, A/T (@ 10yr low of 602CLP/EUR): $ 2,319,771,588.00
Owner Earnings, 3yr average: $ 7,317,534,035.78
Owner Earnings, 3yr average (GBP): $ 8,273,582.58
Mkt Cap(GBP): $ 237,146,341.50

Exhibit 2: Valuation
DCF Matrix Growth Rate: 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%
UK30yr Gilt: - - - - - -
4.00% 330,943,303.01 367,714,781.12 413,679,128.76 472,776,147.15 551,572,171.68 661,886,606.01
4.25% 300,857,548.19 330,943,303.01 367,714,781.12 413,679,128.76 472,776,147.15 551,572,171.68
4.50% 275,786,085.84 300,857,548.19 330,943,303.01 367,714,781.12 413,679,128.76 472,776,147.15
4.60% 266,889,760.49 290,301,142.99 318,214,714.43 352,067,343.62 393,980,122.63 447,220,679.74
4.75% 254,571,771.54 275,786,085.84 300,857,548.19 330,943,303.01 367,714,781.12 413,679,128.76
5.00% 236,388,073.58 254,571,771.54 275,786,085.84 300,857,548.19 330,943,303.01 367,714,781.12
5.25% 220,628,868.67 236,388,073.58 254,571,771.54 275,786,085.84 300,857,548.19 330,943,303.01
5.50% 206,839,564.38 220,628,868.67 236,388,073.58 254,571,771.54 275,786,085.84 300,857,548.19

Marginof Safety Growth Rate: 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%
UK30yr Gilt: - - - - - -
4.00% 39.55% 55.06% 74.44% 99.36% 132.59% 179.10%
4.25% 26.87% 39.55% 55.06% 74.44% 99.36% 132.59%
4.50% 16.29% 26.87% 39.55% 55.06% 74.44% 99.36%
4.60% 12.54% 22.41% 34.18% 48.46% 66.13% 88.58%
4.75% 7.35% 16.29% 26.87% 39.55% 55.06% 74.44%
5.00% -0.32% 7.35% 16.29% 26.87% 39.55% 55.06%
5.25% -6.97% -0.32% 7.35% 16.29% 26.87% 39.55%
5.50% -12.78% -6.97% -0.32% 7.35% 16.29% 26.87%

Exhibit 3: Flexible Packaging, Estimated Growth in Revenues

 2009 2010 2011 Thereafter
Size of Market - - - -
Chile 32,967.00 33,791.00 34,636.00 2.50%
Argentina 100,980.00 103,505.00 106,092.00 2.50%
Peru 25,134.00 25,764.00 26,407.00 2.50%
Market Share - - - -
Chile 33.62% 35.32% 37.11% 5.06%
Argentina 7.58% 8.21% 8.90% 8.33%
Peru 57.03% 56.07% 55.13% -1.68%
Implied Volume - - - -
Chile 11,083.24 11,935.09 12,852.57 -
Argentina 7,657.41 8,502.70 9,441.19 -
Peru 14,332.81 14,445.25 14,557.03 -
Export 9732.6 10024.578 10926.79002 9.00%
Implied Price - - - -
Chile $ 3.41 $ 3.41 $ 3.41 -
Argentina $ 3.41 $ 3.41 $ 3.41 -
Peru $ 2.64 $ 2.64 $ 2.64 -
Export $ 3.03 $ 3.03 $ 3.03 -
Revenue - - - -
Chile $ 37,793.85 $ 40,698.67 $ 43,827.26 -
Argentina $ 26,111.78 $ 28,994.21 $ 32,194.47 -
Peru $ 37,838.63 $ 38,135.46 $ 38,430.55 -
Export $ 29,489.78 $ 30,374.47 $ 33,108.17 -
Total Revenue: $ 131,234.04 $ 138,202.80 $ 147,560.45 -
Growth Rate of Revenue: 0.60% 5.31% 6.77% 6.77%
Exhibit 4: Profiles, Estimated Growth in Revenues
Thereaft
2009 2010 2011 er
Size of Market - - - -
19,50 19,76 20,02
Size of Total Market 3.00 1.41 3.25 1.33%
3,47 4,57 6,03
Size of PVC Market 6.02 8.70 1.18
Size of Aluminum 16,02 15,18 13,99
Market 6.98 2.71 2.08 -
Market Share - - - -
PVC Market 11.55% 15.02% 19.52%

Aluminum Market 61.00% 62.02% 63.05% -

Implied Volume - - - -

PVC Profiles 401 687 1,177

Aluminum Profiles 9,776 9,416 8,823 -

1 1 1
Combined Volume 0,178 0,104 0,000
Implied Price - - - -
$ $ $
PVC Profiles 4.38 4.38 4.38 -
$ $ $
Aluminum Profiles 3.41 3.41 3.41 -
Revenue - - - -
$ $ $
PVC Profiles 1,758.48 3,011.21 5,156.38 -
$ $ $
33,337.7 32,108.9 30,085.1
Aluminum Profiles 2 8 4 -
$ $ $
35,096.2 35,120.1 35,241.5
Total Revenue 1 9 2
Growth Rate of
Revenue: 0.068% 0.345% 0.345%
Exhibit 5: Pro Forma Financial Statements
 2009 2010 2011 Thereafter
Sales - - - Growth
BrassMills 88,909.00 88,909.00 88,909.00 -
Flexible Packaging 131,234.04 138,202.80 147,560.45 6.77%
Profiles 35,096.21 35,120.19 35,241.52 0.35%
Total Sales: 255,239.25 262,231.99 271,710.97
Growth Rate of Total Sales -0.30% 2.74% 3.61% 3.61%
Cost of Goods Sold - - - Growth
BrassMills 80,643.13 75,994.97 75,994.97 -
Flexible Packaging 103,228.70 108,710.32 116,071.05 6.77%
Profiles 27,067.41 27,085.91 27,179.48 0.35%
Total COGS: 216,341.00 210,787.00 191,534.00
Gross Income - - - Growth
BrassMills 8,265.87 12,914.03 12,914.03 -
Flexible Packaging 28,005.35 29,492.48 31,489.40 6.77%
Profiles 8,028.79 8,034.28 8,062.04 0.35%
Total Gross Income: 39,663.00 36,595.00 41,115.00
Gross Margin: 15.49% 14.79% 17.67%
BrassMills 9.30% 14.53% 14.53%
Flexible Packaging 21.34% 21.34% 21.34%
Profiles 22.88% 22.88% 22.88%
SG&A Expenses - - - Growth
BrassMills 6,493.00 6,493.00 6,493.00 -
Flexible Packaging 5,778.04 6,169.21 6,586.87 6.77%
Profiles 4,959.33 4,959.33 4,959.33 -
Total SG&A Expenses: 17,230.37 17,621.54 18,039.20
Depreciation - - - Growth
BrassMills 2,607.67 2,607.67 2,607.67 -
Flexible Packaging 4,689.67 5,007.16 5,346.14 6.77%
Profiles 1,723.00 1,723.00 1,723.00 -
Total Depreciation: 9,020.33 9,337.82 9,676.81
OperatingIncome - - - Growth
BrassMills 631.87 5,161.94 5,031.62 (0.10)
Flexible Packaging 15,749.57 16,406.99 17,518.02 6.77%
Profiles 1,346.46 1,351.95 1,379.70
Total OperatingIncome: 17,727.90 22,920.88 23,929.35
Interest Expense (Income) - - - Growth
BrassMills 192.33 192.33 192.33 -
Flexible Packaging 2,032.54 2,170.15 2,317.07 6.77%
Profiles 705.67 705.67 705.67 -
Unallocated (note: consolidated) 1,333.33 1,333.33 1,333.33 -
Total Interest Expense 4,263.88 4,401.48 4,548.40
OngoingNon-OperatingItems - - - -
Government fines, taxesand interest (378.67) (378.67) (378.67)
Asset rental income 153.50 153.50 153.50
Depreciation of Unused Agentinian Assets (838.67) (838.67) (838.67)
Obsolescenceand Writeoffs (606.67) (606.67) (606.67)
Income Before Taxes 13,238.86 18,294.23 19,155.78 -
Net Income 10,988.25 15,184.21 15,899.30
Growth Rate of Net Income 38.19% 4.71% 4.71%
Capital Expenditures - - - Growth
BrassMills 1,141.00 1,259.09 1,389.41 10.35%
Flexible Packaging 6,477.74 6,916.28 7,384.51 6.77%
Profiles 1,579.00 1,579.00 1,579.00
Total Capital Expenditures 9,197.74 9,754.37 10,352.92
NexansDividend, A/T (@ 10yr low of 602CLP/EUR): $ 2,319,771,588.00 $ 2,319,771,588.00 $ 2,319,771,588.00
Net Change inWorkingCapital $ - $ - $ - $ -
Owner Earnings 14,575,954,707.91 18,532,766,024.25 18,988,292,414.69
Growth Rate of Owner Earnins 27.15% 2.46% 2.46%