CSG Capital

PROPOSAL

CERVITE CUBE

Recommendation: Proceed Recommendation: Proceed

• Increased company value • Increased company value

• Improved Sales and Operating Margin • High IRR
• Low initial investment • Demand is more than capacity, mostly
• Capacity utilization from foreign patients

NPV = PhP194M NPV = PhP38B

IRR = 25.8% IRR = 52.74%

FUNDING FUNDING

• Long-term loan @ 5%
Revolving Short-Term Loan @ 3% • Foreign PE
• Local Investors
• Mr Kho, if possible
CERVITE PROJECT
Recommendation: Proceed
 CERVITE PROJECT

Project Overview
Cervite - “Booster” maintenance
medicine for chemotherapy patients

75% 96%
Of tests resulted in higher
Increased Potency
recovery rates

To be launched on March 2018

 CERVITE PROJECT

ASSUMPTIONS
• Cash flows end on Year 5
• With excess capacity, no initial investment on facilities
• Annual Sales Growth of 10%
• Gross profit margin of 15%

CASHFLOW DETAILS PHP in Thousands

Number of boxes anually 50,000 Discount Rate 12%
Price per box ₱25
Revenues in year 1= ₱1,250,000 Interest Expense 3%
COGS as % of Revenues 85%
Annual Growth Rate 10%
Tax rate on net income= 30%
 CERVITE PROJECT

• Increased company value

INITIAL INVESTMENT
• Low initial investment Marketing ₱100,000
+ Working Cap ₱300,000
Initial Investment ₱400,000

PHP in Thousands
OPERATING CASHFLOWS 1 2 3 4 5
-Revenues ₱937,500 ₱1,031,250 ₱1,134,375 ₱1,247,813 ₱1,372,594
-COGS ₱796,875 ₱876,563 ₱964,219 ₱1,060,641 ₱1,166,705
Gross Profit ₱140,625 ₱154,688 ₱170,156 ₱187,172 ₱205,889
EBITDA ₱140,625 ₱154,688 ₱170,156 ₱187,172 ₱205,889
EBIT ₱140,625 ₱154,688 ₱170,156 ₱187,172 ₱205,889
-Tax ₱42,188 ₱46,406 ₱51,047 ₱56,152 ₱61,766.72
EBIT(1-t) ₱98,438 ₱108,281 ₱119,109 ₱131,020 ₱144,122
- ∂ Work. Cap -₱300,000
NATCF -₱400,000 ₱98,438 ₱108,281 ₱119,109 ₱131,020 ₱444,122
Discount Factor ₱0 0.840 1.254 1.405 1.574 1.762
Discounted CF -₱400,000 ₱98,445 ₱108,288 ₱119,109 ₱131,027 ₱444,129
*Assuming cash flows end on Year 5

PhP in Thousands
Investment Measures
NPV = ₱500,999
IRR = 25.8%
 CERVITE PROJECT

• Improved Sales and Operating Margin

*Assumed amounts in 2017 to be constant until 2023

**SGA increased by PhP 100M per year
Last 12 Months 2018 2019 2020 2021 2022 2023 CAGR

Total Revenue 4,499.0 5,436.5 6,467.7 7,602.1 8,849.9 10,222.5 11,732.3 17%
Cost Of Goods Sold 3,166.3 3,963.2 4,839.8 5,804.0 6,864.6 8,031.3 9,314.7
Gross Profit 1,332.6 1,473.3 1,628.0 1,798.1 1,985.3 2,191.2 2,417.7
20%
Selling General & Admin Exp. 886.2 986.2 1,086.2 1,186.2 1,286.2 1,386.2 1,486.2
Operating Income 446.4 487.1 541.7 611.9 699.1 805.0 931.4 13%
 CERVITE PROJECT

• Proposed Funding:
• Fully funded by short-term loan @ 3% on average for 3 years.
CUBE PROJECT
Recommendation: Proceed
 CUBE PROJECT

Project Overview
CUBE – Cure for Cancer Center
Exclusive facility to conduct IvNG
Therapy

DEMAND PROJECTION
PH Growth Rate 1.50%

95% Pop in Millions

Cancer
Incidence
% with % will treat
Capacity in PH
Treatmen
t in PH
(Mil)
% of total
patients
Asia 4,216 7.57% 3.0% 10.0% 0.9575 49.5%
Africa 1,072 6.31% 0.0% 10.0% - 0.0%
Cured from cancer Americas 942 5.86% 10.0% 10.0% 0.5520 28.6%
(Involving 250 participants Europe 740 5.49% 10.0% 10.0% 0.4063 21.0%
in clinical trials) Oceania 370 3.75% 1.0% 10.0% 0.0139 0.7%
Philippines 120 3% 0.1% 100.0% 0.0036 0.2%
Demand (In Million) 1.93
 CUBE PROJECT

ASSUMPTIONS
• Cash flows end on Year 10
• Maximum Capacity of 25,000 patients annually
• Straight-line depreciation
• WACC of 12% reflects optimal capital structure

CASHFLOW DETAILS WORKING CAPITAL

Revenues in year 1= ₱18,000 Initial Investment in Work. Cap= ₱4,500
Service Cost 40% Operating Cost 2%
Tax rate on net income= 30% Salvageable fraction at end= 100%

Discount rate used= 12.00% UTILIZATION RATE

Year 1 60%
Year 2 80%
Year 3 onwards 100%
 CUBE PROJECT

• Increased company value and high internal rate of return

INITIAL INVESTMENT
Discount rate used= 12.00% Investment ₱15,500
- Tax Credit ₱0
Net Investment ₱15,500
+ Working Cap ₱4,500
+ Opp. Cost ₱0
+ Other invest. ₱0
Initial Investment ₱20,000
OPERATING CASHFLOWS
PhP In Millions 1 2 3 4 5 6 7 8 9 10
Revenues ₱18,000 ₱24,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000
- Service Cost ₱7,200 ₱9,600 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000
- Maintenance Cost ₱0 ₱0 ₱0 ₱0 ₱0 ₱100 ₱100 ₱100 ₱100 ₱100
-Other Operating Cost ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360
EBITDA ₱10,800 ₱14,400 ₱18,000 ₱18,000 ₱18,000 ₱17,900 ₱17,900 ₱17,900 ₱17,900 ₱17,900
- Depreciation ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400
EBIT ₱9,400 ₱13,000 ₱16,600 ₱16,600 ₱16,600 ₱16,500 ₱16,500 ₱16,500 ₱16,500 ₱16,500
-Tax ₱2,820 ₱3,900 ₱4,980 ₱4,980 ₱4,980 ₱4,950 ₱4,950 ₱4,950 ₱4,950 ₱4,950
EBIT(1-t) ₱6,580 ₱9,100 ₱11,620 ₱11,620 ₱11,620 ₱11,550 ₱11,550 ₱11,550 ₱11,550 ₱11,550
+ Depreciation ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400
- ∂ Work. Cap ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 -₱4,500
NATCF -₱20,000.00 ₱7,980 ₱10,500 ₱13,020 ₱13,020 ₱13,020 ₱12,950 ₱12,950 ₱12,950 ₱12,950 ₱17,450
Discount Factor 1.00 1.12 1.25 1.40 1.57 1.76 1.97 2.21 2.48 2.77 3.11
Discounted CF -₱20,000.00 ₱7,125 ₱8,371 ₱9,267 ₱8,274 ₱7,388 ₱6,561 ₱5,858 ₱5,230 ₱4,670 ₱5,618

PhP In Millions
Investment Measures
NPV = ₱48,363
IRR = 52.74%
 CUBE PROJECT

• Revenue Projection

REVENUE PROJECTION
1 2 3 4 5 6 7 8 9 10
Maximum Capacity 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000
Utilization Rate 60% 80% 100% 100% 100% 100% 100% 100% 100% 100%
Patients 15,000 20,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000
Frequency 24 24 24 24 24 24 24 24 24 24
Cost ₱50,000 ₱50,000 ₱50,000 ₱50,000 ₱50,000 ₱50,000 ₱50,000 ₱50,000 ₱50,000 ₱50,000

Revenues PhP In Millions ₱18,000 ₱24,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000

DEMAND PROJECTION
PH Growth Rate 1.50%

Treatmen
Cancer % with % will treat in t in PH % of total
Pop in Millions Incidence Capacity PH (Mil) patients
Asia 4,216 7.57% 3.0% 10.0% 0.9575 49.5%
Africa 1,072 6.31% 0.0% 10.0% - 0.0%
Americas 942 5.86% 10.0% 10.0% 0.5520 28.6%
Europe 740 5.49% 10.0% 10.0% 0.4063 21.0%
Oceania 370 3.75% 1.0% 10.0% 0.0139 0.7%
Philippines 120 3% 0.1% 100.0% 0.0036 0.2%
Demand (In Million) 1.93
 CUBE PROJECT

• Increased company value and high internal rate of return

INITIAL INVESTMENT
Investment ₱15,500
- Tax Credit ₱0
Net Investment ₱15,500
+ Working Cap ₱4,500
+ Opp. Cost ₱0
+ Other invest. ₱0
Initial Investment ₱20,000
OPERATING CASHFLOWS
PhP In Millions 1 2 3 4 5 6 7 8 9 10
Revenues ₱18,000 ₱24,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000 ₱30,000
- Service Cost ₱7,200 ₱9,600 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000 ₱12,000
- Maintenance Cost ₱0 ₱0 ₱0 ₱0 ₱0 ₱100 ₱100 ₱100 ₱100 ₱100
-Other Operating Cost ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360 ₱360
EBITDA ₱10,800 ₱14,400 ₱18,000 ₱18,000 ₱18,000 ₱17,900 ₱17,900 ₱17,900 ₱17,900 ₱17,900
- Depreciation ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400
EBIT ₱9,400 ₱13,000 ₱16,600 ₱16,600 ₱16,600 ₱16,500 ₱16,500 ₱16,500 ₱16,500 ₱16,500
-Tax ₱2,820 ₱3,900 ₱4,980 ₱4,980 ₱4,980 ₱4,950 ₱4,950 ₱4,950 ₱4,950 ₱4,950
EBIT(1-t) ₱6,580 ₱9,100 ₱11,620 ₱11,620 ₱11,620 ₱11,550 ₱11,550 ₱11,550 ₱11,550 ₱11,550
+ Depreciation ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400 ₱1,400
- ∂ Work. Cap ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 -₱4,500
NATCF -₱20,000.00 ₱7,980 ₱10,500 ₱13,020 ₱13,020 ₱13,020 ₱12,950 ₱12,950 ₱12,950 ₱12,950 ₱17,450
Discount Factor 1.00 1.16 1.34 1.55 1.80 2.08 2.41 2.80 3.24 3.75 4.35
Discounted CF -₱20,000.00 ₱6,890 ₱7,827 ₱8,379 ₱7,234 ₱6,246 ₱5,364 ₱4,631 ₱3,998 ₱3,452 ₱4,016

PhP In Millions
Investment Measures
NPV = ₱38,036
IRR = 52.74%
 CUBE PROJECT

• Proposed Funding:
• Fully funded by short-term loan @ 3% on average for 3 years.

FUNDING PhP In Millions Allocation Company Gearing Ratio

Capital Requirement ₱20,000 Maricurie Drug Mfg. Corp. 0.57
Loan @ 5% ₱7,000 35.0% Ponzi Drug, Inc. 0.19
Local Investors ₱5,000 25.0% Vaughn Myers Pharmaceutical, Inc. 0.40
Foreign PE ₱6,000 30.0% Averaage 0.39
Mr. Koh ₱1,000 5.0% Unilav 0.45

D/E Ratio Before Funding After Funding

Debt 2,235 9,235
Equity 4,985 16,985

D/E 0.448 0.544

 Summary

CERVITE CUBE

Recommendation: Proceed Recommendation: Proceed

• Increased company value • Increased company value

• Improved Sales and Operating Margin • High IRR
• Low initial investment • Demand is more than capacity, mostly
• Capacity utilization from foreign patients

NPV = PhP194M NPV = PhP38B

IRR = 25.8% IRR = 52.74%

FUNDING FUNDING

• Long-term loan @ 5%
Revolving Short-Term Loan @ 3% • Foreign PE
• Local Investors
• Mr Kho, if possible
CSG Capital