Copyright

Nghe An Tate & Lyle Sugar Company (Vietnam)

Harvard Business School Case 9-202-054
Case Software 2-202-743
Revised 10/24/2007 (DLL)

Copyright © 2002 by the President and Fellows of Harvard College

This course software was prepared by Professor Benjamin C. Esty, and Frank J. Lysy,
Senior Advisor at the International Finance Corporation and Resesarch Associate Carrie
Ferman soley as the basis for class discussion. Cases are not intended to serve as
endorsements, sources of primary data, or illustrations of effective or ineffective
management.

1
Exhibit 1 MacreEconomic Statistics for Vietnam 1990-1999 (estimates)

Actual
1990 1991 1992 1993 1994 1995

Government Finances
Total revenue (US$, millions) $1,199 $1,116 $1,885 $2,885 $3,845 $4,835
Total expenditures (US$, millions) $1,674 $1,241 $2,054 $3,471 $4,117 $4,992
Net Revenues (US$, millions) ($475) ($125) ($169) ($586) ($272) ($157)
Budget Balance (% of revenue) -39.6% -11.2% -9.0% -20.3% -7.1% -3.2%

External debt ($US, millions) $4,186 $3,931 $3,793 $5,492 $6,170 $7,592
External debt/Gross Domestic Product 27.5% 24.4% 21.7% 29.0% 30.0% 33.7%

Output
Gross Domestic Product Growth 5.1% 6.0% 8.0% 8.1% 8.8% 9.5%
Gross Domestic Product (US$, millions) $15,208 $16,114 $17,505 $18,921 $20,586 $22,550
Gross Domestic Product/capita (US$) $124 $124 $146 $190 $225 $280

Total Exports (US$, millions) $1,731 $2,042 $2,475 $2,985 $4,054 $5,198
Total Imports (US$, millions) $1,373 $2,049 $2,540 $3,532 $5,250 $8,381
Trade Balance (US$, millions) $358 ($7) ($65) ($547) ($1,196) ($3,183)

Interest and Monetary Rates

Inflation (Consumer Price Index) 36.4% 82.7% 37.7% 8.4% 9.3% 16.9%
Lending rate (parent) n.a. n.a. 37.7% 28.3% 28.3% 28.3%
Exchange rate (Dong per US$) 5,133 9,274 11,150 10,640 10,955 11,038

Country Risk Ratings

Institutional Investor Country Risk Rank a n.a. n.a 96 88 76 72
Euromoney Country Risk Ranking b n.a. n.a. 128 103 84 69
 ICRG Risk Rating c 42.5 46.0 49.5 56.0 57.5 60.5
Corruption Perceptions Index d n.a. n.a n.a. n.a n.a. n.a

Sources: Created from data contained in the Economist Intelligence Unit Country Data, Institutional Investor Online Edition, and Euromoney Online Edition.

a
Institutional Investor ranks 145 countries based on information provided by economists at global banks and securities firms. Higher numbers represent a greater chance of country default.
b
Euromoney ranks 167 countries based on the risk of investing in that country. The ratings are based on nine analytical, credit, and market indicators. Lower numbers indicate lower risks.
c
The International Country Risk Guide (ICRG) provides a rating composed of 22 variables in three subcategories of risk: political (100 points), financial (50 points), and economic (50 points). T
individual ratings divided by two: 0.0 to 49.5 is very high risk; 80.0 to 100.0 is very low risk.

d
Transparency International’s Corruption Perception Index (CPI) score relates to perceptions of the degree of corruption as seen by business people, risk analysts and the general public. Transp
clean (1) to highly corrupt. Format equals Vietnam’s number out of the number of countries ranked in that year.
 Estimate
1996 1997 1998 1999

$5,655 $5,587
$5,828 $6,629
($173) ($1,042)
-3.1% -18.7%

$9,557 $10,659
38.8% 40.0%

9.3% 8.2% 5.2% 5.0%

$24,657 $26,667
$327 $357

$7,337 $9,145 $9,735 $10,817

$11,644 $11,592 $11,670 $12,651
($4,307) ($2,447) ($1,935) ($1,834)

5.6% 3.0%
20.1% 12.0%
11,033 11,706

67 75 81
63 77 98
 70.5 65.8 58.5
43/52 74/85

chance of country default.

mbers indicate lower risks.

), and economic (50 points). The composite risk rating equals the sum of the

and the general public. Transparency International ranks countries from highly
Exhibit 2a Summaraized Profit and Loss Statements for Tate & Lyle from 1993-1997 ( £ in millions)

Tate & Lyle PLC

1993 1994 1995 1996 1997

Sales £ 3,326 £ 3,715 £ 4,095 £ 4,896 £ 5,047

Operating profit 245 278 327 364 170

Profits from joint ventures 7 15 17 27 30
Total operating profit 252 293 344 391 200

Net interest expense -46 -43 -43 -58 -56

Net interest from joint ventures -1 -3 -5 -6 -5
Profit before taxation 205 247 296 327 139

Taxation -53 -65 -81 -84 -39

Profit after taxation 152 182 215 243 100
Return on sales 4%
Minority interest -21 -22 -29 -34 -14
Dividends -58 -62 -67 -73 -83
Retained profit 73 98 119 136 3

Source: Company Annual Reports.

Exhibit 2b Summarized Balance Sheet Statements for Tate & Lyle from 1993-1997 (£ in millions)

Tate & Lyle PLC

1993 1994 1995 1996 1997

Employment of Capital
Fixed assets £ 1,383 £ 1,366 £ 1,484 £ 1,718 £ 1,764
Working capital 242 324 320 454 326
Net operating assets 1,625 1,690 1,804 2,172 2,090

Net borrowings -755 -745 -743 -915 -955

Net (liabilities)/assets for dividends/tax -49 -63 -66 -36 -4
Total net assets 821 882 995 1,221 1,131

Capital Employed
Called up share capital 116 115 115 116 116
Reserves 606 659 736 909 844
Minority interests 99 108 144 196 171
Total capital employed 821 882 995 1,221 1,131

Source: Company Annual Reports.

Exhibit 5 Project Sources and Uses (US$ millions)

Uses of Cash Sources of Cash

Fixed Assets Senior Loans

Land $1.5 IFC A – Loan $20.0
Buildings & Utilities 26.7 IFC B – Loan 25.0
Machinery & Equip. 33.0 Export Credit 5.0
Contingencies 7.4 Total Senior Loans 50.0
Total Fixed Assets $68.6 75.8%
Subordinated Bank Loan 15.0
Other Expenses
Pre-operational 10.3 Equity
Administrative 6.6 Tate & Lyle PLC 10.7
Working Capital 5.0 Mitr Phol Sugar Co. 4.4
Total Other Uses 21.9 24.2% Vietnam Fund 2.7
Nghe An Sugar Co. 7.7
Total Uses of Funds $90.5 100.0% Total Equity 25.5

Total Sources of Funds 90.5

Source: IFC Corporate Investment Committee, Initial Project Summary, 10/7/96.

D:E
 22.1%
27.6%
5.5%
55.2%

16.6%

11.8%
4.9%
3.0%
8.5%
28.2%

100.0%

2.54901961
Exhibit 8 Financial Projections (US$ in thousands)

1996-98 a 1999 2000 2001 2002 2003 2004 2005

Production
Cane crushed (tons) 0 64 400 750 850 900 900 900
Yield of sugar/ ton of cane (%) 0 10.3 10.3 10.3 10.3 10.3 10.3 10.3
Revenue
Sugar produced (tons) 0 6.6 41.2 77.3 87.6 92.7 92.7 92.7
World sugar price per ton b 0 300 314 331 348 366 385 405
Domestic price per ton sugar 0 390 409 430 453 476 501 527
Total revenue w/ VAT 0 2,857 18,701 36,920 44,024 49,045 51,603 54,294
Expenses
Admin., oper., & selling 0 5,712 3,109 2,587 3,244 3,500 3,605 3,714
Cost for cane d 0 853 5,333 10,000 11,333 12,000 12,360 12,731
Other cost of sales 0 1,099 1,788 2,550 2,858 3,017 3,107 3,200
VAT 0 (234) 1,329 3,188 3,784 4,236 4,472 4,720
Total expenses 0 7,429 11,559 18,325 21,220 22,753 23,544 24,365

EBITDA 0 (4,572) 7,142 18,595 22,805 26,292 28,059 29,929

Depreciation 0 0 3,307 3,472 3,642 3,818 3,999 4,185
EBIT 0 (4,572) 3,835 15,122 19,162 22,474 24,060 25,744
Interest expense e 0 4,500 5,600 5,594 5,419 4,798 3,807 2,719
Profit before taxes 0 (9,072) (1,765) 9,529 13,743 17,677 20,253 23,025
Profit taxes @25% 0 0 0 0 0 0 0 0
Net income 0 (9,072) (1,765) 9,529 13,743 17,677 20,253 23,025

Free cash flow calculation

EBIT 0 (4,572) 3,835 15,122 19,162 22,474 24,060 25,744

Profit taxes @25% 0 0 0 0 0 0 0 0
EBIAT 0 (4,572) 3,835 15,122 19,162 22,474 24,060 25,744
Plus: Depreciation 0 0 3,307 3,472 3,642 3,818 3,999 4,185
Less: Capital expenditure 56,482 10,376 1,585 3,307 3,406 3,508 3,613 3,722
Less: Incr. net working capital 1,457 310 220 1,822 710 502 256 269
Terminal value c 0 0 0 0 0 0 0 0
Nominal free cash flow (57,939) (15,258) 5,337 13,466 18,688 22,282 24,189 25,938
Infaltion Deflator 1.000 0.971 0.943 0.915 0.888 0.863 0.837 0.813
Real free cash flow (57,939) (14,814) 5,031 12,323 16,604 19,221 20,258 21,090

Source: Casewriter estimates.

Note: Some numbers have been disguised to protect confidentiality. Assumes all cash flows from harvesting cane from November of year T to April of year T+1 occur in year T+1; assumes no change in
a
Number’s are present values as of year-end 1998.
b
Price for mill white grade of sugar, which is close to the average price received for the mix of grades produced by NATL. Assumes a cyclical recovery in sugar prices by 2005.
c
Terminal value equals a growing perpetuity based on final year free cash flow; [19,648 (1+3%)]/(13.3%-3%) = 196,485, where the inflation rate is 3%, the real discount rate is 10%, and the nominal disc
d
Includes amounts paid to both farmers for cane and truckers for transportation.
e
Assumes $65 million of debt at expected borrowing rates.
VALUATION OF PROJECT
YEAR 1 2 3 4 5 6 7
Discount at 10% 0.90909091 0.82644628 0.7513148 0.68301346 0.62092132 0.56447393 0.51315812
(57,939) -13467.273 4157.85124 9258.45229 11340.7554 11934.7288 11435.1129 10822.5047
NPV AT 10% 57,557
Nominal FRR
Real FRR 18%
 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

900 900 900 900 900 900 900 900 900 900
10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3

92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7
417 426 435 444 454 459 463 468 472 476
542 554 566 578 590 597 602 608 613 619
55,853 57,043 58,258 59,499 60,765 61,496 62,049 62,607 63,171 63,739

3,825 3,940 4,058 4,180 4,305 4,434 4,567 4,704 4,845 4,991
13,113 13,506 13,911 14,329 14,758 15,201 15,657 16,127 16,611 17,109
3,296 3,395 3,497 3,602 3,710 3,821 3,936 4,054 4,176 4,301
4,855 4,952 5,051 5,151 5,254 5,303 5,332 5,362 5,391 5,421
25,089 25,793 26,517 27,262 28,028 28,759 29,493 30,248 31,024 31,822

30,764 31,250 31,741 32,237 32,737 32,736 32,556 32,360 32,147 31,918
4,376 4,574 4,777 4,986 5,202 5,424 5,653 5,889 6,132 3,075
26,388 26,676 26,964 27,250 27,535 27,312 26,903 26,471 26,015 28,843
1,632 544 0 0 0 0 0 0 0 0
24,756 26,132 26,964 27,250 27,535 27,312 26,903 26,471 26,015 28,843
6,189 6,533 6,741 6,813 6,884 6,828 6,726 6,618 6,504 7,211
18,567 19,599 20,223 20,438 20,651 20,484 20,177 19,853 19,512 21,632

26,388 26,676 26,964 27,250 27,535 27,312 26,903 26,471 26,015 28,843
6,597 6,669 6,741 6,813 6,884 6,828 6,726 6,618 6,504 7,211
19,791 20,007 20,223 20,438 20,651 20,484 20,177 19,853 19,512 21,632
4,376 4,574 4,777 4,986 5,202 5,424 5,653 5,889 6,132 3,075
3,833 3,948 4,067 4,189 4,315 4,444 4,577 4,715 4,856 5,002
156 119 122 124 127 73 55 56 56 57
0 0 0 0 0 0 0 0 0 196,485
20,178 20,514 20,811 21,111 21,412 21,391 21,198 20,972 20,731 216,133
0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605
 15,929 15,722 15,486 15,251 15,018 14,566 14,014 13,461 12,919 130,764

occur in year T+1; assumes no change in the US$/Dong nominal exchange rate; and ignores witholding taxes due to IFC participation.

rices by 2005.
scount rate is 10%, and the nominal discount rate is 13.3%.

F PROJECT
8 9 10 11 12 13 14 15 16 17
0.46650738 0.42409762 0.38554329 0.3504939 0.31863082 0.28966438 0.26333125 0.23939205 0.21762914 0.19784467
7430.99606 6667.66276 5970.52338 5345.38246 4785.19762 4219.25136 3690.3242 3222.45638 2811.55081 25870.9603
Exhibit 9 Net Returns to Farmers per Hectare (ha) from Growing Sugar Cane

Sugar Cane Year 0 Year 1 Year 2 Year 3

In Dong (000):
Revenue
Tons per hectare 0 50 50 50
Price per ton 0 200 200 200
Total Revenue 0 10,000 10,000 10,000

Costs
Labor a 3,000 3,000 3,000 3,000
Fertilizer 1,300 1,300 1,300 1,300
Seeds 1,700 0 0 0
Land preparation 1,200 0 0 0
Cane transportation 0 1,000 1,000 1,000
Total Cost 7,200 5,300 5,300 5,300

Net Return -7,200 4,700 4,700 4,700

In US$: b
Total Revenue $0 $600 $600 $600
Total Cost 480 287 287 287
Net Return ($480) $313 $313 $313

Source: Casewriter estimated based on Booker Tate 1995 Feasibility Study and company documents.

a
Assumes the opportunity cost of labor is 15,000 Dong per day.
b
Exchange rate equals 15,000 Dong per US$1.00.
Exhibit 10 Comparison of Crop Economics (Dong per hectare unless noted, in thousands)

Cash Crops Subsistence Crops a

Sugar Cane Pineapple Coffee Rubber Peanuts & Peanuts & Peanuts &
Maize Peanuts Rice

Crop Life Cycle (years) 4 3 10 28 1 1 1

Labor days per hectare
in a planting year 200 60 175 260 200/200 200/200 200/230
in a typical year 200 135 425 250 200/200 200/200 200/230

Years to revenue 1 1 4 8 0 0 0
Revenue in a typical year 10,000 14,125 18,000 10,000 6,800 9,600 9,175

Total Costs
in a planting year b 7,200 11,400 13,125 11,000 8,800 9,200 9,300
in a typical year b 4,300 5,925 11,175 5,925 8,800 9,200 9,300

Source: Casewriter estimates.

a
Partial year crops are grouped and can be grown during a single year. For labor days, 200/200 means that it takes 400 labor days to grow both crops.
b
Total cost includes labor costs based on the required number of working days, but excludes transportation costs. The total cost in a typical year is
representative of the cost in all years except the planting year.
 1.28 Hectare

Year 0 -614.4
Pine apple -972.8
Coffee -1120
Rubber -938.66667
-3031.4667
Average -1010.4889
Exhibit 11 Crop Cash Flows (nominal US$, in thousands)

1998 1999 2000 2001 2002 2003 2004 2005

Hectares under cultivation (000) 1.28 8 15 17 18 18 18 18

Opportunity Cost of Labor= $1.00/day:

Net Return from: a

Cane (614) (2,825) (853) 3,740 4,599 4,341 4,611 5,911

Cash Crops (avg.) b (1,010) (5,474) (6,636) (3,948) (3,427) (303) 2,285 912
Pineapple (973) (4,557) (1,581) 4,975 187 175 5,638 187
Coffee (1,120) (6,535) (10,688) (10,652) (4,407) 4,557 6,857 8,190
Rubber (939) (5,329) (7,640) (6,167) (6,060) (5,640) (5,640) (5,640)
Combo A - peanuts & maize (171) (1,067) (2,000) (2,267) (2,400) (2,400) (2,400) (2,400)
Combo B - peanuts & peanuts 34 213 400 453 480 480 480 480
Combo C - peanuts & rice (11) (67) (125) (142) (150) (150) (150) (150)

Opportunity Cost of Labor= $0.00/day :

Net Return from: a

Cane (358) (1,225) 2,147 7,140 8,199 7,941 8,211 9,511

Cash Crops (avg.) b (799) (4,019) (3,321) 400 1,160 4,382 7,063 5,579
Pineapple (896) (3,981) (81) 7,024 2,038 2,080 7,822 2,038
Coffee (896) (4,815) (6,063) (3,927) 2,993 12,207 14,507 15,840
Rubber (606) (3,262) (3,820) (1,897) (1,550) (1,140) (1,140) (1,140)
Combo A - peanuts & maize 341 2,133 4,000 4,533 4,800 4,800 4,800 4,800
Combo B - peanuts & peanuts 546 3,413 6,400 7,253 7,680 7,680 7,680 7,680
Combo C - peanuts & rice 540 3,373 6,325 7,168 7,590 7,590 7,590 7,590

Source: Casewriter estimates.

a
Returns for each year are a function of the total number of hectares under cultivation, the year each hectare was planted, and the crop economics from Exhibit 10. The analysis ignores taxes (profi
b
Assumes an equal proportion of each crop: pineapple, coffee, and rubber.
 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

18 18 18 18 18 18 18 18 18 18

6,201 5,696 6,007 7,349 7,682 7,222 7,578 8,968 9,349 8,939

1,149 4,232 3,161 709 272 (1,837) 90 4,898 3,848 4,288

175 5,638 187 175 5,638 187 175 5,638 187 175
8,190 8,190 6,488 (1,985) (9,323) (10,197) (4,407) 4,557 6,857 8,190
(4,919) (1,133) 2,810 3,937 4,500 4,500 4,500 4,500 4,500 4,500
(2,400) (2,400) (2,400) (2,400) (2,400) (2,400) (2,400) (2,400) (2,400) (2,400)
480 480 480 480 480 480 480 480 480 480
(150) (150) (150) (150) (150) (150) (150) (150) (150) (150)

9,801 9,296 9,607 10,949 11,282 10,822 11,178 12,568 12,949 12,539

5,834 9,010 7,722 4,834 4,466 2,664 4,691 9,676 8,515 8,973
2,080 7,822 2,038 2,080 7,822 2,038 2,080 7,822 2,038 2,080
15,840 15,840 13,818 3,985 (3,423) (3,047) 2,993 12,207 14,507 15,840
(419) 3,367 7,310 8,437 9,000 9,000 9,000 9,000 9,000 9,000
4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800
7,680 7,680 7,680 7,680 7,680 7,680 7,680 7,680 7,680 7,680
7,590 7,590 7,590 7,590 7,590 7,590 7,590 7,590 7,590 7,590

. The analysis ignores taxes (profit and VAT) and transportation costs.
Exhibit 12 Trucking Economic a

Exchange Rate (Dong per US$) 15,000

Revenue Assumptions
Average travel distance round trip (km) 20
Cost to deliver (Dong per ton) VND 23,000
Tons per load (payload) 5.5
Average trips per day 3.5
Number of days 150 525 2887.5
VND 66412500
Cost Assumptions
Gasoline
Lorry: kilometers per gallon 12 Gasolin (km) 1312.5 USD
Fuel: US$ price per gallon $1.50
Labor Labour 4500000 vnd
Average wage per day VND 30,000 Maint 10000000 vnd
Maintenance per season VND 10,000,000 Dep 6562500
Lorry Costs Int 4931506.84932
Average cost per Lorry VND 100,000,000
Annual interest rate 12%
Deprecation per kilometer b VND 625

Source: Casewriter estimates.

a
Ignores VAT and profit taxes.
b
Assumes straight-line depreciation and a 160,000 km life for lorries.
TONN
4427.5 USD

300 USD
666.666667 USD
437.5 10500
328.767123 USD

12000000
4931506.85
328.767123