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July 24, 2014

Neptune Chocolate Inc.


Financial Model

Prepared By:
The Marquee Group

Neptune Chocolate Inc.


Summary Values
Summary Enterprise Values (1)
Enterprise Values

Case
(C$ millions)

(Multiple of 2011F EBITDA)

Base Case

379

to

414

6.8 x

to

7.4 x

Best Case

494

to

539

8.8 x

to

9.6 x

Worst Case

274

to

298

4.9 x

to

5.3 x

2013

2014

2015

Summary Values and Statistics


Case

2009A

2010A

2011F

2012

2016

Base Case
EBITDA ($MM)

64.0

58.0

55.9

50.3

56.2

65.6

75.3

87.9

EBITDA Margin

14.2%

13.1%

nm

nm

12.7%
2.5 x

11.4%
2.3 x

11.8%
1.6 x

12.9%
1.0 x

13.7%
0.6 x

14.7%
0.1 x

nm

nm

nm

(41.3%)

17.1%

35.9%

39.1%

39.9%

Senior Secured Debt / EBITDA


Internal Rate of Return (2)
Best Case
EBITDA ($MM)

64.0

58.0

55.9

57.3

69.4

85.8

99.7

111.4

EBITDA Margin

14.2%

13.1%

nm

nm

12.7%
2.5 x

12.5%
1.9 x

13.8%
1.2 x

15.7%
0.8 x

17.0%
0.4 x

18.0%
0.0 x

nm

nm

nm

31.5%

66.1%

67.7%

60.2%

53.0%

Senior Secured Debt / EBITDA


Internal Rate of Return (2)
Worst Case
EBITDA ($MM)

64.0

58.0

55.9

47.0

48.9

51.4

53.2

57.9

EBITDA Margin

14.2%

13.1%

nm

nm

12.7%
2.5 x

11.0%
2.5 x

10.9%
2.0 x

11.0%
1.5 x

10.8%
1.1 x

11.0%
0.7 x

nm

nm

nm

(74.0%)

(23.9%)

0.2%

7.3%

13.9%

Senior Secured Debt / EBITDA


Internal Rate of Return (2)
(1)

The Summary Enterprise Values on this page use a WACC of 12.0% and a terminal value growth rate of 2.0% at the low end
of each range, and a WACC of 11.5% and a terminal value growth rate of 2.5% at the high end of each range.

(2)

IRRs were calculated using an EBITDA Exit Multiple of 6.5x.

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Neptune Chocolate Inc.


Sources and Uses of Capital
PURCHASE PRICE - C$MM

IMPLIED PURCHASE MULTIPLES

2011F EBITDA
Purchase Multiple of EBITDA
Purchase Price (Enterprise Value)

$55.9
6.5 x
$363.3

2012F
2013F

SOURCES OF CAPITAL - AT CLOSING


Debt Source

Multiple of
EBITDA

Amount

EBITDA
$50.3
$56.2

TRANSACTION FEES
% of
Capital

Interest Rate

Category

Fees %

(C$MM)

Cash on Hand
Revolver
Term Debt
Mezzanine
Total Debt
Equity Source
Preferred Shares
Management
KKZ
Total Equity

Div. Rate
8.5%
0.0%
0.0%

LIBOR - 1.0%
LIBOR + Spread
LIBOR + Spread
8.0%

Amount % of Cap.
6.6%
$25.0
1.3%
$5.0
$65.2
17.3%
$95.2
25.3%

% of Common
0.0%
7.1%
92.9%
100.0%

Total Sources of Capital

$376.7

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0.0%
0.7%
4.0%
0.7%

$0.0
$0.8
$5.6
$2.5
$1.0
$1.0
$0.5
$0.0
$11.4

PURCHASE PRICE ALLOCATION

Amount

% of
Total

EBITDA
Multiple

(C$MM)

Purchase of Equity
Target Debt Refinanced
Transaction Fees
Total Uses of Capital

Revolver
Term Debt
Mezzanine
M&A
Due Diligence
Legal
Consultants
Other
Total Fees

100.0%

USES OF CAPITAL - AT CLOSING

Capital Use

Fees
(C$MM)

0.5%
7.4%
29.7%
37.1%
74.7%

$2.0
$27.9
$111.8
$139.7
$281.4

0.5 x
2.0 x
2.5 x
5.0 x

Multiple
7.2 x
6.5 x

$300.3
$65.0
$11.4
$376.7

79.7%
17.3%
3.0%
100.0%

5.4 x
1.2 x
0.2 x
6.7 x

Page 3 of 23

Enterprise Value
Less: Net Debt prior to Close
Implied Equity Purchase Value

$363.3
$63.0
$300.3

Equity on B/S Prior to Close


Write-up / (Write-down) of Assets
Goodwill Created

$250.3
$10.0
$40.0

7/24/2014 7:19 AM

Neptune Chocolate Inc.


Inputs and Assumptions
GENERAL
- First year of forecast period in the model: 2012
- The model is a 5-year cash flow model discounted to Jan. 1, 2012

TAXES
- The acquisition is assumed to be a share purchase
- Tax rate assumed in the model:
- Blended CCA Rate assumed in the model:
- Opening tax loss carry forward (TLCF) balance:
- Opening Undepreciated Capital Cost (UCC) balance:

COSTS
- Sales Discounts and Commissions
- SG&A as a % of net Sales
- Manufacturing Costs grow at inflation

2.0%
5.5%
OPERATIONS
- Operating Days per Year
- Maximum Production (000's Cases per day)

CAPITAL EXPENDITURES (CAPEX)


- Capex has been assumed at $14.2 million in 2012, $15.3 million in 2013 and
grown at inflation thereafter.
(CDN$ MM)
Maintenance
Environmental
Strategic
Total

2012
14.2
0.0
0.0
$14.2

2013
15.3
0.0
0.0
$15.3

2014
15.7
0.0
0.0
$15.7

2015
16.0
0.0
0.0
$16.0

VALUATION
- Low end of the discount rate (WACC) range:
- The discount rate range used is 11.0% to 12.5%
- The terminal year is valued using a perpetuity formula
2016
16.4
0.0
0.0
$16.4

EARNINGS ADJUSTMENTS
- The following one-time cost adjustments have been included in the model:
(C$ MM)
Restructuring
Adjustment 2
Adjustment 3
Total

2012
(2.0)
0.0
0.0
($2.0)

2013
(2.0)
0.0
0.0
($2.0)

2014
0.0
0.0
0.0
$0.0

2015
0.0
0.0
0.0
$0.0

2016
0.0
0.0
0.0
$0.0

DEPRECIATION & AMORTIZATION


- Depreciation Methodology Used:
- Years remaining for depreciation of existing assets:
- Years used for depreciation of new assets:

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35.0%
15.0%
$18.5
$170.5

350
16.5

11.0%

- Low end of the terminal value growth rate:


- Term. value growth rate range is 1.5% to 3.0%

1.5%

- EBITDA Exit Multiple for IRR Calculations:

6.5 x

TERMINAL YEAR
- EBITDA Margin is the avg. margin from 2012 to 2016
- This EBITDA Margin is used to calculate EBITDA
- Full cash taxes are paid (ie. no Deferred Taxes)
- Capex is equal to 2016 Capex grown at inflation
- Depreciation is equal to Capex
- No changes in working capital

WORKING CAPITAL DAYS


Straight Line
20 years
25 years

Page 4 of 23

- Accounts Receivable
- Inventories
- Accounts Payable

30 days
40 days
30 days

7/24/2014 7:19 AM

Neptune Chocolate Inc.


Inputs and Assumptions
DEBT COVENANTS AND REPAYMENT TERMS

PRICING GRID FOR SENIOR SECURED DEBT

Total Senior Secured Debt (Revolver and Term Debt)


- Senior Debt / EBITDA at Close
- Covenant Tightens Annually by:

2.50 x
0.25 x

Revolver
- Maximum Amount Available (C$ MM):
- Revolver outstanding can't exceed the following Margining Formula
on Accounts Receivable and Inventory:
- Accounts Receivable Percentage
- Inventory Percentage
- Interest on Undrawn Amounts (Stand-by Fee):
- Cash sweep of FCF After Scheduled Debt Repayments and Dividends
Senior Secured Term Debt
- Sr. Secured Term Debt / EBITDA at Close:
- Bullet payment due at the end of 2016
- Scheduled Principal Repayment from 2012 to 2016:
Principal Rpmt:

2012
10.0%

2013
15.0%

2014
15.0%

2015
20.0%

$40.0

If Total Debt / EBITDA >=


0.0 x
1.0 x
1.5 x
2.0 x
2.5 x
3.0 x
3.5 x

Spread to LIBOR
1.00%
1.50%
2.00%
2.50%
2.75%
3.00%
3.25%

75.0%
50.0%
0.50%

MODEL CHECKS

2.00 x

Have Sales Reached Capacity?


Revolver Size:
Senior Debt / EBITDA Covenant:
EBITDA / Interest Covenant:
Balance Sheet Balanced:

YES
OK
TRIPPED
OK
OK

2016
40.0%

Mezzanine Debt
- Mezzanine Debt / EBITDA at Close
- Scheduled Principal Repayments
- PIK Interest Percentage:
If Total Debt / EBITDA in the previous year is:

2.50 x
$0.0
60.0%
> 3.50 x

Interest Coverage
- EBITDA / Interest Covenant

> 1.50 x

EQUITY ISSUANCE / (REDEMPTION)


(C$ MM)
Preferred Shares

2012
$0.0

2013
$0.0

2014
$0.0

2015
$0.0

2016
$0.0

Common Shares

$0.0

$0.0

$0.0

$0.0

$0.0

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7/24/2014 7:19 AM

Neptune Chocolate Inc.


Sales and Economic Scenarios

SCENARIO SWITCH

2012

2013

2014

2015

2016

Term

2.0%

2.2%

2.5%

2.5%

2.5%

2.0%

2.0%
2.2%
1.8%

2.2%
2.5%
2.0%

2.5%
3.0%
2.0%

2.5%
3.0%
2.0%

2.5%
3.0%
2.0%

2.0%
2.5%
2.0%

3.0%

5.0%

6.0%

5.0%

4.0%

2.5%

3.0%
5.0%
1.0%

5.0%
7.0%
3.0%

6.0%
7.0%
3.0%

5.0%
5.0%
3.0%

4.0%
5.0%
3.0%

2.5%
4.0%
2.0%

2.5%

2.5%

2.5%

2.2%

2.2%

2.2%

2.5%
1.8%
2.2%

2.5%
2.0%
2.7%

2.5%
2.0%
2.7%

2.2%
2.0%
2.7%

2.2%
2.0%
2.7%

2.2%
2.0%
2.5%

0.88

0.88

0.89

0.89

0.87

0.86

0.88
0.87
0.89

0.88
0.87
0.89

0.89
0.88
0.90

0.89
0.88
0.90

0.87
0.86
0.88

0.86
0.85
0.87

2.50%

2.75%

3.00%

3.25%

3.50%

3.50%

SALES SCENARIOS
Sales Price Growth
Base Case
Best Case
Worst Case
Sales Volume Growth
Base Case
Best Case
Worst Case

ECONOMIC SCENARIOS
Cost Inflation
Base Case
Best Case
Worst Case

FX Rate - US$ / C$
Base Case
Best Case
Worst Case
LIBOR
Base Case

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7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Revenue Schedule
2009A

2010A

2011F

2012

2013

Projected
2014

2015

2016

Term

Exchange Rate

(US$ / C$)

0.71

0.77

0.84

0.88

0.88

0.89

0.89

0.87

0.86

Pricing
Sales Price Growth
Gross Sales Price per Case

(%)

2.1%
80.0

1.2%
81.0

1.6%
82.3

2.0%
83.9

2.2%
85.7

2.5%
87.9

2.5%
90.1

2.5%
92.3

2.0%
94.2

112.7
2.1%
(2.4)
110.3

105.1
2.3%
(2.4)
102.7

97.7
2.0%
(2.0)
95.7

95.3
2.0%
(1.9)
93.4

97.4
2.0%
(1.9)
95.5

98.8
2.0%
(2.0)
96.8

101.2
2.0%
(2.0)
99.2

106.1
2.0%
(2.1)
104.0

109.5
2.0%
(2.2)
107.3

340.0
16.2
5.5

345.0
16.3
5.6

348.0
16.5
5.7

350.0
16.5
5.8

350.0
16.5
5.8

350.0
16.5
5.8

350.0
16.5
5.8

350.0
16.5
5.8

350.0
16.5
5.8

Gross Sales Price per Case


Discounts and Commissions
Discounts and Commissions
Net Sales Price per Case

Capacity
Operating Days
Maximum Units per Day
Annual Mfg. Capacity

(US$/case)
(C$/case)
(%)
(C$/case)
(C$/case)

(Days)
(000's cases / day)
(MM's cases)

Sales Volume
Sales Volume Growth
Annual Sales Volume

(%)

Capacity Utilization

(%)

Revenue
Gross Revenue
Discounts and Commissions
Net Revenue

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(MM's cases)

(C$ MM)
(C$ MM)
(C$ MM)

4.9%

7.0%

3.0%

5.0%

6.0%

5.0%

4.0%

2.5%

4.1

4.3

4.6

4.7

5.0

5.3

5.5

5.8

5.8

74%

76%

80%

82%

86%

91%

96%

100%

100%

462.0
(9.9)
452.0

452.1
(10.5)
441.6

449.4
(9.0)
440.4

451.7
(9.0)
442.7

484.7
(9.7)
475.1

520.8
(10.4)
510.3

560.5
(11.2)
549.3

611.2
(12.2)
599.0

632.5
(12.6)
619.8

Page 7 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Manufacturing Costs Schedule

Cost Inflation
Exchange Rate
Sales Volume

2009A

2010A

2011F

2012

2013

Projected
2014

2015

2016

0.71
4.1

0.77
4.3

0.84
4.6

2.5%
0.88
4.7

2.5%
0.88
5.0

2.5%
0.89
5.3

2.2%
0.89
5.5

2.2%
0.87
5.8

(US$/case)

30.0
23.0
53.0

30.0
24.0
54.0

31.0
24.0
55.0

31.8
24.6
56.4

32.6
25.2
57.8

33.4
25.8
59.2

34.1
26.4
60.5

34.9
27.0
61.9

(C$/case)

74.6

70.1

65.3

64.1

65.7

66.5

68.0

71.1

(C$/case)

(C$/case)

6.8
4.9
2.4
1.0
15.1

6.5
4.2
2.3
0.9
14.0

6.3
3.9
2.2
0.9
13.3

6.3
3.9
2.2
0.9
13.2

6.1
3.8
2.1
0.8
12.9

5.9
3.7
2.0
0.8
12.5

5.8
3.6
2.0
0.8
12.1

5.7
3.5
2.0
0.8
11.9

(C$/case)

$89.8

$84.1

$78.6

$77.3

$78.5

$79.0

$80.1

$83.0

(C$ MM)

173.2
132.8
306.1

167.5
134.0
301.6

169.4
131.1
300.5

171.1
132.4
303.5

184.1
142.5
326.7

197.8
153.1
350.9

212.3
164.3
376.6

230.8
178.7
409.5

(C$ MM)

28.0
20.0
10.0
4.0
62.0

28.0
18.0
10.0
4.0
60.0

29.0
18.0
10.0
4.0
61.0

29.7
18.5
10.3
4.1
62.5

30.5
18.9
10.5
4.2
64.1

31.2
19.4
10.8
4.3
65.7

31.9
19.8
11.0
4.4
67.1

32.6
20.2
11.2
4.5
68.6

(C$ MM)

$368.1

$361.6

$361.5

$366.1

$390.8

$416.6

$443.7

$478.1

(%)
(US$ / C$)
(MM's cases)

COSTS PER UNIT


Variable Costs
Cacao
Sugars
Total Variable Costs
Total Variable Costs
Fixed Costs
Labour
Energy
Supplies
Other
Total Fixed Costs
Total Cost of Sales

(US$/case)
(US$/case)

(C$/case)
(C$/case)
(C$/case)

COSTS IN MILLIONS
Variable Costs
Cacao
Sugars
Total Variable Costs
Fixed Costs
Labour
Energy
Supplies
Other
Total Fixed Costs
Total Cost of Sales

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(C$ MM)
(C$ MM)

(C$ MM)
(C$ MM)
(C$ MM)
(C$ MM)

Page 8 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Income Statement
2009A
Sales Volume
Revenue
Gross Revenue
Discounts and Commissions
Net Revenue

(MM's cases)

4.1

2010A
4.3

2011F
4.6

2012

2013

4.7

5.0

Projected
2014
5.3

2015

2016

5.5

5.8

(C$ MM)

462.0
(9.9)
452.0

452.1
(10.5)
441.6

449.4
(9.0)
440.4

451.7
(9.0)
442.7

484.7
(9.7)
475.1

520.8
(10.4)
510.3

560.5
(11.2)
549.3

611.2
(12.2)
599.0

Cost of Sales

(C$ MM)

368.1

361.6

361.5

366.1

390.8

416.6

443.7

478.1

S,G & A as a % of Sales


S,G & A
Total Costs

(%)

Adjustments
EBITDA

(C$ MM)

Depreciation
EBIT

(C$ MM)

Cash Interest
PIK Interest
Total Interest Expense

(C$ MM)

(C$ MM)
(C$ MM)

Term
5.8

632.5
(12.6)
619.8

4.4%

5.0%

5.2%

5.5%

5.5%

5.5%

5.5%

5.5%

20.0
388.1

22.0
383.6

23.0
384.5

24.3
390.4

26.1
416.9

28.1
444.7

30.2
473.9

32.9
511.0

0.0
64.0

0.0
58.0

0.0
55.9

(2.0)
50.3

(2.0)
56.2

0.0
65.6

0.0
75.3

0.0
87.9

79.9

14.7
49.3

14.8
43.2

15.0
40.9

16.5
33.8

17.1
39.1

17.7
47.9

18.4
57.0

19.0
68.9

16.7
63.1

(C$ MM)

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

12.0
6.9
18.8

11.1
7.2
18.3

10.1
7.6
17.7

16.5
0.0
16.5

14.7
0.0
14.7

0.0
0.0
0.0

EBT

(C$ MM)

49.3

43.2

40.9

14.9

20.8

30.3

40.5

54.2

63.1

Current Income Taxes


Deferred Income Taxes
Total Income Taxes

(C$ MM)
(C$ MM)

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
5.2
5.2

0.0
7.3
7.3

8.3
2.2
10.6

12.8
1.4
14.2

18.1
0.8
19.0

22.1
0.0
22.1

Net Income

(C$ MM)

49.3

43.2

40.9

9.7

13.5

19.7

26.3

35.3

41.0

Preferred Dividends
Net Income to Common

(C$ MM)

0.0
49.3

0.0
43.2

0.0
40.9

2.1
7.6

2.1
11.4

2.1
17.5

2.1
24.2

2.1
33.1

2.1
38.9

14.2%
10.9%

13.1%
9.8%

12.7%
9.3%

11.4%
7.6%
14.1%

11.8%
8.2%
16.1%

12.9%
9.4%
19.0%

13.7%
10.4%
21.8%

14.7%
11.5%
25.4%

12.9%

Margins
EBITDA Margin
EBIT Margin
Return on Capital (1)
(1)

(C$ MM)
(C$ MM)

(C$ MM)

(C$ MM)

(C$ MM)

(C$ MM)

(C$ MM)

(%)
(%)

(%)
Defined as EBITDA divided by average Total Capital

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Page 9 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Cash Flow Statement
(C$ Millions)
2009A

2010A

2011F

2012

2013

Projected
2014

2015

2016

49.3
14.7
0.0
0.0
0.0
64.0

43.2
14.8
0.0
0.0
0.0
58.0

40.9
15.0
0.0
0.0
0.0
55.9

9.7
16.5
6.9
5.2
3.6
41.9

13.5
17.1
7.2
7.3
(3.5)
41.6

19.7
17.7
7.6
2.2
(3.6)
43.6

26.3
18.4
0.0
1.4
(3.9)
42.1

35.3
19.0
0.0
0.8
(4.9)
50.2

Investing Activities
CAPEX
Other
Investing Cash Flow

(12.0)
0.0
(12.0)

(13.0)
0.0
(13.0)

(14.0)
0.0
(14.0)

(14.2)
0.0
(14.2)

(15.3)
0.0
(15.3)

(15.7)
0.0
(15.7)

(16.0)
0.0
(16.0)

(16.4)
0.0
(16.4)

FCF Before Debt Issuance / (Repayment)

$52.0

$45.0

$41.9

$27.7

$26.3

$27.9

$26.1

$33.9

(14.4)
(11.2)
0.0
0.0
0.0
(2.1)
0.0
(27.7)

(7.4)
(16.8)
0.0
0.0
0.0
(2.1)
0.0
(26.3)

(6.1)
(16.8)
0.0
0.0
0.0
(2.1)
0.0
(25.0)

0.0
(22.4)
0.0
0.0
0.0
(2.1)
0.0
(24.5)

8.5
(44.7)
0.0
0.0
0.0
(2.1)
0.0
(38.4)

0.0
0.0
0.0

0.0
0.0
0.0

2.9
0.0
2.9

1.6
2.9
4.5

(4.5)
4.5
0.0

Operating Activities
Net Income
Depreciation
PIK Interest
Deferred Income Taxes
Changes in working capital
Operating Cash Flow

Financing Activities
Revolver Issuance / (Repayment)
Bank Term Loan Issuance / (Repayment)
Mezzanine Debt Issuance / (Repayment)
Issue (Redemption) of Preferred Shares
Issue (Redemption) of Common Shares
Preferred Dividends
Common Dividends
Total Financing Activities

Change in the Cash Position


Beginning Cash
Ending Cash

The Marquee Group


C:\My Documents\Neptune Model.xls

Page 10 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Balance Sheet
(C$ Millions)
BS prior
to Closing
ASSETS
Cash
Accounts Receivable
Inventory
Other
Total Current Assets
Net PP&E
Goodwill
Other
Total Assets

LIABILITIES AND EQUITY


Revolver
Accounts Payable
Other
Total Current Liabilities

Adjust.

BS at
Closing

Projected
2014

2012

2013

0.0
35.3
43.1
1.6
80.0

0.0
36.3
40.0
1.6
77.9

0.0
39.0
42.8
1.6
83.5

2.9
41.9
45.7
1.6
92.1

4.5
45.1
48.6
1.6
99.9

0.0
49.1
52.3
1.6
102.9

324.5
40.0
0.0
444.5

322.2
40.0
0.0
440.0

320.4
40.0
0.0
443.8

318.4
40.0
0.0
450.4

316.0
40.0
0.0
455.9

313.4
40.0
0.0
456.3

27.9

27.9
28.5
2.3
58.7

13.5
30.0
2.3
45.8

6.1
32.1
2.3
40.5

0.0
34.2
2.3
36.5

0.0
36.5
2.3
38.8

8.5
39.2
2.3
49.9

2.0
35.3
43.1
1.6
82.0

(2.0)

314.5
0.0
0.0
396.5

10.0
40.0

0.0
28.5
2.3
30.8

27.9

(2.0)

48.0

2015

2016

Deferred Income Taxes


Senior Secured Bank Term Debt
Mezzanine Debt
Total Long Term Liabilities

50.4
65.0
0.0
115.4

46.8
139.7
186.5

50.4
111.8
139.7
301.9

55.6
100.6
146.6
302.8

62.9
83.8
153.8
300.5

65.1
67.1
161.4
293.6

66.5
44.7
161.4
272.6

67.4
0.0
161.4
228.7

Total Liabilities

146.2

214.4

360.6

348.6

341.0

330.1

311.4

278.7

Preferred Shares
Common Shares
Retained Earnings
Shareholder's Equity

0.0
25.0
225.3
250.3

25.0
45.2
(236.7)
(166.5)

25.0
70.2
(11.4)
83.8

25.0
70.2
7.6
102.8

25.0
70.2
25.1
120.3

25.0
70.2
49.3
144.5

25.0
70.2
82.4
177.6

$396.5

$48.0

$444.5

$440.0

$443.8

$450.4

$455.9

$456.3

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Total Liabilities and Equity


Check

The Marquee Group


C:\My Documents\Neptune Model.xls

Page 11 of 23

25.0
70.2
(3.8)
91.4

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Depreciation Schedule
(C$ Millions)

Years Remaining on Existing Assets:


Depreciation Years on New Assets:
Depreciation to Existing Assets
CAPEX
2012
2013
2014
2015
2016
Total Depreciation

The Marquee Group


C:\My Documents\Neptune Model.xls

2009A

2010A

2011F

$14.7

$14.8

$15.0

2012

Projected
2013

2014

2015

2016

20
25

$14.2
$15.3
$15.7
$16.0
$16.4
$14.7

$14.8

$15.0

Page 12 of 23

$16.2

$16.2

$16.2

$16.2

$16.2

0.3

0.6
0.3

0.6
0.6
0.3

0.6
0.6
0.6
0.3

0.6
0.6
0.6
0.6
0.3

$16.5

$17.1

$17.7

$18.4

$19.0

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Income Tax Schedule
(C$ Millions)
Tax Rate

35.0%

2012

Earnings Before Taxes (as is on I/S)

2013

Projected
2014

2015

2016

$14.9

$20.8

$30.3

$40.5

$54.2

Add Back Accounting Depreciation


Deduct CCA for Tax Purposes
Earnings Before TLCF after CCA

16.5
26.6
4.8

17.1
24.9
13.0

17.7
23.5
24.5

18.4
22.3
36.5

19.0
21.4
51.9

Tax Loss Carry Forward Schedule


Existing TLCF - Initial Balance
Existing TLCF Used
Earnings after use of Existing TLCF

18.5
4.8
0.0

13.7
13.0
0.0

0.7
0.7
23.9

0.0
0.0
36.5

0.0
0.0
51.9

Newly Created TLCF - Beginning


Newly Created TLCF Used (Added)
Newly Created TLCF - Ending

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

13.7
13.7

0.7
0.7

0.0
0.0

0.0
0.0

0.0
0.0

$0.0

$0.0

$23.9

$36.5

$51.9

Accounting Taxes (35% of A)

5.2

7.3

10.6

14.2

19.0

Taxes as Appearing on Income Statement


Current Tax (35% of B)
Increase (Decrease) in Deferred Income Taxes
Total Income Taxes (Same as Accounting Taxes Above)

0.0
5.2
5.2

0.0
7.3
7.3

8.3
2.2
10.6

12.8
1.4
14.2

18.1
0.8
19.0

2012

2013

2014

2015

2016

Remaining Existing TLCF


Total TLCF Available
Taxable Income (after CCA and TLCF)

CCA Schedule
Blended CCA Rate
UCC Beginning
Plus: New Capex
1/2 of New Capex
UCC After New Capex (1/2 Year)
Less: CCA Available and Used
UCC Ending (C + D - E)

The Marquee Group


C:\My Documents\Neptune Model.xls

15.0%

170.5
14.2
7.1
177.6
26.6
$158.1

C
D

Page 13 of 23

158.1
15.3
7.7
165.7
24.9
$148.5

148.5
15.7
7.8
156.3
23.5
$140.7

140.7
16.0
8.0
148.7
22.3
$134.4

134.4
16.4
8.2
142.6
21.4
$129.4

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Working Capital Schedule
(C$ Millions)
2009A

2010A

2011F

2012

2013

Projected
2014

2015

2016

Days per Year

(days)

365.0

366.0

365.0

365.0

365.0

366.0

Income Statement Items


Net Revenue
Cost of Sales

(C$ MM)

440.4
361.5

442.7
366.1

475.1
390.8

510.3
416.6

549.3
443.7

599.0
478.1

29.3
43.5
28.8

30.0
40.0
30.0

30.0
40.0
30.0

30.0
40.0
30.0

30.0
40.0
30.0

30.0
40.0
30.0

35.3
43.1
28.5
49.9

36.3
40.0
30.0
46.3

39.0
42.8
32.1
49.8

41.9
45.7
34.2
53.4

45.1
48.6
36.5
57.3

49.1
52.3
39.2
62.2

$3.6

($3.5)

($3.6)

($3.9)

($4.9)

Days In
Accounts Receivable
Inventories
Accounts Payable
Account Balances
Accounts Receivable
Inventories
Accounts Payable
Net Working Capital
Change in Working Capital

The Marquee Group


C:\My Documents\Neptune Model.xls

(C$ MM)

(days)
(days)
(days)

(C$ MM)
(C$ MM)
(C$ MM)
(C$ MM)
(C$ MM)

Page 14 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Debt and Interest Schedule (Part 1)
(C$ Millions)
BS at
Closing
LIBOR Forecast
Total Debt / EBITDA
Cash
Amount Outstanding - Beginning
Change in Cash
Amount Outstanding - Ending

2012

2013

Projected
2014

2015

2016

5.00 x

2.50%
5.18 x

2.75%
4.34 x

3.00%
3.48 x

3.25%
2.74 x

3.50%
1.93 x

$0.0

0.0
0.0
$0.0

0.0
0.0
$0.0

0.0
2.9
$2.9

2.9
1.6
$4.5

Spread to LIBOR
Interest Rate (LIBOR minus 100 bp)
Annual Interest Income

4.5
(4.5)
$0.0

(1.00%)
1.50%
$0.0

(1.00%)
1.75%
$0.0

(1.00%)
2.00%
$0.0

(1.00%)
2.25%
$0.1

(1.00%)
2.50%
$0.1

10.0%

15.0%

15.0%

20.0%

40.0%

111.8
(11.2)
$100.6

100.6
(16.8)
$83.8

83.8
(16.8)
$67.1

67.1
(22.4)
$44.7

44.7
(44.7)
$0.0

3.25%
5.75%
$6.1

3.25%
6.00%
$5.5

3.25%
6.25%
$4.7

3.00%
6.25%
$3.5

2.75%
6.25%
$1.4

139.7
0.0
6.9
$146.6

146.6
0.0
7.2
$153.8

153.8
0.0
7.6
$161.4

161.4
0.0
0.0
$161.4

161.4
0.0
0.0
$161.4

PIK Interest Percentage


Cash Interest Percentage
Interest Rate

60.0%
40.0%
8.0%

60.0%
40.0%
8.0%

60.0%
40.0%
8.0%

0.0%
100.0%
8.0%

0.0%
100.0%
8.0%

PIK Interest Expense


Cash Interest Expense
Total Interest Expense

6.9
4.6
$11.5

7.2
4.8
$12.0

7.6
5.0
$12.6

0.0
12.9
$12.9

0.0
12.9
$12.9

Senior Secured Bank Term Debt


Repayment Schedule
Amount Outstanding - Beginning
Scheduled Repayments
Amount Outstanding - Ending

$111.8

Spread to LIBOR
Interest Rate (LIBOR + Spread)
Annual Interest Expense
Mezzanine Debt
Amount Outstanding - Beginning
Scheduled Repayments
PIK Amount
Amount Outstanding - Ending

The Marquee Group


C:\My Documents\Neptune Model.xls

$139.7

Page 15 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Debt and Interest Schedule (Part 2)
(C$ Millions)
BS at
Closing
LIBOR Forecast
Total Debt / EBITDA

2012

2013

Projected
2014

2015

2016

2.50%
5.18 x

2.75%
4.34 x

3.00%
3.48 x

3.25%
2.74 x

3.50%
1.93 x

27.7
(11.2)
(2.1)
14.4

26.3
(16.8)
(2.1)
7.4

27.9
(16.8)
(2.1)
9.0

26.1
(22.4)
(2.1)
1.6

33.9
(44.7)
(2.1)
(13.0)

27.9
(14.4)
$13.5

13.5
(7.4)
$6.1

6.1
(6.1)
$0.0

0.0
0.0
$0.0

0.0
8.5
$8.5

3.25%
5.75%
$1.2

3.25%
6.00%
$0.6

3.25%
6.25%
$0.2

3.00%
6.25%
$0.0

2.75%
6.25%
$0.3

48.0
40.0

47.2
40.0

50.7
40.0

54.3
40.0

58.2
40.0

62.9
40.0

$12.1

12.1
14.4
0.0
$26.5

26.5
7.4
0.0
$33.9

33.9
6.1
0.0
$40.0

40.0
0.0
0.0
$40.0

40.0
(8.5)
0.0
$31.5

0.50%
$0.1

0.50%
$0.2

0.50%
$0.2

0.50%
$0.2

0.50%
$0.2

12.0
6.9
$18.8

11.1
7.2
$18.3

10.1
7.6
$17.7

16.5
0.0
$16.5

14.7
0.0
$14.7

5.00 x

Revolver (Drawn Amount)


FCF Before Debt Issuance / (Repayment)
Scheduled Debt Repayments
Dividends
FCF After Scheduled Debt Repayment and Dividends
Revolver Amount Outstanding - Beginning
Additions / (Repayments)
Revolver Amount Outstanding - Ending

$27.9

Spread to LIBOR
Interest Rate (LIBOR + Spread)
Annual Interest Expense
Revolver (Undrawn Amount)
Margining of Assets Formula Amount
Maximum Revolver Amount Available
Undrawn Amount at Beginning
Repayments / (Drawings)
Less: Reduction in Maximum Amount Available
Amount Available - Ending
Interest Rate on Undrawn Amount
Interest Expense (Stand-By Fee) on Undrawn Amount
Total Interest Expense
Cash Interest
PIK Interest
Net Interest Expense

The Marquee Group


C:\My Documents\Neptune Model.xls

Page 16 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Shareholders' Equity Schedule
(C$ Millions)
BS at
Closing
Preferred Shares
Amount Outstanding - Beginning
New Issuance / (Redemption)
Amount Outstanding - Ending

$25.0

Dividend Rate
Preferred Dividend

Common Shares
Amount Outstanding - Beginning
New Issuance / (Redemption)
Amount Outstanding - Ending

$70.2

Dividend Payout Rate


Net Income to Common
Common Dividend

Retained Earnings
Amount Outstanding - Beginning
Net Income
Preferred Dividend
Common Dividend
Amount Outstanding - Ending

The Marquee Group


C:\My Documents\Neptune Model.xls

($11.4)

Page 17 of 23

2012

2013

Projected
2014

2015

2016

25.0
0.0
$25.0

25.0
0.0
$25.0

25.0
0.0
$25.0

25.0
0.0
$25.0

25.0
0.0
$25.0

8.5%
$2.1

8.5%
$2.1

8.5%
$2.1

8.5%
$2.1

8.5%
$2.1

70.2
0.0
$70.2

70.2
0.0
$70.2

70.2
0.0
$70.2

70.2
0.0
$70.2

70.2
0.0
$70.2

0.0%
7.6
$0.0

0.0%
11.4
$0.0

0.0%
17.5
$0.0

0.0%
24.2
$0.0

0.0%
33.1
$0.0

(11.4)
9.7
(2.1)
0.0
($3.8)

(3.8)
13.5
(2.1)
0.0
$7.6

7.6
19.7
(2.1)
0.0
$25.1

25.1
26.3
(2.1)
0.0
$49.3

49.3
35.3
(2.1)
0.0
$82.4

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Credit Statistics and Covenants
(C$ Millions)
At Closing
Balance Sheet Items
Cash
Revolver
Senior Secured Bank Debt
Mezzanine Debt
Total Debt
Net Debt
Shareholder's Equity
Net Book Capitalization (D+E)
Earnings and Cash Flow Items
EBITDA
Interest Expense
Capital Expenditures

2012

2013

Projected
2014

2015

2016

(C$ MM)

$0.0
27.9
111.8
139.7
279.4
279.4
83.8
363.3

$0.0
13.5
100.6
146.6
260.7
260.7
91.4
352.1

$0.0
6.1
83.8
153.8
243.7
243.7
102.8
346.5

$2.9
0.0
67.1
161.4
228.4
225.5
120.3
345.8

$4.5
0.0
44.7
161.4
206.1
201.5
144.5
346.1

$0.0
8.5
0.0
161.4
169.8
169.8
177.6
347.5

(C$ MM)

$55.9

$50.3
18.8
14.2

$56.2
18.3
15.3

$65.6
17.7
15.7

$75.3
16.5
16.0

$87.9
14.7
16.4

2.50 x

2.25 x

2.00 x

1.75 x

1.50 x

1.25 x

2.50 x

2.27 x
($0.4)

1.60 x
$11.2

1.02 x
$27.3

0.59 x
$45.5

0.10 x
$81.2

1.50 x

1.50 x

1.50 x

1.50 x

1.50 x

1.50 x

2.67 x
$22.0

3.07 x
$28.7

3.72 x
$39.1

4.56 x
$50.5

5.99 x
$65.9

(C$ MM)
(C$ MM)
(C$ MM)
(C$ MM)
(C$ MM)
(C$ MM)
(C$ MM)

(C$ MM)
(C$ MM)

Senior Secured Debt / EBITDA

Covenant

Senior Secured Debt / EBITDA


EBITDA Cushion
Interest Coverage

Covenant

EBITDA / Interest
EBITDA Cushion
Other Ratios
Mezzanine Debt / EBITDA

2.50 x

2.91 x

2.74 x

2.46 x

2.14 x

1.83 x

Total Debt / EBITDA

5.00 x

5.18 x

4.34 x

3.48 x

2.74 x

1.93 x

Net Debt / Total Capitalization

74.0%

70.3%

65.2%

58.2%

48.9%

Interest Coverage ((EBITDA - CAPEX) / Interest)

1.92 x

2.23 x

2.83 x

3.59 x

4.87 x

The Marquee Group


C:\My Documents\Neptune Model.xls

Page 18 of 23

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


IRR Calculations (Based on a Sale as Exit)
(C$ Millions)

EBITDA
Assumed Exit Multiple
Enterprise Value

(C$ MM)

Less: Net Debt


Less: Preferred Shares
Equity Value

(C$ MM)

KKZ Fully Diluted Equity


KKZ Fully Diluted Equity

(%)

Exit at the End of 2012


Exit at the End of 2013
Exit at the End of 2014
Exit at the End of 2015
Exit at the End of 2016

The Marquee Group


C:\My Documents\Neptune Model.xls

(C$ MM)

(C$ MM)
(C$ MM)

(C$ MM)

IRR
(41.3%)
17.1%
35.9%
39.1%
39.9%

Value
Added
($27.0)
$24.3
$98.4
$179.1
$284.73

KKZ
Investment
($65.2)
($65.2)
($65.2)
($65.2)
($65.2)

Page 19 of 23

2012

2013

Projected
2014

2015

2016

$50.3
6.5 x
326.9

$56.2
6.5 x
365.1

$65.6
6.5 x
426.7

$75.3
6.5 x
489.6

$87.9
6.5 x
571.6

260.7
25.0
41.2

243.7
25.0
96.4

225.5
25.0
176.2

201.5
25.0
263.0

169.8
25.0
376.8

92.9%
38.3

92.9%
89.5

92.9%
163.7

92.9%
244.3

92.9%
350.0

2015

2016

2012
$38.3
$0
$0
$0
$0

Exit Value in:


2013
2014
$89.5
$0
$0
$0

$163.7
$0
$0

$244.3
$0

$350.0

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Income Tax Schedule for Calculating UFCF
(C$ Millions)
Tax Rate

35.0%

2012

Earnings Before INTEREST and Taxes

2013

Projected
2014

2015

2016

$33.8

$39.1

$47.9

$57.0

$68.9

Add Back Accounting Depreciation


Deduct CCA for Tax Purposes
Earnings Before TLCF after CCA

16.5
26.6
23.7

17.1
24.9
31.3

17.7
23.5
42.2

18.4
22.3
53.0

19.0
21.4
66.5

Tax Loss Carry Forward Schedule


Existing TLCF - Initial Balance
Existing TLCF Used
Earnings after use of Existing TLCF

18.5
18.5
5.2

0.0
0.0
31.3

0.0
0.0
42.2

0.0
0.0
53.0

0.0
0.0
66.5

Newly Created TLCF - Beginning


Newly Created TLCF Used (Added)
Newly Created TLCF - Ending

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

Remaining Existing TLCF


Total TLCF Available

0.0
0.0

0.0
0.0

0.0
0.0

0.0
0.0

0.0
0.0

$5.2

$31.3

$42.2

$53.0

$66.5

Accounting Taxes (35% of A)

11.8

13.7

16.8

19.9

24.1

Taxes as Appearing on Income Statement


Current Tax (35% of B)
Increase (Decrease) in Deferred Income Taxes
Total Income Taxes (Same as Accounting Taxes Above)

1.8
10.0
11.8

11.0
2.7
13.7

14.8
2.0
16.8

18.6
1.4
19.9

23.3
0.8
24.1

CCA Schedule
Blended CCA Rate

2012

2013

2014

2015

2016

Taxable Income (after CCA and TLCF)

UCC Beginning
Plus: New Capex
1/2 of New Capex
UCC After New Capex (1/2 Year)
Less: CCA Available and Used
UCC Ending (C + D - E)

The Marquee Group


C:\My Documents\Neptune Model.xls

15.0%

170.5
14.2
7.1
177.6
26.6
$158.1

C
D

Page 20 of 23

158.1
15.3
7.7
165.7
24.9
$148.5

148.5
15.7
7.8
156.3
23.5
$140.7

140.7
16.0
8.0
148.7
22.3
$134.4

134.4
16.4
8.2
142.6
21.4
$129.4

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Unlevered Free Cash Flow Schedule
(C$ Millions)

Unlevered Free Cash Flow


EBITDA
Current Taxes
Changes in working capital
CAPEX
Unlevered Free Cash Flow (DCF Valuation)

2012

2013

50.3
(1.8)
3.6
(14.2)
37.9

56.2
(11.0)
(3.5)
(15.3)
26.4

9.7
16.5
5.2
18.8
(1.8)
3.6
(14.2)
37.9

13.5
17.1
7.3
18.3
(11.0)
(3.5)
(15.3)
26.4

Projected
2014

2015

2016

Term

65.6
(14.8)
(3.6)
(15.7)
31.6

75.3
(18.6)
(3.9)
(16.0)
36.8

87.9
(23.3)
(4.9)
(16.4)
43.4

79.9
(22.1)
0.0
(16.7)
41.0

19.7
17.7
2.2
17.7
(6.4)
(3.6)
(15.7)
31.6

26.3
18.4
1.4
16.5
(5.8)
(3.9)
(16.0)
36.8

35.3
19.0
0.8
14.7
(5.1)
(4.9)
(16.4)
43.4

41.0
16.7
0.0
0.0
0.0
0.0
(16.7)
41.0

CHECK CALCULATION ON UFCF


Unlevered Free Cash Flow
Net Income
Depreciation
Deferred Income Taxes
Interest Expense
Tax Shelter on Interest Expense
Changes in working capital
CAPEX
Unlevered Free Cash Flow
Check

The Marquee Group


C:\My Documents\Neptune Model.xls

0.000

Page 21 of 23

0.000

0.000

0.000

0.000

0.000

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


DCF Valuation Schedule
(C$ Millions)

WACC
1.5%

11.0%

11.5%

12.0%

12.5%

PV of Cash Flows
PV of Terminal Year
Enterprise Value

136
270
$406

Multiple of 2011F EBITDA

7.3 x

PV of Cash Flows
PV of Terminal Year
Enterprise Value

134
251
$386

Multiple of 2011F EBITDA

6.9 x

PV of Cash Flows
PV of Terminal Year
Enterprise Value
Multiple of 2011F EBITDA

133
235
$367

PV of Cash Flows
PV of Terminal Year
Enterprise Value

131
220
$351

Multiple of 2011F EBITDA

6.3 x

The Marquee Group


C:\My Documents\Neptune Model.xls

2.0%

33%
67%
100%

136
285
$421

Terminal Value Growth Rate


2.5%

32%
68%
100%

7.5 x

35%
65%
100%

134
265
$399

6.6 x

133
246
$379

34%
66%
100%

131
230
$361
6.5 x

Page 22 of 23

134
279
$414

35%
65%
100%

133
259
$392

32%
68%
100%

131
242
$373
6.7 x

30%
70%
100%

134
296
$430

31%
69%
100%

7.7 x

34%
66%
100%

7.0 x

36%
64%
100%

136
321
$456
8.2 x

7.4 x

6.8 x

37%
63%
100%

31%
69%
100%

7.8 x

7.1 x

36%
64%
100%

136
302
$438

3.0%

133
274
$407

33%
67%
100%

7.3 x

35%
65%
100%

131
254
$386

34%
66%
100%

6.9 x

7/24/2014 7:19 AM

CURRENTLY RUNNING: BASE CASE

Neptune Chocolate Inc.


Alternate DCF Valuation Schedule
(C$ Millions)

WACC
Terminal EBITDA Multiple

Enterprise Values - Sensitivity Table

12.0%
6.5 x

Terminal Year EBITDA Multiple


C$MM
PV of 5 yr Cash Flows

$133

PV of Terminal Year

$278

Enterprise Value

$411

Implied TV Growth Rate

W
A
C
C

3.1%

$411

5.5 x

6.0 x

6.5 x

7.0 x

7.5 x

11.0%

$383

$406

$428

$451

$473

11.5%

$376

$398

$419

$441

$463

12.0%

$368

$390

$411

$433

$454

12.5%

$361

$382

$403

$424

$445

13.0%

$354

$375

$395

$415

$436

Implied Terminal Value Growth Rate - Sensitivity Table


Terminal Year EBITDA Multiple

W
A
C
C

The Marquee Group


C:\My Documents\Neptune Model.xls

3.1%

5.5 x

6.0 x

6.5 x

7.0 x

7.5 x

11.0%

0.6%

1.5%

2.2%

2.9%

3.4%

11.5%

1.1%

2.0%

2.7%

3.3%

3.9%

12.0%

1.5%

2.4%

3.1%

3.8%

4.3%

12.5%

2.0%

2.9%

3.6%

4.2%

4.8%

13.0%

2.4%

3.3%

4.1%

4.7%

5.3%

Page 23 of 23

7/24/2014 7:19 AM