Opinion of the Independent Financial Advisor - Investor Relations

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The Opinion of the Independent Financial Advisor on the Asset Acquisition of Thai Union Frozen Products Plc.facilities. Such planned capital expenditures will be primarily aimed at cost savings through moreintegrated infrastructure and improved efficiencies as well as continuous maintenance of qualitycontrol in order to stay up to date with evolving certifications and requirements imposed by differentcustomers.For our financial projection, capital expenditures will increase from the actual result posted inFY2010A with a CAGR of 6.3% per annum over the next three years of forecast period, equivalent toEUR 14.4 -17.6 million. It should be noted that excess production capacity is still available, particularlyin the Seychelles, to facilitate future growth without additional cash burden.5. Working Capital RequirementsThe underlying assumptions set for working capital requirements are reflected in terms of cash cycle,which is a function of key business activity ratios including average collection period, averageinventory period and average payment period. Based on historical performance during FY2008A-2010A, the projected cash cycle is approximately 104 days throughout the forecast period related totheir respective sale and purchase amount.In addition to trade account receivables, inventories and trade account payables, other payables arealso added as part of working capital needed to carry on operations as a going concern because otherpayables result mainly from related tax and payroll charges.6. Corporate Income TaxSince MWBrands establishes operational presence in various countries with each having different taxrates, the IFA has employed the effective tax rate achieved for the most recent fiscal year ending 31March 2010. This effective tax rate is equal to 23.4% and will be kept constant for evaluation purpose.7. Debts and Associated CostInterest-bearing debts approximates EUR 296 million as of the most recent fiscal year ending 31March 2010, representing 75.3% of total capital employed by MWBrands. On the other hand, theunderlying assumption set to determine associated cost of debts reflects the expected change inMWBrands capital structure once it has been acquired by the Company. Thus, the IFA has consideredthe relevant interest rate in connection with target capital structure and arrived at the associated costof debts equal to 5.4% at the post transaction.8. Discount RateFor the benefit of conservative approach, the IFA has adopted the discount rate derived solely fromthe context of Thai economy where the Company is principally engaged even though MWBrands islocated in Europe. This is mainly attributable to the multiple market exposures where MWBrands isinvolved in as well as its non-listed status, which after all makes it difficult to select the comparablebourse coupled with low risk premium from the developed market relative to the Thai market.Under the DCF approach, a series of expected FCFFs over the forecast period shall be discountedusing the weighed average cost of capital (WACC).WACC can be calculated in accordance with the conventional formula as shown below;Weighted Average Cost of Capital (WACC) = (D/V)*Kd*(1-T) + (E/V)*KeWhere: D/V = The ratio of current interest-bearing debt to total invested capital ofMWBrands, which equals 75.3%E/V = The ratio of total shareholders’ equity to total invested capital ofMWBrands, which equals 24.7%Page 36
The Opinion of the Independent Financial Advisor on the Asset Acquisition of Thai Union Frozen Products Plc.Cost of Equity (Ke)T = The corporate income tax rate applicable to MWBrands, which isdetermined as the most recent effective tax rate of 23.4%Kd = Associated cost of interest-bearing debts at the post transaction, whichequals 5.4%Ke = Cost of total shareholder’s equity estimated by the Capital Asset PricingModel (CAPM) as shown belowCost of equity is calculated by the CAPM equation as the following;Cost of Equity (Ke) = Rf + (Rm – Rf) * BetaWhere: Rf = The risk-free rate derived from the 10-year government bond yield,which equals 3.4% as at 27 July 2010 based on the Thai Bond MarketAssociationRm = The average return expected from the market can be calculated as acapital weighted average of the internal rate of return over allcompanies listed in the Stock Exchange of Thailand, which equals16.0% as at 27 July 2010 based on BloombergBeta = The average beta of selected peer groupCompanyBetaThai Union Frozen Products PCL. 0.60Asian Seafoods Coldstorage PCL 0.68Seafresh Industry PCL 0.89Surapon Foods PCL 0.67Kiang Huat Sea Gull Trading Frozen Food PCL 0.32Tropical Canning (Thailand) PCL 0.39Source: BloombergBetaBeta is calculated by the following process(i) Calculation of average unlevered beta of the selected peer groupThe equity raw beta of comparable companies including TUF, ASIAN, CFRESH, SSF, CHOTI and TCwill be used to calculate average unleveraged beta. The IFA has included only domestic peer groupfrom Agribusiness and Food & Beverage sector, which are particularly related to seafood market, inthe calculation. The unlevered beta could be calculated with the following formula:Unleveraged Beta (β U ) =Leveraged Beta (β L ) / {1 + ((1 – tax rate) * D/E ratio)}CompanyTax Debt to Leveraged UnleveragedRate Equity Equity Beta Equity BetaThai Union Frozen Products PCL. 30% 0.64 0.60 0.42Asian Seafoods Coldstorage PCL 30% 1.52 0.68 0.33Seafresh Industry PCL 30% 0.00 0.89 0.89Surapon Foods PCL 30% 0.19 0.67 0.59Kiang Huat Sea Gull Trading Frozen Food PCL 30% 0.00 0.32 0.32Tropical Canning (Thailand) PCL 30% 0.34 0.39 0.31Average 30% 0.45 0.59 0.48Source: Bloomberg(ii) Calculation of levered beta of the companyAfter obtaining the average of unleveraged equity beta of comparable companies at 0.48 from (i), weutilize such figure to calculate the company’s leveraged beta with the following formula;Leveraged Beta (β L ) = Unleveraged Beta (β U ) * {1 + ((1 – tax rate)* Target D/E ratio)}Page 37
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