10 A A A070

FRUTOS SECOS ESPAÑOLES, S.A. (FRUSESA)
INVESTMENT PROPOSAL:
INTENSIVE PLANTATIONS OF NUT-TREES

INTERNATIONAL DEVELOPMENT MANAGEMENT ESPAÑOLA, S.A.
PADRE DAMIAN, 23 - 1ª PLANTA - 28036 MADRID - SPAIN - TEL. (34) 913-533-810 - FAX (34) 913-596-988 - E-MAIL: idm@infonegocio.com

AZ/10/05/AAA/070

““““LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBIDA SU REPRODUCCION TOTAL O PARCIAL O LA UTILIZACION INDEBIDA SIN SU CONSENTIMIENTO POR ESCRITO,
RESERVANDOSE LAS ACCIONES LEGALES A QUE HUBIERA LUGAR EN FUNCION DE LOS PERJUICIOS OCASIONADOS A IDM ESPAÑOLA, S.A. O A SUS CLIENTES ”””””THE INFORMATION CONTAINED IN THIS DOCUMENT IS PROPERTY OF IDM ESPAÑOLA, S.A. AND IT IS
STRICTLY CONFIDENTIAL. NO PART OF IT MAY BE REPRODUCED OR UNDULY USED WITHOUT ITS WRITTEN PERMISSION. ACCORDINGLY ANY DAMAGES INFLICTED TO IDM ESPAÑOLA, S.A. OR ITS CLIENTS WILL BE ADEQUATELY PROSECUTED””””

FRUSESA INTENSIVE CULTIVATION OF WALNUT TREES
AGENDA

∗BUSINESS OPPORTUNITY EVALUATION

∗FRUSESA DESCRIPTION

−FOUNDERS AND SHAREHOLDERS

−CURRENT ACTIVITIES

−CLIMATE AND SOIL REQUIREMENTS

∗PROFITABILITY ANALYSIS OF THE INTENSIVE CULTIVATION OF
WALNUT-TREES

∗ADVANTAGES OF MANAGEMENT BY FRUSESA

∗INVESTMENT PROPOSALS

IDM ESPAÑOLA, S.A.
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FRUSESA EUROPEAN CONSUMPTION OF WALNUTS
(1987)
IMPORTS FROM
50
NON-ECC COUNTRIES

40

30
CONSUMPTION
(000 TM)
20

10

0
ITALY GERMANY SPAIN GREECE FRANCE PORTUGAL U.K. BELGIUM HOLLAND DENMARK
LUXEMBOURG

∗European consumption of walnuts accounts for 158,000 MT, of which 55,000 MT are from non-EEC countries. Germany and Spain
∗European consumption of walnuts accounts for 158,000 MT, of which 55,000 MT are from non-EEC countries. Germany and Spain
being the main importers
being the main importers

∗To achieve self-sufficiency, Europe would require 13,750 additional hectares of intensive plantations of walnuts at full production
∗To achieve self-sufficiency, Europe would require 13,750 additional hectares of intensive plantations of walnuts at full production

∗Considering the existing limitations in other Mediterranean countries, Spain isisthe most adequate location for the new plantations
∗Considering the existing limitations in other Mediterranean countries, Spain the most adequate location for the new plantations

SOURCE: NIMEXE
IDM ESPAÑOLA, S.A.
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FRUSESA EUROPEAN CONSUMPTION OF WALNUTS EVOLUTION
(1978-87)
CAGR* (%)
200 (1978-87)

180

160 0,0

140

120

EUROPEAN
CONSUMPTION
100
The European consumption of walnuts was
The European consumption of walnuts was
OF WALNUTS
(000 TM) stable from 1978 to 1987. But grew annually
stable from 1978 to 1987. But grew annually
80
1,9% for the 1983-87 period
1,9% for the 1983-87 period

60

40

20

0
1978 79 80 81 82 83 84 85 86 87

* Compounded annual growth rate
SOURCE: NIMEXE
IDM ESPAÑOLA, S.A.
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FRUSESA EUROPEAN IMPORTS OF WALNUTS
(1978-87)
CAGR* (%)
60
(1978-87)

5,0

50

40

IMPORTS FROM
NON-ECC 30
Growing European imports, CAGR (1978-87)
Growing European imports, CAGR (1978-87)
COUNTRIES
(000 TM)
of 5,0%, accelerating recently, CAGR (1983-
of 5,0%, accelerating recently, CAGR (1983-
87) of 8,2%
87) of 8,2%
20

10

0
1978 79 80 81 82 83 84 85 86 87

* Compounded annual growth rate
SOURCE: NIMEXE
IDM ESPAÑOLA, S.A.
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FRUSESA EUROPEAN IMPORTS OF WALNUTS
BREAKDOWN BY ORIGIN (1978-87)
EEC'S CONSUMPTION
100% OTHERS BULGARIA
HUNGARY
CHIL TURKEY
INDIA
90%

CHINA
80%

70%

∗Import of walnuts from the USA represented
∗Import of walnuts from the USA represented
60%
75,4% of total European imports in 1987
75,4% of total European imports in 1987
ORIGIN 50%
(PERCENTAGE)
∗Supply conditions from the USA will influence
∗Supply conditions from the USA will influence
40% USA European market patterns
European market patterns
30%
IMPORTS FROM
NON-ECC
20% COUNTRIES

10%

0%

SOURCE: NIMEXE
IDM ESPAÑOLA, S.A.
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FRUSESA PRICE OF WALNUTS
SPAIN VS USA (1988)
Price paid Cost of Price paid to
to American American walnuts Spanish growers
250 growers in Spain
237,50
225,44
Other costs
Management
Duties
200
Freight
Structural ∗90,1% of the price differential between
∗90,1% of the price differential between
price
differential Spain and the USA isisaccounted for by sel-
Spain and the USA accounted for by sel-
Selling
and ling and marketing, transportation and im-
ling and marketing, transportation and im-
150
Marketing portation costs
portation costs
PRICE
(PTAS/KG) 115,43
∗Minimum additional profit potential compa-
∗Minimum additional profit potential compa-
100 red with plantations in the USA of Ptas
red with plantations in the USA of Ptas
110 per Kg, given same production costs
110 per Kg, given same production costs
as in the USA
as in the USA

50

0

SOURCE: BORGES, S.A.
IDM ESPAÑOLA, S.A.
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FRUSESA WALNUT PRICE EVOLUTION
USA VS SPAIN
300

275
Price paid
250 to Spanish
growers

225

200

175
The price advantage of the Spanish growers
The price advantage of the Spanish growers
WALNUT PRICE 150 Price paid
vs American growers for the period 1982 to
vs American growers for the period 1982 to
(PTAS/KG) to American 1989 has fluctuated from aaminimum of 96.6
1989 has fluctuated from minimum of 96.6
growers
125 Ptas /Kg (1982) to aamaximum of 139.3 Ptas
Ptas /Kg (1982) to maximum of 139.3 Ptas
/Kg (1984)
/Kg (1984)
100

75

50

25

0
1982 83 84 85 86 87 88 89

SOURCE: FRUSESA
IDM ESPAÑOLA, S.A.
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FRUSESA PROJECT DEVELOPMENT

∗In 1979, the Borges group, aamajor European importer of unshelled walnuts formed with other industrial groups the company Nuesa.
∗In 1979, the Borges group, major European importer of unshelled walnuts formed with other industrial groups the company Nuesa.
Nuesa’s objective was to develop intensive plantations of walnut-trees in Spain
Nuesa’s objective was to develop intensive plantations of walnut-trees in Spain

∗In 1986, for the purpose of achieving greater operational flexibility, activities were separated
∗In 1986, for the purpose of achieving greater operational flexibility, activities were separated
−Frusesa was born undertaking all plantation management activities and Nuesa and subsequently Tesorero, S.A., Palacitos, S.A. etc
−Frusesa was born undertaking all plantation management activities and Nuesa and subsequently Tesorero, S.A., Palacitos, S.A. etc
became investment vehicles
became investment vehicles

∗In 1986, Borges of California corporation was incorporated for the exploitation of nut-trees plantation in California
∗In 1986, Borges of California corporation was incorporated for the exploitation of nut-trees plantation in California
−Subsequently, aa170 hectares walnut and almond trees plantation was acquired
−Subsequently, 170 hectares walnut and almond trees plantation was acquired

∗Frusesa currently manages 1,177 hectares of nut-tree plantations, mainly in Extremadura, of which 742 hectares are dedicated to the
∗Frusesa currently manages 1,177 hectares of nut-tree plantations, mainly in Extremadura, of which 742 hectares are dedicated to the
intensive cultivation of walnut-trees
intensive cultivation of walnut-trees

∗These 10 years of operations in Spain, with continuous access through Borges of California to the most advanced technology has foste-
∗These 10 years of operations in Spain, with continuous access through Borges of California to the most advanced technology has foste-
red aamanagement team for Frusesa that isisat the forefront of walnut-tree cultivation in Europe
red management team for Frusesa that at the forefront of walnut-tree cultivation in Europe

Frusesa isiscurrently the only company in Spain capable of managing an intensive plantation of walnut-trees
Frusesa currently the only company in Spain capable of managing an intensive plantation of walnut-trees

IDM ESPAÑOLA, S.A.
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FRUSESA FOUNDER’S DESCRIPTION
BORGES GROUP’S EVOLUTION (1979-88)
CAGR (%)
(1979-88)
25000

∗The Borges Group isisone of world’s lea-
∗The Borges Group one of world’s lea-
ding nut processing and marketing groups
ding nut processing and marketing groups
20000
−Spanish market leader, with aamar-
−Spanish market leader, with mar-
3.5 ket share of 35.2% and relative mar-
ket share of 35.2% and relative mar-
ket share of 6.6
ket share of 6.6
−Main Spanish exporter of almonds
−Main Spanish exporter of almonds
15000
INDUSTRIAS PONT
and leading European importer of un-
and leading European importer of un-
REVENUES
(MM OF 5.4 shelled walnuts
shelled walnuts
1988 PTAS)
−Antonio Pont has been founder and
−Antonio Pont has been founder and
president of the International Nut
president of the International Nut
10000
Council (1982-89)
Council (1982-89)
1.5
BORGES EXPORTS
(0.5)
∗The Borges Group isisthe only European
∗The Borges Group the only European
5000
2.8 group which covers comprehensively the
group which covers comprehensively the
complete nut cycle from nursery to mar-
complete nut cycle from nursery to mar-
BORGES SPAIN
keting
keting
0
1979 80 81 82 83 84 85 86 87 88

SOURCE: BORGES GROUP
IDM ESPAÑOLA, S.A.
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FRUSESA SPANISH EXPORTS OF ALMONDS
BORGES SHARE EVOLUTION (1979-88)

22.6 15.2 23.2 33.1 40.7 25.7 21.6 25.4 25.7 12.4 (000 TM)
100%

90%

80%

70%
∗Additionally the Pont Group isisaasolid group
∗Additionally the Pont Group solid group
60%
because of its balanced management
because of its balanced management
SHARE OF
SPANISH −Strong growth in its share of exports:
−Strong growth in its share of exports:
EXPORTS OF
ALMONDS
50% 37% in 1988 vs. 13.3% in 1979, gro-
37% in 1988 vs. 13.3% in 1979, gro-
(PERCENTAGE)
wing even in years of export reductions
wing even in years of export reductions
40%
(31.6% in 1986)
(31.6% in 1986)
30% −Last five years average return on sha-
−Last five years average return on sha-
reholders funds of ± 30%.
reholders funds of ± 30%.
20%

10%
BORGES EXPORTS

0%
1979 80 81 82 83 84 85 86 87 88

SOURCE: BORGES S.A.
IDM ESPAÑOLA, S.A.
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FRUSESA SHAREHOLDERS STRUCTURE
(1989)

∗Borges Group 51%
∗Borges Group 51%

∗Ramírez Group 17.5%
∗Ramírez Group 17.5%
−One of the largest Spanish wine producers with 1,147 hectares of intensive cultivation of vineyards, located in Castilla La Mancha
−One of the largest Spanish wine producers with 1,147 hectares of intensive cultivation of vineyards, located in Castilla La Mancha

∗Nutrexpa Group 15.3%
∗Nutrexpa Group 15.3%
−Spanish food industry holding leader in the cocoa by-products market, with production facilities in America, Europe, Africa and Asia
−Spanish food industry holding leader in the cocoa by-products market, with production facilities in America, Europe, Africa and Asia
(Main brands are Cola Cao, Granja San Francisco and La Piara)
(Main brands are Cola Cao, Granja San Francisco and La Piara)

∗BBVG Inversiones 5%
∗BBVG Inversiones 5%
−Managing company of over Pta 33billion venture capital funds. Created as aajoint-venture between the BBV (Banco Bilbao Vizcaya)
−Managing company of over Pta billion venture capital funds. Created as joint-venture between the BBV (Banco Bilbao Vizcaya)
and BBHQ (Baring Brothers Hambrecht & Quist)
and BBHQ (Baring Brothers Hambrecht & Quist)

∗Riera Marsa Group 3.2 %
∗Riera Marsa Group 3.2 %

∗Others 8%
∗Others 8%
−Including Frusesa management and Banif (Banco Hispano Americano)
−Including Frusesa management and Banif (Banco Hispano Americano)

IDM ESPAÑOLA, S.A.
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FRUSESA PLANTATIONS LOCATION

IDM ESPAÑOLA, S.A.
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FRUSESA PLANTATIONS CURRENTLY UNDER MANAGEMENT
DESCRIPTION OF CULTIVATED PRODUCTS
C O M P A N Y ES T A T E P R O D U C T U N D ER H EC T A R ES
C U L T IV A T IO N
A G R O F U S E , S .A . B E N A V ID E S W A LN U T 1 8 9
A LM O N D 1 1 9 .5
P LU M 6 .7
P IS T A C H IO 1 1
S U LT A N A 3 5 .5
L A S M O N J IA S , S .A . L A S M O N J IA S W A LN U T 5 9
A LM O N D 6 7
P IS T A C H IO 4
F IG 0 .6
E L T E S O R E R O , S .A . EL T ES O R ER O W A LN U T 8 5
P IS T A C H IO 5
P A L A C IT O S , S .A . P A L A C IT O S W A LN U T 2 8 .5
P O N T F A M IL Y LA S O LA N A S U LT A N A 2 1
FR U S ES A LA S M ES A S W A LN U T 9 0
M O N T E P IS T A C H O , S .A . M O N T E P IS T A C H O W A LN U T 9 0 (1 )
P IS T A C H IO 3 5 (1 )
F IG 1 0 (1 )
FR U S ES A EL C A R Q U I W A LN U T 2 0 0 (1 )
A LM O N D 6 0 (1 )
P IS T A C H IO 6 0 (1 )
(1) Development scheduled for 1990

∗Frusesa’s cultivation planning isisdetermined by land quality but based upon economic reasons
∗Frusesa’s cultivation planning determined by land quality but based upon economic reasons
−High profitability of the intensive cultivation of almond and pistachio-trees
−High profitability of the intensive cultivation of almond and pistachio-trees
−Diversification of risk by product diversification
−Diversification of risk by product diversification
IDM ESPAÑOLA, S.A.
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FRUSESA INTENSIVE CULTIVATION OF WALNUT TREES
AVERAGE ANNUAL PRODUCTIONS

35 ∗After testing different varieties, the Hart-
∗After testing different varieties, the Hart-
ley variety has proved to be the most ade-
ley variety has proved to be the most ade-
Hartley variety
31,2 in Extremadura quate for Extremadura
quate for Extremadura
30
"When we commenced our operations
"When we commenced our operations
we hired an American technician who
we hired an American technician who
25 25
Serr variety recommended the Serr variety, which
recommended the Serr variety, which
23,8 in Extremadura
22,9 was in great demand at the time, due
was in great demand at the time, due
to the high quality of its kernels. Three
to the high quality of its kernels. Three
20
20 20 20 20
IDM's model
years ago, once we were fully aware
years ago, once we were fully aware
AVERAGE ANNUAL
of the deficiencies of the Serr variety,
of the deficiencies of the Serr variety,
PRODUCTION we decided to plant Hartley variety
we decided to plant Hartley variety
(KILOGRAMES
PER TREE) 15
14,3 trees in-between”
trees in-between”
14
13,3 14,1** (R. Pont, CEO, Frusesa)
(R. Pont, CEO, Frusesa)
12,3* 12,1
10 8,5 10,5
"The Hartley variety grows and deve-
"The Hartley variety grows and deve-
7,9
lops perfectly in Extremadura, despite
lops perfectly in Extremadura, despite
5,5
5,8
5,8** aacertain delay in achieving normal pro-
certain delay in achieving normal pro-
5
4,4 duction of 25.8 kilograms per tree du-
duction of 25.8 kilograms per tree du-
ring the harvest of 1989, aaproduction
ring the harvest of 1989, production
fully comparable to California’s levels”
fully comparable to California’s levels”
0
YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11 YEAR 12
(J.M. Sau, Technical Manager, Frusesa)
* HEAVY RAINS DURING THE FLOWERING PERIOD
** LACK OF THE NECESSARY COLD HOURS
SOURCE: FRUSESA
IDM ESPAÑOLA, S.A.
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FRUSESA CLIMATIC CONDITIONS
BADAJOZ VS WALNUT-TREE CULTIVATION

"" Whenwe decided to develop walnut plantations in Spain, we analysed the climatic conditions of Modesto, the most important walnut-
When we decided to develop walnut plantations in Spain, we analysed the climatic conditions of Modesto, the most important walnut-
tree growing area in California. Quickly afterwards ititbecame clear that Badajoz has exactly the same climatic conditions of Modesto”
tree growing area in California. Quickly afterwards became clear that Badajoz has exactly the same climatic conditions of Modesto”

CLIMATIC REQUIREMENTS FOR WALNUT-TREES
CLIMATIC REQUIREMENTS FOR WALNUT-TREES CLIMATIC CONDITIONS IN BADAJOZ
CLIMATIC CONDITIONS IN BADAJOZ
∗A minimum of 800 hours of cold weather per annum (temperature ∗Between 905 and 1521 cold hours per annum
∗A minimum of 800 hours of cold weather per annum (temperature ∗Between 905 and 1521 cold hours per annum
lower than 7º C)
lower than 7º C) ∗The most frequent period for the last frosts isisthe first half of
∗The most frequent period for the last frosts the first half of
∗No frost during the flowering period, which for the varieties with
∗No frost during the flowering period, which for the varieties with March, with the period from Mid March until Mid November nor-
March, with the period from Mid March until Mid November nor-
most interest to our project happens in early April
most interest to our project happens in early April mally being frost-free
mally being frost-free
∗A minimum period of 77months with an average temperature
∗A minimum period of months with an average temperature ∗Average monthly temperatures in excess of 10º CCduring the pe-
∗Average monthly temperatures in excess of 10º during the pe-
greater than 10º CC
greater than 10º riod February to November (10 months)
riod February to November (10 months)

The climatic conditions of Extremadura are optimal for the cultivation of walnut-trees
The climatic conditions of Extremadura are optimal for the cultivation of walnut-trees

SOURCE: TABUENCA, CARACTERIZACION AGROCLIMATICA DE BADAJOZ
IDM ESPAÑOLA, S.A.
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FRUSESA SOIL CONDITIONS
WALNUT-TREE REQUIREMENTS

"" Thewalnut-tree isisone of the most exacting orchard crops and sensitive to the different variables that define soil conditions. Soil ade-
The walnut-tree one of the most exacting orchard crops and sensitive to the different variables that define soil conditions. Soil ade-
quacy and systematic testing of soil conditions become critical factors for the optimal development of intensive plantations of walnut-
quacy and systematic testing of soil conditions become critical factors for the optimal development of intensive plantations of walnut-
trees”
trees”

∗Ideal soils for walnut-tree cultivation must meet the following criteria
∗Ideal soils for walnut-tree cultivation must meet the following criteria
−To be deep, permeable, without too many stones, well aerated and non-stratified
−To be deep, permeable, without too many stones, well aerated and non-stratified
−To be moderately acid or non-acid
−To be moderately acid or non-acid
−Not to have nutrient deficiencies: adequate levels of nitrogen, calcium, potassium, phosphorous, magnesium and sulphur are requi-
−Not to have nutrient deficiencies: adequate levels of nitrogen, calcium, potassium, phosphorous, magnesium and sulphur are requi-
red, to permit an active microbial life
red, to permit an active microbial life
−Not to have excess soluble salts, sodium, boron or active limestone
−Not to have excess soluble salts, sodium, boron or active limestone

∗A precise control of irrigation waters isisrequired due to the high sensitivity of the walnut-trees to salinity
∗A precise control of irrigation waters required due to the high sensitivity of the walnut-trees to salinity

IDM ESPAÑOLA, S.A.
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FRUSESA PROFITABILITY OF THE INTENSIVE CULTIVATION OF WALNUT-TREES
SUMMARY

∗Initial investment necessary stand-alone (non including land investment)
∗Initial investment necessary stand-alone (non including land investment) 2,198,000 Ptas/Hectare
2,198,000 Ptas/Hectare

∗Annual gross profit full production year
∗Annual gross profit full production year 629,000 Ptas/Hectare
629,000 Ptas/Hectare

∗Net present value (5%)
∗Net present value (5%) 5,423,000 Ptas/Hectare
5,423,000 Ptas/Hectare

∗Real internal rate of return
∗Real internal rate of return 13.35%
13.35%

∗Payback period
∗Payback period 10.7 Years
10.7 Years

Non speculative investment with 10 years maturity period and high profitability thereafter. Ratio of initial investment/PV of income of
Non speculative investment with 10 years maturity period and high profitability thereafter. Ratio of initial investment/PV of income of
28.8%
28.8%

IDM ESPAÑOLA, S.A.
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FRUSESA INTENSIVE CULTIVATION OF WALNUT-TREES
INITIAL INVESTMENT NECESSARY
3250

3000
Alfalfa Expenditures
2750
Overheads
2500
Initial
2250 2,198 investment
necessary
2000
Planting
1750

1500 In addition to the investment in planting and
In addition to the investment in planting and
BREAKDOWN Operations
OF INITIAL 1250 equipment, 48.9% of the initial investment
equipment, 48.9% of the initial investment
INVESTMENT required relates to operation of the planta-
required relates to operation of the planta-
(000 PTAS) 1000
tion during the first seven years with limited
tion during the first seven years with limited
750 crops
crops
500 Equipment

250

0

-250 Alfalfa revenues

-500
Walnuts revenues
-750

-1000

SOURCE: IDM ESPAÑOLA COSTING MODEL
IDM ESPAÑOLA, S.A.
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FRUSESA INTENSIVE CULTIVATION OF WALNUTS
PRODUCTION CASH FLOW BREAKDOWN
REVENUES EXPENDITURES
950,000 321,000
100%
Plantation maintenance
General expenses
Security

Selling & Marketing

80% Fertilisers

Herbicides

Harvesting

60%
∗High profitability once full production isis
∗High profitability once full production
Irrigation
CASH FLOW reached
reached
(PERCENTAGE)
Overheads
−Ratio revenues/expenditures of 2.97
−Ratio revenues/expenditures of 2.97
40%
Fumigants

Pruning
20%
Expenditures

Processing

0%

IDM ESPAÑOLA, S.A.
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PROFITABILITY AT FULL PRODUCTION
1000

750
∗The operating margin for aaplantation in full
∗The operating margin for plantation in full
production at Spanish price levels isis66.3%
production at Spanish price levels 66.3%

∗The above operating margin isisreduced, but
∗The above operating margin reduced, but
isisstill positive, 30.7% at USA’s price levels
still positive, 30.7% at USA’s price levels
REVENUES 500
PER HECTARE
(000 PTAS)

321
Operating ∗Frusesa, with the experience accumulated
∗Frusesa, with the experience accumulated
expenditures
in the last 10 years, has developed aafully
in the last 10 years, has developed fully
250 competitive system for walnut plantations
competitive system for walnut plantations
management
management

0
SPANISH USA PRICES
PRICES

IDM ESPAÑOLA, S.A.
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CASH-FLOW EVOLUTION
YEAR 0 1 2 3 4 5 6 7 8 9 TO 50
750

600

450

300

150

0

-150 Negative cash flows up to year 7, reaching aa
Negative cash flows up to year 7, reaching
CASH FLOW constant cash flow of Ptas 629,000 per
constant cash flow of Ptas 629,000 per
PER HECTARE -300
(000 PTAS) hectare from year 99to year 50
hectare from year to year 50
-450

-600

-750

-900

-1050

-1200

-1350

IDM ESPAÑOLA, S.A.
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FRUSESA INTENSIVE CULTIVATION OF WALNUT-TRESS
SUMMARY

∗The European walnut market has aastrong and increasing dependence on imports, principally those from the USA. Imports of 55,000 me-
∗The European walnut market has strong and increasing dependence on imports, principally those from the USA. Imports of 55,000 me-
tric tonnes per annum could justify about 1,750 hectares of walnut-trees plantations in Europe
tric tonnes per annum could justify about 1,750 hectares of walnut-trees plantations in Europe

∗Given the leadership of the USA as aawalnut supplier, worldwide European market prices are strongly influenced by USA’s selling prices.
∗Given the leadership of the USA as walnut supplier, worldwide European market prices are strongly influenced by USA’s selling prices.
Due to the marketing, transport and other costs, there isisaastructural price differential of Ptas 110 per kilogram to the advantage of the
Due to the marketing, transport and other costs, there structural price differential of Ptas 110 per kilogram to the advantage of the
Spanish growers
Spanish growers

∗In 1979 the Borges Group which was aware of the situation given its role as aamajor European importer of unshelled walnuts, promoted
∗In 1979 the Borges Group which was aware of the situation given its role as major European importer of unshelled walnuts, promoted
the incorporation of Frusesa to develop nut-tree plantations in Spain
the incorporation of Frusesa to develop nut-tree plantations in Spain

∗Currently, Frusesa has 1,177 hectares under management mainly in Extremadura, aaregion which enjoys optimal climatic conditions for
∗Currently, Frusesa has 1,177 hectares under management mainly in Extremadura, region which enjoys optimal climatic conditions for
the growing of walnut-trees. The company has developed the most advanced technology available for intensive cultivation of walnut-
the growing of walnut-trees. The company has developed the most advanced technology available for intensive cultivation of walnut-
trees
trees

∗The investment on intensive cultivation of walnut-trees needs aalong term view/approach, requiring high initial investment (Pta 2.2 MM
∗The investment on intensive cultivation of walnut-trees needs long term view/approach, requiring high initial investment (Pta 2.2 MM
per hectare) and aamaturity period over 10 years but enjoys high real profitability (IRR of 13.35%)
per hectare) and maturity period over 10 years but enjoys high real profitability (IRR of 13.35%)

Frusesa considers that the investment capability of entities interested in agricultural or real estate can be combined with its experience on
Frusesa considers that the investment capability of entities interested in agricultural or real estate can be combined with its experience on
managing intensive plantations of walnut-trees, to the benefit of both parties
managing intensive plantations of walnut-trees, to the benefit of both parties
IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 22

ADVANTAGES OF MANAGEMENT BY FRUSESA (I)
Stand-alone plantation Management by Frusesa
3250

3000
Alfalfa
2750 Expenditures

Overheads
2500 Alfalfa
Expenditures
2,198
2250
Overheads
Initial
2000 Planting
Investment 1,775
Necessary
1750
Planting Initial
1500
Operations
Investment
Necessary
The transfer of the management of the plan-
The transfer of the management of the plan-
BREAKDOWN
OF INITIAL 1250 tations to Frusesa eliminates the need for in-
tations to Frusesa eliminates the need for in-
INVESTMENT
1000
vestment in equipment, reducing the required
vestment in equipment, reducing the required
(000 PTAS) Operations
Other
initial investment by Pta 423,000 per hectare
initial investment by Pta 423,000 per hectare
750
Equipment
500

250 Irrigation Irrigation
System System
0

Alfalfa Alfalfa
-250
revenues revenues
-500
Walnuts Walnuts
-750 revenues revenues

-1000

IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 23

ADVANTAGES OF MANAGEMENT BY FRUSESA (II)

∗Management team with the maximum experience
∗Management team with the maximum experience
−−Ramón Pont, (Founder, President and CEO)
Ramón Pont, (Founder, President and CEO)
President and CEO Industrias Pont, S.A.
President and CEO Industrias Pont, S.A.
BA in Economics, EEM, Barcelona; Industrial Engineer, EUITI, Barcelona; Business Courses, Georgia University, USA; Executive
BA in Economics, EEM, Barcelona; Industrial Engineer, EUITI, Barcelona; Business Courses, Georgia University, USA; Executive
MBA, IESE, Barcelona; Walnut Production Course, University of California, USA
MBA, IESE, Barcelona; Walnut Production Course, University of California, USA
−−José María Sau (Technical Manager)
José María Sau (Technical Manager)
Agricultural Engineer, EUIA, Barcelona; Walnut Production Course, University of California, USA
Agricultural Engineer, EUIA, Barcelona; Walnut Production Course, University of California, USA
∗Only Spanish nurseries with substantial own-production of budded walnut-trees
∗Only Spanish nurseries with substantial own-production of budded walnut-trees
∗Complete automatisation of the operations using the most modern machinery available in the USA
∗Complete automatisation of the operations using the most modern machinery available in the USA
∗Non-existence of personnel liabilities as all tasks are carried out by employees from Frusesa
∗Non-existence of personnel liabilities as all tasks are carried out by employees from Frusesa
∗Economies of scale in the use of equipment, personnel and of the processing plant, as well as for the purchasing of all raw materials
∗Economies of scale in the use of equipment, personnel and of the processing plant, as well as for the purchasing of all raw materials
∗Exhaustive control of costs, with continuous monitoring against Borges of California’s plantation in USA
∗Exhaustive control of costs, with continuous monitoring against Borges of California’s plantation in USA
∗Computer models for the control of pests and blights, optimisation of irrigation and prevention of frosts
∗Computer models for the control of pests and blights, optimisation of irrigation and prevention of frosts
∗Guarantee that the production will be marketed by the Borges Group
∗Guarantee that the production will be marketed by the Borges Group
∗Only company which has developed plantations for intensive cultivation of walnut-trees in Spain
∗Only company which has developed plantations for intensive cultivation of walnut-trees in Spain
IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 24

FRUSESA INVESTMENT PROPOSAL 1
INVESTMENT IN LAND, PLANTING AND CULTIVATION

∗Investment in irrigated agricultural land in Extremadura, as well as in the intensive planting and cultivation of walnut-trees on the land
∗Investment in irrigated agricultural land in Extremadura, as well as in the intensive planting and cultivation of walnut-trees on the land
∗Frusesa manages the plantation
∗Frusesa manages the plantation
∗Annual return to investor based on the profits of the plantations, after deducting the following management charges by Frusesa
∗Annual return to investor based on the profits of the plantations, after deducting the following management charges by Frusesa
−Ptas 20,000 per hectare adjusted annually by the Spanish GPI
−Ptas 20,000 per hectare adjusted annually by the Spanish GPI
−13% of NET profits
−13% of NET profits
∗The management contract between Frusesa and the investor will last aaminimum of 50 years (estimated life cycle of the walnut-tree)
∗The management contract between Frusesa and the investor will last minimum of 50 years (estimated life cycle of the walnut-tree)
∗Annual profitability (Ptas/hectare)
−Initial investment necessary
−Initial investment necessary 1,775,000 + Land (±1,100,000)
1,775,000 + Land (±1,100,000)
−Income full production year
−Income full production year 511,000
511,000
−Present value of income (5%)
−Present value of income (5%) 4,738,000 + Revaluation of land and plantation
4,738,000 + Revaluation of land and plantation
−Residual value
−Residual value Land + Plantation
Land + Plantation
∗Divestment mechanisms
−The investor could divest at any time in any way he considers appropriate through third parties
−Frusesa undertakes the obligation, ten year after the investment, to acquire the properties of the investor at aaprice equivalent to 15
−Frusesa undertakes the obligation, ten year after the investment, to acquire the properties of the investor at price equivalent to 15
times the cash-flow earned by the investor during the previous year
times the cash-flow earned by the investor during the previous year
∗Investment characteristics
−Investment in real estate recoverable at the end of the contractual period
−No income during the development stage and high but variable income during the period of full production
−No income during the development stage and high but variable income during the period of full production

IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 25

TAXATION IMPACT
TAX TAX TAX
BEFORE RATE RATE RATE
TAXES AT 25% AT 35% AT 56%
3000 2,875

2,452
2500
2,301

2000
1,983 ∗The tax effect isisaareduction on the requir-
∗The tax effect reduction on the requir-
ed initial investment of:
ed initial investment of:
REQUIRED
INITIAL
INVESTMENT
−14.7% for aatax rate of 25%
−14.7% for tax rate of 25%
(000 PTAS)
1500 −20.0% for aatax rate of 35%
Investment −31.0% for aatax rate of 56%
in land
1000

500

0

IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 26

INVESTMENT IN LAND

∗Investment in irrigated agricultural land in Extremadura
∗Management of the land by Frusesa, as well as all the investment necessary for the intensive planting and cultivation of walnut-trees on
the land
the land
∗Annual return to investor based on aafixed annual rental of 5% on the value of the land, adjusted annually by the Spanish GPI during the
∗Annual return to investor based on fixed annual rental of 5% on the value of the land, adjusted annually by the Spanish GPI during the
life of the plantation
life of the plantation
−Initial investment necessary Land (±1,100,000)
Land (±1,100,000)
−Annual income
−Annual income 55,000
55,000
−Residual value
Land + Plantation
−Frusesa undertakes the obligation, ten years after the investment, to acquire the properties of the investor at aaprice equivalent to
−Frusesa undertakes the obligation, ten years after the investment, to acquire the properties of the investor at price equivalent to
20 times the cash-flow earned by the investor during the previous year
−Moderate income but perfectly defined
−Moderate income but perfectly defined

IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 27

INVESTMENT IN LAND AND PLANTING

∗Investment in irrigated agricultural land in Extremadura, as well as in the intensive planting of walnut-trees on the land
∗Investment in irrigated agricultural land in Extremadura, as well as in the intensive planting of walnut-trees on the land
∗Management of the plantations by Frusesa, as well as all the investment necessary to develop the walnut-trees plantations
∗Management of the plantations by Frusesa, as well as all the investment necessary to develop the walnut-trees plantations
∗Annual return to investor based on the value of 50% of the obtained production
∗Annual return to investor based on the value of 50% of the obtained production
−Initial investment necessary 1,176,000 + Land (±1,100,000)
1,176,000 + Land (±1,100,000)
−Annual income
−Annual income 475,000
475,000
−Residual value
Land + Plantation
−Limited income during the development stage and high but variable income during the period of full production
−Limited income during the development stage and high but variable income during the period of full production

IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 28

INVESTMENT IN LAND

the land
the land
∗Annual return to investor based on aafixed annual rental of 2.5% on the value of the land, adjusted annually by the Spanish GPI, plus
∗Annual return to investor based on fixed annual rental of 2.5% on the value of the land, adjusted annually by the Spanish GPI, plus
15% of the obtained production
15% of the obtained production
−Initial investment necessary Land (±1,100,000)
Land (±1,100,000)
−Minimum annual income
−Minimum annual income 27,500
27,500
−Income full production year
−Income full production year 170,000
170,000
−Minimum income perfectly defined, with additional income varable and dependant on production achieved
−Minimum income perfectly defined, with additional income varable and dependant on production achieved

IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 29

FRUSESA INVESTOR EXPENDITURES/REVENUES
(1990 PTAS PER HECTARE)
YEA R PR O PO SA L 1 PR O PO S A L 2 PR O PO SA L 3 PR O PO S A L 4
0 -2 ,3 6 5 ,3 0 0 -1 ,1 0 0 ,0 0 0 -2 ,2 7 6 ,4 0 0 -1 ,1 0 0 ,0 0 0
1 -6 3 ,8 0 0 + 5 5 ,0 0 0 + 5 4 ,0 0 0 + 4 3 ,7 0 0
2 -6 9 ,2 0 0 + 5 5 ,0 0 0 + 5 4 ,0 0 0 + 4 3 ,7 0 0
3 -5 9 ,2 0 0 + 5 5 ,0 0 0 + 5 4 ,0 0 0 + 4 3 ,7 0 0
4 -1 2 6 ,5 0 0 + 5 5 ,0 0 0 + 6 5 ,9 0 0 + 4 7 ,3 0 0
5 -9 3 ,9 0 0 + 5 5 ,0 0 0 + 8 2 ,5 0 0 + 5 2 ,3 0 0
6 -9 6 ,7 0 0 + 5 5 ,0 0 0 + 9 5 ,0 0 0 + 5 6 ,0 0 0
7 + 9 7 ,7 0 0 + 5 5 ,0 0 0 + 2 0 1 ,9 0 0 + 8 8 ,0 0 0
8 + 32 5 ,2 0 0 + 5 5 ,0 0 0 + 3 3 2 ,5 0 0 + 1 2 7 ,3 0 0
9 + 58 7 ,6 0 0 + 5 5 ,0 0 0 + 4 7 5 ,0 0 0 + 1 7 0 ,0 0 0
10 + 58 7 .6 0 0 + 5 5 ,0 0 0 + 4 7 5 ,0 0 0 + 1 7 0 ,0 0 0
11 + 53 4 ,2 0 0 + 5 5 ,0 0 0 + 4 7 5 ,0 0 0 + 1 7 0 ,0 0 0
12 + 51 1 ,2 0 0 + 5 5 ,0 0 0 + 4 7 5 ,0 0 0 + 1 7 0 ,0 0 0

IN V E S T M E N T -2 ,8 7 5 ,0 0 0 -1 ,1 0 0 ,0 0 0 -2 ,2 7 6 ,5 0 0 -1 ,1 0 0 ,0 0 0
R E Q U IR E D

DIVESTMENT ON THE 10TH YEAR
S E L L IN G P R IC E + 8 ,8 1 5 ,0 0 0 + 1 ,1 0 0 ,0 0 0 + 7 ,1 2 5 ,0 0 0 + 1 ,7 0 0 ,0 0 0
-N P V (5 % )
3 ,2 9 0 ,0 0 0 0 3 ,1 0 9 ,0 0 0 4 4 3 ,0 0 0
10 YEA R S
-R E A L IR R
10 YEA R S % 1 4 .1 5 .0 1 5 .3 9 .2

NO DIVESTMENT
-N P V (5 % ) 3 ,7 3 4 ,0 0 0 0 4 ,1 2 6 ,0 0 0 1 ,3 9 0 ,0 0 0
50 YEA R S
-R E A L IR R
9 .8 5 .0 1 1 .3 1 0 .0
50 YEA R S %

(£1=Pts 180, $1=Pts 90, FF1=Pts 20, SFR=Pts 75)
IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 30

FRUSESA INVESTMENT PROPOSALS SUMMARY
(1990 PTAS PER HECTARE)
PROPOSAL 1 PROPOSAL 2 PROPOSAL 3 PROPOSAL 4
INVESTMENT REQUIRED
LA N D 1 ,1 0 0 ,0 00 1 ,1 1 0 ,0 0 0 1 ,1 0 0 ,0 0 0 1 ,1 0 0 ,0 0 0
IR R IG A T IO N S Y S T E M S 50 4 ,7 00 FR U SESA 5 0 4 ,7 0 0 FR U SESA
P L A N T IN G 67 1 ,7 00 FR U SESA 6 7 1 ,7 0 0 FR U SESA
A L F A L F A C U L T IV A T IO N 2 6 ,9 00 FR U SESA FRU SESA FR U SESA
M A N A G EM EN T 2 0 ,0 00 FR U SESA FRU SESA FR U SESA
C U L T IV A T IO N + 4 2 ,1 00 FR U SESA FRU SESA FR U SESA
G EN ERA L EX PEN SES
F IR S T Y E A R 2 ,3 6 5 ,4 0 0 1 ,1 0 0 ,0 0 0 2 ,2 7 6 ,4 0 0 1 ,1 0 0 ,0 0 0
IN V E S T M E N T
R E M A IN IN G IN V E S T M E N T 5 0 9 ,7 0 0 FRU SESA FRU SESA FRU SESA
(6 Y E A R S )
O V E R A L L IN V E S T M E N T 2 .8 7 5 ,1 0 0 1 ,1 0 0 ,0 0 0 2 ,2 7 6 ,4 0 0 1 ,1 0 0 ,0 0 0
R E Q U IR E D
PROFITABILITY ESTIMATES
A N N U A L IN C O M E 87% OF 5 5 ,0 0 0 P t s /H A . 50% OF CROPS 2 7 ,5 0 0 P t s /H A .+
P R O F IT S 15% OF CROPS
P O S IT IV E R E V E N U E S Y E A R 7 (* ) YEA R 1 YEA R 1 YEA R 1
A FTER
IN C O M E F U L L P R O D U C - 5 8 7 ,6 0 0 5 5 ,0 0 0 4 7 5 ,0 0 0 1 7 0 ,0 0 0
T IO N Y E A R
REVEN U ES FRO M 8 ,8 1 5 ,0 0 0 1 .1 0 0 ,0 0 0 7 ,1 2 5 ,0 0 0 1 ,7 0 0 ,0 0 0
O P T IO N A L D IV E S T M E N T
IN Y E A R 1 0
R E A L IR R 1 0 Y E A R S 1 4 .1 % 5 .0 % 1 5 .3 % 9 .2 %
R E A L IR R 5 0 Y E A R S 9 .8 % 5 .0 % 1 1 .3 % 1 0 .0 %

(*) This proposal generates tax advantages during the initial years
IDM ESPAÑOLA, S.A.
AZ/10/05/AAA/070/ 31

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