Business Valuation

You have been engaged by the OzApu Pte Ltd (‘OzApu’ or ‘the company’) to determine the
fair market value of 100% issued shares of the company as at 31 December 2014 (‘valuation
date’). The purpose of the valuation is to assist the company in its deliberation of the
prospective sale of the equity stakes to new strategic investor. The deliverable for this
valuation engagement will be in the form of a valuation report, documenting the entire
valuation process, to be issued to the company.
B. Information on OzApu
OzApu was founded in 1995 by Madam VA, a legendary expert in the flavour and fragrance
industry in the region. The Singapore-based company manufactures and distributes a wide
range of flavours and fragrances in Asia. OzApu has grown progressively over the past 19
years and currently has operation presence in 17 countries. With its strong distribution
network and efficient marketing strategies, the company has gained significant market share
in China, Malaysia, Singapore, Thailand and Vietnam.
OzApu has achieved good financial results for the past three years from 2012 to 2014 which
are largely attributed to the sharp increase in demand for flavours and food as well as the
workings of its strong distribution network. Due to its strong performance, the company has
had many suitors over the years. Madam VA, the founder of the company, is well aware of
these interests and is recently contemplating to sell some of the shares in OzApu to a new
strategic investor who can help to contribute to the company’s next phase of growth.
Historically, the company has experienced strong organic growth, however, Madam VA
believes that in moving forward, to chart the next growth phase, the company will need to
exit from the existing ‘family run’ model and enter into a ‘professionally managed’ setup.
Therefore, the introduction of a new strategic investor with a good management record, who
can provide such expertise and skill sets, will be a welcoming move to enable OzApu to
further strengthen its position in the marketplace.
Against this backdrop, the management of the company has started the process of searching
and identifying such strategic investors and is at the stage of finalising and shortlisting the
investors. The discussions with the shortlisted investors are expected to be carried out in
about five weeks’ time. In view thereof, the management would like to have a valuation of
the company conducted on a standalone basis and the valuation results to be ready for
discussions with the potential strategic investors.
C. Financial Performance
The following table presents the profit and loss of OzApu for the past three years from 2012
to 2014:
Profit and Loss 31-Dec-12 31-Dec-13 31-Dec-14
Actual Actual Actual
S$000 S$000 S$000
Sales 37,618 38,781 40,608
Cost of sales (21,818) (22,493) (23,147)
Gross profit 15,800 16,288 17,461
General & administrative expenses (2,445) (3,102) (4,061)
EBITDA 13,355 13,186 13,400
Depreciation expense (2,257) (1,939) (1,584)
EBIT 11,098 11,247 11,816
Interest expense (1,280) (1,500) (1,700)
Interest income 33 87 68
Other income 60 32 95
Profit before tax 9,911 9,866 10,279
Income tax expense (1,685) (1,677) (1,747)
Net profit after tax (NPAT) 8,226 8,189 8,532
In relation to the above financial results, management of OzApu has advised the following:
 Cost of sales for 2012 included an amount of S$1 million relating to one particular
order that was damaged due to improper packaging during shipment to Vietnam.
OzApu could not claim this amount from either the insurance company or shipping
company. This was the first time in the history of OzApu that the packaging had not
been done properly and the company has taken steps to ensure that such incident will
not happen again.
 General and administrative expenses for 2013 include a one-off donation to charities
in the amount of S$0.97 million.
 General and administrative expenses for 2014 include an amount of S$2.2 million that
OzApu has paid to settle a dispute on a distribution agreement with one of its
The management of OzApu anticipates that in order to meet market demand, the company
will have to increase capacity going forward and expects to incur capital expenditure of S$5.5
million and S$7.5 million in 2015 and 2018 respectively. The management expects the
industry to continue to grow at a rate of 3% in the long term. Corporate tax rate is currently
at 18% and the management has prepared a five-year business plan with a financial forecast
for 2015 to 2019 as shown in the table below:
Profit and Loss
31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19
S$000 S$000 S$000 S$000 S$000
Sales 43,200 45,360 47,401 48,823 50,532
Cost of sales (23,760) (24,948) (26,071) (26,853) (27,793)
Gross profit 19,440 20,412 21,330 21,970 22,739
General &
administrative expenses
(3,024) (3,175) (3,318) (3,418) (3,537)
EBITDA 16,416 17,237 18,012 18,522 19,202
Depreciation expense (2,160) (2,268) (2,370) (2,441) (2,527)
EBIT 14,256 14,969 15,642 16,111 16,675
Interest expense (1,700) (1,400) (1,110) (1,260) (1,440)
Interest income 90 60 210 60 176
Other income 143 259 345 540 600
Profit before tax 12,789 13,888 15,087 15,451 16,011
Income tax expense (2,302) (2,500) (2,716) (1,781) (2,882)
Net profit after tax 10,487 11,388 12,371 12,670 13,129
D. Financial Position
Below is the summary of the company’s Balance Sheet as at 31 December 2012, 2013 and
Balance Sheet 31-Dec-12 31-Dec-13 31-Dec-14
Actual Actual Actual
S$000 S$000 S$000
Cash 2,200 3,472 4,500
Receivables 6,500 8,903 10,485
Prepayments and other receivables 2,500 2,800 8,700
Investment in quoted shares 3,500 3,500 3,500
Property 47,000 46,000 50,000
Plant & equipment 16,000 21,254 22,601
Inventory 3,600 2,700 2,075
Total Assets 81,300 88,629 101,861
Payables 5,000 5,500 7,500
Accruals and other payables 3,860 4,500 3,200
Borrowings 32,000 30,000 34,000
Total Liabilities 40,860 40,000 44,700
Net Assets 40,440 48,629 57,161
Shareholders’ equity
Share capital 20,000 20,000 20,000
Retained earnings 20,440 28,629 37,161
Total shareholders’ equity 40,440 48,629 57,161
As at valuation date, there were no material surplus assets, other than investment in quoted
shares that the company had acquired in 2011 for S$3.5 million.
As at 31 December 2014, the company held approximately 0.45 million shares in various
listed companies. The market values of these investments are as follows:
of Shares
Market Price As Total Market
of Valuation Date Value
Held (‘000) (S$) (S$’000)
A B A x B
Investment in quoted shares
Company A 100 6 600
Company B 50 10 500
Company C 300 15 4,500
Total 5,600
Based on discussions with the management of OzApu and upon carrying out the research, a
list of six comparable companies has been finalized:
S/N Company Description
1 Alan Flavour &
Fragrance Ltd
Alan Flavour & Fragrance Ltd
manufactures and distributes various
types of flavour and fragrance that are
used in beverage, dairy, confectionery,
biscuit, shampoo, toilet soap, shower gel,
perfume, etc.
2 Ngoc 2F Ltd Ngoc 2F Ltd is one of the industry leaders
in supplying flavours and fragrances to the
food industry.
3 Bao F&F Ltd Bao F&F Ltd, through its subsidiaries,
manufactures and sells a variety of high
quality flavours and fragrance to
customers in various industries including
food, beverage, pharmaceutical, food
additive, and cosmetic.
4 Super Flavour
Super Flavour Ltd manufactures and
exports flavours. Some of its famous
brands include Thom, Huong and Tuyet
Voi. Its flavours are used in soft drinks,
desserts, confections and dairy products.
5 Nhu Fragrance
Holdings Ltd
Nhu Fragrance Holdings Ltd
manufactures fragrances for perfumes,
cosmetics, shampoos, detergents, air
fresheners, and bath products.
6 Ocean F2 Ltd Ocean F2 Ltd manufactures and export
flavours and fragrances.
Based on publicly available information, the trading valuation multiples of comparable
companies are shown below.
S/N Company EV/EBITDA(x) EV/EBIT(x) P/E(x) P/B(x)
1 Alan Flavour & 7.3 9.8 10.8 1.5
Fragrance Ltd
2 Ngoc 2F Ltd 8.1 10.8 11.1 1.7
3 Bao F&F Ltd 7.8 10.2 11.3 1.8
4 Super Flavour Ltd 8.2 9.9 10.1 1.6
5 Nhu Fragrance Holdings 7.6 10.6 10.9 1.7
6 Ocean F2 Ltd 8.1 9.5 9.8 1.6
There were four mergers and acquisitions transactions in relation to the comparable
companies for the past two years prior to the valuation date. The implied multiples derived
from these transactions are shown below.
Acquirer Acquiree Acquired(%) Completion EV/EBITDA(x)
1 Deloin Capital Alan Flavour & 67 3 Jun 14 9.3X
Fragrance Ltd
2 Lee Hoang Ltd Ngoc 2F Ltd 80 25 Nov 13 8.7X
3 Tony Venture Bao F&F Ltd 87 2 Jul 14 10.1X
4 Anh Van Asia Super Flavour 90 1 Dec 14 9.5X
Fund Ltd
At present, the financial market remains volatile, and the 10 year government bond yield is
currently at 4.5%, the long term market risk premium at 6% and the borrowing rate in the
market at 6.0%. Based on the research of the comparable companies, the industry median
beta is determined to be 1.2.