Bppl Holdings Limited Research Report

BPPL HOLDINGS LIMITED RESEARCH REPORT

02ND DECEMBER 2016

Prepared By:

CT CLSA Capital (Pvt) Ltd. A CT Holdings Group and CLSA Group Company

The preparer of the research report possesses the requisite expertise to prepare reports of this nature involving a company quoted under Consumer Discretionary Sector

B P P L Holdings Limited - Initial Public Offering | 117 TABLE OF CONTENTS

LIST OF ABBREVIATIONS 119 KEY HIGHLIGHTS 121 OBJECTIVE OF THE REPORT 121 01. THE COMPANY: BPPL HOLDINGS LIMITED 122 02. FINANCIAL ANALYSIS 143 03. INTERIM FINACIAL PERFORMANCE 151 04. FINANCIAL FORECASTS AND OUTLOOK 152 05. VALUATION 158 06. RESEARCH TEAM - CT CLSA CAPITAL (PVT) LTD 168 RESEARCH REPORT ANNEXURE 01: BPPL PEER COMPANY PROFILES 169 RESEARCH REPORT ANNEXURE 02: BPPL SUMMARY FINANCIALS 171 RESEARCH REPORT ANNEXURE 03: ASSUMPTIONS USED IN FORECAST AND OUTLOOK SECTION 175

118 | B P P L Holdings Limited - Initial Public Offering LIST OF ABBREVIATIONS

BBL : Beira Brush Limited

Bn : Billion

BPPL : BPPL Holdings Limited

BOI : Board of Investment of Sri Lanka

Bps : Basis Points

BSF : Beira Synthetic Fibre (Private) Limited

CAGR : Compounded Annual Growth Rate

Capex : Capital Expenditure

CBSL : Central Bank of Sri Lanka

CEO : Chief Executive Officer

COO : Chief Operating Officer

CoS : Cost of Sales

CSE : Colombo Stock Exchange

DCF : Discounted Cash Flow

EBIT : Earnings Before Interest and Tax

EBITDA : Earnings Before Interest, Tax, Depreciation and Amortization

EIA : Energy Information Agency

EPS : Earnings per Share

ERP : Enterprise Resource Planning

EU : European Union

EV : Enterprise Value

FY : Financial Year

FSC : Forest Stewardship Council

GDP : Gross Domestic Product

GNI : Gross National Income

GoSL : Government of Sri Lanka

GPM : Gross Profit Margin

B P P L Holdings Limited - Initial Public Offering | 119 GSP+ : Generalized Scheme of Preferences

HEXP : Hayleys Fibre PLC

IMF : International Monetary Fund

IPO : Initial Public Offering

LDPE : Low Density Polyethylene Terephthalate

LEED : Leadership in Energy and Environmental Design

LKR : Sri Lankan Rupee

Km : Kilometer

MGT : Hayleys Fabric PLC

Mn : Million

NPV : Net Present Value

OHSAS : Occupational Health and Safety Management Systems

PBT : Polybutylene Terephthalate

PER : Price to Earnings Ratio

PET : Polyethylene Terephthalate

PLC : Public Limited Company

PP : Polypropylene

PPE : Property, Plant and Equipment

PwC : PricewaterhouseCoopers

REXP : Richard Pieris Exports PLC

ROE : Return on Equity

TJL : Teejay Lanka PLC

UK : United Kingdom

USA : United States of America

USD : United States Dollar

YoY : Year over Year

120 | B P P L Holdings Limited - Initial Public Offering KEY HIGHLIGHTS

• Established in 1991, BPPL Holdings Limited (BPPL) is a leading brush manufacturer in Sri Lanka and is well positioned in the international market place serving blue chip customers such as Tesco, Oates, Carrefour and The Home Depot • Has displayed strong financial performance – revenue growth at a 4-year CAGR of 10% and recurring net profit growth at a CAGR of 22% (FY12-16) • Extensive process of streamlining business operations leading to operating margin expansion of over 600bps to 17% in FY16 from 11% in FY12. While 41% of margin expansion in FY16 (vs. FY15) was owing to operational efficiencies the remaining was a result of lower raw material costs and currency depreciation • Strong growth potential in marketing own brands in the Southeast Asian region - BPPL launched Tip Top and Jab in Sri Lanka and Indonesia to cater to increasing demand for high-quality durable cleaning tools from the growing middle income population in the region • BPPL is extending its monofilament extrusion expertise by expanding operations to the largely untapped synthetic yarn manufacturing industry. Current demand from the Sri Lankan fabric manufacturers for synthetic yarn is estimated to be 600 tons per month • BPPL’s existing business in the price inelastic and stable brush manufacturing industry enables it to record continuous growth without compromising on price • Strong commitment to ethics and sustainable operations reflected through its wide range of certifications such as OHSAS 18001, ISO 14001:2004, Forest Stewardship Council (FSC), Leadership in Energy and Environmental Design (LEED) • Proven management team possessing industry expertise; majority of senior management has worked with the Company for over 20 years • A low debt/equity ratio of 0.24x and high interest cover of 11.7x in FY16 reflects a strong balance sheet, with further borrowing capacity • The Issue is attractively priced at a Price to Earnings Ratio (PER) of 8.5x for FY17E and 7.1x for FY18E, at a discount to the listed industry peers and broader market

OBJECTIVE OF THE REPORT The objective of this report is to validate the Issue Price of the Initial Public Offering (IPO) of BPPL, through an extensive analysis of the industry, BPPL’s financials, and forecasts and outlook for the Company.

Following are the details of the IPO:

• The objective of the proposed IPO is to facilitate a partial sell down by Hirdaramani Investment Holdings (Pvt) Ltd. The controlling shareholder (Infinity Capital (Pvt) Ltd.) will continue to hold its stake in the Company • To raise LKR 368.2 Mn through an Offer for Sale • Issue 30,685,000 existing shares at LKR 12.00 per Share, representing a 10.0% stake of the total share capital • The cost of IPO is estimated to be LKR 15 Mn (borne by the selling shareholder)

B P P L Holdings Limited - Initial Public Offering | 121 01. THE COMPANY: BPPL HOLDINGS LIMITED

1.1 TIMELINE

BPPL was established in 1991, with the controlling shareholder being Moosajees (Private) Limited. This was following the transfer of activities from Interbrush Lanka Limited (which was established in 1984) into Beira Parawood Products (Private) Limited and Beira Brush (Private) Limited (BBL). Beira Synthetic Fibre (Private) Limited (BSF), a Company focused on the production of monofilaments for brushes joined the Group in 2003, while Beira Enviro Solutions (Private) Limited, a Company that focuses on the manufacture of recycled monofilaments was introduced to the Group in 2010. In 2012, Infinity Capital (Pvt) Ltd., Hirdaramani Investment Holdings (Pvt) Ltd. and LOLC Investments Limited acquired the Group from Moosajees (Private) Limited. In 2013, the Company divested BSF and transferred its operations and sold its usable assets to BES in order to consolidate the monofilament extrusion business under a single entity. The Group expects to expand its operations into the manufacture of synthetic yarn for the fabric manufacturing industry in FY19, through BES.

Interbrush Lanka 1984 Limited established

The Beira Group established with Interbrush’s 1991 activities transferred to BPP/BBL

BSF joins The 2003 Beira Group

BES joins The 2010 Beira Group

Infinity Capital led Consortium 2012 acquires The Beira Group

BSF divested 2013

BPPL Enterprises 2015 established as a trading arm

The Beira Group rebranded as BPPL 2016 Holdings Limited

Source: BPPL

122 | B P P L Holdings Limited - Initial Public Offering 1.2 Group Overview

BPPL engages in the production of unprocessed, semi-processed and processed cleaning

1.2 GROUPtools OVERVIEW and janitorial products, with majority of the products being exported to reputed brands such as Oates, Grainger and Rubbermaid. BPPL carries out operations in a BPPLsustainable engages in theand production eco-friendly of unprocessed, manner semi-processed providing Forestand processed Stewardship cleaning toolsCouncil and janitorial(FSC) products,certified with majoritywood, recycledof the products or virgin being exportedplastic, tonatural reputed and brands synthetic such as Oates, fibre Grainger based andproducts Rubbermaid. and BPPL carries out operations in a sustainable and eco-friendly manner providing Forest Stewardship Council (FSC) certifiedhas wood,Leadership recycled in or virginEnergy plastic, and naturalEnvironmental and synthetic Design fibre based (LEED products) certified and has factory Leadership buildings. in Energy and TheEnvironmental Group benefits Design (LEED)as its existingcertified factory business buildings. is in aThe relatively Group benefits price asinelastic its existing market business, which is in a relativelyallows price the inelastic Company market, to whichcontinue allows to thegrow Company without to continue compromising to grow without on price. compromising on price.

Wooden/Plastic Backs Natural / Synthetic Brushes Fibre

1.3 GROUP STRUCTURE 1.3 Group Structure

Hirdaramani Investment Holdings Infinity Capital LOLC Investments (Pvt) Ltd. (Pvt) Ltd. Limited

BPPL Holdings Limited (BPPL)

Beira Enviro Beira Brush (Private) Solutions (Private) BPPL Enterprises Limited (BBL) Limited (BES) (Private) Limited

Note: In July 2016, 100% ownership of BES was transferred to BPPL, which was formerly held by BBL Source: BPPLSource: BPPL 1.4 Revenue Segments and Product Portfolio

Note: In July 2016, 100% ownership of BES was transferred to BPPL, which was formerly held by BBL 8

B P P L Holdings Limited - Initial Public Offering | 123

B P P L Holdings Limited Revenue Composition - By Product generates its revenue through Exports and Local Sales. FY16 1.4 REVENUE SEGMENTS AND PRODUCT PORTFOLIO2.0 Group exports accounted for 3.9

14.7 4.4 1.2 Brush Exports (Generic) approximatelyBPPL generates 98.0% its revenueof total through B P P L Holdings Limited Brush Exports (Branded) revenueExports in andFY16 Local with Sales. the Group 22.3 Revenue Composition - By Product exportsgen eratesaccounted its forrevenue approximately through 0.7 Wood Exports remainder earned through FY16FY12 98.0%Exports of total revenueand inLocal FY16 withSales. 0.0 Fibre Exports local sales. Within the Export 3.9 2.0 the Groupremainder exports earned accountedthrough local for 72.1 Local Sales (Tip Top, Wood) segment,sales. theWithin Group the Export markets segment, a the 14.7 4.4 1.2 Brush Exports (Generic) approximately 98.0% of total 78.7 varietyGroup marketsof a varietyproducts of products 22.3 Brush Exports (Branded) revenue in FY16 with the Source: Company Financials categorized under Brush, Wood and Wood Exports categorized under Brush, 0.7 FY12 Fibre.remain A significantder earned portion through(78.7% Wood and Fibre. A significant portion (78.7% in0.0 FY16) of BPPL‟s revenue wasFibre generated Exports in localFY16) salesof BPPL’s. Within revenue the Exportwas 72.1 Local Sales (Tip Top, Wood) throughgeneratedsegment, exports through theof exportsGroupGeneric of markets Generic brushes a (manufactured according to the customer‟s requirementsbrushes (manufacturedand the customer‟s according brand stamped on the product)78.7 . BPPL ventured to the variety of products Brandedto the brush customer’s segme requirementsnt in FY15, and where the Group manufactures the productsSource: according Company Financials categorized under Brush, to theirthe owncustomer’s specifications brand stamped and markets on them with the Company‟s own brand. In FY16, the Woodproduct). and BPPL Fibre. ventured A significant to the portion (78.7% in FY16) of BPPL‟s revenue was generated branded brushes accounted for 0.7% of total revenue. Wood and Fibre Exports accounted Brandedthrough brush segmentexports in ofFY15, Generic where the brushesGroup manufactures (manufactured the products according according toto their the own customer‟s specifications for 14.7% and 3.9% of total revenue, respectively, while sales of wood and brushes within andrequirements markets them with and the the Company’s customer‟s own brand.brand In stamped FY16, branded on the brushes product) accounted. BPPL for 0.7%ventured of total torevenue. the Sri LankaWood amounted and Fibre Exports to 2.0%. accounted for 14.7% and 3.9% of total revenue, respectively, while sales of wood and Branded brush segment in FY15, where the Group manufactures the products according brushes within Sri Lanka amounted to 2.0%. to their own specifications and markets them with the Company‟s own brand. In FY16, On a geographic basis, the brandedRevenue Compositionbrushes accounted - By Geography for 0.7% of total revenue.On Wooda geographic and Fibre basis, Exports the largest accounted revenue largestgenerator revenue for the Group generator was USA foraccounting for for 14.7% and 3.9% of total revenue,USA respectively, while sales of wood and brushes within 7.2 theover 70%Group of total revenuewas in FY16.USA Although the FY16 Sri Lanka2.0 amounted to 2.0%. Canada 4.3 6.9 composition remains broadly the same between 1.9 1.2 accounting for over 70% of 3.2 Australia & New Zealand FY12 and FY16, BPPL has seen an increase in 0.5 9.1 total revenue in FY16. 9.8 share of revenueOn a fromgeographic Sri Lanka tobasis, 2.0% inthe FY16 Revenue Composition - By EuropeGeography (Excl. UK) Although the composition FY12 from 1.2% in FY12. This is primarily owing to 2.2 5.2 UK largest revenue generator for USA remainsthe introduction broadly of the theTip Topsame brand for the 7.2 Sri Lanka the Group was USA FY16 2.0 73.2 Canada Sri Lankan market in 2015. Furthermore, the 4.3 6.9 between FY12 and FY16, BPPL 1.9 1.273.4 Other Group expectsaccounting growth forin emergingover 70% markets of 3.2 Australia & New Zealand 0.5 has seen an increase in share 9.1 driven bytotal the introduction revenue of brandedin productsFY16. 9.8 Europe (Excl. UK) of revenue from Sri Lanka to in IndonesiaAlthough in April 2016the and Malaysiacomposition in FY19. FY12 Source: Company Financials 2.2 5.2 UK 2.0% in FY16 from 1.2% in remains broadly the same FY12. This is primarily owing to the introductionSri Lanka of the Tip Top brand for the Sri Lankan 73.2 between FY12 and FY16, BPPL 1.5market SALES in 2015. ORDER Furthermore, PROCESS the 73.4Group expectsOther growth in emerging markets driven by has seen an increase in share the introduction of branded products in Indonesia in April 2016 and Malaysia in FY19. The sales process at BPPL begins with the receipt of an order from a customer,of revenue following fromwhich Srithe requirementsLanka to Source: Company Financials are forwarded to the factories. The orders are made based on either customer-provided2.0% in FY16 designsfrom or1. 2in-house% in

designedFY12. moulds. This is Following primarily the owing order receipt, to the any introduction inter-company of raw the materials Tip Top required brand tofor meet the these Sri Lankan orders are requested from the relevant company. The products go through an extensive quality check procedure during the market in 2015. Furthermore, the Group expects growth in emerging markets driven by manufacturing process, with the quality controllers / supervisors of BPPL certifying the products at each stage. Oncethe packed introduction the product of isbranded then transported products in containersin Indonesia to be in shipped. April 2016Given and that Malaysiaover 95% of in Group FY19. revenue 1.5 Sales Order Process is earned overseas, BPPL has a significant exposure to the USD. Meanwhile, 30.0% of cost of sales was incurred in USD in FY16 (for raw material imports). 9

1.5 Sales Order Process

124 | B P P L Holdings Limited - Initial Public Offering

The sales process at BPPL begins with the receipt of an order from a customer, following which the requirements are forwarded to the factories. The orders are made based on either customer-provided designs or in-house designed moulds. Following the order receipt, any inter-company raw materials required to meet these orders are requested from the relevant company. The products go through an extensive quality check procedure during the manufacturing process, with the quality controllers / supervisors of BPPL certifying the products at each stage. Once packed the product is then transported in containers to be shipped. Given that over 95% of Group revenue is earned overseas, BPPL has a significant exposure to the USD. Meanwhile, 30.0% of cost of sales was

1.6 BUSINESSincurred in OPERATI USD inONS FY16 (for raw material imports).

BPPL and1.6 its Business subsidiaries Operations operate as follows:

• B PBPPL P L HoldingsHoldings Limited and its (Formerly subsidiaries known operate as Beira Parawood as follows: Products (Private) Limited) – Manufacture of wooden backs  B P P L Holdings Limited – Manufacture of wooden backs • Beira Beira Enviro Enviro Solutions Solutions (Private) Limited(Private) – Manufacture Limited – ofManufacture fibre and yarn of (expected fibre and to commence yarn (expected in FY19) • Beirato Brush commence (Private) Limitedin FY19) – Manufacture of brushes, plastic backs and mops  • Beira BeiraEnterprises Brush (Private) (Private) Limited Limited – A trading – Manufacture arm for BPPL of brushes, plastic backs and mops  Beira Enterprises (Private) Limited – A trading arm for BPPL Current Manufacturing Process from Raw Material to Finished Goods Current Manufacturing Process from Raw Material to Finished Goods

Raw Material Work in Progress Finished Goods

 Polypropylene (PP)  Low-Density Produce

Polyethylene (LDPE) Filaments

 Recycled PET Produce Recycled  Recycled PP Monofilaments  Nylon/ Poly Butylene

Terephthalate (PBT) Beira Sold Directly to Produce Wooden End Customer Brush  Rubber Wood Brushes, Handles

Produce  PP & Recycled PP Plastic Backs

 Natural Fibre Produce Brushes

Source: BPPL

1.6.1 B P P L Holdings Limited (BPPL) (Wooden Backs)

B P P L Holdings Limited - Initial Public Offering | 125

BPPL engages in the production of wooden backs, using timber (rubber). The Company manufactures wooden backs of different shapes, sizes and colours, part of which is

1.6.1 directlyBPPL HOLDINGS exported LIM (49.2ITED% (BPPL) of revenue (WOODEN in FY16)BACKS). The remaining is sold to BBL for the manufacture of cleaning tools. BPPL engages in the production of wooden backs, using Factory Details timberBPPL (rubber).pays close The Companyattention manufactures to the wooden FactoryBPPL: Details Ingiriya, Kalutara backs of different shapes, sizes and colours, part of Location sourcing of its raw materials and Saw Mill: Padukka which is directly exported (49.2% of revenue in FY16). BPPL: Ingiriya, Kalutara Location is thus certified by the Forest BPP: 10 acres (Freehold) The remaining is sold to BBL for the manufacture of Area Saw Mill: Padukka Saw Mill: 140 perches (Freehold) cleaningStewardship tools. Council (FSC), an BPP: 10 acres (Freehold) Area BPPL Area 87,666Saw square Mill: feet 140 perches independent, non-profit (Freehold) BPPL pays close attention to the sourcing of its Saw Mill Area 6,926 square feet organization that protects forests BPPL Area 87,666 square feet raw materials and is thus certified by the Forest Monthly Capacity 1.1 Mn long feet Stewardshipfor future Council generations. (FSC), an independent, The non- Saw Mill AreaCapacity 6,926 square feet profitCompany organization also has that the protects Chain forests-of- for future Utilization 78.0% - Single Shift generations.Custody CertifThe Companyication byalso SGS,has the MonthlyChain-of- Capacity(Avg. Jan-June 16) 1.1 Mn long feet Custody Certification by SGS, which suggestsCapacity that the Utilization (Avg. Jan- which suggests that the wood 78.0% - Single Shift wood used by BPPL is sourced from well-managedJune 16) used by BPPL is sourced from forests or other controlled sources. well-managed forests or other controlled sources.

Manufacturing Process Process

Sawing and Processed Uprooting of Chemical Kiln Drying of Rubber Trees Wooden Backs Treatment of Wood (not conducted by Wood BPPL)

Chain-Of-Custody Certification (SGS)

Forest Stewardship Council certified Source: BPPL (FSC)

126 | B P P L Holdings Limited - Initial Public Offering 1.6.2 Beira Enviro Solutions (BES) (Fibre)

Fibre used in the brushes and brooms is manufactured by Beira Enviro Solutions, a Board of Investment (BOI) approved Company. The Company currently enjoys the benefit of a 1.6.2 BEIRAtax holiday; ENVIRO however, SOLUTIONS it is(BES) expected (FIBRE) to end in FY18. BES is primarily involved in the

Fibremanufacture used in brushes of high and quality brooms syn is theticmanufactured filament. by BESBeira directlyEnviro Solutions, exported a Board8.2% ofof itsInvestment revenue (BOI) approved(FY16), Company.while Thethe Company remainder currently enjoysis sold the benefit to of BBLa tax holiday;and however,other it islocal expected brush to end in FY18.manufacturers/exporters. BES is primarily involved in the manufacture of high quality synthetic filaments. BES directly exported 8.2% of its revenue (FY16), while the remainder is sold to BBL and other local brush manufacturers/exporters. ManufacturingManufacturing Process Process of Monofilaments of Monofilaments

Feeding Crystalizing Extruding Quenching Stretching Relaxing

Wrapping & Packing Flagging Cutting Winding Crimping Combing

Source: BPPL Feeding: Process of feeding polymers into the Feeding: Process of feeding polymers into Factory Details extruder through dosing units the extruder through dosing units Factory Details Crystalizing: Process where a solid forms (i.e. Location Horana theCrystalizing: atoms or molecules Process are where highly a organizedsolid forms in a LocationArea HoranaExtruder: 1.7 acres (Freehold) structure(i.e. the knownatoms as or a crystal).molecules Here, are the highlymoisture ExtruderWashing: 1.7 Plant: acres 3 Acres contamination of the PET flakes is also reduced (99 Year Lease) organized in a structure known as a (Freehold) Extruding: A softened blank of Polyethylene Floor Area Extruder: 29,312 square feet crystal). Here, the moisture contamination Terephthalate (PET) / Polypropylene (PP) / Nylon Area Washing Plant: 27,300 square feet materialof the PET is forced flakes through is also reducedspinnerets to produce Washing Plant: 3 Acres (99 Monthly Capacity PET Filaments: 80 tons continuousExtruding: filaments A softened blank of Year Lease) PP Filaments: 28 tons Quenching:PET/PP/N Aylon rapid coolingmaterial of the ismelt toforced obtain Extruder: 29,312 square certainthrough properties. spinnerets A type to of produce heat treating, continuous quenching feet Washing Plant: 100 tons prevents undesired low-temperature processes, such FloorCapacity Area Utilization PET Filaments: 79.0% - 2 Shifts asfilaments phase transformations from occurring (Avg. Jan-June 16) WashingPP Filaments: Plant: 68.0% 27,300 - 2 Shifts Stretching:Quenching: A Adrawing rapid coolingprocess toof obtainthe melt certain to square feet Washing Plant: 65.0% - Single Shift dimensionalobtain certain and physical properties. properties A type of the of filaments heat PET Filaments: 80 tons Monthly Relaxingtreating, / Annealing:quenching Heatprevents treatment undesired process to PP Filaments: 28 tons alter the physical and chemical properties of the filamentsCapacity low-temperature processes, such as phase Washing Plant: 100 tons Crimping: Transformation of filament dimensional properties from level form to wave form PET Filaments: 79.0% - 2 Winding:transformations Collecting filamentsfrom to bobbinsoccurring Shifts WrappingStretching: & Combing: A drawing Wrapping process is a process to obtain of holding Capacity the filaments by stretch film & Combing is a process of Utilization PP Filaments: 68.0% - 2 separatingcertain anddimensional scrubbing the filamentsand physical (Avg. Jan-June Shifts Cutting:properties Cut theof thefibre filaments according to order requirements Flagging: Process of making filaments softer 16) Washing Plant: 65.0% - Packing:Relaxing/Annealing: Filling cartons with Heat finished treatment filaments Single Shift process to alter the physical and chemical BES uses recycled and virgin material in the production of fibre. While majority of its production uses PET (recycled)properties and of Polypropylene the filaments (virgin), the Company also uses Polybutylene Terephthalate (PBT), Low Density Polyethylene Terephthalate (LDPE) and Nylon in its production process. 12 The recycling of PET material is conducted at BES’s washing plant using consumer and industrial waste PET bottles collected across the country. BES currently has the first-mover advantage and therefore benefits due to its extensive supplier-base, particularly in the collection of used water and soft drink bottles. The bottles collected are washed and recycled in a factory in Horana, which covers a floor area of 27,300 square feet. BES’s plant is currently the only operation in Sri Lanka that recycles PET flakes. BES uses approximately 70-80 tons of PET bottles per month for recycling, which accounts for approximately 10.0% of raw PET bottle supplies in the country.

The monofilaments extruded using the recycled and virgin material differ from size (diameter from 0.25mm onwards), profiles and shapes (oval, x and triangle), and may be flaggable or unflaggable and level or crimped. The Company also manufactures single and tri hollow filaments with a 0.18mm diameter, for the paint brush industry.

B P P L Holdings Limited - Initial Public Offering | 127 Crimping: Transformation of filament dimensional properties from level form to wave form Winding: Collecting filaments to bobbins Wrapping & Combing: Wrapping is a process of holding the filaments by stretch film & Combing is a process of separating and scrubbing the filaments Cutting: Cut the fibre according to order requirements Flagging: Process of making filaments softer Packing: Filling cartons with finished filaments

BES uses recycled and virgin material in the production of fibre. While majority of its production uses Polyethylene Terephthalate (PET) (recycled) and Polypropylene (virgin), the Company also uses Polybutylene Terephthalate (PBT), Low Density Polyethylene Terephthalate (LDPE) and Nylon in its production process.

The recycling of PET material is conducted at BES‟s washing plant using consumer and industrial waste PET bottles collected across the country. BES currently has the first- mover advantage and therefore benefits due to its extensive supplier-base, particularly in the collection of used water and soft drink bottles. The bottles collected are washed and recycled in a factory in Horana, which covers a floor area of 27,300 square feet. BES‟s plant is currently the only operation in Sri Lanka that recycles PET flakes. BES uses approximately 70-80 tons of PET bottles per month for recycling, which accounts for approximately 10.0% of raw PET bottle supplies in the country.

PET Bottle Recycling Process Pet Bottle Recycling Process

Collecting PET PET Bottle Sorting PET Bottle Bailing Processing Bottles

Monofilament Hot Washed PET Brushes extrusion Flakes

Paint brush filament extrusion

Export Source: BPPL

PET Bottle Collection Network for BPPL 13

The factory has a capacity of recycling 100 tons of post-consumer plastic per month (single shift) and currently

recycles 70-80 tons per month. The Company has maintained a strong relationship with third parties who provide BES with waste plastic bottles for recycling from across the island. However, in the event of a shortage of PET bottle supplies, BPPL could import PET flakes from India at a relatively higher price (approximately 10%). PET Bottle Collection Network for BPPL

The factory has a capacity of recycling 100 tons of post-consumer plastic per month (single shift) and currently recycles 70-80 tons per month. The

Company has maintained a strong 2000k 1000k g relationship with third parties who g provide BES with waste plastic bottles for recycling from across the island. 8000k g However, in the event of a shortage of 1000kg 46,000 kg 2000k PET bottle supplies, BPPL could 1000k g g 1000kg import PET flakes from India at a 2000k relatively higher price (approximately g 3000kg Source: BPPL 10%). 3000kg

1.6.3 Beira Brush (BBL) (Brushes)

BBL produces cleaning tools such as Push Brooms, Heavy Sweeping Brooms, Roofing Brushes, Cob Web Brushes and Wire Scratch Brushes. BBL uses poles needed for the manufacturing of brushes from suppliers in China.

Hand-use brushes are produced using wooden (68% of brushes produced) or plastic backs (32% of brushes produced) and filled with natural fibre such as Coconut fibre, Palmyrah Fibre or Tampico fibre, African bass fibre, Arenga fibre and synthetic fibre such as PP or PET. BBL sources the synthetic fibre required for the manufacture of cleanings tools from BES, while a significant portion of the natural fibre requirement is imported from countries such as India, Mexico,128 | B SierraP P L Holdings Leone Limited and - InitialIndonesia. Public Offering Each brush and its ultimate use (i.e. used for rough surfaces or smooth surfaces etc.) would determine if the brushes would be manufactured using synthetic or natural fibre.

1.6.3 BEIRA BRUSH (BBL) (BRUSHES)

Hand-use brushes are produced using wooden (68% of brushes produced) or plastic backs (32% of brushes produced) and filled with natural fibre such as coconut fibre, palmyrah fibre or tampico fibre, African bass fibre, arenga fibre and synthetic fibre such as PP or PET. BBL sources the synthetic fibre required for the manufacture of cleaning tools from BES, while a significant portion of the natural fibre requirement is imported from countries such as India, Mexico, Sierra Leone and Indonesia. Each brush and its ultimate use (i.e. used for rough surfaces or smooth surfaces etc.) would determine if the brushes would be manufactured using synthetic or natural fibre.

ManufacturingManufacturing Process Process of Brushesof Brushes

Plastic Blocks Plastic Blocks Manufacturing

Synthetic Fibre

Brush Making Finished Brushes Exports

Natural Fibre

Wood Processing Wooden Blocks Source: BPPL

InIn additionaddition to to the th woodene wooden backs backssourced sourced Factory Details from BPPL, BBL also manufactures its own Factory Details from BPPL, BBL also manufactures its ownLocation Ingiriya, Kalutara plastic backs for brushes using recycled Location Ingiriya, Kalutara plasticand virgin backs PP formaterial. brushes While using integrating recycled andArea 10 acres (Freehold) virginoutput PP from material. BPPL andWhile BES, integrating BBL also outputMonthly AreaCapacity Brush: 0.5 Mn Units10 acres (Freehold) fromimports BPP natural and BES, fibre BBL such also as palmyrah, imports natural Plastic: 102 tons Brush: 0.5 Mn Units arenga and horse hair for the manufacture Monthly Capacity fibre such as palmyrah, arenga and horseCapacity Utilization Brush: 89.0% - SinglePlastic: Shift 102 tons of brushes and brooms. The production is (Avg. Jan-June 16) Plastic Backs: 54.0% - 2 Shifts hair for the manufacture of brushes and Brush: 89.0% - done by drilling into the back and stapling Capacity Utilization Single Shift brooms. The production is done by drilling the fill into the block. (Avg. Jan-June 16) Plastic Backs: 54.0% into the back and stapling the fill into the - 2 Shifts block.

B P P L Holdings Limited - Initial Public Offering | 129 15

1.7 BPPL’s Distribution Network

1.7 BPPL’s Distribution Network 1.7 BPPL’S DISTRIBUTION NETWORK

Source: BPPL Source: BPPL Source: BPPL BPPL’s cleaning tools are distributed to over 18 countries in the world. The Group sells its BPPL‟s cleaning tools are distributed to over 18 countries in the world. The Group sells its finished goods to reputed cleaning tool suppliers such as United Stationers, Fastenal, BPPL’s finishedcleaning toolsgoods are to distributed reputed cleaningto over 18 tool countries suppliers in the such world. as The United Group Stationers, sells its finished Fastenal goods, to reputedTesco cleaning and Century tool suppliers Products. such as United Stationers, Fastenal, Tesco and Century Products. Tesco and Century Products.

US Imports of Brooms, Brushes and Mops Largest Importers of Brooms, Brushes & Mops USD Mn % Largest Importers of Brooms, Brushes & Mops US Imports of Brooms, Brushes and Mops (2015) 2,000USD Mn 21.0% (2015) 2,000 21.0 US; 20% US; 20% 14 14.0 1,500 14 14.0 1,500 10 10 7 7.0 6 5 7 7.0 Germany; 4 6 5 5 1,0001,000 4 5 8%Germany; - 8% France; 5% 500 500 (7.0) France; 5% Other; 62% -11 -11 UK; 5% 0 0 (14.0) Other; 62% UK; 5% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: US Imports ofUS Brooms, Imports Brushes of Brooms, and Mops Brushes (USD and Mn) Mops (USDYoY Mn) Growth (%) http://www.indexbox.co.uk/news/China-Further-Strengthens-its-PoSource: Source: http://www.indexbox.co.uk/news/China-Further-Strengthens-its-Position- http://www.indexbox.co.uk/news/Chinasition-in-theSource:-US-Import http://www.indexbox.co.uk/news/China-Further-Strengthens-its--Structure-Amidst-Further-a--StrengthensRise-in-Net--itsUS-Position-impo -in-th Source: http://www.indexbox.co.uk/news/China-Further-Strengthens-its-Position-in-the-US- Position-in-the-US-Import-Structure-Amidst-a-Rise-in-Net-US-imports-ofin-the-US-Import-Structure-Amidst-a-Rise-in-Net-US-imports-of-Brooms- e-US-Import-Structure-Amidst-a-Riserts--ofin--Net-BroomsUS-imports-Brushes-of-and-Brooms-Mops-Brushes/ - Import-Structure-Amidst-a-Rise-in-Net-US-imports-of-Brooms-Brushes-and-Mops/ Brooms-Brushes-and-Mops/and-Mops/ Brushes-and-Mops/ DateDate Accessed: Accessed: 22nd 22nd August August 2016 2016 Date Accessed: 22nd August 2016 The US leads in imports of brooms, brushes and mops, which was valued at USD 1.8 Bn The US leads in imports of brooms, brushes and mops, which was valued at USD 1.8 Bn in 2015 and accounting in 2015 and accounting for 20% of market share, followed by Germany (8%), France (5%) for The20% ofUS market leads share, in imports followed of by brooms, Germany brushes(8%), France and (5%) mops, and the which UK (5%) was1. Net valued Imports at to USD the US 1.8 in Bn 2015 and the UK (5%)1. Net Imports to the US in 2015 amounted to USD 1.3 Bn. In 2010, the US amountedin 2015 to andUSD accounting1.3 Bn. In 2010, for the 20% US broom, of market brush share,and mop followed imports exceeded by Germany pre-recession (8%), levelFrance of 2008 (5%) and continued to grow. BPPL primarily focuses on the professional cleaning tools market in the US, which is estimated to account for approximately 10-15% (USD 130 - 195 Mn) of the US cleaning tool net imports. Given that the USA has remained the Group’s largest revenue generating region, BPPL has continued to benefit from the growth in the 1 http://www.indexbox.co.uk/news/China-Further-Strengthens-its-Position-in-the-US-Import-Structure-Amidst-a-Rise-in-Net-US- cleaningimports- toolsof industry-Brooms-Brushes in the-and- USA.Mops/ Based (Date: 22onnd theAugust above, 2016) global net imports in 2015 is estimated to be USD 6.5 Bn. 16 In terms of supply however, China continues to dominate the industry, with a 72% share of total US imports in 16 2015, increasing from 59% in 20071.

In 2015, Sri Lanka exported brooms and brushes worth USD 35.4 Mn, declining 5.2% YoY. The exports are categorized as those manufactured using coconut fibre (33.7% of total broom and brush exports) and those manufactured using fibre other than coconut fibre (66.3%). While exports of the former have declined gradually from USD 13.2 Mn in 2011 to USD 11.9 Mn in 2015, exports of brooms and brushes made of fibre other than coconut fibre have increased from USD 19.7 Mn to USD 23.5 Mn over the same period.

1 http://www.indexbox.co.uk/news/China-Further-Strengthens-its-Position-in-the-US-Import-Structure Amidst-a-Rise-in-Net-US-imports-of- Brooms - Brushes-and-Mops/ (Date: 22nd August 2016)

130 | B P P L Holdings Limited - Initial Public Offering and the UK (5%)1. Net Imports to the US in 2015 amounted to USD 1.3 Bn. In 2010, the US Broom, Brush and Mop imports exceeded pre-recession level of 2008 and continued to grow. BPPL primarily focuses on the professional cleaning tools market in the US, which is estimated to account for approximately 10-15% (USD 130 - 195 Mn) of the US cleaning tool net imports. Given that the USA has remained the Group’s largest revenue generating region, BPPL has continued to benefit from the growth in the cleaning tools industry in the USA. Based on the above, global net imports in 2015 is estimated to be USD 6.5 Bn.

In terms of supply however, China continues to dominate the industry, with a 72% share of total US imports in 2015, increasing from 59% in 20071.

Exports from Sri Lanka (USD Mn) 2011 2012 2013 2014 2015 Brooms & Brushes of Coconut Fibre 13.2 11.4 11.8 13.0 11.9 Brooms & Brushes Made of Fibre other than Coconut Fibre 19.7 17.9 19.6 24.4 23.5 Total Exports of Brooms and Brushes 32.9 29.3 31.4 37.4 35.4 Source: http://stat.srilankabusiness.com/epi2015/Export_Products.htm Date Accessed: 22nd August 2016 Meanwhile, majority of the coconut fibre based products are exported to Japan (32% in 2015), followed by the UK (13%) and France (12%). Exports of other fibre-based products was primarily to the US in 2015 (45%) followed by the UK (17%) and Australia (8%).

Export Destination of Brooms and Brushes of Coconut Export Destination of Brooms & Brushes of Fibre other Fibre than Coconut

Japan United States 21% 16% United Kingdom United Kingdom 32% France 3% Australia 3% 4% United Arab Emirates 3% 45% Japan 4% Belgium 5% France

6% United States Canada 8% 8% 13% Saudi Arabia Belgium 12% Other 17% Other

Source: http://stat.srilankabusiness.com/epi2015/Export_Products.htm Source: http://stat.srilankabusiness.com/epi2015/Export_Products.htm nd Date Accessed: 22 August 2016 Date Accessed: 22nd August 2016

Distribution Network by Customer in the US and UK Distribution Network by Customer in the US and UK 1 http://www.indexbox.co.uk/news/China-Further-Strengthens-its-Position-in-the-US-Import-Structure-Amidst-a-Rise-in-Net-US- The Group has been distributingnd its finished goods to leading players in a variety of imports-The Groupof-Brooms- hasBrushes been-and- distributingMops/ (Date: its 22 finished August 2016) goods to leading players in a variety of industries, including 17 Janitorial,industries, Industrial, including Retail, Janitorial, Restaurant Industrial,& Food Services. Retail, BPPL’s Restaurant largest customer & Food accounted Services. for 12.5% BPPL of ’srevenue

inlargest FY16, while customer the Group’s accounted top 5 customers for 12.5% accounted of revenue for 53.1% of in revenue. FY16, while the Group’s top 5

customers accounted for 53.1% of revenue.

Janitorial Supply

Industrial Supply

Retail Distributors

Through Century Products (US) Restaurant & Food Services

Source: BPPL

The Group markets its products to manufacturers, large scale retailers and distributors servicing a range of industries. BPPL serves several retail distributors such as Tesco, Carrefour, The Home Depot and Lowe’s, while also supplying to market-leading professional cleaning product companies such as Oates. This reflects the Group’s strong position in the international market for professional and household cleaning tools and products. B P P L Holdings Limited - Initial Public Offering | 131 Industry Products Construction  Tampico fiber filled roofing & masonry brushware used for applying cement / asphalt, spreading roof tar & coatings  Smoothing brushes for applying wallpaper  Wire brushes for cleaning rust, scale, paint & for welding work Food Service  Hygiene range: raw materials are rust free and colour-coded for contamination prevention Professional Cleaning  Floor sweeps, scrubs & push brooms (sizes and Tools fill types vary depending on cleaning surface)  Vehicle Wash Brushes

Industry Products

● Tampico fiber filled roofing & masonry brushware used for applying cement / asphalt, spreading roof tar & coatings Construction ● Smoothing brushes for applying wallpaper ● Wire brushes for cleaning rust, scale, paint & for welding work

● Hygiene range: raw materials are rust free and colour-coded for Food Service contamination prevention

● Floor sweeps, scrubs & push brooms (sizes and fill types vary depending Professional Cleaning Tools on cleaning surface) ● Vehicle wash brushes

132 | B P P L Holdings Limited - Initial Public Offering 1.8 BPPL: THE FUTURE

1.8.1 BPPL DIVERTS FOCUS TO BRANDED BRUSHES

The global cleaning tools industry is structured with the manufacturers supplying to wholesalers who then 1.8 BPPL:market Thethe products Future to distributors or retailers. However, over the years the industry has experienced a change in structure as more and more distributors/ 1.8.1retailers BPPL approach Diverts manufacturers Focus to Branded directly, Brushes thus eliminating the intermediary in the supply chain. The The global import market,cleaning which hastools continued industry to grow, is Brush Manufacturers structuredsells majority with ofthe its manufacturers products to the supplyinghousehold market, which is assumed to be 85-90% of the to wholesalers who then market the products wider market, while the remaining is attributed to distributorsto the professional or retailers. cleaning However,tools industry. over Thus, the

yearscapturing the industry the dominant has experienced household market a change using Global Imports (Net) in directstructure imports andas brandedmore goods and remains more one Market Size: USD 6.5 Bn of BPPL’s primary strategies for growth. As such, distributors/retailers approach although historically BPPL catered primarily manuto facturersthe generic directly, brush market, thus theeliminating Group is now the intermediaryalso expanding in the its supplyhorizons chain. to market The its import own Retailer market,brands which in several has countries.continued BPPL to launchedgrow, sellsits Wholesaler majorityown brand of its ‘Tip products Top’ in Sri toLanka the in household2015, with its products marketed in supermarkets such as market,Arpico which Super is Centreassumed and toCargills be 85 -90%Food ofCity. the widerExpanding market, overseas, while BPPL the also launchedremaining its own is attributedbrand ‘Jab’ to inthe Indonesia professional in April 2016.cleaning The Group tools Professional Cleaning Household Cleaning Tools Tools Industry Industry industry.expects toThu furthers, capturingexpand into Malaysiathe dominant in FY19. Market Size: USD 1.0 Bn Market Size: 5.5 Bn This increase in foothold in Asia is likely to household market using direct imports and benefit BPPL, as PricewaterhouseCoopers (PwC) Source: http://www.indexbox.co.uk/news/China-Further-Strengthens- brandedexpects goodsconsumer remains expenditure one on ofhousehold BPPL’s Source: http://www.indexbox.co.uk/news/China-Further-Strengthens-its- Positionits-Position-in-the-US-Import-Structure-Amidst-a-Rise-in--in-the-US-Import-Structure-Amidst-a-Rise-in-Net-US- primarygoods andstrateg servicesies tofor grow growth. at an annual As average such, imports-of-BroomsNet-US-imports-of-Brooms-Brushes-and-Mops/,-Brushes-and-Mops/ Date Accessed: 22nd August 2016 BPPL Date Accessed: 22nd August 2016 althoughof 8.5% historicallyin Asia to reach BPPL USD catered730 Bn in primarily20182 . to the generic brush market, the Group is now also expanding its horizons to market its ownOverview brands inof theseveral Sri Lankan countries. Market BPPL launched its own brand ‘Tip Top’ in Sri Lanka in Overview of the Sri Lankan Market 2015, with its products marketed in supermarkets such as Arpico Super Centre and GDP per Capita (Current Prices) Per Capita Gross National Income - Sri Lanka CargillsUSD Food City. Expanding overseas, BPPL alsoUSD launched its own brand ‘Jab’ in % GNI Per Capita (USD) (Current) YoY Growth (%) Indonesia6,000 inIMF April Forecasts 2016. GDP per The Capita Group to grow at expectsa to further4,000 expand into Malaysia in FY19. This 16 CAGR of 6.3% from 2015-2021E 14.1 5,000 3,200 increase in foothold in Asia is likely to benefit BPPL, as PricewaterhouseCoopers (PwC) 12 4,000 expects consumer expenditure on household goods2,400 and services to grow at an annual 3,000 2 7.1 8 average of 8.5% in Asia to reach USD 730 Bn in 20181,600. 6.3 2,000 6.8 4 1,000 800 Overview of the 2,874.3 Sri Lankan 3,889.4 Market 5,627.3 1.9 0 Per Capita0 Gross National Income - Sri Lanka 0 GDP Per Capita2012 (Current Prices)2015 2021EUSD USD GNI2010 Per Capita 2011 (USD) 2012 (Current) 2013 2014 2015 Source: International Monetary Fund, World Economic Outlook4000 Database, 16 April 2016 YoY Growth (%) 6,000 IMF Forecasts GDP per Capita to grow at a Source: CBSL Annual Reports, 2011-2015 14.1 CAGR of 6.3% from 2015-2021E 5,000 3200 12 4,000 2400 3,000 Sri Lanka’s GDP per Capita7.1 grew at a CAGR8 of 10.6% 1600 6.3 6.8 2,000 over the period 2012-2015. IMF forecasts GDP per Capita 4 1,000 for800 Sri Lanka to grow at a 6-year CAGR of 6.3% to USD 2,874.3 3,889.4 5,627.3 1.9 0 2 2015-16 Outlook for the Retail and Consumer Products Sector5,627 in Asia,0 in PWC, 2021, February reflecting 2015 continued growth in the0 country. 2012 2015 2021E 2010 2011 2012 2013 2014 2015 2 2015 Source:- 16 Outlook International for the RetailMonetary and Fund, Consumer World Products Economic Sector Outlook in Asia,Meanwhile, PWC, February Sri2015 Lanka achieved Gross National19 Income Database, Source: CBSL Annual Reports, 2011-2015 (GNI) per capita of USDApril 3,836 2016 in 2015 and is expected to transition to an Upper-Middle B P P L Holdings Limited - Initial Public Offering | 133 Income economy once the GNI per capita reaches USD 4,0363. This transition is expected to benefit the household cleaning tools market as higher disposable income is spent on higher quality, branded products. With the launch of Tip Top, BPPL is well positioned to exploit the growth of the Sri Lankan economy. According to statistics provided by the Central Bank of Sri Lanka (CBSL), private consumption expenditure on furnishings, household equipment and routine maintenance amounted to LKR 91,509 Mn in 2015, growing at a 5-year CAGR of 6.5%. The Brand Tip Top is currently priced 5-10% above its competitor products, owing to the better quality and superior packaging.

Overview of the Indonesian Market

Strong growth potential is Channel Preferences by Monthly Household Income Level expected in Indonesia, given that IDR Mn Traditional Trade Modern Trade < 1 63% 37% many of the country’s low 1-2 61% 39% income consumers continue to 2-3 41% 59% transition to the middle income 3-5 27% 73% 5-7.5 22% 78% 7.5-10 14% 86% > 10 7% 93% 3 http://blogs.worldbank.org/opendata/category/tags/news 0% 20% 40% 60% 80% 100%20

Modern: Expanded convenience stores Traditional: Small, independent kiosks Source: Deloitte Consumer Insights, May

Sri Lanka’s GDP per Capita grew at a CAGR of 10.6% over the period 2012-2015. IMF forecasts GDP per Capita for Sri Lanka to grow at a 6-year CAGR of 6.3% to USD 5,627 in 2021, reflecting continued growth in the country. Meanwhile, Sri Lanka achieved Gross National Income (GNI) per capita of USD 3,836 in 2015 and is expected to transition to an Upper-Middle Income economy once the GNI per capita reaches USD 4,0363. This transition is expected to benefit the household cleaning tools market as higher disposable income is spent on higher quality, branded products.Sri With Lanka’s the GDP launch per capita of Tip (current Top, prices)BPPL grewis well at a positioned CAGR of 10.6% to over the period 2012-2015. IMF forecasts GDP per capita for Sri Lanka exploit the growth of the Sri Lankan economy. According to statistics provided by the to grow at a 6-year CAGR of 6.3% to USD 5,627 in 2021, reflecting Central Bank of Sri Lanka (CBSL),continued private growth consumption in the country. expenditure Meanwhile, Srion Lanka furnishings, achieved household equipment and routineGross maintenance National Income amounted (GNI) per to capita LKR of 91,509USD 3,836 Mn in in2015 2015, and growing at a 5-year CAGR of 6.5%.is expected The Brand to transition Tip Top to is an currently Upper-Middle priced Income 5-10 economy% above once its 3 competitor products, owing to thethe better GNI perquality capita and reaches superior USD 4,036 packaging.. This transition is expected to benefit the household cleaning tools market as higher disposable income is spent on higher quality, branded products. With the launch of Tip Top, BPPL is well positioned to exploit the growth of the Sri Lankan economy. According to statistics provided by the Central Bank of Sri Lanka (CBSL), private consumption expenditure on furnishings, household equipment and routine maintenance amounted to LKR 91,509 Mn in 2015, growing at a 5-year CAGR of 6.5%. The brand Tip Top is currently priced 5-10% above its competitor products, owing to the better quality and superior packaging. Overview of the Indonesian Market

Overview of the Indonesian Market Strong growth potential is Channel Preferences by Monthly Household Income Level Strongexpected growth inpotential Indonesia, is expected given thatin IDR Mn Traditional Trade Modern Trade < 1 63% 37% Indonesia,many given of that the many country’s of the country’s low 1-2 61% 39% low incomeincome consumers consumers continue continue to transition to to the middle income segment (defined as 2-3 41% 59% those transitionwith a monthly to the household middle income 3-5 27% 73% of betweensegment IDR (defined 3Mn-12Mn). as thoseThis reflects with a 5-7.5 22% 78% highermonthly purchasing household power as wellincome as the of 7.5-10 14% 86% increasingbetween need IDRto differentiate 3Mn-12Mn). products This > 10 7% 93% in the consumer market. Jab products are reflects higher purchasing power 0% 20% 40% 60% 80% 100% currently marketed in expanded convenience stores.as Consequently, well as the BPPL increasing is well positioned need to Modern: Expanded convenience stores Indonesian GDP per Capita (current prices)Traditional: to growSmall, independent at a kiosks6-year CAGRSource: Deloitte of 7.4% Consumer over Insights, the May to benefitdifferentiate from this burgeoning products middle in classthe period 2015-2021E. who seekconsumer high quality, market. branded JAB products products which are are currently widely available marketed in the in ‘modern expanded trade’ convenience (defined as expanded stores. convenienceConsequently, stores) over BPPL cheaper, is lesswell differentiated positioned generics to benefit available from in this the ‘traditionalburgeoning trade’ middle (defined class as small, who Whileindependent Jabseek is high kiosks).priced quality, IMF 5-10 forecasts %branded below Indonesian productsthat ofGDP itswhich per competitor capita are (current widely products, prices) available to grow BPPL in at thea 6-year has ‘modern invested CAGR oftrade’ 7.4% in over the period 2015-2021E. superior(defined packaging as expanded, in-store marketingconvenience and stores) the localization over cheaper, of brand less differentiatednames in an effort generics to curbWhile competitionavailable Jab is priced in 5-10%within the ‘traditionalbelow the that Indonesian of itstrade’ competitor (definedmarket. products, as small, BPPL has independent invested in superior kiosks) packaging,. IMF forecasts in-store marketing and localization of brand names in an effort to curb competition within the Indonesian market.

3 http://blogs.worldbank.org/opendata/category/tags/news 20

3 http://blogs.worldbank.org/opendata/category/tags/news 1.8.2 Synthetic Yarn Production 134 | B P P L Holdings Limited - Initial Public Offering

The Group is expected to invest approximately Rs. 675 Mn over FY17-18E in plant and machinery for the production of synthetic yarn used in the fabric manufacturing industry of Sri Lanka. Presently, majority of the synthetic yarn requirement for the fabric manufacturing industry is imported, with the current synthetic yarn requirement estimated at approximately 600 tons per month. BPPL is well positioned to benefit from this market opportunity as: (1) it accesses the largely untapped synthetic yarn market in Sri Lanka by supplying high quality synthetic yarn with lower inventory holding cost and a much lower lead time; and (2) although a new market, the production process for synthetic yarn is similar to the monofilament production process, giving BPPL a competitive edge in the industry with over 6 years of PET based monofilament extrusion expertise. Similar to the production of monofilament, the key raw material required for the production of synthetic yarn is virgin and recycled (hot washed) polyester flakes.

The new plant would introduce dope dyeing technology, which is the process of adding dye/pigment into the solution from which yarns are produced to manufacture coloured yarns. This reduces the dyeing process for fabric manufacturers, thus reducing their cost

1.8.2 SYNTHETIC YARN PRODUCTION

The Group is expected to invest approximately LKR 675 Mn over FY17-18E in plant and machinery for the productionof production. of synthetic Dope yarn useddyeing in the is fabric considered manufacturing an environmentally industry of Sri Lanka. friendly Presently, process majority as of itthe syntheticreduces yarn energy requirement and forwater the fabric consumption manufacturing and industry pollution is imported, related withto thethe currentdyeing synthetic stage foryarn requirementfabric manufacturers. estimated at approximately The Company 600 tons will per alsomonth. be BPPL in a is position well positioned to cater to benefitto non from-dyed this yarn. market opportunity as: (1) it accesses the largely untapped synthetic yarn market in Sri Lanka by supplying high quality syntheticThe plant yarn withis expected lower inventory to be commissioned holding cost and ina muchFY19. lower Meanwhile, lead time; BPPLand (2)’s although investment a new is market, also the expectedproduction to process include for asynthetic state-of yarn-the- isart similar laboratory to the withmonofilament a weaving production machine process, for the giving purpose BPPL a competitiveof testing edge the in fabric the industry output with using over its 6 syntheticyears of PET yarn. based monofilament extrusion expertise. Similar to the production of monofilament, the key raw material required for the production of synthetic yarn is virgin and recycled (hot washed) polyester flakes. Meanwhile, BPPL also has the backing of a renowned apparel manufacturer, the TheHi newrdaramani plant would Group, introduce through dope dyeingits shareholding technology, whichin the is Company,the process whoseof adding expertise dye/pigment could into the benefitsolution thefrom synthetic which yarn yarn is produced manufacturing to manufacture operation coloureds. yarn. This reduces the dyeing process for fabric manufacturers, thus reducing their cost of production. Dope dyeing is considered an environmentally friendlyPotential process customers as it reduces in energy the syntheticand water consumptionyarn business and pollution include relatedHayleys to the Fabric dyeing (MGT) stage for ( fabricthe manufacturers. The Company will also be in a position to cater to non-dyed yarn. The plant is expected to be commissionedlargest manufacturer in FY19. Meanwhile, of polyester BPPL’s investment in Sri Lanka) is also expected, Naturub to include, Textured a state-of-the-art Jersey, Stretch laboratory Line, with a weavingSouth machineAsia Textiles for the andpurpose Ocean of testing Lanka. the fabric output using its synthetic yarn.

Meanwhile,The investment BPPL also hasfor thethe backing project of awill renowned be financed apparel manufacturer,partially through the Hirdaramani equity (approximately Group, through its shareholding in the Company, whose expertise could benefit the synthetic yarn manufacturing operations. LKR 175 Mn), while the remaining will be debt-funded (LKR 500 Mn). The Group has Potentialworked customers closely in thewith synthetic foreign yarn consultants business include and Hayleyspotential Fabric customers (MGT) (the in largest determining manufacturer the of polyesterdemand in Sri and Lanka), quality Naturub, requirements Teejay Lanka, Stretchfor synthetic Line, South yarn Asia Textilesin Sri and Lanka. Ocean Lanka.BPPL has also successfully completed an initial trial on the machinery to be purchased, using their PET The investment for the project will be financed partially through equity (approximately LKR 175 Mn), while flakes. the remaining will be debt-funded (LKR 500 Mn). The Group has worked closely with foreign consultants and potential customers in determining the demand and quality requirements for synthetic yarn in Sri Lanka. BPPL has also successfully completed an initial trial on the machinery to be purchased, using their PET flakes. Manufacturing Process Manufacturing Process

Draw Hot Washed PET Bottles PET Flakes Textured Fabric Garments Yarn

Source: BPPL

1.9 Sustainable Business Operations

B P P L Holdings Limited is known for the strong ethical values that have been incorporated in its manufacturing processes. It has been certified by the Forest Stewardship Council (FSC), an independent, non-profit organization that protects forests for future generations and the Group also has the Chain-of-Custody Certification by SGS, which suggests that the wood used by BPP is sourced from well-managed forests or other

B P P L Holdings Limited - Initial Public Offering | 135 1.9 SUSTAINABLE BUSINESS OPERATIONS

BPPL is known for the strong ethical values that have been incorporated in its manufacturing processes. It has been certified by the Forest Stewardship Council (FSC), an independent, non-profit organization that protects forests for future generations. The Group also has the Chain-of-Custody Certification by SGS, which suggests that the wood used by BPP is sourced from well-managed forests or other controlled sources. Within its BES operations, the Company conducts a large scale process of recycling plastic waste – PET bottles and packaging, thus reducing waste and re-using plastic in its production process. BES uses approximately 70-80 tons of waste PET bottles and approximately 20 tons of recycled PP per month. The Group has also obtained the Leadership in Energy and Environmental Design (LEED) certification, which is a Green Building Rating System developed by the US Green Building Council. The LEED certified factory buildings focus on the use of natural light, rain water harvesting and minimizing energy usage. Additionally, BPPL is also expected to invest LKR 40 Mn each in FY17- 18E in two bio-mass plants. Currently, the Company produces approximately 300 tons of unusable wood from its saw mill and timber shavings from its factories each month, which are sold as waste to other factories. However, following the commissioning of the two bio-mass plants BPPL would be able to produce 400kW of electricity per month for in-house use. The investment is assumed to have a payback period of 4 years with cost savings of LKR 20 Mn annually once both plants are fully operational.

Being environmentally friendly and ethical has added value to the Company through a reduced environmental impact, optimal building performance and lower operational costs as well as enhanced productivity and improved work concentration levels. Furthermore, the Company’s sustainable business operation is also likely to result in higher sales as consumers demand eco-friendly products due to increased awareness. According to a survey conducted by Nielsen Holdings PLC, 26% of global respondents prefer their household cleaning tools to be manufactured using organic / all natural ingredients4. Although environmental considerations might be a secondary purchasing driver for many customers, as more consumers prefer going green, manufacturers that cater to these needs are likely to benefit in the long term.

1.10 COMPETITIVE LANDSCAPE

BPPL faces competition from several peers in the domestic market namely, Ravi Industries Limited (Subsidiary of Hayleys PLC), Samtessi Brush Manufactures (Pvt) Ltd. (a BOI approved joint collaboration between M/s. Essef, Belgium, and DSI Samson Group), Lanka Brush Exports (Pvt) Ltd. and Warna Exporters (Pvt) Ltd (Bentley Brushwares manufacturing arm based in Sri Lanka). Majority of the local brush manufacturers in Sri Lanka carry out their operations with high environmental and safety standards and are FSC certified. The FSC certification and high quality brush products have assisted in attracting ethical suppliers providing Sri Lankan manufacturers a competitive edge in the global market. The local exporters supply largely to the European and Middle-Eastern markets, while BPPL markets its products primarily to the US.

Although BPPL faces competition from its peers in the product segments, hand brushes and floor brushes, the Company currently does not face any competition in the upright brooms segment and in fibre extrusion. Furthermore, the Group has the scale and value chain integration advantage over its local peers.

Globally, BPPL also faces competition from several players in the industry including Chung Thai Brushes Co. Ltd. (Taiwan), Taizhou Yinshan Manufacturing Brushes Co. Ltd. (China), Ningbo East Cleaning Tool Co. Ltd. (China), York.Sp.Z O.O (Poland), The Libman Company (USA) and O’Cedar (Germany). On a global scale, China remains a large supplier to the US cleaning tools market; however, Sri Lanka benefits from the availability of rubber wood in Sri Lanka, which is not as freely available in China.

The Group is present in a large, fragmented market, which allows all players to continuously grow through product differentiation and market development.

4 “The Dirt on Cleaning” – Nielsen, April 2016

136 | B P P L Holdings Limited - Initial Public Offering 1.11 SWOT ANALYSIS OF BPPL

STRENGTHS WEAKNESSES

Well Integrated Production Process High Dependence on the US market BPPL is backwardly integrated as it sources the Over 70% of BPPL’s revenue is generated from the US wooden backs and fibre required to manufacture the market. The higher dependency on the US market could end-product from its subsidiaries. This reduces the risk adversely affect BPPL revenue if there is a marked of overdependence on third parties. Further, sourcing slowdown in the US economy. Further, changes to raw materials such as PET bottles and timber locally import regulations within the US could also affect BPPL. reduces the cost and exposure to the highly volatile However, future growth for BPPL is also expected from global market. This gives the Group a competitive edge other regions in the branded brush segment. both, in the local and global markets. High Dependency on Inter-Company Processes Competitive Advantage against China BPPL’s raw materials are sourced in-house and a delay Sri Lanka has a competitive edge over its Chinese peers in the supply of raw materials due to unavoidable due to widely available rubber wood in the country. circumstances could impact the production process. This could affect customer relationships and also hinder Production of Polypropylene Fibre profitability. However, in the event of such an issue, BPPL BPPL manufactures polypropylene fibre using in- has the means to import its raw materials. country recycled material, which reduces the cost of production and carbon footprint. Working Capital Cycle BPPL’s working capital cycle is approximately 190 days. Relatively Inelastic Demand This could have a negative impact on the cash balance of BPPL primarily caters to the professional cleaning tools BPPL due to delays in receiving payments for goods sold. industry, which is relatively less sensitive to pricing and However historically, BPPL’s payable records have not provides more flexibility for the Company’s business been affected. operations.

Obtained a Range of Certifications FSC certification reflects the high quality and ethical production processes carried out by BPPL, which has helped the Group reach new markets and customers effectively compared to its peers. Meanwhile, BPPL has also received OHSAS 18001, LEED, ISO 14001:2004 and ISO 9001:2008 certifications.

Strong Global Position & Long Standing Customer Relationships BPPL distributes its products to renowned global brands such as United Stationers, Grainger and Tesco, leading to a diversified customer portfolio.

Strong Position in the Local Market BPPL is well positioned in the local market with advanced technology and large scale operations compared to its local peers.

B P P L Holdings Limited - Initial Public Offering | 137 OPPORTUNITIES THREATS

Growth Opportunity in the Branded Brush Segment Sensitivity to Exchange Rate Movements BPPL launched its own brands ‘Tip Top’ and ‘Jab’ in Sri Over 95% of BPPL’s revenue is generated from exports and Lanka and Indonesia as the Group expects to benefit 30% of its CoS is exposed to forex changes; therefore the from the increase in disposable income in the Southeast Group is highly sensitive to exchange rate movements. Asian region. Research suggests that as the region This could lead to volatility in BPPL’s revenue and transitions to Upper Middle-Income status, the demand profitability. for high quality and durable branded products is expected to increase. Given the large global market size Shortage of Wood Supplies for household cleaning tools, BPPL expects to capture Changing weather patterns could have an adverse this market through the localization of its brand names impact on wood supplies. However, BPPL has invested and superior packaging. in capacity increases in its own saw mill in FY17, which should minimize the impact on its operations. Extend Expertise into Manufacturing Synthetic Yarn BPPL expects to extend its expertise in monofilament High Global Competition extrusion into synthetic yarn manufacturing, both of BPPL faces high competition in the global market from which require a similar production process. Currently, countries such as China, Taiwan, Poland, and Germany the industry is largely untapped in Sri Lanka, as due to depreciating local currency and lower lead time. majority of the synthetic yarn required for the domestic This may result in a competitive advantage over BPPL, for fabric manufacturing industry is imported (current its global peers. demand is estimated to be 600 tons per month). Uncertainty of Crude Oil Price Movements Enhanced Operational Efficiencies and Capacity The Company is exposed to changing crude oil prices Expansion to Drive Growth in Existing Business and the resulting impact on raw materials such as BPPL continues to invest in streamlining of its polypropylene. However, increases in raw material prices processes and upgrading machinery in order to greater than LKR depreciation could be passed on to improve productivity levels while maintaining costs. customers, thus minimizing the impact on margins. The streamlining processes were largely completed in FY16, and have led to significant margin expansion. Slowdown in the Global Markets Meanwhile, BPPL also continues to expand its capacity With the expected transition to middle income status for its existing business in order to grow in line with its in economies such as Sri Lanka and Indonesia, BPPL global customers. is introducing branded cleaning equipment to these countries. However, an unexpected economic downturn in these countries could result in lower disposable income and lead to lower demand for branded products.

Regulatory Changes Regulatory changes on exports and foreign currency could have a significant impact on BPPL as majority of its revenue is generated through exports.

138 | B P P L Holdings Limited - Initial Public Offering 1.12 STRONG LEADERSHIP TEAM

BPPL is backed by a strong management team with varying levels of expertise and experience. Since the acquisition by a consortium led by Infinity Capital (Pvt) Ltd. (an investment holding company directly owned by Dr. Anush Amarasinghe), Group revenue has grown at a CAGR of 10.0% while recurring net profit attributable to shareholders grew at a CAGR of 22.3% over FY12-16. Meanwhile, gross margins for the Company also increased to 36.6% in FY16, from 28.5% in FY12.

Name Designation Qualification Work Experience Mr. Sarath Dayantha MIE (UK), MIME Chairman Over 50 years Amarasinghe (UK), MIE (SL) B.Sc.(Hons), Dr. Anushal Amarasinghe Managing Director Over 30 years Ph.D. (Loughborough) MBA (AUS), Mr. Vaithilingam Selvaraj Chief Financial Officer Over 34 years ACMA (UK), CGMA

Mr. Prasad Perera Head of Factory Operations B.Sc. (Col) Over 28 years

B.A. (OUSL), CIV Mr. Maxwell Jansz Head of HR and Admin. Over 30 years (UK), ABE (UK)

Mr. Shakinda Kasun B.Sc. (Hons) (UK), Head of Marketing Over 15 years Indurajith Jayasingha MCIM (UK) B.Com. (Col), Ms. Vernee Kularasan Senior Manager - Finance Over 23 years ACA (SL), CPA (AUS) Ph.D. (Hons) (Malaysia), Senior Manager - Quality Dr. T. K. Ossan B.Sc. (Peradeniya), Over 23 years Mgmt. and Systems Dev. M.Sc. (Peradeniya), MBA

Mr. Manoj Udawatte Senior Factory Manger NDES (Col) Over 10 years

B P P L Holdings Limited - Initial Public Offering | 139 1.13 BOARD OF DIRECTORS Name and Address Nature of Directorship Business Experience Mr. Sarath Dayantha Amarasinghe Chairman Mr. Sarath Dayantha Amarasinghe is a Chartered Engineer by profession. A No. 79/18, Member of the Institute of Mechanical Alexendra Place, Engineers, M I Mech E (UK) and a Colombo 07 Member of the Institute of Marine Engineers, M I Mar E (UK). He is also a Member of the Institute of Chartered Engineers UK and a Member of the Institute of Engineers, MIE (SL). He counts over 35 years of service at Colombo Commercial Company Engineers Ltd. of which he served as its General Manager/Managing Director for a period of 10 years. He also served as Chairman/Managing Director at Alumex Group of Companies for a period of over 8 years. Dr. Anushal Amarasinghe Managing Director Dr. Anushal Amarasinghe received his Bachelor of Science and Ph.D. No. 12, degree in Electronics Engineering Independent Avenue, from Loughborough University of Colombo 07. Technology, UK. He served as a Research Engineer at Thorn EMI Central Research Laboratories, UK and later on joined SG Securities as an Investment Research Analyst.Dr. Amarasinghe held the position of CFO and COO at Millenium IT and was a director at Alumex Anodizing and Machine Tools (Pvt) Ltd. Dr. Amarasinghe was also a founding partner of E-Channeling. The Asia Money Magazine ranked Dr. Anushal Amarasinghe as one of Sri Lanka’s top three analysts in 1994 and in Pakistan a team led by him was judged the fourth best by the Institutional Investor magazine in 1996.

140 | B P P L Holdings Limited - Initial Public Offering Mr. Vaithilingam Selvaraj Executive Director / Mr. Vaithilingam Selvaraj counts Chief Financial Officer over 34 years of working experience No. 1A, in the manufacturing sector of which 40th Lane, 33 years were in a senior managerial Colombo 06. position in the field of Finance, Supply chain, Export sales, IT and General Management. He functioned as the Chief Accountant at Phoenix Group of companies for 9 years, and presently is working for BPPL as Director Finance and has also served asa Director of Moosajees (Private) Limited for the last 23 years. He holds a MBA from Australian Institute of Business, is an Associate Member of the Chartered Institute of Management Accountants, UK (ACMA) and a CGMA and Associate Member of the Institute of Data Processing Management (AIDPM). He is also a Graduate Member of The Sri Lanka institute of Directors (GSLID).

Mr. B. D. Prasad Devapriya Perera Executive Director Mr. Prasad Perera is presently Head of Factory Operations of BPPL. He started No. 38/2, his career at BPPL as a Management Samagi Mawatha, Trainee in 1991. Mr. Prasad Perera Talahena, counts for 25 years of experience in Malabe BPPL. He is a Science graduate with a 2nd Class from the University of Colombo. He is also a certified Director – SLID. He has also worked at Brandix Lanka Limited, as a sectional head. Mr. Ranil Prasad Pathirana Non – Executive Director Mr. Ranil Pathirana has extensive experience in finance and management No. 40/28, in financial, apparel/manufacturing Lake Gardens, and energy sectors. He is a Fellow Lake Drive, Member of the Chartered Institute Rajagiriya of Management Accountants, UK (FCMA) and holds a Bachelor of Commerce degree from the University of Sri Jayawardenapura. Mr. Pathirana is the Group Finance Director of Hirdaramani Group of Companies, Non-Executive Director of Sampath Bank PLC, Alumex PLC, Ceylon Hotels Corporation PLC, Taprobane Holdings PLC and Odel PLC.

B P P L Holdings Limited - Initial Public Offering | 141 Mr. Manjula Hiranya De Silva Independent Mr. Manjula De Silva holds a BA Hons Non-Executive Director (1st Class) degree in Economics from No. 17/36C, the University of Colombo and a MBA Vijayaba Mawatha, from London Business School, UK. He Nawala Road, is also a FCMA (UK) and a CGMA. Mr. Nugegoda De Silva held the positions of CEO and Managing Director at HNB Assurance PLC. He is currently the Chairman, General Manager and Director General at National Insurance Trust Fund (NITF). He has formerly held positions at NDB Wealth Management and Public Enterprises Reform Commission (PERC). He also serves as the Chairman of CIMA (Chartered Institute of Management Accountants) Sri Lanka Board.

Mrs. Sharmini Tamara Ratwatte Independent Mrs. Sharmini Ratwatte is a Fellow Non- Executive Director Member of the Chartered Institute No. 11/3, of Management Accountants, UK Malalasekara Place, and holds a Master of Business Colombo 07 Administration from the University of Colombo. Sharmini is a Non-Executive Director at MAS Investments (Pvt) Ltd, and was a Non-Executive Director at John Keells PLC. She is also a Trustee of the Federation of Environmental Organisations, and Sunera Foundation. Mrs. Sharmini Ratwatte was recognized as the Zonta “Woman of Achievement Management” in 2004.

Mr. Savantha De Saram Independent Mr. Savantha De Saram holds a LLB Non- Executive Director (Hons) Degree from Holborn Law No. 26/2, College, London and is an Attorney- Rosmead Place, at-Law, Supreme Court of Sri Lanka. Colombo 07 He is a Governing Partner at M/s D. L. & F. De Saram, Attorneys–at–Law and has been with the firm for over 15 years. Corporate and Commercial, Project Finance, Securitization, IT are some of his areas of practice.

142 | B P P L Holdings Limited - Initial Public Offering

02. FINANCIAL ANALYSIS

The financials have been analyzed at a group level for BPPL. 02. FINANCIAL ANALYSIS The financials have been analyzed at a group level for BPPL. 2.1 Revenue 2.1 REVENUE BPPL reported revenue of LKR 2.1 Revenue Growth BPPL reported revenue of LKR 2.1 Bn in FY16, up 8.1% LKR Mn Bn in FY16, up 8.1% YoY and at a 2,500 15.0 YoY and at a 4-year CAGR of 9.9% over the period FY12- Revenue YoY Growth (%) - RHS 4-year CAGR of 9.9% over the 16. Revenue growth in FY16 was primarily driven by 2,000 12.6 the US, whileperiod growth FY12was also-16. boosted Revenue in Sri growth Lanka, 12.0 as the Group’sduring brush salesthe under year the was brand primarily name ‘Tip 1,500 9.5 9.3 Top’ continueddriven to record by significant the US, growth. while Given growth that 9.0 1,000 8.1 over 95% of totalwas revenue also boostedis earned in foreignSri Lanka, currency, as majority of which is earned in USD, the Group has 6.0 the Group’s brush sales under the 500 also significantly benefited from depreciation of the brand name ‘Tip Top’ continued to - 3.0 LKR against the USD. However, revenue growth was FY12 FY13 FY14 FY15 FY16 record significant growth. Given hampered due to delays in coming-on-stream of certain Source: Company Financials new machinerythat during over the 95% year. of total revenue is earned in foreign currency, majority of which is earned in USD, the Group has also FY12 FY13 FY14 FY15 FY16 significantly benefited from depreciation of the LKR against the USD. However, revenue Average LKR/USD 112.6 129.6 130.1 131.0 139.0 LKR Depreciationgrowth (%) was hampered due to delays in coming15.1 -on-stream0.4 of certain new0.7 machinery during6.1 the year. Revenue (USD Mn) 12.7 12.1 13.6 14.7 15.0 YoY Growth (%) (4.9) 12.2 8.6 1.8 FY12 FY13 FY14 FY15 FY16

Revenue (LKRAverage Mn) LKR/USD 1,432.8 112.6 1,568.8129.6 1,766.0130.1 131.01,931.0 139.0 2,087.5 YoY Growth (%)LKR Depreciation (%) 9.5 15.1 12.60.4 0.79.3 6.1 8.1

The largest revenueRevenue generating (USD Mn) segment in FY16 was Generic12.7 Brush 12.1exports (78.7% 13.6 of total revenue), 14.7 followed by 15.0 Wood exports (14.7%).YoY In Growth FY12, Generic (%) Brush exports accounted for 72.1% (4.9) of total revenue 12.2 while Wood 8.6 exports accounted 1.8 for 22.3%. Meanwhile, Branded Brush exports was also added to the product portfolio and accounted for 0.7% of total Revenue (LKR Mn) 1,432.8 1,568.8 1,766.0 1,931.0 2,087.5 revenue in FY16. YoY Growth (%) 9.5 12.6 9.3 8.1 USA was the highest revenue generator during USA was the highest revenue Revenue Composition - By Geography the period FY12-16 with an average contribution generator during the period FY12- of 73.5%. ContributionThe largest from revenue Australia generatingand New segment in FY16 was Generic Brush exports (78.7% of total USA ZealandFY16 was with 9.1% an in averageFY16 declining contribution slightly 7.2 revenue), followed by Wood exportsFY16 (14.7%). 2.0 In FY12, Generic Brush exports accounted for 4.3 6.9 fromof 9.8%73. in5 %.FY12. Meanwhile,Contribution contribution from 1.2 Canada 72.1% of total revenue while Wood exports1.9 accounted3.2 for 22.3%. Meanwhile, Branded Brush from Sri Lanka increased from 1.2% in FY12 to Australia and New Zealand was 0.5 Australia & New Zealand exports was also added to the product9.1 portfolio and accounted for 0.7% of total revenue in 2.0% in FY16 with BPPL’s strategy to focus more 9.8 9.1% in FY16 declining slightly from Europe (Excl. UK) on the Brandedthe brush FY16. segment in Sri Lanka. 2.2 5.2 FY12 9.8% from FY12. Meanwhile, UK contribution from Sri Lanka 73.2 Sri Lanka 37 73.4 increased from 1.2% in FY12 to 2.0% Other in FY16 with BPPL’s strategy to focus more on the Branded brush Source: Company Financials segment in Sri Lanka.

2.2 Cost of Sales (CoS)

Raw Materials

Cost of Sales The Group reported Cost of Sales of LKR Mn 1,600 74 LKR 1.3 Bn in FY16, declining 2.8% Cost of Sales As a % of Revenue - RHS YoY, primarily owing to lower raw 71.5 1,200 70.6 70 material prices. Pricing of raw B P P L Holdings Limited - Initial Public Offering | 143 67.0 materials such as Polyethylene 800 66 65.3 Terephthalate (PET materials) and 63.4 Polypropylene (PP) is significantly 400 62 correlated to crude oil prices, and as - 58 a result has been on the downtrend FY12 FY13 FY14 FY15 FY16 along with crude oil prices in FY16. Source: Company Financials Cost per unit of PP declined 13.6% YoY in FY16 while the cost per unit of PET materials declined 15.4% YoY during the year. Cost of Sales as a percentage of revenue has averaged approximately 67.6% over the period FY12-16, and amounted to 63.4% in FY16. The Company’s CoS consists of material cost, labor cost and factory overhead costs which

USA was the highest revenue Revenue Composition - By Geography generator during the period FY12- USA FY16 with an average contribution 7.2 FY16 2.0 4.3 6.9 of 73.5%. Contribution from 1.2 Canada 1.9 3.2 Australia and New Zealand was 0.5 Australia & New Zealand 9.1 9.8 9.1% in FY16 declining slightly from Europe (Excl. UK) 2.2 5.2 FY12 9.8% from FY12. Meanwhile, UK contribution from Sri Lanka 73.2 Sri Lanka 73.4 increased from 1.2% in FY12 to 2.0% Other in FY16 with BPPL’s strategy to focus more on the Branded brush Source: Company Financials segment in Sri Lanka.

2.2 Cost of Sales (CoS) 2.2 COST OF SALES (COS) Raw Materials Raw Materials

Cost of Sales The GroupThe reported Group Cost reported of Sales of Cost LKR of1.3 SalesBn in FY16,of LKR Mn declining 2.8% YoY, primarily owing to lower raw material LKR 1.3 Bn in FY16, declining 2.8% 1,600 74 prices. Pricing of raw materials such as PET and PP is Cost of Sales As a % of Revenue - RHS YoY, primarily owing to lower raw 71.5 significantly correlated to crude oil prices, and as a result 1,200 70.6 70 has been onmaterial the downtrend prices. along Pricing with crude of oil pricesraw in FY16. Cost per unit of PP declined 13.6% YoY in FY16 while 67.0 materials such as Polyethylene 800 66 65.3 the cost perTerephthalate unit of PET materials (PET materials)declined 15.4% and YoY during the year. Cost of Sales as a percentage of revenue 63.4 Polypropylene (PP) is significantly 400 62 has averaged approximately 67.6% over the period FY12- 16, and amountedcorrelated to 63.4% to crude in FY16. oil The prices, Company’s and as CoS - 58 consists ofa material result cost,has laborbeen cost on andthe factorydowntrend overhead FY12 FY13 FY14 FY15 FY16 costs whichalong approximately with crude represented oil prices 63.6%, in 17.5%FY16. and Source: Company Financials 19.0% of the total cost of sales respectively in FY16. Cost per unit of PP declined 13.6% YoY in FY16 while the cost per unit of PET materials Timber anddeclined fibre account 15.4% for YoY approximately during the 50% year. of total Cost raw of material Sales costs,as a percentawhile PP, geVirgin of revenuePPN and PEThas materialsaveraged account forapproximately approximately 25%67.6% of raw over material the cost.period Sri Lankan FY12 -brush16, and manufacturers amounted have to a 63.4%competitive in FY16.advantage The against their Chinese counterparts due to easy access to rubber timber in Sri Lanka, which is not as freely available in China. A significantCompany’s portion CoS of consists the Company’s of material raw material cost, costs labor are correlatedcost and to factory the movement overhead in global costs crude which oil prices. Crude oil (Brent) prices declined to USD 52.32 per barrel in calendar year 2015 (-47.1% YoY) from USD 98.89 per barrel in the previous year, which led to the decline in polypropylene and PET material prices. 38

Factory Labour

FY12 FY13 FY14 FY15 FY16 Labour Cost (LKR Mn) 128.1 129.5 176.7 218.5 231.4 YoY Growth (%) - 1.1 36.4 23.7 5.9 As a % of Cost of Sales 12.5 12.5 14.9 16.1 17.5 Number of Employees 386 375 485 554 531 Average Cost per Employee (LKR '000s) 331.9 345.3 364.3 394.3 435.7 YoY Growth (%) in Cost per Employee 4.0 5.5 8.3 10.5

BPPL reported labour cost of LKR 231.4 Mn in FY16, increasing 5.9% YoY and at a 4-year CAGR of 15.9% over the period FY12-16. Labour cost as a percentage of CoS increased to 17.5% in FY16 from 16.1% in the previous year. The number of employees decreased by 23 heads in FY16 and the average cost per employee increased 10.5% YoY, in line with the annual increment rate.

Factory Overheads FY12 FY13 FY14 FY15 FY16 Factory Overhead Cost (LKR Mn) 399.2 322.0 323.2 296.4 250.9 YoY Growth (%) (19.3) 0.4 (8.3) (15.3) As a % of Cost of Sales 38.8 31.2 27.3 21.9 19.0

BPPL recorded factory overheads of LKR 250.9 Mn in FY16, declining 15.3% YoY. Overheads as a percentage of CoS amounted to 19.0% in FY16 continuing the downtrend recorded since FY12. The primary reason for the factory overheads to decline was the streamlining process that was largely completed in the last financial year. Streamlining included enhanced power utilization, improved machinery maintenance efficiencies and higher labour output through lean manufacturing and resulted in the Group improving its productivity while maintaining low costs.

144 | B P P L Holdings Limited - Initial Public Offering utilization, improved machinery maintenance efficiencies and higher labour output through lean manufacturing and resulted in the Group improving its productivity while maintaining low costs.

2.3 GROSS PROFIT 2.3 Gross Profit Given the continued improvements to efficiencies due to Given the continued improvements to Recurring Gross Profit & Margin streamlining, BPPL recorded an approximately 600bps LKR Mn efficiencies due to streamlining, BPPL Recurring Gross Profit increase in its recurring gross margin to 36.6% in FY16. 900 40 Recurring Gross Margin (%) - RHS Recurringrecorded gross profit an for approximatelythe year amounted 600to LKRbps 36.6 750 32 764.3 Mn in FY16, up 28.7% YoY. Gross profit improved 34.7 increase in its recurring gross margin to 33.0 30.7 at a 17.0% CAGR over the period FY12-16, while margins 600 36.6% in FY16. Recurring gross profit 28.5 24 improved over 800bps. Given that majority of the for the year amounted to LKR 764.3 Mn 450 Group’s revenue is earned in foreign currency, while its 16 300 costs arein primarily FY16, incurredup 28.7% in LKR, YoY. LKR Gross depreciation profit 8 against theimproved USD further at aimproved 17.0% grossCAGR margins over overthe 150 the period.period Meanwhile, FY12 lower-16, rawwhile material costsmargins also 0 0 supported margin improvement in FY16. The decline in FY12 FY13 FY14 FY15 FY16 improved over 800bps. Given that gross margins in FY15 was owing to an inventory write- Source: Company Financials off amountingmajority to LKR of 19the Mn Group’sduring the revenueyear coupled is with the earnedhigher machinery in foreign maintenance currency, expenses. while its costs are primarily incurredin Sri Lanka, LKR depreciation against the USD further improved gross margins over the period. Meanwhile, lower raw material costs also supportedFY12 margin FY13improvementFY14 in FY16. TheFY15 decline in FY16gross Reportedmargins Gross Profit in FY15 (LKR Mn)was owing to an inventory407.8 write544.4-off amounting582.7 to LKR 569.519 Mn during764.3 the Reportedyear Gross coupled Margin with (%) the higher machinery28.5 maintenance34.7 expenses.33.0 29.5 36.6 Recurring Gross Profit (LKR Mn) 407.8 544.4 582.7 593.7 764.3 RecurringGross Gross Profit Margin (%) FY1228.5 FY1334.7 FY1433.0 FY15 30.7 FY16 36.6 Reported Gross Profit (LKR Mn) 407,763.5 544,354.7 582,708.8 569,474.0 764,251.5 BPPL’s margin expansion of 5.9% YoY in GrossReported Margin Gross Expansion Margin (%)in FY16 28.5 BPPL’s 3margin4.7 expansion33.0 of 5.9% YoY29.5 in FY16 was driven36.6 by rawFY16 material was price driven reduction by (17%raw of material gross margin price expansion), 17% foreign exchange movements (42%) and due to efficiency gains Recurring Gross Profit (LKRDue to raw material reduction (17% of gross margin Mn) gains 407,763.5 (41%),expansion544,354.7 respectively. ), foreign582,708.8 This reflects exchange593,683.7 that a movementssignificant 764,251.5 portion of 41% Recurring Gross Margin (%)Due to FX gains 28.5 margin34.7 improvement 33.0 recorded in FY1630.7 was owing36.6 to strict cost(42 %)management and due andto efficiencyproductivity gains improvements (41%), from Due to efficiency gains withinrespectively. the Company, This whilereflects the thatremaining a significant was attributable toportion external factors.of margin improvement recorded 40 42% in FY16 was owing to strict cost Source: Company Financials management and productivity improvements from within the Company, while the remaining was attributable to external factors.

2.4 Other Income The Company reported other Other Operating Income operating income of LKR 12.5 Mn in LKR Mn Other Operating Income YoY Growth (%) - RHS 25 350 FY16, which was 0.6% of total 301.7 revenue. The primary component of 20 275 218.3 200 other operating income was the 15 refund of Generalized Scheme of 125 10 Preferences (GSP), (a percentage of 50 5 duty waivers for exports to the US). (25.2) (45.0) -25 Meanwhile, the largest contributor to 0 -100 FY12 FY13 FY14 FY15 FY16 other operating income in FY15 was Source: Company Financials a disposal of shares amounting to LKR 17.2 Mn. The income was related to disposing of shares in Beira Synthetic Fibre (BSF), B P P L Holdings Limited - Initial Public Offering | 145 which was divested and usable assetssold to BES. The Company discontinued the BSF operations, which were similar to BES as the former operated with older and less advanced machinery.BPPL owned 100% of BSF.

2.5 Administration Expenses

LKR Mn The Group records non-factory 250 12 (administration-related) staff cost Administration Expenses 9.7 and depreciation and amortization, 200 As a % of Revenue - RHS 10 9.6 8 foreign exchange gains and losses 150 7.9 and other expenses under 7.5 6 6.5 100 Administration expenses. 4 Administration expenses in FY16 50 2 41 0 0 FY12 FY13 FY14 FY15 FY16

Source: Company Financials Gross Margin Expansion in FY16 BPPL’s margin expansion of 5.9% YoY in FY16 was driven by raw material price 17% BPPL’s margin expansion of 5.9% YoY in Gross Margin Expansion in FY16Due to raw material reduction (17% of gross margin gains FY16expansion was ),driven foreign by exchange raw material movements price 41% 17% Due to FX gains Due to raw material reduction(42%) and due(17% to efficiencyof gross gains margin (41%), gains Due to efficiency gains expansionrespectively.), foreign This reflects exchange that amovements significant 41% Due to FX gains (42portion%) and of margindue to efficiencyimprovement gains recorded (41%), Due to efficiency gains respectively. This reflects that a significant 42% in FY16 was owing to strict cost Source: Company Financials portionmanagement of margin improvementand productivi recordedty improvements from within42% the Company, while inthe remainingFY16 was was owing attributable to strictto external cost Source: Company Financials factors. management and productivity improvements from within the Company, while the remaining was attributable to external facto rs. 2.4 Other Income The Company reported other 2.4 Other IncomeOther Operating Income operating income of LKR 12.5 Mn in LKR Mn Other Operating Income YoY Growth (%) - RHS The Company reported other 2.425 OTHER INCOME 350 FY16, which was 0.6% of total Other Operating 301.7 Income operating income of LKR 12.5 Mn in LKR Mn 275 Therevenue. Company The reported primary other component operating ofincome of 20 Other Operating Income YoY Growth (%) - RHS 25 218.3 350 LKRFY16, 12.5 Mnwhich in FY16, was which 0.6% was 0.6%of of totaltotal revenue. 200 other operating income was the 15 301.7 Therevenue. primary The component primary of componentother operating of income 20 275 refund of Generalized Scheme of 125 was the refund of Generalized Scheme of Preferences 218.3 10 200 otherPreferences operating (GSP), income (a percentage was the of 50 (GSP), (a percentage of duty waivers for exports to 15 refund of Generalized Scheme of 5 125 theduty US). waivers Meanwhile, for theexports largest to contributor the US). to other (25.2) (45.0) -25 10 Preferences (GSP), (a percentage of 50 operatingMeanwhile, income the in largest FY15 was contributor a disposal to of shares 0 -100 amounting to LKR 17.2 Mn. The income was related 5 dutyother waiversoperating for income exports in to FY15 the USwas). FY12 FY13 (25.2) FY14 FY15 (45.0) FY16 -25 Source: Company Financials to disposing of shares in Beira Synthetic Fibre (BSF), Meanwhile,a disposal ofthe shareslargest amountingcontributor toto 0 -100 which was divested and usable assets sold to BES. The LKR 17FY12.2 Mn. The FY13 income FY14 was related FY15 to FY16 disposing of othershares operating in Beira Syntheticincome in Fibre FY15 (BSF), was Source: Company Financials Company discontinued BSF operations, which were which was divested and usable assetssold to BES. similarThea disposal Company to BES, ofas thediscontinuedshares former amounting operated the with BSF to older and LKRoperations, 17.2 Mn. which The wereincome similar was relatedto BES asto disposingthe former of operatedless shares advanced in with Beira machinery. older Synthetic and BPPL less Fibreowned advanced (BSF), 100% of BSF. whichmachinery. was BPPLdivested owned and 100% usable of BSF. assets sold to BES. The Company discontinued the BSF operations,2.5 ADMINISTRATION which were similarEXPENSES to BES as the former operated with older and less advanced machinery.2.5 AdministrationBPPL owned Expenses 100% of BSF. The Group records non-factory (administration- LKR Mn The Group records non-factory related) staff cost and depreciation and amortization, 2.5250 Administration Expenses 12 (administration-related) staff cost Administration Expenses foreign exchange gains and losses and other expenses LKR Mn 9.7 Theand depreciationGroup records and amortization, non-factory 200 As a % of Revenue - RHS 10 under administration expenses. Administration 250 9.6 12 expenses(administration-related)foreign inexchange FY16 amounted gains andstaffto LKR lossescost 203.3 Mn, Administration Expenses 8 150 As a % of Revenue - RHS 7.9 9.7 10 increasingandand depreciation other10.2% YoY, expensesandand at amortization,a 4-year underCAGR of 21.6% 200 7.5 6 6.5 9.6 over the period FY12-16. Administration expenses as 100 8 foreignAdministration exchange gains andexpenses. losses 150 7.9 4 a percentage of revenue amounted to 9.7% in FY16, 7.5 andAdministration other expensesexpenses in underFY16 50 6 6.5 2 above its 5-year average of 8.2%. BPPL reported an 100 Administration expenses. 4 exchange loss of LKR 2.2 Mn in FY16, compared41 to a 0 0 gainAdministration of LKR 1.6 Mn inexpenses the previous in yearFY16 due to USD 50 FY12 FY13 FY14 FY15 FY16 2 borrowings and exchange rate fluctuations between Source: Company Financials 41 0 0 the sales period and debtor realization period. FY12 FY13 FY14 FY15 FY16

Source: Company Financials

Staff Cost FY12 FY13 FY14 FY15 FY16 Total Staff Cost (LKR Mn) 47.6 59.2 83.0 105.8 117.2 Number of Employees 67 87 94 103 103

Average Cost per Employee (LKR '000s) 710.7 680.8 882.6 1,027.2 1,137.9 YoY Growth (%) in Avg. Cost per Employee (4.2) 29.6 16.4 10.8

146 | B P P L Holdings Limited - Initial Public Offering amounted to LKR 203.3 Mn, increasing 10.2% YoY, and at a 4-year CAGR of 21.6% over the period FY12-16. Administration expenses as a percentage of revenue amounted to 9.7% in FY16, above its 5-year average of 8.2%. BPPL reported an exchange loss of LKR 2.2 Mn in FY16, compared to a gain of LKR 1.6 Mn in the previous year due to USD borrowings and amountedexchange to LKR rate 203 fluctuations.3 Mn, increasing between 10.2% the sales YoY period, and at and a 4- debtoryear CAGR realization of 21.6% period. over the period FY12-16. Administration expenses as a percentage of revenue amounted to 9.7% in Staff Cost FY12 FY13 FY14 FY15 FY16 FY16, above its 5-year average of 8.2%. BPPL reported an exchange loss of LKR 2.2 Mn in Total Staff Cost (LKR Mn) 47.6 59.2 83.0 105.8 117.2 FY16, comparedNumber of Employees to a gain of LKR 1.6 Mn in67 the previous87 year due94 to USD borrowings103 103and exchangeAverage rate Costfluctuations per Employee between the sales period and debtor realization period. (LKR '000) 710.7 680.8 882.6 1,027.2 1,137.9 Staff CostYoY Growth (%) in Avg. Cost per EmployeeFY12 FY13 (4.2) FY14 29.6 FY15 16.4 FY16 10.8 Total Staff Cost (LKR Mn) 47.6 59.2 83.0 105.8 117.2 Number of Employees 67 87 94 103 103 Average2.6 CostDistribution per Employee Expenses (LKR '000) 710.7 680.8 882.6BPPL ’s distribution1,027.2 1,137.9 expenses consist YoY GrowthLKR Mn (%) in Avg. Cost per Employee (4.2) 29.6 16.4 10.8 primarily of freight expenses, 250 Distribution Expenses As a % of Revenue - RHS 15 12.5 commissions and sales promotion 11.2 200 11.0 12 2.62.6 DistributionDISTRIBUTION Expenses EXPENSES expenses. Increasing 3.7% YoY, the 10.6 150 10.2 BPPL9 ’sGroup distribution reported expenses distribution consist expenses LKR Mn BPPL’s distribution expenses consist primarily of 100 primarilyfreight6 of expenses, LKR of212. commissions 2freight Mn in andFY16,expenses, sales which promotion was 250 Distribution Expenses As a % of Revenue - RHS 15 12.5 commissionsexpenses.10.2 Increasing% ofand 3.7% revenue.sales YoY, thepromotion GroupDistribution reported 50 11.0 11.2 3 200 12 expenses.distributionexpenses Increasingexpenses as a ofpercentage LKR3.7% 212.2 YoY, Mnof the revenuein FY16, 10.6 which was 10.2% of revenue. Distribution expenses 150 0 10.2 9 Group0 has reported averaged distribution 11.1% over expenses the 5 year FY12 FY13 FY14 FY15 FY16 as a percentage of revenue has averaged 11.1% over of LKR 212.2 Mn in FY16, which was 100 Source: Company Financials6 the 5-yearperiod period FY12 FY12-16.-16. Owing Owing toto decliningdeclining 10.2crude% crude oil ofprices oilrevenue. combinedprices combined withDistribution the impactwith theof 50 3 impact of under-utilized capacity in freight resultingexpensesunder-utilized from asa slowdown acapacity percentage in freightin China, of (resulting revenue the Groupfrom a 0 has seen a declining trend of freight charges,0 hasslowdown which averaged inaccounted China), 11.1% the Groupforover over hasthe seen 5 5 0% yeara declining of the FY12 FY13 FY14 FY15 FY16 trend of freight charges, which accounted for over period FY12-16. Owing to declining distribution expenses in FY16.Source: Company Financials 50% of distribution expenses in FY16. crude oil prices combined with the 2.7 EBIT and EBITDA 2.7impact EBIT of AND under EBITDA-utilized capacity in freight resulting from a slowdown in China, the Group

has seen a declining trend of freight charges, which accounted Recurring for EBITDA over Margin 50% of the Recurring EBIT Margin LKR Mn distributionLKR Mn expenses in FY16. 400 EBIT EBIT Margin (%) - RHS 20 450 EBITDA EBITDA Margin (%) - RHS 25 2.7 EBIT and EBITDA 17.3 19.7 320 16 360 20 15.2 19.0 20.4 14.2 16.1 240 12 270 Recurring EBITDA Margin 15 11.1 11.3 14.1 LKR Mn Recurring EBIT Margin LKR Mn 160 8 400 EBIT EBIT Margin (%) - RHS 20 450 180 EBITDA EBITDA Margin (%) - RHS 25 10

80 17.3 4 19.7 320 16 360 90 20 5 15.2 19.0 20.4 14.2 The Group0 recorded EBIT of LKR 361.3 Mn 0in FY16, 16.1 increasing significantly from the 240 12 270 0 15 0 11.1 FY12 FY13 11.3 FY14 FY15 FY16 14.1 previous year. Over the 5-year period FY12-16, the GroupFY12 reported FY13 recurring FY14 EBIT FY15 growth FY16 at 42 160 Source: Company Financials8 a CAGR of 22.7%. The decline in EBIT in FY15180 was primarily due to higherSource: costs Company relating Financials10 to

Thestreamlining80 Group recorded all productionEBIT of LKR processes,361.3 Mn in FY16,which4 increasing 90has now significantly been completed. from the Theprevious Group year. also Over5 saw the 5-year period FY12-16, the Group reported recurring EBIT growth at a CAGR of 22.7%. The decline in EBIT in FY15 was primarily margins0 improving by over 600bps in FY160 from FY12. Meanwhile, recurring EBITDA also 0 0 due to higherFY12 costsFY13 relatingFY14 to streamliningFY15 FY16 all production processes, which has now been completed. The Group also grew at a 4-year CAGR of 16.6% over FY12-16,FY12 and FY13reachedFY14 LKR FY15425.6 MnFY16 in FY16. saw margins improving by over 600bps in FY16 from FY12. Meanwhile, recurring EBITDA also grew at a 4-year42 CAGR Source: Company Financials ofRecurring 16.6% over FY12-16,EBITDA and margin reached in LKR FY16 425.6 was Mn 20.4%,in FY16. increasingRecurring EBITDA from 14.1%margin ininSource: FY16the Company previous was 20.4%, Financials year.increasing from 14.1% in the previous year. 2.8 Depreciation and Capital Expenditure 2.8 DEPRECIATION AND CAPITAL EXPENDITURE

LKR Mn Capex Depreciation - RHS BPPL continues to incur maintenance capital expenditure 250 (capex) given the capital intensive nature of its core operations. The Group incurred capex of LKR 50.5 Mn in 200 FY16, which amounted to 2.4% of revenue. On average, the 150 Group’s capex as a percentage of revenue has been at 6.5% over FY12-16. However, BPPL incurred high capex in FY14 100 and FY15, primarily relating to the planned streamlining 50 of processes across the Group. This included upgrading existing machinery as well as investing in newer and more 0 FY12 FY13 FY14 FY15 FY16 advanced machinery in order to improve productivity Source: Company Financials levels and output. Depreciation and amortization in FY16 amounted to LKR 64.4 Mn, up from LKR 55.5 Mn in the previous year. On average, approximately 80% of total depreciation is incurred under CoS, while the remainder is categorized as administration expenses. Despite higher capital expenditure in FY15, the Company’s depreciation remained low as BPPL restated its depreciation rates during the year in order to reflect a more accurate picture of the useful life of its machinery. Meanwhile, amortization for FY16 amounted to LKR 3.3 Mn. Intangible assets for the Company primarily includes its

Enterprise Resource Planning (ERP) systems.

B P P L Holdings Limited - Initial Public Offering | 147

2.9 NET FINANCE COST AND DEBT

BPPL reported finance cost of LKR 30.9 Mn in FY16, up 8.4% YoY. Total borrowings for the period amounted to LKR 410.6 Mn, and comprised of short term bank loans, bank overdraft and long term bank loans. The effective finance cost for the GroupIn amounted addition to 5.6% to inLKR FY16, increasingdenominated from 5.1% debt, in the BPPL previous also year, maintainswhile total borrowings a portfolio declined of 44.3%USD YoY. BPPL’sdenominated interest cover of debt11.7x inwhich FY16 was exposes in line with the the 5-yearCompany average toof 11.5x.foreign Short termexchange loans are movements. used to fund working capital,Increased while USDlong term borrowings debt is generally coupled used with for expansion LKR depreciation purposes. The against Group recorded the USD a debt/equity will thus ratiolead of 0.24x into FY16, significant declining exchangesignificantly losses from 0.55x for inthe the Group. prior year. Net debt to equity meanwhile, amounted to 0.23x in FY16, versus 0.53x in FY15. Meanwhile, finance income for the Company amounted to LKR 0.2 Mn in the same year. In addition to LKR denominated debt, BPPL also maintains a portfolio of USD denominated debt which exposes the Company to foreign exchange movements. Increased USD borrowings coupled with LKR depreciation against the USD Debt and Finance Cost FY12 FY13 FY14 FY15 FY16 will thus leadTotal to exchangeDebt (LKR losses Mn) for the Group. 225.4 409.4 432.2 686.3 410.6 Debt to Equity (x) 0.19 0.42 0.38 0.55 0.24 Meanwhile, finance income for the Company amounted to LKR 0.2 Mn in FY16. Finance Cost (LKR Mn) 10.6 18.8 23.2 28.5 30.9 Interest Cover (x) FY12 15.1 FY1312.6 FY1410. 8 7.1FY15 11.7FY16 Total Debt (LKR Mn) 225.4 409.4 432.2 686.3 410.6 Debt to Equity (x) 0.19 0.42 0.38 0.55 0.24 2.10 Taxation Finance Cost (LKR Mn) 10.6 18.8 23.2 28.5 30.9 In FY16, the Group was liable to pay income tax at a rate of 12.0% per annum, (BES on tax Interest Cover (x) 15.1 12.6 10.8 7.1 11.7 holiday). Overall, BPPL reported a tax expense of LKR 23.7 Mn in FY16, yielding an 2.10 TAXATIONeffective tax rate of 7.2% compared to 14.7% recorded in the previous year which included higher deferred tax. Following the budget in November 2016, the income tax rate In FY16, the Group was liable to pay income tax at a rate of 12.0% per annum, (BES on tax holiday). Overall, BPPL reported a tax expenseapplicable of LKR 23.7 for Mn the in Group FY16, yielding is 12% an in effective FY17E tax and rate 14% of 7.2% thereafter. compared to 14.7% recorded in the previous year which included higher deferred tax. Following the budget in November 2016, the income tax rate applicable for the Group is 12.0% in FY17E and 14.0% thereafter.

2.11 Net Profit 2.11 NET PROFIT

BPPL’s net profit attributable to equity BPPL’s net profit attributable to equity holders was LKR 306.9 Recurring Net Profit Mn in FY16,holders increasing was significantly LKR 306. from9 Mn a weakerin FY16, FY15. LKR Mn Recurring Net Profit attributable to Equityholders On a reported basis therefore, the Company saw its margins 350 16 increasing significantly from a weaker Recurring Net Profit Margin (%) - RHS improve to 14.7% in FY16 from 7.7% in the previous year 14.1 280 FY15. On a reported basis therefore, 12 (+700bps). Meanwhile, on a recurring basis, net profit for FY16 11.4 the Company saw its margins improve 11.3 amounted to LKR 294.6 Mn, increasing 74.1% YoY while net 210 9.2 margins expandedto 14.7% over in 500bps.FY16 Recurringfrom 7.7% net profitin the grew 8.8 8 140 at a 4-yearprevious CAGR of 22.3%year over(+700bps). the period Meanwhile, FY12-16, while margins expanded approximately 500bps. Group results also 4 on a recurring basis, net profit for FY16 70 included performance of its subsidiary Beira Synthetic Fibre (BSF) untilamounted FY14, in which to LKR year 294.6it was Mn,divested. increasing Recurring 0 0 FY12 FY13 FY14 FY15 FY16 EPS for FY1674.1% amounted YoY to LKRwhile 0.97, up 74.1%net YoY.margins Source: Company Financials Over the periodexpanded FY12-16, over BPPL’s 500bps. EPS grew Recurring at a CAGR ofn 22.3%.et In FY16, BPPL reported a return on equity (ROE) of 20.8% above its 5-yearprofit historic grew averageat a 4- yearof 16.3%. CAGR On a ofrecurring 22.3% basis, over ROE the forperiod BPPL wasFY12 20.0%-16, inwhile FY16 increasingmargins expandedfrom 14.1% in the priorapproximately year. BPPL’s Net Asset500bps. Value Group per Share results in FY16 also was LKRincluded 5.57, above performance an average of of LKR its 3.72 subsidiary over FY12-15. Beira Synthetic Fibre (BSF) until FY14, in which year it was divested. Recurring EPS for FY16 amounted to LKR 0.97, up over 74.1% YoY. Over the period FY12-16, BPPL’s EPS grew at a CAGR of 22.3%. In FY16, BPPL reported a return on equity of 20.8% above its 5-year historic average of 16.3%. On a recurring basis, ROE for BPPL was 20.0% in FY16

148 | B P P L Holdings Limited - Initial Public Offering

2.12 DIVIDENDS LKR Dividend per Share and Payout % An increase of over 70% YoY, BPPL declared a dividend 0.40 Dividend per Share (LKR) Dividend Payout (%) 48 per share of LKR 0.36 in FY16, from LKR 0.21 in the prior 40 0.32 38.1 year. This implies a dividend payout of 37.5% in FY16 37.5 compared with 38.1% in FY15 (based on recurring EPS). 32 0.24 The average dividend payout for BPPL over FY12-16 is 24 21.2%. 0.16 16.8 16 8.3 0.08 8 5.5 0.00 0 FY12 FY13 FY14 FY15 FY16 Source: Company Financials

2.13 WORKING CAPITAL ANALYSIS

FY12 FY13 FY14 FY15 FY16

Inventory Days (Incl. Spares) 131 124 119 117 118 Receivable Days 87 100 108 116 100

Payable Days 29 34 43 33 29 Working Capital Days 189 191 183 200 189

BPPL’s working capital cycle for FY16 amounted to 189 days, in line with its 5-year average of 190 days. Inventory days (including spares) amounted to 118 days, while receivable and payable days amounted to 100 days and 29 days, respectively. Meanwhile, inventory days excluding spares amounted to 99 days in FY16. The inventory days (including spares) ranging from 115-130 days is attributable to several reasons, including:

1. Customers require that the Company maintain inventory of backs and fibre required for certain patterns for at least 2 years. Thereafter, inventory that has not moved for 2 years will be provided for with 50%, while inventory that has not moved for over 3 years will be provided for with 100%

2. Natural fibre such as Tampico have a long lead time, with a time period of approximately 7-8 months between order and delivery

3. Certain material has to be ordered by the container (minimum order requirement)

B P P L Holdings Limited - Initial Public Offering | 149 2.14 CAPITALIZATION OF RESERVES

In August 2016, BPPL capitalized its reserves in order to meet the minimum stated capital requirement of LKR 100 Mn to be listed on the Diri Savi Board, as mandated by the Colombo Stock Exchange. The Company carried out a capitalization of reserves through the issue of 1,598,142 shares (at LKR 12.00 per share). The capitalization of reserves did not result in the issue of shares to any new shareholders, with the existing shareholders being issued 01 share for every 191 shares held in the Company. Following the issue, the Company’s stated capital amounted to LKR 100,371,584. Prior to the issue BPPL’s stated capital amounted to LKR 81,193,880.

Shares Prior to Shares Total No. of Shares Name of Shareholder Capitalization of Reserves Capitalized as at 19th Aug 2016 Infinity Capital (Pvt) Ltd. 153,578,700 804,077 154,382,777 Hirdaramani Investment Holdings (Pvt) Ltd. 71,539,655 374,553 71,914,208 LOLC Investments Limited 80,126,860 419,512 80,546,372 Total 305,245,215 1,598,142 306,843,357

150 | B P P L Holdings Limited - Initial Public Offering 03. INTERIM FINANCIAL PERFORMANCE

Summary Financials (LKR Mn) and Ratios YTD Nov 15 YTD Nov 16 YoY Change (%) Revenue 1,275.0 1,549.9 21.6 Gross Profit 446.8 618.5 38.4 EBIT 198.2 324.9 63.9 Net Profit 160.4 253.7 58.2

Total Debt 486.2 267.2 (45.0) Capital Expenditure 35.5 43.0 21.1

Gross Profit Margin (%) 35.0 39.9 EBIT Margin (%) 15.5 21.0 Net Profit Margin (%) 12.6 16.4

Source: Company Interim Financials

BPPL reported revenue of LKR 1.5 Bn in the period ending 30th November 2016, up 21.6% YoY primarily due to higher sales volumes. Meanwhile, BPPL’s CoS grew at only 12.5% YoY, as raw material costs remained low. Crude oil price averaged USD 46.08 per barrel during the period April – November 2016 which was 13.9% below that of the same period in the previous year. Driven by lower raw material costs and the benefits of streamlining processes coming through, the Group recorded gross profit of LKR 618.5 Mn during the period implying a gross profit margin of 39.9% expanding approximately 500bps YoY.

Other operating income for the period ending 30th November 2016 amounted to LKR 0.27 Mn. Distribution costs for the period, LKR 151.0 Mn was up 16.5% YoY as a result of the higher commission and sales promotion expenses. However, distribution costs as a percentage of revenue declined to 9.7% during the period from 10.2% in the previous year owing to higher sales mix of products where freight charges are borne by the customers. Administration costs of LKR 142.8 Mn for the period was an increase of 8.8% YoY due to higher professional charges and staff expenses. Administration costs as a percentage of revenue declined to 9.2% in the period April – November 2016 from 10.3% in the same period of FY16. Exchange gain for the period was LKR 1.2 Mn against an exchange loss of LKR 1.4 Mn in the previous year. EBIT margin for the Group of 21.0% was an expansion of approximately 6% YoY, primarily owing to improved efficiencies stemming from the streamlining conducted in FY15-16.

Finance cost for the period amounted to LKR 14.7 Mn. Income tax during YTD November 2016 of LKR 56.7 Mn implies an effective tax rate of 18.3% compared to 9.7% in same period in FY16, due to higher tax rates. Net profit for the period amounted to LKR 253.7 Mn, up 58.2% YoY and implies a net profit margin of 16.4%. There were no non-recurring items during these periods.

Capex increased to LKR 43.0 Mn during the period compared to LKR 35.5 Mn in FY16. Capex as a percentage of revenue was 2.8% for YTD November 2016 similar to the levels of FY16.

Comparison (%) YTD Nov 16 FY17E Revenue Growth 21.6 15.6 Gross Profit Margin 39.9 39.6 EBIT Margin 21.0 20.9 Net Profit Margin 16.4 17.9

Following the performance during the period ending 30th November 2016, we note that the Group’s actual performance is broadly in line with our estimates for FY17E.

B P P L Holdings Limited - Initial Public Offering | 151 04. FINANCIAL FORECASTS AND OUTLOOK

The financials have been forecasted at a group level for BPPL. Refer Annexure 03 for a detailed list of assumptions used in this section.

4.1 REVENUE

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Revenue (LKR Mn) 1,931.0 2,087.5 2,413.5 2,726.7 3,324.6 3,789.8 4,223.2 Revenue growth (%) 9.3 8.1 15.6 13.0 21.9 14.0 11.4 Source: Company Financials & CTCLSA Capital Forecast

Following lower revenue growth recorded in FY16 due to delays in coming-on-stream of new machinery, we expect a recovery in FY17E as capacity expansion and machinery overhauling has now been completed. In addition to the base effect, we expect BPPL to record revenue growth of 15.6% YoY in FY17E due to growth in the US Brush Sales (generic) market and the introduction of own-brands in Sri Lanka and Indonesia. Revenue is expected to reach LKR 4,223.2 Mn in FY21E growing at a CAGR of 15.1% over FY16-21E. Revenue growth of 21.9% YoY in FY19E is expected to be mainly driven by the Synthetic Yarn project commencing its operations coupled with the launch of BPPL’s own brand in Malaysia (in addition to growth in existing business). Additionally, we expect LKR depreciation against the USD to also support revenue growth for the Company, as over 90% of its revenues are earned in USD. Our forecasts assume the LKR would depreciate 4.0% per annum against the USD over FY17-19E and 3.0% per annum thereafter. Based on our forecasts, we expect BPPL to earn an average of over 90% of its revenue in USD over the forecast period.

Revenue Composition - By Geography

(%) FY15 FY16 FY17E FY18E FY19E FY20E FY21E USA 69.4 73.4 72.7 71.8 65.8 63.6 62.3 Canada 2.9 2.2 2.1 2.0 1.8 1.7 1.7 Australia & New Zealand 12.2 9.1 8.8 8.8 8.0 7.8 7.6 Europe (Excl. UK) 1.9 1.9 1.8 1.7 1.5 1.4 1.3 UK 4.9 4.3 4.1 3.9 3.5 3.3 3.2 Sri Lanka 1.3 2.0 2.1 2.3 2.3 2.4 2.5 Other 7.3 7.2 8.4 9.6 17.1 19.9 21.3

Source: Company Financials & CTCLSA Capital Forecast

USA contributed 73.4% of total revenue in FY16 and is expected to continue as the highest revenue contributor during the forecast period with an average contribution of 67.2% of total revenue. However, contribution from the USA is expected to decline as BPPL penetrates further in to the Sri Lankan and other Southeast Asian markets with branded brushes. As such, revenue contribution from Sri Lanka and Other (includes revenue from Indonesia, Malaysia and the Synthetic Yarn project) is expected to increase from 9.2% in FY16 to 23.8% in FY21E. Growth in the Branded segment is expected to continue as demand for high quality, durable products is expected to increase in the developing nations with higher disposable income. Revenue from synthetic yarn is expected to support revenue growth from FY19. BPPL’s revenue will continue to be dominated by exports averaging over 95% during the forecast period, primarily generating revenues in USD.

Revenue Composition – By Product

(%) FY15 FY16 FY17E FY18E FY19E FY20E FY21E Brush Exports (Generic) 81.7 78.7 77.9 77.0 70.6 68.3 67.0 Brush Exports (Branded) 0.8 0.7 2.2 3.4 5.7 6.8 7.6 Wood Exports 12.9 14.7 14.1 13.5 12.0 11.4 11.0 Fibre Exports 3.2 3.9 3.8 3.8 3.5 3.5 3.5 Local Sales (Tip Top, Wood) 1.3 2.0 2.1 2.3 2.3 2.4 2.5 Synthetic Yarn - - - - 5.8 7.7 8.3 Source: Company Financials & CTCLSA Capital Forecast

152 | B P P L Holdings Limited - Initial Public Offering Brush Exports (Generic) have contributed for 78.7% of BPPL’s total revenue in FY16 and is expected to be the highest contributor for FY17-21E with an expected average contribution of 72.2%. Meanwhile, Branded Brush Exports is expected to grow in line with BPPL’s strategy to penetrate further in to the Sri Lankan and Southeast Asian markets and is expected to be 7.6% in FY21E increasing from 0.7% in FY16.

The synthetic yarn business is expected to commence operations in FY19E with the Company indirectly exporting fibre filaments to the fabric manufacturing industry. Synthetic yarn revenue is expected to amount to LKR 194.3 Mn in its first year of operations, increasing to LKR 351.6 Mn in FY21E. Contribution from synthetic yarn is expected to be 5.8% in FY19E and is expected to grow to 8.3% by FY21E. Growth in the synthetic yarn business is expected to be driven by BPPL’s first mover advantage within the local industry for the manufacture of synthetic yarn, for which demand would be significant as it reduces the inventory cost and lead time for end customers.

4.2 COST OF SALES (COS)

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Cost of Sales (LKR Mn) 1,361.5 1,323.3 1,457.6 1,628.4 1,973.9 2,200.6 2,421.7 CoS as a % of Revenue 70.5 63.4 60.4 59.7 59.4 58.1 57.3 Source: Company Financials & CTCLSA Capital Forecast

BPPL’s cost of sales is expected to increase with the expansion of its operations. With the benefit of economies of scale, continued investments in upgrading machinery and lower raw material prices however, BPPL’s CoS as a percentage of revenue is forecast to decline from 63.4% in FY16 to 57.3% in FY21E with an average of 59.0% over the forecast period.

Raw Material Composition

(%) FY15 FY16 FY17E FY18E FY19E FY20E FY21E Cartons 6.0 5.5 5.3 5.1 4.7 4.5 4.3 Fibre 21.1 23.3 24.1 25.1 25.2 25.9 26.9 Other 20.7 19.7 20.3 20.4 21.0 21.3 21.6 PET Materials 5.7 5.7 5.7 5.7 8.7 9.4 9.5 Polypropylene 19.1 18.3 18.2 18.2 16.9 16.1 15.5 Timber 27.5 27.4 26.4 25.5 23.6 22.7 22.1 Source: Company Financials & CTCLSA Capital Forecast

The largest raw material cost component for the Group is timber, which is used for the production of wooden backs. In FY16, timber accounted for 27.4% of total raw material costs, however, this is expected to decline to 22.1% in FY21E as growth for the Group is in Branded Brushes (which is primarily plastic back-based) and in synthetic yarn. Fibre, currently the second largest cost component within raw materials, consists of natural fibre imported from Mexico, India and Indonesia as well as coconut based fibre sourced from Sri Lanka. The cost of fibre as a percentage of total raw material costs is expected to average 25.5% over our forecast period.

Given that polypropylene and PET materials are crude oil based raw materials, the cost of these raw materials have been on the decline, in line with lower crude oil prices. According to the US Energy Information Agency (EIA), crude oil prices are expected to decline 16.4% YoY to USD 43.73 per barrel in 2016 and recover in 2017 with a projected price increase of 19.3% YoY to USD 52.15 per barrel. Other raw materials for the existing brush business primarily consist of steel wire and other accessories used in the production/packaging process. Imported raw materials accounted for 30.0% of total CoS in FY16.

B P P L Holdings Limited - Initial Public Offering | 153 Labour Cost

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Labour Cost (LKR Mn) 218.5 231.4 271.4 304.8 355.8 400.1 445.0 Labour Cost per Employee 394.3 435.7 501.6 553.2 602.0 665.7 728.3 (LKR '000s) YoY Growth in Labour Cost 10.5 15.1 10.3 8.8 10.6 9.4 per Employee (%) Labour Cost as a % of CoS 16.0 17.5 18.6 18.7 18.0 18.2 18.4 Source: Company Financials & CTCLSA Capital Forecast

BPPL’s labour cost in FY16 was LKR 231.4 Mn and is expected to increase to LKR 271.4 Mn in FY17E. Forecasted labour cost in FY21E is LKR 445.0 Mn growing at CAGR of 14.0% over FY16-21E. Labour cost as a percentage of cost of sales was 17.5% in FY16 and is expected to increase to 18.4% in FY21E. The decline in labour cost as a percentage of cost of sales to 18.0% in FY19E is primarily due to the addition of 30 employees for the Synthetic Yarn Project, as new recruits will be at a lower cost.

Factory Overhead Cost FY15 FY16 FY17E FY18E FY19E FY20E FY21E Factory Overhead Cost 296.4 250.9 235.9 254.9 350.5 384.2 419.5 (LKR Mn) YoY Growth (%) (8.3) (15.3) (6.0) 8.1 37.5 9.6 9.2 Factory Overhead Cost as a % 21.8 19.0 16.2 15.7 17.8 17.5 17.3 of CoS Electricity Saving from Bio-mass - - 5.0 10.0 15.0 20.0 20.0 Plants (LKR Mn) Source: Company Financials & CTCLSA Capital Forecast

BPPL incurred a factory overhead cost of LKR 250.9 Mn in FY16 and is expected to reduce to 235.9Mn in FY17E. As a result, BPPL’s factory overhead costs as a percentage of total CoS is expected to decline to 16.2% in FY17E from 19.0% in the previous year, and is expected to average 16.9% over the forecast period. The reduction in factory overhead costs is primarily attributable to the streamlining of processes, which resulted in improved efficiencies across all factories.

Further, BPPL is also expected to invest (LKR 40 Mn each) in two bio-mass power plants, which are expected to produce 200kW of electricity each per month. The first plant is expected to be commissioned in FY17E followed by the second plant in FY18E. The anticipated electricity cost saving for FY17E is LKR 5.0 Mn and is expected to be LKR 20.0 Mn with the full utilization of the plants by FY20E. Additionally, the Group also expects to commence generating electricity through solar panels in February 2017, which will be sold to the grid creating an additional income for the Company (not factored in our forecasts).

Factory overhead costs are expected to increase by 37.5% YoY in FY19E owing to the commencement of operations of the synthetic yarn business as the depreciation of new machinery is accounted for. BPPL is expected to incur factory overhead costs of LKR 419.5 Mn in FY21E, accounting for 17.3% of total CoS.

4.3 GROSS PROFIT FY15 FY16 FY17E FY18E FY19E FY20E FY21E Recurring Gross Profit (LKR Mn) 593.7 764.3 955.8 1,098.3 1,350.6 1,589.2 1,801.5 Recurring Gross Profit Margin (%) 30.7 36.6 39.6 40.3 40.6 41.9 42.7

Source: Company Financials & CTCLSA Capital Forecast BPPL recorded a recurring gross profit of LKR 764.3 Mn in FY16 and is expected to reach LKR 955.8 Mn in FY17E increasing 25.1% YoY as the Group benefits from a full year’s contribution of lower raw material costs (due to crude oil prices being low), efficiency gains and a depreciating LKR. BPPL is expected to record a gross profit of LKR 1,801.5 Mn in FY21E growing at a CAGR of 18.7% over FY16-21E. Recurring gross profit margin is expected to improve from 36.6% in FY16 to 39.6% in FY17E due to the expected reduction of factory overhead costs following extensive streamlining, electricity saving from the bio-mass power plants as well as due to currency depreciation and lower raw material costs. The expected recurring gross profit margin in FY21E is 42.7% with an average of 41.0% for the forecasted period.

154 | B P P L Holdings Limited - Initial Public Offering 4.4 OTHER INCOME

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Other Income (LKR Mn) 22.7 12.5 2.4 2.7 3.3 3.8 4.2 YoY Growth (%) (45.0) (80.7) 13.0 21.9 14.0 11.4 As a % of Revenue 1.2 0.6 0.1 0.1 0.1 0.1 0.1

Source: Company Financials & CTCLSA Capital Forecast

BPPL recorded other income of LKR 12.5 Mn in FY16, mainly comprising a refund of G.S.P amounting to LKR 12.2 Mn, which is considered non-recurring. We forecast other income of LKR 2.4 Mn in FY17E and LKR 4.2 Mn in FY21E, as we assume no income from exceptional items will be earned during the forecast period.

4.5 OPERATING EXPENSES

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Administration Expenses 184.4 203.3 227.3 250.2 295.1 312.6 340.3 (LKR Mn) Administration Expenses as a % 9.6 9.7 9.4 9.2 8.9 8.2 8.1 of Revenue Distribution Costs (LKR Mn) 204.5 212.2 226.4 255.5 294.2 329.1 363.8 Distribution Costs as a % 10.6 10.2 9.4 9.4 8.8 8.7 8.6 of Revenue Source: Company Financials & CTCLSA Capital Forecast The Group’s administration expenses amounted to LKR 203.3 Mn in FY16 and are expected to increase to LKR 227.3 Mn in FY17E with salary increments forecasted to grow at 10% per year. However, administration expenses as a percentage of revenue is expected to decline from 9.7% in FY16 to 8.1% in FY21E, averaging 8.8% of revenue over the forecast period as the Company benefits from economies of scale.

Meanwhile, BPPL’s distribution cost amounted to LKR 212.2 Mn in FY16 and is forecasted to reach LKR 226.4 Mn in FY17E increasing 6.7% YoY. Distribution costs as a percentage of revenue is expected to decline to 9.4% by FY17E from 10.2% in FY16 on account of lower freight charges (low crude oil prices) and under-utilization of freight capacity due to the Chinese economic slow-down. The average distribution cost as a percentage of revenue is expected to reach 8.6% by FY21E averaging 9.0% for the forecast period.

4.6 DEPRECIATION AND CAPEX

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Depreciation and Amortization 55.5 64.4 71.1 71.2 113.2 113.0 114.1 (LKR Mn) Capex including Intangible 224.4 52.6 390.8 502.5 141.8 78.2 87.2 Assets (LKR Mn) Capex as a % of Revenue 11.6 2.5 16.2 18.5 4.3 2.1 2.1 Property, Plant and Equipment 1,026.8 1,272.8 1,600.8 2,068.6 2,096.2 2,060.3 2,032.1 (LKR Mn) Source: Company Financials & CTCLSA Capital Forecast BPPL is expected to invest approximately LKR 675 Mn on the Synthetic Yarn project over FY17-18E. As a result, the Group’s capex as a percentage of revenue is expected to increase to 16.2% and 18.5% in FY17E and FY18E, respectively, from 2.5% in FY16. The Group also expects to invest further in an extruder and other machinery in FY18. BPPL is expected to record depreciation and amortization of LKR 71.1 Mn in FY17E, increasing from LKR 64.4Mn in the previous year. The significant increase in depreciation and amortization for FY19E is primarily due to the depreciation of new machinery for the Synthetic Yarn project being accounted for.

The Group is expected to continuously invest in plant and machinery in order to ensure the highest productivity levels within its operations. Following significant investments being made in FY17-19E, we expect capex as a percentage of revenue to decline to an average of 2.1% over FY20-21E consisting primarily of maintenance capex.

B P P L Holdings Limited - Initial Public Offering | 155 4.7 DEBT AND NET FINANCE COST FY15 FY16 FY17E FY18E FY19E FY20E FY21E Debt (LKR Mn) 686.3 410.6 741.9 987.1 919.3 863.7 795.1 Debt : Equity (x) 0.55 0.24 0.37 0.42 0.34 0.27 0.22 Finance Cost (Excl. Exchange Losses) (LKR Mn) 28.5 30.9 26.5 25.6 46.1 44.4 42.9 Interest Cover (x) 7.1 11.7 19.0 23.2 16.6 21.4 25.7 Finance Income (LKR Mn) 0.1 0.2 13.2 22.8 24.9 43.4 75.3 Financial Investments (LKR Mn) - - 159.7 166.4 220.2 454.1 715.4 Cash and Bank (LKR Mn) 22.3 14.4 80.2 88.1 110.4 161.8 217.2 Source: Company Financials & CTCLSA Capital Forecast The expected increase in debt from LKR 410.6 Mn in FY16 to LKR 741.9 Mn in FY17E and LKR 987.1 Mn in FY18E is primarily attributable to the funding of the synthetic yarn business. A USD denominated loan of approximately LKR 500 Mn will be taken to fund the new project over the period FY17-18E. BPPL incurred finance cost of LKR 30.9 Mn in FY16 and finance cost of LKR 26.5 Mn is expected in FY17E. A decline in interest cost in FY17-18E is primarily owing to the grace period under the terms of the new loan, during which the finance cost is capitalized. Meanwhile, the Company’s interest cover is expected to increase from 11.7x in FY16 to 25.7x in FY21E as the Company continues to pay its debt, while recording higher earnings. The average interest cover for the forecast period is 21.2x.

BPPL’s finance income is expected to increase from LKR 0.2 Mn in FY16 to LKR 13.2 Mn and 75.3 Mn in FY17E and FY21E, respectively. The increase is expected to stem from higher investments made in money market instruments and fixed deposits (Financial Investments). Financial Investments are expected to increase from LKR 159.7 Mn in FY17E to LKR 715.4 Mn by FY21E.

4.8 RECURRING EBIT AND EBITDA FY15 FY16 FY17E FY18E FY19E FY20E FY21E Recurring EBIT (LKR Mn) 217.5 361.3 504.6 595.3 764.7 951.3 1,101.7 Recurring EBIT Margin (%) 11.3 17.3 20.9 21.8 23.0 25.1 26.1

Recurring EBITDA (LKR Mn) 273.0 425.6 575.7 666.5 877.9 1,064.3 1,215.8 Recurring EBITDA Margin (%) 14.1 20.4 23.9 24.4 26.4 28.1 28.8 Source: Company Financials & CTCLSA Capital Forecast

BPPL recorded an EBIT of LKR 361.3 Mn in FY16 and is expected to increase to LKR 504.6 Mn in FY17E up 39.7% YoY. Growth in EBIT is expected to stem from lower raw material costs, currency depreciation and the benefits of efficiency improvements coming through. Furthermore, BPPL also expects its electricity costs to decline over the forecast period with the addition of two bio-mass plants.

The Group is expected to record an EBIT of LKR 1,101.7 Mn in FY21E growing at a CAGR of 25.0% over FY16-21E. Consequently, BPPL’s EBIT margin is expected to expand from 17.3% in FY16 to 26.1% by FY21E with an average EBIT margin of 23.4% for FY17-21E.

Recurring EBITDA for the Group in FY16 was LKR 425.6 Mn and is expected to record recurring EBITDA of LKR 575.7 Mn in FY17E up 35.3% YoY. EBITDA is expected to grow at a CAGR of 23.4% over FY16-21E with margins projected to grow from 20.4% in FY16 to 28.8% by FY21E at an average of 26.3% for the forecast period.

4.9 TAXATION FY15 FY16 FY17E FY18E FY19E FY20E FY21E Income Tax Expense (LKR Mn) 25.7 23.7 58.8 75.9 102.8 135.9 167.6 Effective Income Tax Rate (%) 14.7 7.2 12.0 12.8 13.8 14.3 14.8 Source: Company Financials & CTCLSA Capital Forecast

BPPL’s income tax expense in FY16 was LKR 23.7 Mn and is expected to be LKR 58.8 Mn in FY17E. Following the proposals introduced in the recent budget by the Government of Sri Lanka, BPPL is expected to pay tax at a rate of 12.0% in FY17E and 14.0% thereafter, lower than the 17.5% imposed on BPPL prior to the budget. BPPL’s subsidiary, BES is expected to pay tax at 10.0% in FY19E-20E and 15.0% thereafter.

156 | B P P L Holdings Limited - Initial Public Offering 4.10 NET PROFIT

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Reported Net Profit (LKR Mn) 148.2 306.9 432.4 516.5 640.7 814.4 966.6 Recurring Net Profit (LKR Mn) 169.3 294.6 432.4 516.5 640.7 814.4 966.6 Recurring Net Profit Margin (%) 8.8 14.1 17.9 18.9 19.3 21.5 22.9 Recurring Return on Equity (ROE) (%) 14.1 20.0 23.4 23.8 25.3 27.6 28.3 Recurring EPS (LKR)* 0.55 0.97 1.41 1.68 2.09 2.65 3.15 Source: Company Financials & CTCLSA Capital Forecast

* Historic EPS calculated on post-split and capitalization of reserves number of shares; FY17 EPS calculated on weighted average number of shares post-capitalization of reserves

BPPL reported net profit of LKR 306.9 Mn in FY16, while recurring net profit amounted to LKR 294.6 Mn (excluding other income of LKR 12.3 Mn for refund of GSP). Projected recurring net profit for FY17E is LKR 432.4 Mn implying YoY growth of 46.8%. The Group’s recurring net profit is expected to grow at a CAGR of 26.8% for the forecasted period with an expected recurring net profit of LKR 966.6 Mn in FY21E. Further penetration in the local and Southeast Asian markets and synthetic yarn contributions, process streamlining, cost savings from the commissioning of the bio-mass power plants are expected to drive growth in net profit over the forecast period, with currency depreciation having the dominant impact on margin improvement. We forecast 4.0% per annum LKR depreciation against the USD in FY17-19E and 3.0% per annum thereafter.

Group recurring net profit margin is expected to increase from 14.1% in FY16 to 22.9% in FY21E. The average expected recurring net profit margin for FY17-21E is 20.1%. Recurring ROE in FY16 of 20.0% is expected to increase to 23.4% in FY17E. Recurring ROE estimate for FY21E is 28.3% while the average for the forecast period is 25.7%.

BPPL is expected to record recurring EPS of LKR 1.41 in FY17E while it is expected to reach LKR 3.15 per share in FY21E. Meanwhile, BPPL’s Net Asset Value per Share is expected to reach LKR 6.53 in FY17E and LKR 11.91 in FY21E.

4.11 DIVIDENDS

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Dividend per Share (LKR) 0.21 0.36 0.42 0.59 0.84 1.19 1.58 Dividend Payout Ratio (%) 38.1 37.5 30.0 35.0 40.0 45.0 50.0 Gross Dividend Yield (%) N/A N/A 3.5 4.9 7.0 10.0 13.1 Source: Company Financials & CTCLSA Capital Forecast

The Company’s dividend payout ratio in FY16 was 37.5%. We forecast a dividend payout ratio of 30.0% for FY17E increasing to 50.0% in FY21E. Based on the Issue Price of LKR 12.00 per share, the expected dividend yield for FY17E is 3.5%.

4.12 WORKING CAPITAL CYCLE

FY15 FY16 FY17E FY18E FY19E FY20E FY21E Inventory Days 117 118 118 118 118 118 118 Receivable Days 116 100 100 100 100 100 100 Payable Days 33 29 29 29 29 29 29 Working Capital Days 200 189 189 189 189 189 189

Source: Company Financials & CTCLSA Capital Forecast BPPL’s working capital cycle is expected to remain stable with 189 working capital days for the forecast period.

B P P L Holdings Limited - Initial Public Offering | 157 05. VALUATION

The following valuation methodologies were considered in deriving a fair value for BPPL as at 30th November 2016:

1. Discounted Cash Flow Method (DCF) (Income based methodology) 2. Relative Price to Earnings Method (PER) (Market based methodology) 3. Justified Price to Book (Asset based methodology) 4. Relative Price to Book (PBV) (Asset / Market based methodology) 5. Net Asset Value (NAV) (Asset based methodology)

DCF and PER are the two preferred valuation methods for manufacturing businesses where the value is driven by the ability to generate future cash flows. However, we have also used asset based methods such as Price to book Value, Justified PBV and NAV as additional valuation methodologies in our analysis of BPPL. The methodologies and the respective derived fair values are mentioned in the table below.

Financial Advisors and Managers to the Issue have established that all assumptions used in the Forecasts and Outlook section of this report is fair and reasonable to the best of their knowledge.

5.1 VALUATION SUMMARY The following is not a valuation report but is a valuation based on the research report prepared by Managers and Financial Advisors to the Issue.

Valuation Summary Including New Revenue Segments A summary of the prices derived based on the valuation methodologies used are shown below:

Value Proposed IPO Price IPO Price (Discount)/ Valuation Method (LKR) (LKR) Premium to Value (%)) NAV 6.19 12.0 93.9 DCF 14.47 12.0 (17.0) PER 15.29 12.0 (21.5) PBV 15.63 12.0 (23.2) Justified PBV 21.23 12.0 (43.5) Average 14.56 12.0 Median 15.29 12.0

Applying an equal weight to all five methodologies used, the average fair value for BPPL is LKR 14.56 per share, with a maximum price of LKR 21.23 based on Justified PBV and a minimum price of LKR 6.19 based on NAV. The Issue Price of LKR 12.00 is at a 17.6% discount to the average fair value of LKR 14.56.

Given the impact of outliers within the analysis however, we believe the median better represents the fair value of the Company, at LKR 15.29 per share. BPPL’s share is attractively priced at LKR 12.00, which is at a discount of 21.5% to the median fair value, thus providing a potential upside to investors. At the issue price, BPPL trades at a TTM (November 2016) PER multiple of 9.2x. This is at a discount to the peer group average PER multiple of 11.7x (September 2016) and a discount to the market PER of 13.0x. Based on the Issue Price of LKR 12.00, BPPL would trade at 8.5x and 7.1x on FY17E and FY18E earnings, respectively.

BPPL’s share is priced at LKR 12.00, which is at a 21.5% discount to the median fair value of LKR 15.29.

Note : Peer Group PER computed using TTM earnings for the period ending 30th September 2016 and share prices as at 30th November 2016, while the Market PER was sourced from CSE Daily, 30th November 2016

158 | B P P L Holdings Limited - Initial Public Offering Valuation Summary Excluding New Revenue Segments

BPPL’s future strategies include expanding its operations into a new line of business (synthetic yarn) and expanding its current operations in the Branded Brush segment in Malaysia. The valuation summary of BPPL excluding these two segments is shown below:

Value Proposed IPO Price IPO Price (Discount)/ Valuation Method (LKR) (LKR) Premium to Value (%) NAV 6.19 12.0 93.9 DCF 13.06 12.0 (8.1) PER 15.29 12.0 (21.5) PBV 15.63 12.0 (23.2) Justified PBV 20.61 12.0 (41.8) Average 14.16 12.0 Median 15.29 12.0

We have derived share prices of LKR 13.06 and LKR 20.61 using DCF and Justified PBV. The share prices for PER and PBV remain unchanged at LKR 15.29 and LKR 15.63, respectively, despite the exclusion of BPPL’s expansion plans, given that these methodologies use trailing twelve month financials. The share price for BPPL taking into consideration an average of the five valuation methodologies is LKR 14.16, while the median amounts to LKR 15.29.

BPPL’s share is priced at LKR 12.00, which is at a 21.5% discount to the median fair value of LKR 15.29, excluding the new revenue segments.

B P P L Holdings Limited - Initial Public Offering | 159 5.2 Discounted Cash Flow Method 5.2 DISCOUNTED CASH FLOW METHOD DCF analysis uses Future Free Cash Flow projections and discounts them to arrive at a

presentDCF analysis value uses estimate, Future Free which Cash is Flow used projections to evaluate and discountsthe potential them tofor arrive investment. at a present Free value Cash estimate, Flowwhich iswould used to beevaluate the thecash potential available for investment. to the equity Free Cash holders Flow would of thebe the company cash available from to thethe equity operationsholders of the of company the company from the after operations servicing of the debt.company after servicing debt.

{∑ } Where, Where, VO = Equity Value in year 0 VO = Equity Value in year 0 C&CE0 = Book Value of Equity in year 0 C&CE0 = Book Value of Equity in year 0 FCFt = Free Cash Flow on Year t r FCFt = Cost of = FreeEquity Cash Flow on Year t r = Cost of Equity The valuation under DCF is a sum of values derived under three stages: The valuation under DCF is a sum of values derived under three stages: 1. FY17-21E: Forecasted cash flows 2. FY22-26E:1. FY17-21E: Medium Forecasted term growth cash rate calculatedflows using forecasted cash flows 3. T2.erminal FY22-26E: value Medium term growth rate calculated using forecasted cash flows 3. Terminal value Discounted Cash Flow Method Including New Revenue Segments Discounted Cash Flow Method Including New Revenue Segments Assumptions Assumptions 5 YearYear Treasury Treasury Bond Bond Secondary Secondary Market Market Rate (%)* Rate (%)* 11.4% 11.4% Equity Risk Risk Premium Premium (%) **(%) ** 7.0% 7.0% Cost of of Equity Equity (%) (%) 18.4% 18.4% Medium Term Term Growth Growth Rate Rate(FY22E-FY26E) (FY22E-FY26E) 14.0% 14.0% Terminal Growth Growth Rate Rate 3.0% 3.0% *Source: Central Bank of Sri Lanka weekly average yield YTD till 30th November 2016 ***Source: Managers Centraland Financial Bank Advisors of Srito the Lanka Issue have weekly established average 7.0% as a yieldfair equity YTD premium, till considering30th November the future 2016prospects and the risks associated **with Managers BPPL. and Financial Advisors to the Issue have established 7.0% as a fair equity premium, considering the future prospects and the risks associated with BPPL.

Discounted Cashflow (LKR 8 months FY18E FY19E FY20E FY21E '000s) FY17E* EBIT 179,642.9 595,294.9 764,658.4 951,300.0 1,101,668.5 Add : Depreciation and 27,595.5 71,247.4 113,220.5 112,970.8 114,091.2 Amortization Add : Foreign Exchange 22,477.6 15,662.1 32,603.4 22,778.4 20,510.0 Loss Adjusted Profit 229,716.1 682,204.3 910,482.2 1,087,049.2 1,236,269.8 Less : Taxation (14,749.8) (54,356.5) (75,308.1) (104,669.7) (130,726.1) Adjusted Profit After Tax 214,966.3 627,847.8 835,174.1 982,379.5 1,105,543.7 Less : Capital Expenditure (344,470.1) (498,643.5) (137,079.9) (72,888.6) (81,222.3) Working Capital Change (50,766.2) (127,563.1) (248,314.2) (182,895.4) (172,749.9) 59

160 | B P P L Holdings Limited - Initial Public Offering Discounted Cashflow 8 months FY18E FY19E FY20E FY21E (LKR '000s) FY17E* EBIT 179,642.9 595,294.9 764,658.4 951,300.0 1,101,668.5 Add : Depreciation 27, 595.5 71,247.4 113,220.5 112,970.8 114,091.2 and Amortization Add : Foreign Exchange Loss 22,477.6 15,662.1 32,603.4 22,778.4 20,510.0 Adjusted Profit 229,716.1 682,204.3 910,482.2 1,087,049.2 1,236,269.8 Less : Taxation (14,749.8) (54,356.5) (75,308.1) (104,669.7) (130,726.1) Adjusted Profit After Tax 214,966.3 627,847.8 835,174.1 982,379.5 1,105,543.7 Less : Capital Expenditure (344,470.1) (498,643.5) (137,079.9) (72,888.6) (81,222.3) Working Capital Change (50,766.2) (127, 563.1) (248,314.2) (182,895.4) (172,749.9) Free Cash Flow to the Firm (180,270.0) 1,641.2 449,780.0 726,595.5 851,571.5 Change in Debt 412, 537.3 202,714.5 (113,302.6) (88,407.2) (98,391.6) Interest Paid (15,059.5) (42,658.1) (46,076.4) (44,402.3) (42,867.3) FCF to the Equity Holders 217,207.8 161,697.6 290,401.1 593,786.0 710,312.5 Value from Secondary - - - - 3,179,473.2 Growth Phase Terminal Value (FY26E) - - - - 3,945,550.0 Total 217,207.8 161,697.6 290,401.1 593,786.0 7,835,335.7 Discount Factor 0.894 0.755 0.638 0.539 0.455 Present Value 194,094.9 122,053.4 185,162.3 319,810.2 3,564,739.9

NPV 4,385,860.7 Cash (Nov 2016) 53,004.9 Equity Value 4,438,865.6 Number of Shares 306,843.4 Price per Share 14.47

* Cashflows for FY17 are discounted for 8 months (valuation as at November 2016)

The Issue Price of LKR 12.00 is at a 17.0% discount to the fair value of LKR 14.47 per BPPL share derived under the DCF Method.

The risk free rate of 11.4% used in our DCF valuation is the weekly average rate YTD till 30th November 2016. A sensitivity analysis of the Issue Price based on a range of risk free rates and terminal growth rates is shown below.

3 Year 5 Year YTD Nov 23rd Nov Average Average 2016 2016 5 Year Treasury Bond Secondary Market Rate 9.4% 10.4% 11.4% 12.4%

Cost of Equity using 7.0% Equity Risk Premium 16.4% 17.4% 18.4% 19.4% 2.0% 16.69 15.27 14.06 12.92 Growth Terminal 3.0% 17.31 15.77 14.47 13.25 3.5% 17.65 16.05 14.69 13.44

B P P L Holdings Limited - Initial Public Offering | 161 Discounted Cash Flow Method Excluding New Revenue Segments

Assumptions 5 Year Treasury Bond Secondary Market Rate (%)* 11.4% Equity Risk Premium (%) ** 6.0% Cost of Equity (%) 17.4% Medium Term Growth Rate (FY22-26E) 9.4% Terminal Growth Rate 3.0% *Source: Central Bank of Sri Lanka weekly average yield YTD till 30th November 2016 ** Managers and Financial Advisors to the Issue have established 6.0% as a fair equity premium, considering the future prospects and the risks associated with BPPL.

BPPL's future strategies include expanding into a new line of business (Synthetic Yarn) and expanding its current operations in the Branded Brush segment in Malaysia. Given that the existing business line involves lower risk compared to the new business lines, we establish a lower equity risk premium of 6.0% in our valuation of BPPL excluding the new revenue segments. Consequently, our cost of equity assumption is 17.4%.

8 months Discounted Cashflow (LKR '000s) FY18E FY19E FY20E FY21E FY17E* EBIT 179,642.9 581,830.6 689,449.4 781,835.5 871,655.3 Add : Depreciation and Amortization 27, 595.5 71,167.1 71,671.1 70,586.0 70,823.3 Add : Foreign Exchange Loss 17,239.4 15,566.3 15,687.0 13,130.5 14,470.5 Adjusted Profit 224,477.9 668,564.0 776,807.5 865,552.0 956,949.1 Less : Taxation (14,758.8) (54,160.9) (74,278.6) (101,454.6) (125,123.8) Adjusted Profit after Tax 209,719.1 614,403.1 702,528.9 764,097.4 831,825.2 Less : Capital Expenditure (77,916.1) (133,316.5) (126,729.8) (65,337.1) (72,004.6) Working Capital Change (50,766.2) (121,534.8) (148,573.3) (132,008.3) (142,523.5) Free Cash Flow to the Firm 81,036.8 359,551.9 427,225.7 566,752.0 617,297.2 Change in Debt 150,627.5 (28,420.7) (12,548.3) 29,821.5 31,534.0 Interest Paid (11,854.8) (25,545.7) (26,074.2) (27,7 76.6) (30,654.2) FCF to the Equity Holders 219,809.5 305,585.5 388,603.2 568,796.9 618,177.0 Value from Secondary Growth Phase - - - - 2,513,602.7 Terminal Value (FY26E) - - - - 3,110,521.6 Total 219,809.5 305,585.5 388,603.2 568,796.9 6,242,301.3 Discount Factor 0.899 0.766 0.652 0.556 0.473 Present Value 197,533.7 233,948.0 253,445.8 316,029.7 2,954,659.8

NPV 3,955,617.1 Cash (Nov 2016) 53,004.9 Equity Value 4,008,621.9 Number of Shares 306,843.4 Price Per Share 13.06

* Cashflows for FY17 are discounted for 8 months (valuation as at November 2016)

The Issue Price of LKR 12.00 is at 8.1% discount to the fair value of LKR 13.06 per BPPL share derived under the DCF Method excluding new revenue segments.

162 | B P P L Holdings Limited - Initial Public Offering 5.3 RELATIVE PRICE TO EARNINGS METHOD (PE)

Under the Relative PE method, BPPL share was valued using the PE multiples of comparable listed peers in the market.

P = EPS × PE

Where, P = Price per Share at year 0 EPS = Earnings per Share PE = Applicable Price to Earnings multiple

Direct Comparable Listed Local Peers (Refer Annexure 01)

HEXP REXP TJL MGT Peer Group Earnings (LKR '000s)* 46,704 406,968 2,485,208 187,052 3,125,932 Price (LKR)** 85.80 220.00 43.40 15.40 Market Cap (LKR '000s)** 686,400 2,456,024 30,318,929 3,199,210 36,660,563 TTM PER (x) 14.70 6.03 12.20 17.10 11.73

Source: Company Financials, CSE *Trailing Twelve Months **Last Traded Prices as at 30th November 2016

We note that BPPL currently does not have any comparable listed peers. As such, we have chosen Hayleys Fibre (HEXP) Richard Peiris Exports (REXP), Textured Jersey (TJL) and Hayleys Fabric (MGT) due to their nature of business (primarily exports). Meanwhile, Textured Jersey (TJL) and Hayleys Fabric (MGT) were chosen also due to their presence in the synthetic yarn business, which BPPL intends to expand its operations to.

At a weighted average trailing PE multiple of 11.73x for the peer group, BPPL share is valued at LKR 15.29.

Relative PE Valuation Peer PE multiple for BPPL (x) 11.73 Reported Earnings per Share TTM November 2016 (LKR) 1.30 Price Per Share (LKR) 15.29

The Issue Price of LKR 12.00 is at a 21.5% discount to the fair value of LKR 15.29 per BPPL share derived under the relative PE. BPPL’s share price of LKR 12.00 is at a trailing PE multiple of 9.2x.

Since we use trailing twelve month earnings of BPPL to calculate the relative PER based valuation, the addition of a new business line has no impact on the valuation, as it only considers the current business line.

B P P L Holdings Limited - Initial Public Offering | 163 5.4 JUSTIFIED PRICE TO BOOK VALUE METHOD (JUSTIFIED PBV)

The Justified Price to Book Value method calculates a PBV multiple based on the expected Return on Equity (ROE), Cost of Equity (r) and the sustainable growth rate (g) of a company. The calculated PBV multiple is then multiplied by the Net Asset Value (NAV) of the company to derive a value for equity.

Justified PBV Multiple = ROE-g r-g where, ROE = Return on Equity g = Sustainable Growth Rate r = Cost of Equity

Justified PBV Method Including New Revenue Segments

Assumptions 5 Year Treasury Bond Secondary Market Rate (%)* 11.4% Equity Risk Premium (%) ** 7.0% Cost of Equity (%) 18.4%

*Source: Central Bank of Sri Lanka weekly average yield YTD till 30th November 2016 ** Managers and Financial Advisors to the Issue have established 7.0% as a fair equity premium, considering the future prospects and the risks associated with BPPL

(LKR ’000s) FY16 FY17E FY18E FY19E FY20E FY21E Recurring ROE (%) 20.0 23.4 23.8 25.3 27.6 28.3 Recurring Net Profit 294,593.8 432,428.0 516,525.4 640,666.0 814,415.9 966,578.1 Shareholders' Funds 1,700,255.5 2,002,955.1 2,338,696.6 2,723,096.2 3,171,024.9 3,654,314.0 Retention Ratio (%) 62.5 70.0 65.0 60.0 55.0 50.0 Sustainable Growth Rate (%) 12.5 16.3 15.5 15.2 15.2 14.2

Forecasted Weighted 25.9 Avg. RoE (%) (a)*

Forecasted Sustainable 15.3 Growth (%)(b) Cost of Equity (%) (c) 18.4 Justified PBV (a-b)/(c-b) 3.4 Shareholders’ Funds Nov 16 1,898,970.7 Equity Value 6,513,503.4 Number of Shares ('000s) 306,843 Price Per Share (LKR) 21.23

*Weighted Average ROE = Average Net Profit from FY17E - FY21E/Average Shareholders’ Funds from FY16 - FY2021E

The Issue Price of LKR 12.00 is at a 43.5% discount to the fair value of LKR 21.23 per BPPL share derived under the Justified PBV Method.

164 | B P P L Holdings Limited - Initial Public Offering Justified PBV Method Excluding New Revenue Segments

Assumptions 5 Year Treasury Bond Secondary Market Rate (%)* 11.4% Equity Risk Premium (%) ** 6.0% Cost of Equity (%) 17.4% *Source: Central Bank of Sri Lanka weekly average yield YTD till 30th November 2016 ** Managers and Financial Advisors to the Issue have established 6.0% as a fair equity premium, considering the future prospects and the risks associated with BPPL.

(LKR ’000s) FY16 FY17E FY18E FY19E FY20E FY21E Recurring ROE (%) 20.0 23.4 23.6 24.6 24.5 24.8 Recurring Net Profit 294,593.8 432,601.8 513,058.1 621,044.1 710,572.8 818,041.5 Shareholders' Funds 1,700,255.5 2,003,076.8 2,336,564.5 2,709,190.9 3,100,006.0 3,509,026.8 Retention Ratio (%) 64.0 70.0 65.0 60.0 55.0 50.0 Sustainable Growth Rate (%) 12.8 16.4 15.4 14.8 13.5 12.4

Forecasted Weighted Avg. 24.2 RoE (%) (a)* Forecasted Sustainable 14.5 Growth (%)(b) Cost of Equity (%) (c) 17.4 Justified PBV (a-b)/(c-b) 3.3 Shareholders’ Funds Nov 16 1,898,970.7 Equity Value 6,324,306.8 Number of Shares ('000s) 306,843.4 Price Per Share (LKR) 20.61

*Weighted Average ROE = Average Net Profit from FY17E - FY21E/Average Shareholders’ Funds from FY16 - FY2021E

The Issue Price of LKR 12.00 is at a 41.8% discount to the fair value of LKR 20.61 per BPPL share derived under the Justified PBV Method.

B P P L Holdings Limited - Initial Public Offering | 165 5.5 RELATIVE PRICE TO BOOK VALUE METHOD (PBV)

Under the Relative Price to Book Value method, BPPL was valued using the Price to Book Value multiple of comparable listed peers in the market.

P = BVPS × PBV

where, P = Price per Share at year 0 BVPS = Book Value per Share PBV = Applicable PBV multiples

HEXP REXP TJL MGT Peer Group Shareholders’ Funds (LKR '000s)* 500,483 897,985 10,512,017 2,601,169 14,511,654 Market Cap (LKR '000s)** 686,400 2,456,024 30,318,929 3,199,210 36,660,563 PBV (x) 1.37 2.74 2.88 1.23 2.53

Source: Company Financials, CSE *as at 30th September 2016 **Last Traded Prices as at 30th November 2016

At a weighted average trailing 12 months to September 2016 PBV multiple of 2.53x for the peer group, BPPL share is valued at LKR 15.63 (based on November 2016 BVPS).

Relative PBV Valuation PBV multiple for BPPL (x) 2.53 BVPS Nov 2016 (LKR) 6.19 Price per Share (LKR) 15.63

The Issue Price of LKR 12.00 is at a 23.2% discount to the fair value of LKR 15.63 per BPPL share derived under the relative PBV.

Since we use the Net Book Value per share as at 30th November 2016 to calculate the relative PBV based valuation, the addition of a new business line has no impact on the valuation, as it only considers the current business line.

166 | B P P L Holdings Limited - Initial Public Offering 5.6 NET ASSET VALUE METHOD (NAV) 5.5 Net Asset Value Method (NAV) In incorporating the Group’s NAV as a valuation methodology, we have used BPPL’s net asset value as of November 2016In incorporating of LKR 6.19 perthe share.Group’s NAV as a valuation methodology, we have used BPPL’s net asset value as of November 2016 of LKR 6.19 per share. The NAV, which is a company’s total assets minus total liabilities, is used to determine the value of the company The NAV, which is a company’s total assets minus total liabilities, is used to determine the if it were to be liquidated. value of the company if it were to be liquidated.

Net Asset Value Method (NAV)

Shareholders' Funds as at Nov 2016 1,899 Net(LKR Asset Mn) Value Method (NAV) Shareholders' Number of Shares Funds (Mn) as at Nov 2016 (LKR Mn) 307 1,899.0 Net Asset Value per Share 6.19 Number of Shares (Mn) 306.8

Net Asset Value per Share 6.19 The issue price of LKR 12.00 is at a 93.9% premium to the fair value of LKR 6.19 per TheBPPL Issue share Price derived of LKR under 12.00 the is NAVat a 93.9% methodology. premium to the fair value of LKR 6.19 per BPPL share derived under the NAV methodology. Since we use the Net Book Value per share as at 30th November 2016, the addition of a new Sincebusiness we useline thehas Net no impactBook Value on the per valuation, share as asat 30it onlyth November considers 2016, the currentthe addition business of a line.new business line has no impact on the valuation, as it only considers the current business line.

B P P L Holdings Limited - Initial Public Offering | 167 06. RESEARCH TEAM - CT CLSA CAPITAL (PVT) LTD

NICHULA WITHARANA – ASSISTANT VICE PRESIDENT

Nichula counts for over five years of experience in equity research, investment management and financial analysis. Prior to joining CT CLSA Capital, he held the position of Assistant Manager at NDB Capital Holdings Limited prior to which he served as Assistant Manager Finance and Accounting at WNS Global Services (Pvt) Ltd.

Nichula holds a B.Sc. in Finance from the University of Sri Jayewardenepura. He is also a Chartered Financial Analyst (CFA) and an Associate Member of the Institute of Chartered Accountants of Sri Lanka (ICASL).

SAMALKA ATHURALIYA – SENIOR ASSOCIATE

Samalka counts for five years of experience in equity research and investment management. Prior to joining CT CLSA Capital she held the position of Assistant Manager at Acuity Stockbrokers and served as Associate Vice President at Copal Amba (a Moody's Analytics Company). She is a Chartered Financial Analyst (CFA) and an Associate Member of the Chartered Institute of Management Accountants (CIMA) UK.

DAVID CARVALHO - ASSOCIATE

David counts for over four years of experience in the field of Audit and Assurance. Prior to joining CT CLSA Capital, he was attached to Ernst and Young Sri Lanka, a leading global firm of Chartered Accountants, where he held the positions of Audit Junior, Audit Senior and then Senior Accountant.

RAVEEN JAYANETTI - ANALYST

Raveen counts for five years of experience in Finance and Accounting. Prior to joining CT CLSA Capital he held the position of Senior Executive in CMA CGM SSC Lanka (Pvt) Ltd, prior to which he held the positions of Junior Executive and Executive at WNS Global Services (Pvt) Ltd, a leading BPO in Sri Lanka. He holds a B.Sc. (Hons) in Business Management from the University of Northumbria.

CT CLSA Capital (Pvt) Ltd. # 4-15A, Majestic City, 10, Station Road, Colombo 04. Tel : +94 11 2503523, +94 11 2584843|Fax :+94 11 2580181

168 | B P P L Holdings Limited - Initial Public Offering RESEARCH REPORT ANNEXURE 01 - BPPL PEER COMPANY PROFILES

B P P L Holdings Limited - Initial Public Offering | 169 RICHARD PIERIS EXPORTS PLC (REXP)

Richard Pieris Exports PLC was established as the first fully export oriented subsidiary of Richard Pieris & Company PLC in 1984. It is an exporter of industrial rubber mats, jar sealing rings and crutch tips to international markets in natural and synthetic rubber. Richard Pieris Exports’ major markets include Europe, the US and Asia Pacific Regions.

HAYLEYS FIBRE PLC (HEXP)

Hayleys Fibre PLC, a subsidiary of Hayleys PLC, manufactures and exports traditional coir products such as floor coverings, erosion control solutions, brushes and horticulture products. Hayleys Fibre’s major markets are in Europe, US and Japan.

TEEJAY LANKA PLC (TJL)

One of Sri Lanka’s largest fabric manufacturers specialized in weft knit fabrics. The company, which was established in 2001, currently operates as JV collaboration between Pacific Textiles Holdings (PTH) and Brandix Lanka. Victoria’s Secret (US based), Marks & Spencer, Intimissimi and Decathlon (all largely European and UK based) account for 80-85% of TJL’s total revenue.

HAYLEYS FABRIC PLC (MGT)

Hayleys Fabric PLC, a subsidiary of Hayleys PLC is a manufacturer of pure and blended polyester and cotton fabric. Hayleys Fabric’s key customers include Marks & Spencer, NEXT, BHS, TESCO, George/ASDA, Victoria’s Secret and Decathlon.

170 | B P P L Holdings Limited - Initial Public Offering RESEARCH REPORT ANNEXURE 02 - BPPL SUMMARY FINANCIALS

B P P L Holdings Limited - Initial Public Offering | 171 Summary Statement FY15 FY16 FY17E FY18E FY19E FY20E FY21E of Income (LKR Mn) Revenue 1,931.0 2,087.5 2,413.5 2,726.7 3,324.6 3,789.8 4,223.2 Gross Profit 569.5 764.3 955.8 1,098.3 1,350.6 1,589.2 1,801.5 Other Income 22.7 12.5 2.4 2.7 3.3 3.8 4.2 Operating Expenses (389.0) (415.5) (453.7) (505.7) (589.3) (641.7) (704.1) EBIT 203.2 361.3 504.6 595.3 764.7 951.3 1,101.7 Net Finance Cost (28.4) (30.7) (13.3) (2.8) (21.2) (1.0) 32.5 Profit Before Tax 174.8 330.6 491.2 592.5 743.5 950.3 1,134.1 Income Tax Expense (25.7) (23.7) (58.8) (75.9) (102.8) (135.9) (167.6) Profit for the Year 148.2 306.9 432.4 516.5 640.7 814.4 966.6

Summary Statement of FY15 FY16 FY17E FY18E FY19E FY20E FY21E Financial Position (LKR Mn)

Property, Plant And Equipment 1,026.8 1,272.8 1,600.8 2,068.6 2,096.2 2,060.3 2,032.1 Other Non-Current Assets 18.7 17.5 177.5 184.7 239.4 474.5 737.1 Total Non-Current Assets 1,045.6 1,290.4 1,778.3 2,253.3 2,335.6 2,534.8 2,769.2

Inventories 436.5 428.8 472.4 527.7 639.7 713.1 784.8 Trade And Other Receivables 614.2 571.1 660.3 746.0 909.6 1,036.9 1,155.5 Cash And Bank 22.3 14.4 80.2 88.1 110.4 161.8 217.2 Other Current Assets 9.7 0.8 - - - - - Total Current Assets 1,082.7 1,015.2 1,212.8 1,361.8 1,659.7 1,911.8 2,157.4 Total Assets 2,128.2 2,305.6 2,991.2 3,615.1 3,995.3 4,446.6 4,926.6

Stated Capital 81.2 81.2 100.4 100.4 100.4 100.4 100.4 Revaluation Reserve - 259.9 259.9 259.9 259.9 259.9 259.9 Retained Earnings 1,166.9 1,359.1 1,642.6 1,978.4 2,362.8 2,810.7 3,294.0 Total Equity 1,248.1 1,700.3 2,003.0 2,338.7 2,723.1 3,171.0 3,654.3

Non-Current Liabilities 223.7 177.0 424.3 520.5 424.3 317.3 216.1

Trade And Other Payables 122.3 104.3 114.9 128.4 155.6 173.5 190.9 Other Current Liabilities 534.2 324.0 449.0 627.5 692.3 784.7 865.2 Total Current Liabilities 656.4 428.3 563.9 755.9 847.9 958.3 1,056.2

Total Equity And Liabilities 2,128.2 2,305.6 2,991.2 3,615.1 3,995.3 4,446.6 4,926.6

172 | B P P L Holdings Limited - Initial Public Offering Statement of Cash FY15 FY16 FY17E FY18E FY19E FY20E FY21E Flows (LKR Mn) Profit Before Tax 174.8 330.6 491.2 592.5 743.5 950.3 1,134.1 Profit from Discontinued (1.0) ------Operations Adjustments for: Depreciation 52.6 61.0 67.9 67.9 109.5 108.8 109.4 Amortisation 2.9 3.3 3.1 3.4 3.7 4.2 4.7 Provision for Retirement 7.4 9.1 8.3 9.3 10.3 11.4 12.7 Benefit Obligations Interest Income (0.1) (0.2) (13.2) (22.8) (24.9) (43.4) (75.3) Finance Cost 28.5 30.9 26.5 25.6 46.1 44.4 42.9 Profit from Disposal of PPE (5.3) (0.1) - - - - - Profit from Disposal of (17.2) ------Investment in Subsidiary Unrealised Exchange Loss 7.4 28.7 21.3 15.7 32.6 22.8 20.5 Provision for Slow Moving (3.4) 1.6 - - - - - Stocks and Other Operating Profit / Loss Before 246.6 465.0 605.3 691.5 920.8 1,098.5 1,249.0 Working Capital Changes (Increase)/Decrease (47.3) 6.1 (43.5) (55.3) (112.0) (73.5) (71.6) in Inventories (Increase)/Decrease in Trade (94.1) 43.0 (89.2) (85.7) (163.6) (127.3) (118.6) and Other Receivables Increase/(Decrease) in (17.8) (17.9) 10.6 13.5 27.2 17.9 17.4 Trade and Other Payables Cash Generated from 87.4 496.1 483.2 563.9 672.5 915.6 1,076.2 Operations Income Tax Paid (22.1) (4.9) (24.3) (54.4) (75.3) (104.7) (130.7) Retirement Benefit (1.0) (1.2) (1.1) (1.3) (1.4) (1.6) (1.7) Obligations Costs paid Interest Paid (28.5) (30.9) (29.7) (42.7) (46.1) (44.4) (42.9) Cash Flow from 35.8 459.1 428.0 465.6 549.7 765.0 900.9 Operating Activities Acquisition of Property, (222.2) (50.5) (387.4) (498.6) (137.1) (72.9) (81.2) Plant and Equipment Acquisition of Intangible Assets (2.2) (2.1) (3.4) (3.8) (4.7) (5.3) (5.9) Change in Financial Investments - - (159.7) (6.7) (53.7) (234.0) (261.3) Proceeds from Disposal of PP&E 9.8 0.3 - - - - - Interest Received 0.1 0.2 13.2 22.8 24.9 43.4 75.3 Net Cash Flows used in (214.5) (52.0) (536.3) (475.2) (170.7) (269.0) (266.2) Investing Activities Net Proceeds from Interest 229.1 (315.6) 297.8 202.7 (113.3) (88.4) (98.4) Bearing Loans and Borrowings Dividends Paid (64.5) (110.4) (129.7) (180.8) (256.3) (366.5) (483.3) Net Cash Flows from / 164.6 (426.0) 168.1 21.9 (369.6) (454.9) (581.7) (used in) Financing Activities Net Increase/ (Decrease) in (14.1) (19.0) 58.7 1.2 9.5 41.3 46.1 Cash and Cash Equivalents Cash and Cash Equivalents 2.5 (11.5) (30.5) 28.2 29.4 38.9 80.1 at the Beginning of the Year Cash and Cash Equivalents (11.5) (30.5) 28.2 29.4 38.9 80.1 126.2 at the End of the Year Bank Overdraft at the 33.8 45.0 52.0 58.7 71.6 81.6 90.9 End of the Year Cash at the End of Year 22.3 14.4 80.2 88.1 110.4 161.8 217.2

B P P L Holdings Limited - Initial Public Offering | 173 - Blank Page -

174 | B P P L Holdings Limited - Initial Public Offering RESEARCH REPORT ANNEXURE 03 - ASSUMPTIONS USED IN FORECAST AND OUTLOOK SECTION

B P P L Holdings Limited - Initial Public Offering | 175 Assumptions FY17E FY18E FY19E FY20E FY21E Revenue 2,413.5 2,726.7 3,324.6 3,789.8 4,223.2 Revenue Growth (%) 15.6 13.0 21.9 14.0 11.4

Revenue Composition by Geography USA 72.7 71.8 65.8 63.6 62.3 Canada 2.1 2.0 1.8 1.7 1.7 Australia & New Zealand 8.8 8.8 8.0 7.8 7.6 Europe (Excl. UK) 1.8 1.7 1.5 1.4 1.3 UK 4.1 3.9 3.5 3.3 3.2 Sri Lanka 4.6 4.7 10.3 12.2 13.0 Other 5.9 7.1 9.1 10.1 10.9 Total Revenue 100.0 100.0 100.0 100.0 100.0

Revenue Composition by Product Brush Exports (Generic) 77.9 77.0 70.6 68.3 67.0 Brush Exports (Branded) 2.2 3.4 5.7 6.8 7.6 Wood Exports 14.1 13.5 12.0 11.4 11.0 Fibre Exports 3.8 3.8 3.5 3.5 3.5 Local Sales (Tip Top, Wood) 2.1 2.3 2.3 2.4 2.5 Synthetic Yarn - - 5.8 7.7 8.3 Total Revenue 100.0 100.0 100.0 100.0 100.0

Cost of Sales as a % of Revenue 60.4 59.7 59.4 58.1 57.3

Raw Material Composition Cartons 5.3 5.1 4.7 4.5 4.3 Fibre 24.1 25.1 25.2 25.9 26.9 Other 20.3 20.4 21.0 21.3 21.6 PET Materials 5.7 5.7 8.7 9.4 9.5 Polypropylene 18.2 18.2 16.9 16.1 15.5 Timber 26.4 25.5 23.6 22.7 22.1 Total 100.0 100.0 100.0 100.0 100.0

Labour Cost (LKR Mn) 271.4 304.8 355.8 400.1 445.0 Labour Cost per Employee (LKR '000s) 501.6 553.2 602.0 665.7 728.3 YoY Growth in Labour Cost per Employee (%) 15.1 10.3 8.8 10.6 9.4 Labour Cost as a % of CoS 18.6 18.7 18.0 18.2 18.4

Factory Overhead Cost (LKR Mn) 235.9 254.9 350.5 384.2 419.5 YoY Growth (%) (6.0) 8.1 37.5 9.6 9.2 Factory Overhead Cost as a % of CoS 16.2 15.7 17.8 17.5 17.3

Recurring Gross Profit (LKR Mn) 955.8 1,098.3 1,350.6 1,589.2 1,801.5 Recurring Gross Profit Margin (%) 39.6 40.3 40.6 41.9 42.7

Other Income (LKR Mn) 2.4 2.7 3.3 3.8 4.2 YoY Growth (%) (80.7) 13.0 21.9 14.0 11.4 As a % of Revenue 0.1 0.1 0.1 0.1 0.1

176 | B P P L Holdings Limited - Initial Public Offering Administrative Expenses (LKR Mn) 227.3 250.2 295.1 312.6 340.3 Administrative Expenses as a % of Revenue 9.4 9.2 8.9 8.2 8.1 Distribution Costs (LKR Mn) 226.4 255.5 294.2 329.1 363.8 Distribution Costs as a % of Revenue 9.4 9.4 8.8 8.7 8.6

Depreciation (LKR Mn) 71.1 71.2 113.2 113.0 114.1 Capex Incl. Intangibles (LKR Mn) 390.8 502.5 141.8 78.2 87.2 Capex as a % of Revenue 16.2 18.4 4.3 2.1 2.1

Debt (LKR Mn) 741.9 987.1 919.3 863.7 795.1 Debt : Equity (x) 0.4 0.4 0.3 0.3 0.2 Finance Cost (LKR Mn) 26.5 25.6 46.1 44.4 42.9 Interest Cover (x) 19.0 23.2 16.6 21.4 25.7 Finance Income (LKR Mn) 13.2 22.8 24.9 43.4 75.3 Financial Investments (LKR Mn) 159.7 166.4 220.2 454.1 715.4 Cash and Bank (LKR Mn) 80.2 88.1 110.4 161.8 217.2

EBIT (LKR Mn) 504.6 595.3 764.7 951.3 1,101.7 EBIT Margin (%) 20.9 21.8 23.0 25.1 26.1

EBITDA 575.7 666.5 877.9 1,064.3 1,215.8 EBITDA Margin (%) 23.9 24.4 26.4 28.1 28.8

Income Tax Expense (LKR Mn) 58.8 75.9 102.8 135.9 167.6 Effective Income Tax Rate (%) 12.0 12.8 13.8 14.3 14.8

Reported Net Profit (LKR Mn) 432.4 516.5 640.7 814.4 966.6 Recurring Net Profit (LKR Mn) 432.4 516.5 640.7 814.4 966.6 Recurring Net Profit Margin (%) 17.9 18.9 19.3 21.5 22.9 Recurring Return on Equity (%) 23.4 23.8 25.3 27.6 28.3 Recurring EPS (LKR) 1.41 1.68 2.09 2.65 3.15

Dividend per Share (LKR) 0.42 0.59 0.84 1.19 1.58 Dividend Payout Ratio (%) 30.0 35.0 40.0 45.0 50.0 Gross Dividend Yield (%) 3.5 4.9 7.0 10.0 13.1

Inventory Days 118 118 118 118 118 Receivable Days 100 100 100 100 100 Payable Days 29 29 29 29 29 Working Capital Days 189 189 189 189 189

B P P L Holdings Limited - Initial Public Offering | 177 DISCLAIMER

This document (the “Document”) has been prepared by CT CLSA Capital (Pvt) Limited (CTCLSA) for the exclusive use of B P P L Holdings Limited (BPPL/the Recipient). By receiving this Document from CTCLSA, the Recipient shall be deemed to have accepted all the below mentioned provisions.

This Document is confidential and its content may not be copied, reproduced, redistributed, quoted, referred to or otherwise disclosed, in whole or in part, directly or indirectly, to any third party, except with the prior written consent of CTCLSA, other than for publication of this Document in the Prospectus issued by BPPL in connection with the Initial Public Offering (IPO) of its shares.

The information, opinions and estimates in this Document are not directed at, or intended for distribution to or use by, any person or entity in any jurisdiction where doing so would be contrary to law or regulation or which would subject CTCLSA to any additional registration or licensing requirement within such jurisdiction.

The information contained in the Document is being delivered for informational purposes only. Although the information contained in the Document, or on which the Document is based, has been obtained from sources which CTCLSA believes to be reliable, it has not been independently verified. CTCLSA does not make any representation or warranty, express or implied, as to the accuracy or completeness of such information. As a result, the Recipient agrees that no liability of any form is, or will be, accepted by CTCLSA, its affiliates, its shareholders or any of their directors or employees to any person or entity for any direct or consequential loss, damage, cost, charge, expense or other liability whatsoever arising out of, or in connection with the use of, or reliance upon, the information contained in the Document.

Nothing contained in the Document is a promise or a representation of the future or should be relied upon as being so. In particular, no representation or warranty is given by CTCLSA as to the achievement or reasonableness of any future projections, estimates, management targets or prospects, if any. The Recipient should make its own judgment and assessment of the information contained in the Document. The valuations are based on current assumptions and may require adjustments after 31st of August 2017 or if material changes take place in the company’s operating environment.

In providing this Document, CTCLSA do not undertake to provide the Recipient with access to any additional information or to update the information contained in the Document or to correct any inaccuracies therein which may become apparent.

The following sources were used in compiling this report:-

• Public information provided by the Central Bank of Sri Lanka • Annual Reports and Interim Financial Statements of the Companies Listed on the CSE • Corporate Websites of Local Peers • Audited Financials and Management Accounts of BPPL Group • Information provided by BPPL and discussions held with the management

The Document does not constitute an offer or invitation to make, and is not intended to provide the basis for, any agreement or be a substitute for the Recipient’s own analysis. Furthermore, the Recipient agrees that although this Document might contain legal, tax, or accounting references as a means of clarifying its contents, it does not constitute legal, tax, investment or accounting advice.

The valuations presented are valid until 31st August 2017, subject to material changes to the operations of BPPL.

CTCLSA is neither related parties nor parties acting in concert with BPPL (including but not limited to any of its promoters, immediate parent, ultimate parent, entities in the Group etc.) and does not have any conflict of interests.

178 | B P P L Holdings Limited - Initial Public Offering