BUSINESS PLAN - ELITE | ELITE Growth

B U S I N E S S P L A NU B M G R O U P

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I. EXECUTIVE SUMMARY

II. THE COMPANY GROUP

II./1. Owners

III. HISTORY OF THE COMPANY GROUP

IV. HOLDING OPERATION

IV./1. UBM Group Business Branches

V. GRAIN BUSINESS

V./2. Feed division

VI. PROTEIN DIVISION - SOYBEAN AND SOYBEAN MEAL TRADE

VII. OTHER ACTIVITIES IN THE COMPANY GROUP

VIII. UBM TRADE ZRT.

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2 UBM GROUP I BUSINESS PLAN BUSINESS PLAN I UBM GROUP 3

One of the distinguishing features of the UBM Group’s successful business model is that it focuses on the business transactions – both on the financial and collateral side –, which results in slightly lower margins because of the insurance elements, however, it has enabled the company group to be on a balanced growth trajectory for two decades now.

The Group sees its growth opportunities in the next 3 years in increasing the production capacity by technological improvements and making its research and development activities even more accentuated, with a focus on producing more efficient, and – both from a human and animal health viewpoint – healthier animal feed, which results in a cost reduction for breeders as well as a dramatic increase in quality.

The Group is currently at the forefront of regional research and development activities, it has its own research base, an extensive and active international research cooperation, which it wishes to further strengthen in the future. As a result of the activities, it has won a number of awards in the past few years in various trade fairs and events.

The UBM Group currently also boasts of the most state of the art manufacturing capacity in the country, but it wishes to make further investments in order to implement the latest research results and expand in the Central Eastern European region.

The planned developments without exception can be calculated in advance, the revenues are expected to be stable, and upon their realisation all projects become self-sustaining, therefore the Company Group can securely meet the debt servicing related to the new financing.

In addition, the performance of the food industry both in terms of production value and sales volume shows an increasing turnover. The milling industry, thanks to the high quality of raw materials, produces end products that are competitive even in the international market, and this export continues to result in a stable growth that increases year by year, while the domestic consumption fluctuates.

The feed producing capacities of the country have mainly low output potentials and remain largely unutilised. The reason for this is that the 1990s were characterised by significantly higher production levels regarding livestock feed than nowadays. Therefore, most feed mixing plants can be considered fairly underdeveloped regarding the technology used and their technical condition.

However, the vast majority of ready-made feed used in Hungary is produced in the country, there is only an insignificant amount of import. The crops necessary for the production (cereals, oilseeds), minerals and other supplements and additives are mainly produced in Hungary.

An exception is the most widely used protein carriers, soybean and soybean meal, 90% of which is imported to Hungary.

The UBM Group has been present in the Hungarian feed industry for more than 20 years. It has become a market leader in a number of areas over the past years through its persistent market building and continuous vertical expansion, also supported by its consolidated turnover that in 2015 reached HUF 82,5 billion.

Its activities, which are organised into 3 main divisions and conducted by 16 enterprises, cover all segments of the feed industry from the trade of basic materials to the production of ready-made feed.

UBM Trade Zrt., which also serves as the parent company for the other businesses, is at the top of the holding company hierarchy. The owners of the Group are Hungarian individuals without a dominant majority stake and with decades of experience in the industry. They have also been present in the life of the company group for a long time.

The most important markets for cereals produced in Hungary traditionally consist of the food industry, milling industry and animal husbandry. In recent years, however, there has been an increasing demand by industrial users such as bioethanol producers, an industry that is experiencing a continuous growth in Europe also.

The trade of grains, oilseeds, and fodder production are determined primarily by the performance of the outlet industries, which promises a favourable outlook for Hungary in nearly all of the fields for the next years.

The performance of domestic animal husbandry – this segment is considered to be the exclusive outlet of domestically produced ready-made feed – has shown a slight improvement after many years of decline, a trend that is supported by EU grants and state subsidies as well as by governmental intention in the forthcoming years.

I. EXECUTIVE SUMMARY

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UBM TradeZrt.

UBM AgroZrt.

UBM FeedKft.

UBM MerchantsKft.

UBM ConsultingZrt.

UBM ProjectZrt.

UBM FarmZrt.

NaptápKft.

UBM GrainZrt.

SzerbFióktelep

S.P.M.Hungary Kft.

UBM TranzitZrt.

UBM GeneticsKft.

MA-KAKft.

UBMSlovakia

Tedej-TápKft.

UBMRUS

BA C ED F FMBA

100%

100%

100%

100% 100%

100%

100%

96%

4%

1%

100%

17,5%

50%

70%

50%

33,3%

100% 100%

85%

UBM Invest Furaje SRL

75%

UBMRUS

90%

S.P.M.Hungary Kft. 100%

UBM Trade Zrt. owns the other subsidiaries that belong to the Company Group in direct and indirect forms. The owners of the parent company, UBM Trade Zrt. are all Hungarian private individuals:

Ákos Varga - 19% stake: primarily responsible for the general management of the company and keeping in touch with the most important partners

Andor Botos - 17.5% stake (2016: -1% to a new company, further reduction): founder, owner, sales director of the company group

Imre Varga - 16.5% stake: working at UBM since 2000. He graduated in economics, has logistics and trade experience. His tasks include product development as well as the organisation of international sales

Gábor Varga - 14% stake: he has been at the company since 2000, and has been the financial director since 2007. He graduated in finance and accounting

Péter Horváth - 14% stake: working at UBM since 1999, graduated in forest engineering and economics. He is the finance director of the Company Group, head of banking relationships, responsible for exchange rate hedging, liquidity and cash management

László Bustyaházai - 14% stake: he has been coordinating the feed activity of the Group for more than 8 years

András Uzsoki - 4% stake: working at UBM since 1996, founder, owner. Earned his chemical engineering degree at the Technical University of Budapest. His tasks are developing new structures and solutions, keeping in touch with the banks and consultants as well as finance and business areas

Mihály Fekete - 1% stake: he has been working for UBM since 2000, and as an agricultural engineer he is the head of the cereal and oilseed trade

Szabolcs Szalontai: He is expected to join the Company Group with a 3% stake in 2017. He graduated as an agricultural engineer from the Pannon Agricultural University and as an economist from the Budapest Business School, he is responsible for the grain and oilseeds trade

II./1. Owners

The core activity of the UBM Group includes the retail and wholesale of all basic materials used in feeding animals (grains, oilseeds) and feed supplements (protein carriers, minerals, additives, etc.) as well as the production of feed and ready-made feed for young animals and animals for slaughter.

The components of animal feed are grains (cereals), protein carriers (traditionally soybean meal, rapeseed meal, sunflower meal or alternative carrier proteins that can replace these such as SoyPreme and full-fat soy), mineral supplements (vitamins, microelements) and the so-called additives, which contain various smaller components, performance enhancers and enzymes.

The general ratio of used feed basic materials (2015, EU-28)source: FEFAC

The 16 companies that belong to the UBM Group function as a holding by having the 3 main revenue generating activities of the company group organised into separate divisions. These three business branches are composed of: (1) grain trade, (2) protein trade and (3) production/trading with raw and prepared feed.

At the top of the holding structure is the parent company, UBM Trade Zrt. that has 8 owners, each with a minority stake in the business.

II. THE COMPANY GROUP

Feed cereals48%

Cakes & Meals28%

Co-products from Food &Bioethanol Industries

11%

Minerals, Additives &Vitamins

3%

Oils & Fats2%

Dried forage2%

Pulses1%

Dairy products1% All others

4%

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The current holding structure was created in order to improve the transparency of the Company Group. UBM Trade Zrt. is at the peak of the holding organisation, which exercises control over the other businesses as the (direct or indirect) owner, and through the direct influence of the private individual owners.

The main decision-making body both for UBM Trade Zrt. and the other business lines is the Board of Directors, in which all of the owners are represented. The only exception is UBM Feed Kft. and UB Merchants Kft., where there is no Board of Directors resulting from their legal form. For each business, there is a private individual who has independent signature privileges, while any two of the other owners can jointly sign documents and agreements for the businesses.

The central management tasks are mostly performed by UBM Trade Zrt., and to a lesser extent by UB Merchants Kft., which was responsible for the management tasks earlier. The affiliates pay an annual fee to UBM Trade Zrt. and to UB Merchants Kft for performing these tasks.

UBM Trade Zrt.: It provides the central management services as well as other services related to asset management and other holding functions to members of the Company Group. In addition, it has its own sales revenue.

UB Merchants Kft.: It carries out various support activities within the Company Group. UBM Kft. provides the central administration for the Company Group along with the office, accounting, financial, legal, IT and marketing services. It undertakes a significant part in the hedging operation related to the commercial activity. Employees and cost centres related to the central management belong to UBM Kft. from an accounting point of view, while 10% of the grain trading business is also conducted by this company.

IV. Holding operationIII. History of the Company

1996 – Formation of UB Merchants Kft. Its main activity is the wholesale of feed basic materials, protein carriers, cereals, grains and other feed supplements. At the time it was a single company, and within three years UBM became one of the top 3 feed basic material importers in Hungary

1996 – Formation of the protein division – trade of imported proteins and other additives

1997 – Launch of grain trade - corn, wheat, barley, oil seeds (rape seed and sunflower)

2005 - The launch of the feed division, starting to trade with additives

2008 – Realizing the Feed Mixing Plant investment in Környe, launch of the company’s own production

Spring 2012 – Restructuring the company into a holding, and outsourcing the different divisions into separate companies from the UB Merchants Kft. Establishment of the holding structure

June 2012 – Full-fat and by-pass soybean plants (rumen-protected soybean product) SoyPreme

November 2012 - Launching the feed mixing plant of Ma-Ka Kft. at Szentes, 50% of which is owned by the UBM Group

2013 – Purchase of the Szeleste feed production facility

2015 – HUF 1.1 billion reconstruction of the Szeleste feed production facility

2016 – Establishment of the central warehousing headquarter at Környe

April 2016 - Launching the Premix Plant at Környe

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Grain

In Hungary there are 2.7 million hectares of land where cereals are grown. The largest ratio of this land is maize (43%), followed by wheat and barley (38% and 11%, respectively) (Central Statistical Office – CSO 2015). The quantities produced are mainly sold and used within the country.

Maize

Maize is the field crop that is grown and processed in the highest volume in Hungary. In 2014 nearly 9.2 million tonnes of maize were produced in Hungary, 26% of which were for export, mainly to other EU member states.

The production, export and import of maize in Hungarysource: CSO, National Food Safety Office

MaizeProduction Export Import

1000 tonnes

1000 tonnes

Value (1000 USD) USD/t 1000

tonnesValue

(1000 USD) USD/t

2010 6 985 3 858 698 047 181 80 15 868 199

2011 7 992 3 584 984 332 275 85 23 194 271

2012 4 763 4 307 1 075 189 250 134 39 157 292

2013 6 756 2 162 570 299 264 119 28 555 240

2014 9 169 2 403 533 271 222 212 45 921 216

2015 6 633 4 458 922 302 207 151 130 081 861

Maize production, export and import (1000 tonnes)source: CSO, National Food Safety Office

V. Grain business

Revenues according to divisions (2015)

Revenue distribution of the UBM Group according to businesses and other activities

IV./1. UBM GROUP BUSINESS BRANCHES

37%

28%

25%

1%

1%

8%Grain division

Feed division

Protein division

Hypor

Other activities

Hunland

Ma-Ka Kft.

6 985

7 992

4 763

6 756

9 315

6 633

3 858 3 5844 307

2 162 2 403

4 458

80 85 134 119 212 1510

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

2010 2011 2012 2013 2014 2015

Kukorica termelés, export és import (ezer tonna)forrás: KSH, MGTKSz

Produced quantity

Exported quantity

Imported quantity

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The quantity of the wheat used in Hungary in 2014 amounted to 2.5 million tonnes, most of which was used as fodder and raw material for the milling industry.

The Hungarian outlets are mainly in the feed industry, food industry, milling and starch industry.

Barely

In Hungary Spring barley is grown on 76 800 hectares and Fall barley is grown on 220 400 hectares of land. The acreage of Fall barley has increased by 33 300 hectares over the last 5 years, while that of the Spring barley has reduced by 16 800 hectares.

The annual production volume of barley is increasing parallel with the growth in the cultivation area. Production in 2014 amounted to nearly 1.3 million tonnes, 36% of which was exported. There is no significant import of barley to Hungary.

The production, export and import of barley in Hungarysource: CSO, National Food Safety Office

BarleyProduction Export Import

1000 tonnes

1000 tonnes


tonnesValue

(1000 USD) USD/t

2010 944 303 57 474 190 20 4 594 228

2011 987 511 136 854 268 58 19 840 342

2012 996 296 84 925 287 67 21 482 320

2013 1 062 454 116 773 257 53 16 899 321

2014 1 279 464 106 830 230 42 12 087 290

2015 1 409 868 143 928 166 64 12 360 193

Barley production, export and import (1000 tonnes)source: CSO, National Food Safety Office

The majority of the 3.56 million tonnes of maize used in Hungary in 2014 was mostly utilised as fodder and basic material for animal feed (fodder consists of 65–70% maize), but its industry utilisation is becoming increasingly important in the country.

The main outlets in Hungary are the feed industry, chemical industry (for the production of bioethanol and potable alcohol), food industry (sugar production), starch industry, beer industry as well as the canning industry (sweet corn).

Wheat

In Hungary wheat is produced on over 1 million hectares (96% of which is fall wheat), and the harvested amount of crop was 5.3 million tonnes in 2015. Domestic wheat consumption is much below the produced quantity, therefore there is a significant export of wheat (in 2014: 40.9%). The largest purchasers of Hungarian wheat are Italy, Romania, Austria and Germany.

The production, export, import of wheat in Hungarysource: CSO, National Food Safety Office

WheatProduction Export Import

1000 tonnes

1000 tonnes


tonnesValue

(1000 USD) USD/t

2010 3 745 1 649 342 577 208 73 16 519 228

2011 4 107 961 282 014 293 62 21 067 340

2012 4 011 1 187 341 879 288 59 15 870 269

2013 5 058 2 178 589 900 271 71 19 225 272

2014 5 235 2 139 536 206 251 126 28 711 229

2015 5 331 1 963 390 449 199 213 45 567 214

Wheat production, export and import (1000 tonnes)source: CSO, National Food Safety Office

3 7454 107 4 011

5 058 5 262 5 331

1 649

9611 187

2 178 2 139 1 963

73 62 59 71 126 213

0

1 000

2 000

3 000

4 000

5 000

6 000

2010 2011 2012 2013 2014 2015

Búza termelés, export és import (ezer tonna)forrás: KSH, MGTKSz

Produced quantity

Exported quantity

Imported quantity

944 987 9961 062

1 2751 409

303

511

296

454 464

868

20 58 67 53 42 64

0

200

400

600

800

1 000

1 200

1 400

1 600

2010 2011 2012 2013 2014 2015

Árpa termelés, export és import (ezer tonna)forrás: KSH, MGTKSz

Produced quantity

Exported quantity

Imported quantity

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In addition to the food industry, sunflower seed is also significantly used in the feed industry since during the oil production a considerable amount of oil-cake is generated – 50% of which is protein, an extremely important source of protein feed.

The outlets in Hungary are the food, feed and the plastics industries.

Rapeseed

The cultivation area of rapeseed increased by 10 000 hectares from 2014 to 2015, and thus it reached 225 600 hectares.

The production, export, import of rapeseed in Hungarysource: CSO, National Food Safety Office

RapeseedProduction Export Import

1000 tonnes

1000 tonnes


tonnesValue

(1000 USD) USD/t

2010 531 638 273 187 394 20 19 539 538

2011 527 643 429 385 582 39 38 829 596

2012 415 579 365 729 592 111 110 823 570

2013 533 433 247 011 577 170 169 685 437

2014 680 586 269 263 451 111 110 853 373

2015 590 489 187 351 383 78 40 197 515

The rapeseed used in Hungary amounted to 205 000 tonnes, and the biggest quantity – 86% of the amount produced in Hungary – was processed abroad. Rapeseed is primarily utilised in the form of oil, which is used for industrial (45% + acid content) and for feed and food industry purposes, according to its erucic acid content. 60% of the rapeseed oil produced in the EU was utilised for industrial purposes in 2014. Rapeseed is the most important raw material of biodiesel production. The by-product of rapeseed oil production is rapeseed meal, which has a protein content of 38–40%, therefore it can be utilised as a protein feed.

Outlets: Chemical industry, energy industry, food and feed industries

Grain traders in Hungary

Among the leading actors of Hungarian grain trade the multinational trading houses have a leading role. In addition to a number of other activities, they can carry out bulk produce purchases and sales, as well as effective and economic global trade. Most of them have representation also in Hungary. On the basis of its turnover the UBM Grain Division is among the top 5 Hungarian market players.

The majority of the 857 000 tonnes of barley used in Hungary in 2014 was mostly used as fodder (it has an important role in the feed of monograstric animals), and a smaller portion was utilised as food and for industrial purposes.

The most important outlets are the feed industry (fall barley) and the beer industry (spring barley).

Oilseeds

In Hungary the cultivation area of priority industrial and forage crops in 2015 was around 800 000–900 000 hectares. The largest cultivation area was dedicated to sunflower and rapeseed.

Sunflower

Sunflower is one of the most important cooking oil provider plant in Hungary, also widely utilised around the world. Its cultivation area has increased by 4.5% between 2014 and 2015. The quantity produced in 2014 amounted to 1.6 million tonnes, while the consumption amounted to 1.4 million tonnes.

The production, export, import of sunflower in Hungarysource: CSO, National Food Safety Office

Sunflower seed

Production Export Import

1000 tonnes

1000 tonnes


tonnesValue

(1000 USD) USD/t

2010 970 623 245 175 394 56 30 251 538

2011 1 375 327 190 464 582 55 32 807 596

2012 1 317 573 339 076 592 58 33 184 570

2013 1 484 343 198 111 577 252 110 137 437

2014 1 555 402 181 518 451 227 84 611 373

2015 1 557 388 213 787 551 171 120 661 705

Sunflower production, export and import (1000 tonnes)source: CSO, National Food Safety Office

970

1 375 1 3171 484

1 597 1 557

623

327

573

343 402 388

56 55 58

252 227 171

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2010 2011 2012 2013 2014 2015

Napraforgó mag termelés, export és import (ezer tonna)forrás: KSH, MGTKSz

Produced quantity

Exported quantity

Imported quantity

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Products

The UBM Group’s Grain Division trades over 600 000 tonnes of produce on an annual basis, the majority of which is maize (300 000 tonnes), followed by feeding wheat (150 000 tonnes), and the rest is made up of other crops, among them oilseeds (sunflower seed, rapeseed), barley, triticale, common wheat and other produce.

Sales

The vast majority of the transactions take place in a fully secured format, purchases take place only upon delivery of the goods determined in advance. UBM carries out ad hoc transactions only if it has a collateral both for the goods and the foreign exchange as well.

The transactions are secured by fixing the sales prices in advance, which is conducted either by the performance of the previously contracted stock of orders or via ad hoc market transactions. In the latter case the sales takes place based on subscriptions on the commodity stock exchange by Hungarian or international buyers (the French MATIF/EURONEXT or the Hungarian Commodity Exchange) or via sales to other regional wholesale buyers, with delivery typically from Eastern Central Europe or Italy (most often Constanta CIF, Dutch CIF, but frequently on FOB Danube incoterm to German, Dutch or French buyers). The external buyers are mostly end users and the transactions are always carried out along with the physical shipping.

Pricing

Both buying and selling, as a main sales principle, are accounted in EUR. The UBM’s Grain Division records purchase prices on a daily basis with consideration to the market resale prices. Given the fact that UBM mostly carries out fully covered transactions, the pricing usually consists of the following factors:

Sales price = buying-in produce price + shipping, freight costs + quality assurance costs + financing costs + MARGIN

The futures hedging (both for goods and currency) is always part of the transactions.

Net turnover (million HUF) 2013 2014 2015

Glencore Grain Hungary Kft. (total revenue) 129 165 134 576 152 650

Cargill Magyarország Zrt. (total revenue) 144 681 129 702 130 212

Bunge Zrt. (total revenue) 140 716 119 188 125 826

UBM Grain Division 16 172 17 871 21 839

ADM Magyarország Agrár Kereskedelmi Kft. (total revenue) 24 530 33 552 45 773

Cefetra Hungary Kft. (total revenue) 23 635 23 932 41 790

Agrimpex Terménykereskedelmi Kft. (total revenue) 21 576 19 326 24 468

Business model

The UBM Group’s Grain Division includes the Hungarian and international trade of grains and oilseeds. UBM appears in the market as a purchaser, and it obtains the grain crops (wheat, barley, corn) and oilseeds (sunflower seeds, rapeseed) directly from Hungarian producers. It sells 99% of the purchased grain and oilseeds under covered transactions (both in terms of goods and exchange rate) to its contracted partners.

The buying-in period usually takes place during harvest ( June–August). This is when the Company Group obtains the majority of the grains delivered to its customers regularly throughout the year. In many cases, the producers hope to achieve favourable prices, therefore they store a part of the given year’s crops themselves, so buying-in in smaller quantities can occur in other parts of the year as well.

The added value of the UBM Grain business is that producers with a smaller capacity (50–300 hectares of cultivated land) can sell their produce in the market even before the harvest in a way that the financing, transportation and storage tasks fall with an actor that has international trade as its main profile, and due to its significant trading volumes it can benefit from considerable volume discounts.

Businesses

The trade of the Grain Division within the Company Group is mostly fulfilled by UBM Grain Zrt. (80% of the revenues) and to a smaller extent by UB Merchants Kft. and UBM Tranzit Zrt. The distribution of the turnover in the near future is expected to bring about an increased role for UB Merchants Kft. since the business received a credit line that greatly supports trade expansion.

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Suppliers

In order that the buying-in would be efficient both in terms of quality and price, the UBM Company Group continuously keeps in touch with the producers through its network of sales representatives. The quantity bought from one producer amounts to 2–300 tonnes on average, but sometimes transactions up to 1 000 tonnes or even more rarely up to 5 000 tonnes can also occur.

For buying-in from producers UBM calculates with a 5–8-day payment deadline on average. After the financial settlement the goods are transferred to the ownership of UBM and it is delivered either to its own warehouse, or it is stored by a producer (by validating storing and financing fees).

Grain division - TOP 10 Suppliers (2016)

Operations

The Grain Division’s operation is based on the fact that the majority of the buying-in occurs in a relatively narrow timeframe, while the supply of goods towards the customers is continuous throughout the year, therefore the business-like storage of the produce must be ensured on a regular basis.

The Company Group mainly uses hired storages to store the purchased produce. There is sufficient and adequately located warehouse capacity for rent in Hungary.

Management and employees

Mihály Fekete, division head, is responsible for the professional and operational management of the UBM Group’s Grain Division. He has been working for the business since 2000. His work is assisted by the highest general decision-making body, the Board of Directors consisting of the owners of the UBM Company Group.

The sales activity is carried out by two internal salespeople, while the administrative tasks are carried out by 7 other office employees. The 6-member sales representative team – which covers about three quarters of the country – conducts the buying-in procedures. The conclusion of the hedges and the back office functions are carried out by additional 3 employees.

Customers

A smaller part of the purchases of the Grain Division (about 30%) serves as raw material for the company’s own use, and another small part is purchased for resale.

Own utilisation: The Grain Division does all purchases for grain crops required for the ready-made feed produced by the Company Group. It exceeds 150 000 tonnes on an annual basis: Ma-KA Kft., the Feed Mixing Plant in Környe and the Feed Plant in Szeleste require 80-90 000, 20 000 and 40 000 tonnes of wheat and maize per annum, respectively. In addition, the feed mixing plants to be realised by 2017 in Romania and Serbia provide to be a basis of further own grain utilisation.

Hungarian customers (approximately 65% of external customers): The customers of the Grain Division are primarily users of grains. Therefore, in the case of wheat they are milling plants (e.g. Goodmills, Szatmári Malom, Gyermely and other smaller operators), while in terms of maize, they are sugar and starch producers (e.g. Hungrana), and on the other hand, industrial ethanol producers (e.g. Pannónia Etanol). In addition to the users, there are other merchant businesses of different sizes and nationalities among the customers.

Foreign customers (approximately 65% of external customers): The export partners of the Division include other users such as feed mixers (Italy – by road and rail transportation, the Netherlands - by water transportation on the Danube), as well as Austrian and German trading houses (Raiffeisen Wehr Austria – RWA, BayWa, Almos Alfonz GmbH., Agrana Austria, Agricola Trevali, etc.).

Almost without exception, the customer orders are based on the performance of quantities set out in advance. For customers the payment deadline varies between 2, 15 and 30 days. There is a minimum number of litigated claims, it is not a common feature that the Partners do not pay the issued invoices.

Furthermore, – due to the requirements of the financing banks – they also have a customer insurance limit for most customers (Atradius, Coface, Hermes). In the case of customers with bank financing it is obligatory to take into account their credit lines, but UBM can give the customers a loan from its own resources above the credit limit available. The Company Group rarely uses this option.

Grain division - TOP 10 buyers (2016)

31%

15%

14%

9%

8%

6%

5%

4%4%

4%

MA-KA Takarmánykeverő és Forgalmazó Kft.

Agrana Starke GmbH

Glencore Agriculture Hungary Kft.

Pannonia Ethanol Zrt.

ADM Magyarország Agrár Kereskedelmi Kft.

O&L SELS GmbH ET Co

CEFETRA B.V.

Cefetra Hungary Kereskedelmi és Szolgáltató Kft.

A.I.A. Agricola Italiana Alimentare S.p.A.

URL AGRAR GMBH

20%

14%

11%

10%8%

8%

8%

7%

7%7%

Alisca Agrárház 2010 Kft.

Encorn Trade Mezőgazdasági Szolgáltató ésTerménykereskedelmi Kft.Glencore Grain B.V.

Agro-Med 2004. Kereskedelmi és Szolgáltató Bt.

POLINA TRADE Kft.

Trigo Kereskedelmi és Szolgáltató Kft.

IKR Agrár Kereskedelmi és Szolgáltató Kft.

Soós Gabona Kft.

GAMOTA TRADING S.R.O.

ÁRPÁD-AGRÁR Zrt.

35%

11%

10%9%

9%

7%

5%

5%

5% 4%

Gabona üzletág - TOP 10 vevő (2014)

Alisca Agrárház 2010 Kft. Encorn Trade

Glencore Grain B.V. Agro-Med 2004.

POLINA TRADE Kft. Trigo Kereskedelmi és Szolgáltató Kft.

IKR Agrár Kereskedelmi és Szolgáltató Kft. Soós Gabona Kft.

GAMOTA TRADING S.R.O. ÁRPÁD-AGRÁR Zrt.

35%

11%

10%9%

9%

7%

5%

5%

5% 4%

Gabona üzletág - TOP 10 vevő (2014)

MA-KA Takarmánykeverő és Forgalmazó Kft. Agrana Starke GmbH

Glencore Agriculture Hungary Kft. Pannonia Ethanol Zrt.

ADM Magyarország O&L SELS GmbH ET Co

CEFETRA B.V. Cefetra Hungary

A.I.A. Agricola Italiana Alimentare S.p.A. URL AGRAR GMBH

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Financing

On the one hand, due to the remarkably seasonal nature of the harvest period, and on the other hand due to the time difference between the purchase and the actual payment of products (on average 2–2.5 months), the division requires continuous and changing stock financing, the most burdensome part of which falls to the harvest period. Financing is ensured by trade financing bank loans provided by commercial banks, in the form of a credit line currently available in the value of HUF 10 billion (with variable levels of usage).

Historic performance

The revenues of the Grain Division in the last 3 years (from 2013 to 2015) have nearly doubled, which brought about an improvement in the profitability as well.

The gross margin in proportion to the revenues is expected to increase from 2.35% to 3.12% from 2013 to the end of 2015, which was also manifested in generating a significant profit besides the markedly increased turnover. At the same time, the operating result also improved.

Feed production shows a growing trend worldwide, which is due to the continuously growing demand for products of animal origin. In the season 2015–16 the total quantity produced exceeded the total annual volume of the previous year by 3.7% - despite a decrease in the number of feed mills - thus it reached more than 1 billion tonnes, and the total market value reached USD 460 billion (Alltech: Global Feed Survey – 2017). The two largest producers of the world – China and the United States– produced 35% of the total global volume.

Ready-made feed production and utilisation in Europe

In the economic year 2014/2015 the EU-28 produced a total of 142.3 million tonnes of feed mix, and based on the predictions for 2015/2016 no significant growth is expected in the production. The amount of the used ready-made feed exceeds the production by 90.6 million tonnes. The EU is one of the most important feed importers (FEFAC – 2015).

For the most part, during the production of feed, cereals (wheat, maize, barley, etc.) and protein resources (soybean, rapeseed, sunflower) are used in a composition ratio dependent on the purpose of the feed, the type and age of the animal to be fed.

The general ratio of used feed basic materials (2015, EU-28)source: FEFAC

V./2. Feed division

Feed cereals48%

Cakes & Meals28%

Co-products from Food &Bioethanol Industries

11%

Minerals, Additives &Vitamins

3%

Oils & Fats2%

Dried forage2%

Pulses1%

Dairy products1% All others

4%

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Ready-made feed production and use in Hungary

The quantity of produced ready-made feed in Hungary, after a slight downward trend between 2010 and 2012, has shown signs of stagnation since 2013. The quantity produced in 2014 amounted to 3.6 million tonnes.

Division of feed volume produced in Hungarysource : National Food Safety Office- 2015

4 500

4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

02010

ezer

tonn

a

2011 2012 2013 2014

505 530 530 570 565

1 490 1 410 1 380 1 350 1 345

1 680 1 660 1 640 1 520 1 565

195 180 170 160 170Egyéb táp

Baromfi táp

Sertés táp

Kérődző táp

62.5% of the ready-made feed produced was made by feed manufacturing plants, and the remainder 37.5% was produced by the operators of animal husbandry entities, using their own resources. The annual turnover of the Hungarian feed market is estimated to be worth around HUF 300 billion, 50% of which is realised in the free markets. The reason for this is that the larger value share of the feed is produced by the animal breeders themselves. The quantity produced and sold in Hungary is more or less at the same level, the trade balance (exports and imports) modifies it only to a small extent.

Equantity of feed exported and imported in Hungary (tonnes)source: CSO, National Food Safety Office

300 000

200 000

100 000

02008 2009 2010 2011 2012 2013 2014

Export

Import

Other feed

Poultry feed

Pig feed

Ruminant feed

1000

tonn

es

Competition

In 2014 Q3 there were 462 registered and authorised feed mixing plants in Hungary. The average capacity of these plants is around 10 000 000 tonnes per year, and a majority of them primarily focuses on meeting their own needs.

The biggest plants with the highest volume of sales are the production facilities that can have a total annual capacity of 1.5 million tonnes. The country’s largest and most technologically advanced feed mixing plants are the feed mixing unit of Ma-Ka Kft. – 50% owned by the UBM Group – and the Szeleste Plant owned by UBM AGRO.

Direct competitors

The UBM Company Group’s immediate competitors are feed mixing companies that have production capacities at a national level or sell the produced feed (ready-made feed, premixes, feed ingredients, etc.) in the Hungarian and international markets.

Agrifirm Magyarország Zrt.: Agrifirm Magyarország Zrt., a business interest of the Dutch Agrifirm Company Group, was established by the acquisition of the Kabai Táp- és Takarmányforgalmazó Zrt. and the Pannonmill Takarmány Kft. In their three plants in Kaba, Győr and Bőcs they have a total annual production capacity of 200 000 tonnes. The company conducts sales activity in Hungary and it also exports its products.

Main product groups:

Intensive feed (poultry, swine)

Semi-intensive feed (backyard)

Bonafarm-Bábolna Takarmány Kft.: The company is part the Hungarian Bonafarm Company Group. Its main activity is the production of feed premixes and ready-made feed for all types of livestock and pets and the sales thereof in Hungary and abroad. The Company Group’s feed production capacity is estimated to be around 300 000 tonnes per year, 200 000 tonnes of which is produced by the Bábolna Takarmány Kft. The production takes place at 3 sites: Újszász, Nagyigmánd and Zalacséb in 6 feed mixing plants.

Cargill: The company has been present in Hungary since 1995. Its activity includes the trade and logistics of grain, oilseeds and protein feed raw materials as well as the production and distribution of feed formulas. Its three feed mixing plants are located in Karcag, Kaposvár and Pápa, and the company’s own brands are Cargill (rabbit, poultry, dairy, pig), Purina (cattle, horses, pig, sheep, goats, game, poultry) and Provimi (premix).

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The most important Hungarian competitors in the feed trade industry

Net turnover (1000 HUF) Sold product 2013 2014 2015

Glencore Grain Hungary Kft.* Feed raw materials 129 165 134 576 152 650

Cargill Hungary Zrt.* Feed raw materials 144 681 129 702 130 212

Bunge Zrt.* Feed raw materials 140 716 119 188 125 826

Pannonia Ethanol Zrt.* Feed raw materials 51 789 52 678 63 074

UBM Feed Division Feed basic material and ready-made feed 24 794 21 290 27 223

Agrofeed Kft. Premix 19 241 22 922 -

Bonafarm-Bábolna Kft. Ready-made feed 21 280 21 819 22 080

Agrifirm Magyarország Zrt. Ready-made feed 21 918 20 433 22 052

* Total revenue, with additional components

Business model

The Feed Division of the UBM Company Group was launched 11 years ago with the trade of mainly feed ingredients (sunflower meal, rapeseed meal, mineral supplements, fats, oils, amino acids and other additives).

As a result of the owners’ conscious strategy, since 2004 the expansion of the commercial activity has shifted towards the manufacturers of the supply chain, therefore the ready-made feed production within the division and the basic material trade equally contribute to the revenues.

Feed raw material trade: The commercial activity of the Company Group includes the sales of feed basic materials (sunflower meal, rapeseed meal) to be utilised by mixing plants and livestock farms. The vast majority of the transactions aim at the performance of the existing stocks of orders. The price of the raw materials is listed on the stock exchange, therefore the full coverage of the transactions can be secured.

The manufacturing and sales of ready-made feed: By using the production capacities of its own mixing plants, UBM produces different types of ready-made feed for the entire livestock sector based on its own recipes, mostly on its own premises, but to a lesser extent by other plants. In the case of its own-produced ready-made feed the mixers buy the raw materials and they invoice the ready-made feed directly to the customers.

With the launch of its own ready-made feed production UBM plans to provide its customers a higher added value and thus realise a profit beyond the margin of raw material sales from the production process itself. The Company Group typically establishes its own manufacturing capacity in a particular area where there is a stable order stock which was previously completed by hire production, and can provide sufficient coverage for the profitable operation of the own plant. This strategy ensures that even in a stagnating or slightly decreasing market the Company Group could increase its market share and further improve its profitability.

In the Feed Mixing Plant in Környe the production of the company’s own product was launched at the beginning of 2009 by bringing back to life the earlier “Környe Feed” brand, which has a rich tradition behind it and was always considered to be a reliable brand, now produced with modern manufacturing technology and state of the art internal content.

With the purchase of the Szeleste Plant in December 2013, and the transformation of the plant in 2015 the production capacity has been extended. Due to the background of the UBM Company Group, the product range of UBM Feed Kft. includes all basic materials that can be a possible ingredient in any kind of animal feed.

Business

A major part of the feed division of the Company Group is realised in UBM Agro Zrt. (60%), while a smaller part is realised in UBM Feed Kft. (40%). The annual turnover of the Division reached HUF 29,4 billion in 2015.

Within the UBM Company Group, 40% of the raw material trade in the Feed Division and a smaller part of the production of ready-made feed as well as full production of bagged feed (backyard farming feed) are carried out by UBM Feed Kft. which was established as the legal successor to DEVA Feed Kft. The trading of feed supplements was extended in 2004 with the production of the Feed Mixing Plant of Környe. From this point onwards the UBM Group has become a dominant player in the feed production and distribution in Hungary.

The majority of the raw material trade in the feed division (around 60%) is carried out by UBM Agro Zrt., also the owner of the Mixing Plant in Szeleste, which – following its full renovation in 2015 – can produce over 100 000 tonnes of excellent quality feed per year. The holding also includes MA-KA Kft., which has a 50% stake in the largest and most modern mixing plant in Hungary. UBM Project Kft., which owns property and investments in Környe, is also related to the Feed Division. The holding company owns the Feed Mixing Plant in Környe, the Soybean Processing Plant in Környe and 3 flat storages each with a capacity of 6,000 tonnes, as well as a local warehouse capacity required for ready-made products.

The stake of the Company Group in Naptáp Kft. is owned by UB Merchants Kft, while UBM Trade Zrt. has a 50% stake in All-Feed Kft., established together with the Hunland Company Group for the operation of the mixing plant built by the Hunland Company Group.

Products

The feed raw materials distributed by the Division: CGF, DDGS, soybeans, shelled full-fat soy, sunflower meal, fractionated sunflower meal, rapeseed meal, fats, concentrated protein carriers, fibre supplements, dairy-derived feed raw materials, minerals, antioxidants, flavours, acidity regulators, vitamins, provitamins, enzymes, amino acids, toxin and pellet bonds, anti-mould materials, salmonella inhibitors, premixes, concentrates and feed compounds.

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The production of ready-made feed includes the production of a number of licensed and private label products

Ready-made feeds: The Company Group prepares different types of feed for all young and slaughter animals at any life cycle from its own raw materials and own recipe, in a variety of packages and covering every aspect of animal husbandry in Hungary.

SoyPreme: Outstanding high-quality, patented and award-winning rumen-protected soybean product, which is an excellent source of protein especially for dairy cows for the production of milk with a fatty acid composition optimal for human needs. It is produced in the Soybean Processing Plant in Környe.

Full-fat: This heat-treated soybean is also capable of replacing protein.

Premix production: The production and homogeneous mixing of feed premix consisting of additives and other components is a precision task prepared by the Premix Plant of the Company Group completed in 2015.

Naptáp: The shelled and protein-enriched sunflower meal prepared by a patented process is a GMO free and often price competitive alternative to soybean meal. It is produced in the Szentes Plant of Naptáp Kft., co-owned by UB Merchants Kft. and Árpád Zrt.

Sales system

The total annual own production of the Division is 400 000 tonnes of ready-made feed and 200 000 tonnes of feed raw materials trade, 80–85% of which is sold in Hungary.

UBM has a significant competitive advantage, namely that as the dominant commercial player in the whole of the feed industry it has an active connection with all actors in the market, therefore it has up-to-date information regarding production, customer needs and it has immediate access to the customers.

Most of the sales is based on the performance of fixed orders, therefore in the case of feed raw material three quarters of the sales of sunflower and rapeseed meal take place through orders of amounts fixed in advance, sometimes in the form of long term, even annual contracts. The remainder is immediate (prompt) trade, but both goods and exchange rate are hedged

In the case of ready-made feed the vast majority of the production (above 95%) for Premix takes place on the basis of preliminary orders.

Pricing

For commercial activities the pricing occurs in accordance with the practice of the Company Group:

Sales price = raw material price + shipping + financing costs + goods hedgings surcharge + foreign currency hedging surcharge + MARGIN

The futures hedging (both for goods and currency) is always part of the transactions.

Customers

The customer base of the Feed Division is divided into 3 parts: a portion of feed raw materials is purchased by livestock farms and fodder plants that have their own mixers, another part is utilised by the Company Group itself to produce its own ready-made feed. Thirdly, the thus produced ready-made feed is sold to external actors.

Livestock farms and feed mixing plants with an own mixer: Baromfi-Coop, Bács-Tak, Y Pulyka, Bos-Fruct (FINO Company Group), Aragó Company Group, Tedej Zrt., Dán Farm, Classens Group, Boldagró, etc.

Raw materials for own production: The raw materials used for own production exceed 80 000 tonnes a year, much of which is sunflower meal (35 000 tonnes/year) and amino acids (30 000 tonnes/year), but rapeseed meal, DDGS Actiprot, fats and oils are also used internally by the Company Group.

Sunflower meal: 36 000 tonnes/year

Rapeseed meal: 8 400 tonnes/year

DDGS Actiprot: 6 000 tonnes/year

Fats, oils: 6 000 tonnes/year

Amino acids: 30 000 tonnes/year

For ready-made feed the Company Group is seeking to acquire big integration groups so there would be a high volume customer at each feed mixing plant. E.g. Hunland, Hungerit, Gallus Taravis, Kövesi Company Group, Vízi Szárnyas Integráció, Komlósi Lúd, Liverland, Szijjártó, Fuchs, Pig farm, etc.

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Feed Division - TOP 10 buyers (2016)

Operations

The total annual production together with the proportional business stakes that belong to the Company Group amount to 400 000 tonnes of feed per annum, partly produced at the mixing plants owned by the Company Group and partly in hire production.

Own capacities

Feed Plant in Környe (50 000 tonnes of annual capacity): The plant was purchased by the Company Group in 2004, but since then it has undergone a double capacity development, and currently it operates with a 70% utilisation rate. They produce ready-made feed and concentrate on pigs, ruminants, broilers, turkeys, pullets, hens and water birds in bulk and bag packaging. Connected to the mixing plant there is a warehouse capacity of 25 tonnes of raw materials and finished goods.

Soybean Processing Plant in Környe (30 000 tonnes of annual capacity): The production unit was built in 2012 as part of the UBM Company Group’s own development. The plant is currently processing soybean, namely full-fat soy products made for ruminants and monogastric animals, which are free from any anti-nutritive and anti-enzymatic materials, and have they excellent amino acid and fatty acid digestibility features. Milk made from these products is extremely beneficial for human consumption, and can receive the trademark FIT FAT introduced by the Company Group. When processing soybean using the license of Borregaard, a Norwegian company, an optimum digestibility product (Soypreme) is produced that contains protected protein and fat, which are considered to be extremely valuable and economical feed basic materials. Its application nowadays is indispensable in the effective feeding of dairy cattle. The capacity of the plant is at 100%, therefore doubling the production line is planned.

Feed Mixing Plant in Szeleste (160 000 tonnes of annual capacity): The mixing plant was acquired by the Company Group from Pannon Pulyka Kft. in December 2013 and with the reconstruction and renovation carried out in 2015 in the value of HUF 900 mllion it has become one of the most modern mixing plant in the country. Currently, UBM’s Feed Division is utilizing this plant for its own capacity.The goal is to develop an own premium brand as soon as possible.

Ma-KA Mixing Plant (200 000 tonnes of annual capacity): MA-KA Kft. is in a 50–50% joint ownership by the UBM Company Group and Hungerit Zrt., which began its operation in November 2012. The mixing plant established with a HUF 2 billion investment is currently the most modern processing unit in Hungary. During the construction of the mill the best available, fully automatically controlled technology was installed, which enables unique, special procedures and thus the production of unique premium feed in the Szentes Plant of MA-KA Kft. The highest ISO 22000 food safety standards and management system were introduced in the establishment. Thanks to the feeding products that contain grains of wheat the specific feed usage has been decreased for the broiler chicken and duck populations. For introducing the whole-grain wheat-supplement technology the First Prize for Hungarian Animal Husbandry was awarded to UBM Feed Kft. together with MA-KA Kft.at the 21st Great Plain Livestock and Agriculture Days in 2014.

Hire production

Naptáp Kft. (annual capacity of 15.000 tonnes, 50–50% owned by Árpád Agrár Zrt. and UB Merchants Kft.): As part of the cooperation launched in 2010 Árpád-Agrár Zrt. provides hire production services for the UBM Company Group. The NAPTÁP branded products are produced from the raw materials supplied by UBM. The plant processes the Hungarian, GMO-free, extracted sunflower meal taken over from sunflower oil processing plants with a patented procedure, and a specially designed grinding technology then the internal seed parts – that are rich in protein – are separated from the shell to be pelletised in the end. Due to the special raw materials and processing by using NAPTÁP products the feed could be 70–75% of the price of conventional feedingstuffs.

Hunland cooperation: Hunland is part of an international company group that is one of the largest cattle and pig producers, which delivers porkers and young animals mainly for the Russian market. The company built its own mixing plant that was handed over in 2015. Its capacities were only partially utilised, therefore based on an agreement with the UBM Company Group they established All-Feed Kft., a joint venture (with an ownership ratio of 50–50%) that took over the operation of the feed mixing plant in July 2015 (the owner of the property continues to be the Hunland Company Group). All the raw materials for the finished products - prepared in the plant are supplied by UBM.

Centrál Rabbit and ready-made feed: The products marketed under the brand name Centrál – rabbit, chinchilla and lamb feed – are produced at the feed mixing plant of Vaskút Feed Kft. based on unique recipes, in premium quality, in large-scale bulk and small-scale bagged version to be supplied in Hungary and Central Europe. The use of the brand name belong to UBM Group as a result of an earlier transaction, therefore sales to Tetrabrik is also conducted through the UBM Group.

Warehouse capacities

Three 6 000-tonne flat storages and one finished goods storage local warehouse capacity serve the needs of the feed business. The warehouse capacity required beyond is arranged by the Company Group under ad hoc lease agreements.

33%

15%9%

8%

7%

7%

7%

6%4%

4%MA-KA Takarmánykeverő és Forgalmazó Kft.

Taravis Baromfi és Élelmiszeripari Kft.

Naptáp Kft.

Baromfi-Coop Termelő és Kereskedelmi Kft.

AGROMIX Terményszárító ésTakarmánykeverő Kft.Bos-Frucht Agráripari Termékelőállító,Feldolgozó és Értékesítő SzövetkezetAll Feed Kft.

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Suppliers

Basic materials: AThe raw material need of the Feed Division is supplied almost exclusively by other business lines of the UBM Group, in light of the close embeddedness into the other divisions. Purchases related to raw materials are supplied by Hungarian and foreign sources in 50–50%:

Sunflower meal: 60 000 tonnes/year Rapeseed meal: 18–24 000 tonnes/year DDGS Actiprot: 12 000 tonnes/year Fats and oils: 12 000 tonnes/year Amino acids: 15 000 tonnes/year Additives, MCP: in smaller quantities

Hungarian suppliers: (rapeseed, sunflower): 6–8 international market players (such as Bunge, Glencore), for foreign ones Nutreco (the Netherlands, Belgium), USA, China, South America

For finished products the UBM Group is a sole distributor to a number of foreign companies in Hungary such as: Nutreco, Wellding, Balchem, etc.

The goods are generally outsourced to external contractors, an exception to which is the Feed Mixing Plant in Szeleste. Here the transport vehicles also formed part of the acquisition, and they have been in use ever since.

Feed Division - TOP 10 Suppliers (2016)

Research & Development, Innovation

Research and Development are extremely important for UBM, which in the case of ready-made feeds means continuously updated recipes and the development of own label products. The laboratory capacity of the Company Group in Környe is unique regarding technology and facilities, and as a result of a close cooperation with the University of Wisconsin it is the only laboratory in Europe that received permission to carry out test protocols.

The Research and Development Division of UBM is in continuous contact with international and Hungarian, private and university research centres. In addition, they have a number of own developed products, patents and trademarks. Some of the company’s products were awarded Veterinary Prizes.

Management, Employees

The professional management of the Feed Division is carried out by László Bustyaházai, who has been responsible for this area for over a decade now, ever since the division was launched. The se-nior decision-making body of the Division – as it is the case for all other activities – is the Board of Directors consisting of the private individuals who are the owners of the company.

Development plans for 2016–2017

April 2016 – Premix Plant in Környe (20 000 tonnes of capacity): Premix, one of the basic materi-als of the feed is currently produced by two suppliers for the UBM Company Group (DSM Nutrition Products Kft. and Agroszász Kft.), of which the UBM Company Group currently sells about 8,000 tonnes directly or uses it in its ready-made feed. The premix plant was established (in the UBM Pro-ject Kft.) primarily to replace suppliers, which besides the margin originating from the production also significantly reduces the shipping (so far the premix came from Újhartyán to Környe, but once the investment is activated no transportation will be necessary). Secondly, the composition of the premixes represent an innovative value, and valuable know-how for the producers, whose transfer to a third party imposes risks. An important condition to the development of the cooperation with the world-class University of Wisconsin in the field of bovine nutrition is for the UBM to have its own premix production unit, and thus it can further improve its products – together with its American partner – made of unique materials and with unique procedures.

1st half of 2016 – Romanian plant (150 000 tonnes of capacity/year): The UBM Group intends to expand its operation towards Romania, which will be realised through the construction of a medi-um-sized feed mixing plant. The most significant advantages of appearing on the local market are access to local raw materials and through this, the supply of finished products on the Romanian market. Currently, the Company can supply this market from its Szentes plant, but it is competitive to users in Targu Mures and beyond only to a limited extent due to transaction costs, in light of the purchase price of ready-made feed. With the plant of the designed capacity UBM can access not only the areas close to the Hungarian border, but it can supply the Central Romanian agricultural region – a market 2.5 times bigger than the Hungarian one – at a competitive price.

22%

13%

12%10%

9%

8%

7%

7%

7%5%

DSM Nutritional Product Hungary Kft.

Naptáp Kft.

Gallus Baromfitenyésztő és Keltető Kft.

Bunge Növényolajipari Zrt.

NT Élelmiszertermelő és Kereskedelmi Kft.

Agrana Starke GmbH

Trouw Nutrition Hifeed B.V.

AGROMIX T

SOLINWEST AGRO

Evonik Nutrition & Care GmbH

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Historic performance

The feed division’s yearly activity includes the production of 400 000 tonnes of feed and the sales of 200 000 tonnes of feed raw materials, which in 2015 generated a HUF 29.4 billion in revenues. Although compared to previous years (2013: HUF 25.9 billion) turnover has fallen somewhat, this decline came about as a result in the reduction of raw material prices, while the sales volume increased, therefore overall it means a development for the division.

80–85% of the Division’s output is sold in Hungary, while the remaining 15–20% is sold in the form of increasing exports, mainly to neighbouring countries (Austria, Romania, Slovakia, Serbia, etc.).

The profitability of the Feed Division has significantly increased in recent years at the gross margin level (in 2013 by 7.4%, in 2014 by 9.6%, in 2015 by 9.25%), explained by the increased ratio of ready-made feed production that represents a higher added value.

The profitability in terms of profit after tax in proportion to the revenues slightly fell in 2014 compared to the previous year (in 2013 it was 1.8%, in 2014 it was 1.3%, while in 2015 it was 1.23%), which was mainly a result of the fixed costs remaining unchanged against a decrease in the revenues.

One of the most important components of animal feed is protein. Protein sources on average amount to 20–28% of the feed. Due to their high protein content the most significant sources of protein are soybean and soybean meal.

Soybean in Europe

The soybean production of the EU–28 in the financial year 2014/2015 amounted to 1.7 million tonnes, 38% higher than in the previous year. Parallel to the increase of the cultivated area further growth is expected. The production adds up only to a fraction of the used volume, therefore the EU imports 87–90% of its soybean demand. Most of the imported produce arrives from Brazil, the USA and Para-guay, and a majority of this (above 80%) comes from genetically modified plants.

Soybean production, imports and exports, EU-28 (1000 tonnes)

Soy 2013/2014 2014/2015 2015/2016

Opening stock 233 231 251

Production 1 230 1 700 1 710

Import 12 985 12 540 12 600

Total supply 14 448 14 471 14 561

The share of imports (%) 90% 87% 87%

Export 57 50 50

Soybean production and trade in Hungary

In recent years there has been an increase in the land size where soy is grown in Hungary. While in 2010 the cultivated area was 33 900 hectares by 2015 it has increased to 73 000. The reasons for the increase:

A growing demand for GMO-free soybeans from a controlled origin

Danube Soya Association – a programme to promote soya production along the Danube (in 2015: 15 countries, 200 members)

Government grants for soy production (average HUF 40 000/ha)

Greener environment – condition for the grants

The amount of soybean produced in Hungary in 2015 amounted to 146 000 tonnes. 38% of the quantity produced in 2015 was exported, since there is an increasing demand for GMO-free soybe-ans, even at a significant surcharge (EUR 40–100/tonne).

VI. Protein Division – Soybean and soybean meal trade

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Soybean production, exports and imports in Hungary

SoybeanProduction Export Import

1000 tonnes 1000 tonnes Value (1000 USD) USD/t 1000 tonnes Value (1000

USD) USD/t

2010 - 31 14 364 466 14 6 597 468

2011 95 48 25 100 518 32 15 286 482

2012 68 58 33 014 569 30 17 760 596

2013 85 38 24 619 648 50 27 806 558

2014 114 37 21 746 581 80 41 430 517

2015 146 56 23 163 413 68 27 153 399

Soybean in Hungary is primarily used in the feed industry (90%), and secondly in the food industry.

European soymeal

About 90% of the total quantity of soybean is utilised by the industry, primarily in the form of soybe-an meal (92%), and soybeans (4%) and soy oil (4%).

In addition to the 10 million tonnes of EU soybean production (of which the most proportion came from import) in the financial year 2015/2016 an additional 19.6 million tonnes of soybean meal were imported by the EU member states, and only 8.3–11.3% of this import was GMO-free. Along with the demand increase for protein, the import also shows an increasing trend.

Soybean meal production, imports and exports, EU-28 (1000 tonnes)

Soybean meal 2013/2014 2014/2015 2015/2016

Opening stock 154 286 514

Production 10 300 10 250 10 300

Import 18 175 18 800 19 600

Total supply 28 629 29 336 30 414

The share of imports (%) 63% 64% 64%

Export 300 380 370

Soybean meal trade in Hungary

Soybean import is on the decrease in Hungary, as there is a reduction in the livestock, and also because soybean meal is replaced with alternative protein sources (sunflower meal, rapeseed meal, etc.). At the same time, there is an increase in the exported quantity, which is caused by the ex-pansion of soybean production, as well as an increase in the demand for Hungarian products.

The most significant quantities are imported from Slovenia (40%), Germany (22%) and the Nether-lands (18%), primarily from local sea ports.

Soybean meal

Export Import

1000 tonnes Value (1000 USD) USD/t 1000 tonnes Value (1000

USD) USD/t

2009/2010 39.2 18 149 463 668.0 290 448 435

2010/2011 14.5 20 858 486 691.1 298 616 428

2011/2012 11.8 5 539 5 504 685.8 297 887 5 193

2012/2013 18.1 10 847 600 504.3 291 518 578

2013/2014 58.2 36 210 622 488.4 278 474 570

2014/2015 82.4 39 641 481 470.6 235 883 501

The majority of the yearly 470 000 tonnes of soybean meal used in Hungary is processed by lives-tock farms that have their own feed mixer or it is purchased by feed producing companies for sales purposes.

Changes in soy export and import (1000 tonnes)source: National Food Safety Office 2015

800

700

600

500

400

300

200

100

02009/2010

39,214,5 11,8 18,1

58,2 82,4

668,0 691,1 685,8

504,3 488,4 470,6

2010/2011 2011/2012 2012/2013 2013/2014 2014/2015

Export

Import

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Alternative protein sources

Sunflower and rapeseed meal

Sunflower meal and rapeseed meal are high protein content (40–45% of protein) by-products gene-rated during industrial processing. They are characterized by the following features:

They are primary replacements for soy as a protein source in Hungary

Their domestic production, use and economic importance is on the increase

Rapeseed meal is used in pig and cattle feed, while sunflower meal is used in poultry, pigs and cattle feed.

Naptáp premium is a unique product low in shell content and highly enriched in protein

The foreign trade balance of oilseed meals (1000 tonnes)

Oilseed meals 2012/2013 2013/2014 2014/2015

Sunflower meal

Import 36.1 39.1 30.6

Export 306.7 353.7 349.3

Rapeseed meal

Import 34.6 38.8 35.5

Export 16.3 35.5 46.2

Alfalfa leaf protein concentrate

The essential amino acid content of the alfalfa leaf protein concentrate produced with microwave protein coagulation technology (MWC) is 10–45% higher than that of soy, and its internal indicators exceed that of the extruded soybean meal.

The University of Debrecen and its partners are working on the compilation of a R&D program me on MWC technology that would aim to reduce soybean meal import to Hungary at least by 50% (250,000 tonnes/year) in the next 10 years, besides a number of other favourable economic and agricultural-environmental impacts.

The cultivated area of alfalfa in Hungary amounted to 137,000 hectares in 2015.

DDGS

It is a protein rich by-product of bioethanol production. The produced amount is continuously increasing parallel with the increase in bioethanol production.

The largest Hungarian producer is Pannonia Ethanol Zrt., with its own product Pannonia Gold – resulting from the processing of maize – and the yearly quantity produced is estimated to be 325 000 tonnes.

Business model

The Protein Division of UBM Company Group includes the import and the trade of soybean and soybean meal, primarily known as a protein carrier. A portion of the goods distributed is used by the Company Group itself to produce feed, while the other part is mostly sold to Hungarian users. The market share of the UBM Group’s Protein Division is above 30%, which is expected to continue in the future thanks to its stable and wide customer base.

The Company Group performs the orders from Hungarian traders and end users mostly in the form of hedged transactions, using basic materials purchased in large volume from foreign suppliers.

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During the business deals UBM sets its prices based on quotes from its foreign wholesale suppliers (from Brazil, Argentina, etc.), which is then continuously communicated towards its Hungarian and foreign export partners. Basically, the objective is to perform the order stock of the end users sche-duled even one year ahead, but to a lesser extent the company also exploits ad hoc opportunities for futures and Forex-hedging transactions to increase the Company Group’s revenues. In order to maintain its market leader position, the Division is in continuous contact with its customers and suppliers.

Businesses

The Protein Trade Division of the UBM Group was launched in 1996. The vast majority of the trade (75%) is conducted by UBM Agro Zrt., and a smaller portion (25%) by UBM Feed Kft.

UBM Agro Zrt. was established by organising the Protein Division of UB Merchants Kft into a sepa-rate company. It has been a market leader in Hungary ever since 1998. A quarter of the turnover of the Protein Division appears in the books of UBM Feed Kft.

The process of business deals

A decisive part of the protein raw materials are supplied by import. South American raw material traders publish their quotations on a daily basis, based on which UBM sets its own quotations for goods and currency hedging, as well as quotes with a transportation surcharge. These prices are then communicated to the customers. UBM purchases goods only for the orders received, thus the-re is always a predictable demand for purchases.

Sales system - Products

The most important protein carriers that are part of the feed are soybean meal (Brazilian mid-pro, Argentinian low-pro, Dutch hi-pro), corn gluten, corn germ, full-fat soy, monocalcium phosphate, feed meal, pork feed, wheat bran, rapeseed meal, sunflower meal and carrot pellet.

Pricing

Soybean meal is a product traded on the stock exchange, therefore purchases occur based on the prices of the big international wholesalers and the subscription on the Chicago Commodities Ex-change either in EUR or in USD. The transactions related to the assignments take place with goods and exchange rate hedging:

Sales price = raw materials price + shipping cost + financing cost + margin

Customers

80% of the Protein Division purchases are for resale, while 20% is bought for the company’s own use. Based on the customers’ production plans the Company Group can plan the stock of the yearly orders relatively accurately that gives some space to exploit the positive sides of the fluctuating exchange rate and it can purchase in advance in case of favourable market conditions.

Own utilisation: The largest private user is the Ma-Ka Feed Mixing Plant in joint operation (25 000 tonnes/year), and the Feed Mixing Plant in Környe for own feed production (6 000 tonnes/year, Sze-leste 20 000 tonnes/year).

External customers: The external customers in the past were mostly feed mixing plants, however, since the Company Group launched its ready-made feed production division, some of the market actors consider it to be a rival company, and thus they wish not to strengthen their competitor by raw material purchase. As a result, most of the customers are directly the livestock farms, which have their own feed mixer.

Livestock farms and feed mixing plants: they typically have orders for quantities fixed in advance Baromfi-Coop Kft. (13 500 tonnes/year), Agromix Kft. (3 600 tonnes/year), Zala-Cereália (3 500 tonnes/year), Bács-Tak Kft. (7 500 tonnes/year).

Protein Division - TOP 10 Buyers (2016)

23%

15%

13%11%

10%

9%

6%

5% 4%4%

MA-KA Takarmánykeverő és Forgalmazó Kft. Baromfi-Coop Termelő és Kereskedelmi Kft.

HUNGERIT Baromfifeldolgozó és Élelmiszeripari Zrt. SOFIMEX D.O.O KOPER

Cefetra Hungary Kereskedelmi és Szolgáltató Kft. BÁCS-TAK Takarmánygyártó és Forgalmazó Kft.

Y Takarmányipari Kft. CARGILL SRL

URALGÓ Kft. AGROPRODUKT Mezőgazdasági Termelő és Értékesítő Zrt.

23%

15%

13%11%

10%

9%

6%

5%4%

4%

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Suppliers

Protein carriers are mainly purchased from South American, namely Argentinian, Brazilian, and in Europe mostly from Dutch multinational companies. Most often the goods physically arrive to Cooper, where following the sales they are shipped to the user (outsourced to a subcontractor).

Protein Division - TOP 10 Suppliers (2016)

FinancingThe trade of protein carriers does not show a strong seasonality during the year neither on the supplier nor on the customer side, therefore the current asset/financing need of the activity is ba-sically balanced.

In addition, the business model also includes regularly made futures positions that in the given pe-riod represent a significant value, which requires significant resources (deposits) from the Company Group in order to keep its bank positions.

Management, employeesThe Protein Division of UBM is led by Andor Botos who is Europe-wide acknowledged and has significant experience in protein trade. He is part of UBM’s team as one of the founders from the very beginning.

Historic performanceProfitability shows a slight improvement in recent years in the varying branches of business revenues, at the same time the gross margin has increased during a two year period from 3.1% to 3.25% in 2015 and expectedly it will reach 3.5% in 2017. The gross margin generated by this division was HUF 801 million in 2015 and - according to preliminary expectations - it kept rising by the end of 2016.

When evaluating the profitability of the division, it must be taken into account that the operating results do not include the result of the financial operations that greatly influence it and is to be interpreted together as it contains the effect of hedging as well.

UBM Genetics Kft.: The business was launched in 2012 with the objective to provide UBM’s Partners with high level of professional assistance – besides feed consultancy services – in plant work organi-sation, breeding and genetic questions. It is the exclusive representative of the Dutch swine genetics company, the HYPOR brand in Hungary and in Central Eastern Europe. The objective of introducing the brand in the region is to enhance pig farming results, improve efficiency and reduce unit costs. UBM imports HYPOR breeding sows and breeding boars to Hungary from the Netherlands, and sells them to pig farms. The breeding of HYPOR sows happens with the selection of the highest quality genetic resources and under constant monitoring. This service is also provided by UBM in the region, complete with professional consultancy services, professional site supervision and full-ranging feed supply to ensure the most effective results.

UBM Transit Zrt.: The company was founded in November 2011, and its main activity is warehouse services and trade. Its primary role is to provide the Hungarian produced raw material stocks requi-red for its partners and for the Company Group’s own production activity. Its business and financing model is characterised by purchases and warehousing related to the harvest season, and then typi-cally sales in accordance with the pace of utilisation. The risk management of the customer sales is done in collaboration with the Atradius loan insurance company.

UBM Agro Slovakia: The company has been operating as the Slovakian subsidiary of the Company Group since 2014. Its primary activity is the trade of soy and grains, protected protein and premix production and sales, consultancy services for cattle farming, the creation of soy integration and the wholesale of backyard feed. In the Slovakian market there is also an increasing demand for cost-effective and high quality feed and livestock farming. UBM Agro Slovakia, with the stable and professional background of the UBM Group, meets the strict requirements of Slovak livestock far-mers and farmers and it can provide high quality services to them. The distributed products are SoyPreme®, shelled full-fat soy, premixes (according to individual needs), extracted soy meal and rapeseed meal, as well as other feed elements, protein trade and backyard feed mixes.

Effects of the improvements

Animal and human health effect

With these developments the Company Group further extends its production units that are already outstanding in Europe. These measures continuously improve the quality of animal husbandry and also its efficiency. As a result of the scientifically grounded production and species specific feeding animals are healthier, and in many cases these solutions result in a more favourable human health effect during food processing.

The research findings of the Company Group have been awarded a number of Hungarian and inter-national prizes. For example, the Company Group’s own produced rumen-protected protein product, SoyPreme, used in dairy cattle farming has been confirmed to modify the saturated/unsaturated fatty acids ratio in large-scale farming by significantly increasing the ratio of unsaturated fatty acids, which is line with food science interests of the European Union. Food produced from milk processed in this manner can receive the FIT FAT MILK trademark registered by UBM Feed Kft.

VII. Other activities in the Company Group

74%

9%

6%

3%2% 2% 1%

NIDERA S.P.A.

Ancor Investment Ltd.

TVP-Gabona Kereskedőház Kft.

CARGILL SRL

Margitta-sziget 92

Uljarice Backa doo

Gebi d.o.o. PO Cantavir

Balázs István

UTÓD-AGRO

Balázs István

74%

9%

6%3%

2% 2% 1%

NIDERA S.P.A. Ancor Investment Ltd.

TVP-Gabona Kereskedőház Kft. CARGILL SRL

Margitta-sziget 92 Uljarice Backa doo

Gebi d.o.o. PO Cantavir Balázs István

UTÓD-AGRO Balázs István

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The Company Group’s own product, SoyPreme, was awarded the 1st prize – Product Award for Hun-garian Animal Husbandry – at the most prestigious Hungarian animal husbandry fair in 2013.

Another significant development of the Company Group is the technical realisation of adding enzy-matically digested whole grain to poultry feed, for which the Company received the Grand Prize of the same professional fair in 2014.

Technological development and capacity expansion

The Company constantly places special emphasis on strengthening its own research and develop-ment and innovation activity, which – according to the conviction of the owners – is one of the most important elements in keeping their market leader position. This requires the realisation of the investments set out in the Company’s development plans, which allow technologically already ad-vanced UBM mixing plants to expand with an additional production capacity of 320,000 tonnes per year, and to also function as the experimental plants for the laboratory developments.

Environmental impact

The growing environmental awareness, as well as the increasingly stringent regulations require the application of more efficient and environmentally friendly technologies. State of the art industrial feeding throughout the world is based on the processing of vegetable-derived proteins. It is an objective fact that Europe has only a 2.5% share in the production of these crops, therefore it requires a significant amount of imports, typically from Latin America. The Company Group seeks to use these plants in its feeds in the most economic way, and thus reduce the need for imports. The Company continuously seeks alternatives through new investments and recipes that allow the reuse in its feed plant-derived protein from industrial or food industry generated by-products in Europe. The Company’s investments operate with outstanding energy consumption per unit.

The examination programme of our own Research & Development Department includes the study of the safe application of hazardous waste and by-products generated during food processing for feed purposes, and the breeding of algae that have a significant carbon dioxide binding capacity, and the utilisation thereof as protein and feed additives.

There is a model– at this point only theoretically – for a self-sustaining system, in which the pig slurry that is generated as a hazardous waste would be utilised to feed useful algae species, and along with the binding of significant amounts of carbon dioxide the algae protein would be reintroduced into the feeding.

Job creation

The plant to be realised will create 28 direct and long-term jobs for local skilled and semi-skilled workers that greatly contributes to the improvement of employment figures.

In the last 5 years the number of employees of the Company Group has increased from 80 to 180, and the further investments will also increase the number of administrative employees and research professionals.

For the training and support of the new generation of professionals the Company Group operates scholarships at the Agricultural Universities in Gödöllő and in Keszthely at the faculties of animal husbandry and feeding. In addition to the financial support the Company offers practical training and employment opportunities to the programme participants and prospective future colleagues.

Status, scheduling

Feed Mixing Plant in Szeleste (100% ready): The investment was completed in May 2015. Currently, its capacity is more than 10 000 tonnes per month.

Premix Plant in Környe (100% ready): The investment was completed in April 2016, currently the plant produces 1000 tonnes of premix per month.

Feed Mixing Plant in Romania (0% ready): It is a green field investment, the plot and the local partner have been selected and the investment can be realized by June 2018.

Further investments

Nutriopt system

Feed recipe optimisation can occur by taking into account many more parameters than the average by applying an analytical method based on NIR technology. It can allow stock management that considers the changing internal parameters of the different basic materials, therefore it can further increase the efficiency of the feed produced.

Hypor pig production

Since 2012 UBM has been the sole distributor of Hypor, which belongs to Hendrix Genetics, the world’s leading pig genetics distributor. The Company Group currently also operates a breeding boar plant in Hungary to generate breeding material, as well as a nucleus plant to produce gilt for breeding sow.

On the basis of these cooperations a plan was drafted to create a pig farm in Hungary that would specifically produce end products – pig for fattening purposes – with the objective of helping the market penetration of the breed.

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VIII. UBM TRADE ZRT.

Balance sheet 2013 2014

Fixed assets 5 851 425 6 055 114

share from this 4 949 978 5 995 381

Current assets 915 929 1 962 541

from this claims against related businesses 894 349 1 950 454

Own equity 2 703 390 4 577 617

Liabilities 4 063 780 3 453 796

of this short-term liabilities of related businesses 0 532 105

2013: UBM Trade Zrt. did not have its own sales revenue in 2013, so its significant balance sheet result at the end of the year was generated by dividends from the Company Group subsidiaries.

2014: From this year on the company had sales revenues of its own. As a result of the reorganisation into a holding structure the business stakes of the subsidiaries had to be re-evaluated, therefore in the books of UBM Trade Zrt. there is HUF 844 million as other expenses. Thus, a HUF 838 million of operation loss was generated despite the fact that the value of the companies in the Company Group did not decrease.

90% of the UBM Group’s turnover is generated by the three main business divisions, of which grain trade, the trade of protein carriers and the production and sales of feed basic materials account for 37%, 28% and 25%, respectively. The Feed Division also includes revenues generated by MA-KA Kft. that accounts for 8% of the turnover of the Company Group.

Revenues according to divisions (2015)

37%

28%

25%

1%

1%

8%Grain division

Feed division

Protein division

Hypor

Other activities

Hunland

Ma-Ka Kft.

Company info

Company info

Name of company UBM Trade Zrt.

Date of registration 7 November 2011

Core business Wholesale of grain, tobacco, seeds and feed wholesale

Company seat 2085 Pilisvörösvár, Fő út 130.

Owners Private Individuals

Tax number 23587579-2-13

Company registration number Cg. 13-10-041226

Financial performance

Profit and loss statement 2013 2014

Net revenues from sales 0 216 318

Other revenues 0 0

Material type expenses 4 552 94 435

Personnel expenses 0 95 439

Depreciation 15 898 16 114

Other expenses 0 844 501

Operating profit -22 466 -838 777

Result of financial operations 736 840 1 159 822

Extraordinary profit or loss 0 -395

Pre-tax profits 714 374 320 650

Profit or loss for the financial year 714 374 320 650

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In continuation of the growth rate of previous years the management is expecting a further increase in the turnover for 2016–2020. The expansion also brings about a reorganisation of the divisions, which means a significant increase of the existing share of the Feed Division. At the same time the Feed Divison is going to become a customer of the Grain and Protein division of the Company Group.

46 UBM GROUP I BUSINESS PLAN

MYCONCEPT KFT.1136 Budapest, Visegrádi u. 48.

Tel.: +36-30-606-7110

E-mail: [email protected]

BUSINESS PLAN - ELITE | ELITE Growth

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