BUSINESS MODEL

The Group is currently turning over in excess of Euro 4.5 million and generating profits (see financials) from three plants that it has successfully acquired, refurbished and operates.

The group business model is simply based on acquiring established and connected bio mass plants in Northern Italy. Operating and maintaining same to a high standard and ensuring that all the groups green principals are adhered to throughout the production chain. This requires the group to ensure that feed stocks are accredited under ISCC legislation and are produced in an environmentally friendly manner from the farming through to the production and delivery of the feed stock.

Historically many early developers of bio mass plants in Italy entered the bio mass market owing to the very high energy prices and subsidies. However, being inexperienced they failed to understand the true dynamics of the industry and therefore failed to secure their feedstocks believing they could buy in the market at low prices.

Owing to changes in around 2012 in European Union legislation requiring all commercial vehicles to use at least 5% of their diesel consumption as bio diesel (created using vegetable oils) the cost per tonne the market for vegetable oils went from circa Euro 400 a tonne up to at its peak Euro 1,200 a tonne. Therefore many such operators either ceased trading or went into liquidation.

Agrofarm, understanding the market, have through their subsidiary Agrofarm UK Limited, entered long term agreements for the supply of feedstocks and have therefore created for them an opportunity to acquire power plants as “distressed assets” often at up to a 50% discount to their original cost.

The company has long term agreements supported at this stage with letters of intent from a Greek Ginning company which is the owner of several ginning factories as well as an oil pressing mill, producing enough cotton seed oil for the production of cotton oil equal to the consumption of circa 13 plants generating around 11 MW electrical power.

It should be noted, however, that there is adequate feed stock available and indeed cotton seed from various alternative suppliers as and when required.

As the highest levels of subsidy are only paid if the plants are using European vegetal oil, there is an obvious financial incentive to use European origin oils. However, the company will consider acquiring larger plants (which do not qualify for the highest subsidies owing to generation capability) provided that the proposed acquisition meets the exacting criteria established by the company and complies in every respect with the groups green principals. Such acquisitions then open the opportunity to purchase for such plants non-European origin oils or supply them with alternative green feed stocks...

The plants are fully insured through international insurers (Lloyds of London) for material damage, break down and business interruption.

The power is generated and sold onto GSE (and others) and invoiced monthly. The payment is guaranteed by the Italian government based on Italian legislation. The minimum compensation for a produced KWh is € 0.28 Cents. Additionally excess heat generated is sold to local third party businesses in the vicinity of the respective plant.

There are a number of considerations in the renewable energy industry key amongst these are: feedstock: having access to a reliable and continuous stream of suitable and economic feed stock is essential, this as stated is the core strength of the Group having access to unlimited feed stocks..

The second is the technology (in this case using vegetable oils is simple, proven and robust technology)

Thirdly the off take (a purchaser for the power and hear) in the case for Agrofarm there is adequate demand and all power generated is contracted to the state utility company and secured against government guarantees.

The fourth challenge is cash flow. This is challenging as feedstock has to be purchased, crushed and milled to create oil, shipped to the plants which consume on average circa Euro 100k a month of oils in monetary form it is then run for 30 days the energy sales are metered and then invoiced to GSE who in practise take 90 days to pay each invoice. This creates a substantial cash flow requirement although funds are at all times totally secure the business by its nature therefore requires substantial cash reserves.

The group business is based upon their ability to manage the delayed cash flows and also to have sufficient capital to acquire, in the market, additional distressed assets.

For this reason it was decided to issue a Green bond on the London Stock Exchange which is seen as the leading capital market in the world today and has a specified Green placement which fits with the Groups own principals.

It is the intention to raise up to £30 million by way of five year senior debt, secured (against the issuing company) bond at a coupon level of 7.75% with interest paid quarterly in arrears.

Agrofarm will use the investment funds to acquire additional distressed assets (power plants) as detailed, refurbish and if necessary upgrade same with a view to achieving maximum efficiency. The group has already identified and secured agreements to acquire some 12 plants over the next twelve months (see financial model) and up to twenty over the life of the proposed bond. The group plans to purchase the first five plants in September/October 2017. These plants are currently undergoing due diligence and have purchase options in place

Every plant acquired will meet the Groups rigorous purchase criteria and will always be under contract for the off take with GSE.

It is also the Group’s intention to establish a joint venture with an established oil mill either in Greece, Italy or other suitable EU location which will need to be or become ISCC compliant and registered. This will enable the group to control the production capacity of cotton (or suitable alternative) seeds into the requisite oil quality and quantity to supply its growing chain of power plants. The group is in talks with [its current supplier / a ginning company in Greece / which has spare production capacity in its operations. The group considers that it can acquire the spare capacity for a relatively low initial investment. Since the facility is already owned and operated by a local company, the group considers that this arrangement would be more beneficial than the risks required in building or buying its own plant.

Agrofarm Green Bonds Ltd’s initial acquisition will be the three existing plants (held by Agrofarm London Ltd via subsidiaries) at £10 million. This will enable the group to retire short term expensive debt totalling circa £6.2 million plus £3.8m shareholding. (See financial model)

Should there be any temporarily unallocated unused funds, the group may allocate the funds for the short-term to acquire feed stock (either seed for milling and or oil) at economic prices, which would assist the business cashflow, or for refurbishment of plants. This will also ensure that the group maintains its long term green credentials.

In purchasing additional “distressed” assets (bio mass power plants) the group will apply the following criteria and process:

1. Identify suitable plant: Geographically situated within a maximum of 4 hours’ drive from existing operations (operations will always remain in Northern Italy).

2. Ideally maximum product ion capability of 1 Megawatt (this could be changed subject to financial viability.) Note: Optimum subsidy is at 1 MW production but some larger plants may fulfil all other criteria and could therefore be considered.

3. That each plant can be acquired and refurbished to a high standard and with a minimum long term life expectancy of no less than 15 years

4. Be connected to the Italian grid and registered under the subsidy regime therefore qualifying for the “Green” subsidy for a minimum period of five years (life of the bond).

5. That the plant can generate power and heat based on the proposed green ISCC registered feedstock.

6. That the estimated unlevered internal rate of return generated by the plant under full capacity will be no less than 30%.

In order to ensure strict compliance with the stated purchase criteria the Group have formed a special committee which will have to unanimously agree to any purchase based upon the stated criteria.

This committee includes:

1. Mr Joerg Buehlmann Chairman.

2. Mr Stefano De’Matola Director

3. Ms Karen Wordsworth (non-executive director)

Furthermore the same committee will review and sanction of the proposed joint venture arrangements for the acquisition of capacity at an existing oil mill to provide the required feedstock.

The decision to proceed will be based upon:

1. That the plant either is or is capable of becoming ISCC certified.

2. Is compliant with all Green legislation of the domiciled country and that of the Italian laws

3. That the feed stock is ISCC certified throughout the chain of production.

4. That the plant can deliver the quality and quantity required economically. (under the current pricing of circa Euro 820 per ton of oil)

5. That the plant is conveniently placed for the logistical costs, ease of transport.

6. That the plant has sufficient storage capacity to ensure continuity of supply.

7. That the plant has sufficient raw material supply to conform to the requirements of the plant and the groups output.

Given that the group’s plan is to raise some £30 million by way of the Green Bond and that said funds can only be deployed in asset purchases (plants) over a period any unutilised funds will be invested in the purchase of feedstocks (Oil and or seed), as short term funding for refurbishment of new plants, or placed in an interest bearing account with the approval of the bond trustees and only be drawn against specified and agreed expenditure.

The Company through its newly formed bond issuing company (Agrofarm Green Bonds) will make available six monthlies via its web site (www. Agrofarm.co.uk) the details of temporary placement of unallocated proceeds from the bond as well as detailed information on a project by project basis detailing the use of funds, acquisitions completed detailing the assets acquired, feedstocks purchased and progress made all in accordance with the green bond philosophy.

The company will be audited annually however, the company will report to bond holders every six months from the anniversary of the bond issuance with details of the financial progress of the Company. Financial reporting will be undertaken by the company to all bond holders annually through their financial report.

The groups reporting will include the following non-financial performance indicators: This information will be published in the financial report and further published on the company web site annually.

1. Fuel consumed (including details of type, source and tonnage)

2. Total and individual plant capacity.

3. Operational hours achieved.

4. Power exported in KWh

5. Heat exported KWh

6. Environmental compliance

7. For all new acquisitions renewable energy capacity increase in KW

The non-financial performance indicators for the mill investment are:

• Plant capacity (ie the tonnes per annum throughput / capacity that is available to Agrofarm under the JV)

• Quantity of seed purchased and processed (tonnes)

• Oil yield (tonnes)

• Plant/oil ISCC certification

• Plant environmental compliance