ALPHAVILLE VENTURES LIMITED

BUSINESS PLAN
On the Establishment of a Packaged Water Factory

Prepared by:
Pr Michael Stevens Consulting

[2018]
TABLE OF CONTENTS

Executive Summary 3

1. Business Overview 5

2. Product Description 8

3. Production / Operational Plan 11

4. Organizational and Management Plan 16

5. Financial Analysis: 17
a. Key Assumptions
b. Revenue Projection
c. Cost Projection
d. Financing Plan
Financial Statements
e. Projected Income Statement
f. Projected Cash Flow Statement
g. Financial Evaluation / Viability Test
h. Economic Analysis
i. Financing Plan

6. Business Risks and Mitigating Factors 33

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 EXECUTIVE SUMMARY
PROJECT PROPOSAL
This business plan is a blueprint for the launch of a purified drinking water production plant owned by
Alphaville Ventures Limited. The production plant is currently located at #20 Elder Joe Close, Rumorlu,
Rivers State. The Company intends to provide the immediate inhabitants of Port Harcourt Town and its
environs with quality and well treated portable water both in sachet and plastic bottles. For this
purpose, the company wishes to acquire funding to procure equipment / machinery and a working
capital component. The equipment required are:
 Automatic 20 liter Jar Washing, Filling & Capping Machine
 100KVA Generator
 8 Delivery Vans

PROJECT COST
The total project cost is N101 million which include an capital outlay of 51 million which had initially
been invested and an additional N50 million requirement.
No Cost Items Cost Estimates

1 Factory Land & Building 20,500,000

2 Machine & Equipment (Existing) 29,000,000

3 Equipment (Additional) 10,000,000

4 Vehicles (Additional required) 31,500,000

5 Pre – Project Expenses 1,400,000

6 Working Capital 7,282,427

7 Contingencies (Logistics and Installation) 2,000,000

GRAND TOTAL 101,682,427

LOAN REQUIRED
Sequel to our expansion aspiration we require a credit facility of N50,000, 000 ( Fifty Million Naira only)
that is to be used in the purchase of additionally required machines / equipment that will enhance the
production capacity of our plant.

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PROJECT PROMOTERS
The promoter of the project is Alphaville Ventures Limited as represented by Mrs Iwo Edward-Pepple.
NET PROFIT (PROFIT AFTER TAX)

The projected net profit for the first five years of operation is as shown below:
(N’)
Year 1 Year 2 Year 3 Year 4 Year 5

39,343,075.18 42,249,513.02 47,975,427.83 57,192,908.58 71,123,808.98

CASH FLOW

The cumulative cash balance for the first five years of production is as shown below:
(N)
Year 1 Year 2 Year 3 Year 4 Year 5

37,138,452.33 231,426.45 120,305,726.88 172,729,156.59 237,984,733.60

PAY BACK PERIOD

From our projected cash flow the business is very viable and will recoup the initial project cost of N101.6
million would be recouped in approximately 2 years.
LOAN REPAYMENT
The facility required is a term loan and will be repaid in 60 months as captured in our Loan Repayment
Plan.
CONCLUSION AND RECOMMENDATION
The project is ascertained to be both economically and socially desirable, technically feasible, and
financially viable. It is therefore recommended for immediate implementation.

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Chapter One: Business Overview

1.1 Company Description

Alphaville Ventures Limited is an indigenous Private Limited Liability company incorporated in Nigeria
with Corporate Affairs Commission in 2013 with registration number RC 1158222. It has a share capital
of One Million (One Million Ordinary Shares) of #1.00 each which has been fully subscribed and paid for.

The company main business is in manufacturing of bottled water and sachet water. The company
factory is situated at #20 Elder Joe Close, Rumorlu, Rivers State The company will provide the immediate
inhabitants of Port Harcourt Town and environs with quality well treated portable table water both in
sachet and plastic bottles and wishes to provide same service to a wider area.

1.2 Vision and Mission Statements

Vision Statement
To be the first in the mind of our customers for every product we offer.
Mission Statement
We are committed to deliver quality valued products to our esteemed customers in every market we
serve, while keeping our employees happy and motivated to achieve our desired organizational goals.

1.3 Business Objectives

The primary objectives of the business are as follows:
 To increase our business profit by a minimum of 50% within the next two years of our
operations.
 To repay our facility within 60 months

1.4 Value Proposition

 The high quality of our products will remain consistent
 Our products’ packages, especially bottled water and sachet water will carry the nutritional
contents, production / expiry dates, NAFDAC numbers and all other legally mandatory
information.

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1.5 Critical Success Factors
Alphaville Ventures Ltd will stand out from the competition with the following keys to success as listed
below:
 Excellent Customer Service – We will always deliver a “wow” customer service to our
anticipated numerous customers (both retailers and wholesalers) at any given opportunity to
serve them.
 Great Products –By providing quality standard exemplary products at market prices flavored
with good customer service will make customers want to return again and again
 Winning Marketing Plans – With our strong brand and unique selling propositions, the various
marketing strategies which we will implement in our various market clusters or segments will
impact positively on our sales volume and bottom line.
 Securing sources of raw materials and equipment
 A management team with two decades of progressive experience in this industry.
We will continuously review and monitor our progress in the areas of our aims and objectives, guiding
principles and keys to success as well as recite our mission and vision statements, culture and core
values at every of our meetings so as to effectively communicate these fundamental organizational
principles and drive the processes down in to the mind of all our employees as we all imbibe in it and
utilize it to build a stronger company in the nearest future.

1.6 Current Status of Business

Alphaville Ventures Limited is a Private Limited Liability Company duly registered with Corporate Affairs
Commission which is owned by three directors with shares divided into 40%, 30% and 30% with largest
percentage of the shares belonging to Mrs. Iwo Edward-Pepple the company Chairman.

1.7 Description of the Business Industry

Nigeria’s bottled water industry has grown phenomenally over the past decades, with volume sale
growing at an annual rate of 31% between 2002 and now. The market accommodates both
multinationals, large local corporate and thousands of Small and Medium Enterprises across the
country. On the value side, the outlook looks strong as alternative source of drinking water across the
country remains elusive. Hot weather, growing population / urbanization (2.4% per annum) and health
consideration will continue to drive the dynamic demand for bottled water and it is also expected that
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the industry will become more segmented as competition grows and consumers’ tastes and preferences
evolve.
1.7 Market Size
According to Director General of National Agency for Food and Drug Administration Control (NAFDAC),
which was widely reported by Vanguard Newspaper, the estimate of water consumed in Nigeria daily
ranging from bottled water to sachet water is about Eight Billion Naira (N8, 000,000,000.00).
The Director General made this pronouncement during a forum organized by the Lagos Chamber of
Commerce and Industry (LCCI).This shows that over One Hundred Million Nigerians consumer one form
of purified water either in the form of sachet or bottle daily out of the country’s population of over
140million.
This shows that the market size is huge and the room it has for new entrants into the business as people
are becoming so conscious of their health in preventing water borne diseases.

1.8 Contribution to Local and National Economy

The envisaged expansion of the company will definitely engender a number of economic benefits to the
host community and to the country in general. Chief among these multiplier effects are:
Job Creation: - The expansion and diversification of our current operation will definitely require more
personnel and most of these workers will come from the host community.
Wealth Creation: - Another benefit accruable from this expansion / diversification is wealth creation for
the company itself and to the LGA of the host community as more tax will be collected by the Local,
State and the Nation’s tax ministries.
Capacity Building for the youths of the host community is another potential contribution. Thus, new
employees will be able to get employment and acquire the necessary experience and skills they needed
in life to survive the job world.

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 CHAPTER TWO
2.0 Description of the Product

Alphaville Ventures Limited will produce bottled water and sachet water bags under the brand name
“Eden Water”. The bottled water will be packaged in 0.75 liter of 12 bottle pack and 0.50 liter of 12
bottle while the sachet water is currently packaged in 0.50 liter sachets of 20 per bag. The company will
also produce water in 5 gallon dispenser jugs.

2.1 The Opportunity Rationale

The gap between the supply and demand for hygienic and safe drinking water source in Nigeria
continues to increase daily. Research has shown that the per capital consumption of water by an
average Nigerian is 0.5 liter. With a population of 140 million people, it implies that the total effective
daily need of Nigerians for water is about 70 million liters per day. This figure is huge. Since access to
quality drinking water is one issue that all tiers of governments in Nigeria have failed to address, this
provides justification for the private sector involvement in the provision of portable drinking water.

2.2 Pricing Strategy

The going input costs for the production packaged water will determine the pricing of the products.
However our products will still be priced significantly lower than other brands to support market
penetration. We will also offer several loyalty schemes to our clients and bulk purchase price cuts. With
these strategies we are confident that we will compete favorably with our competitors.

Table 1: Proposed Product Pricing Template

S/N Product Type Current Market Price Proposed Factory Price

3 0.5 (12 bottle pack) N500 N370

4 0.75 (12 bottle pack) N600 N470

3 0.5 liter sachet water bag N70 N65

4 5 gallon Jar/Jug N550 450

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2.3 Target Market

Our target customers, in the light of our product demand, shall include corporate clientele as well as
individuals, supermarkets, retail stores, hotels, schools, corporate offices and restaurants in our
immediate vicinity and environs.

2.4 Prevailing Market Situation in Target Areas:

Sachet and bottled water in our core target areas of Rivers State, with emphasis on the Port Harcourt
metropolis. Our medium to long term strategy will involve an expansion to neighboring states such as
Abia, Bayelsa and Imo State. While our market research records quite a high number of players,
however, the water quality, packaging and marketing strategy are what determines sales, and to this
end, our product quality and commitment to customer satisfaction will ensure our products remain
competitive.
2.5 Promotional Strategies

Alphaville Ventures Nigeria Limited will promote its bottled and sachet water drinks to customers via:

 Regular newspaper advertisements focusing on education and information about the benefits of
clean and safe water.

 Direct marketing using van sales distribution to our customers in our segmented zones

 Interactive Marketing

 Distribution of promotional flyers to residences within a one-mile radius.

 Promotion of health based / hygiene programme

2.6 Distribution Strategy

Primary distribution of bottled and sachet water will be through the will consist of deliveries of our
water products to restaurants, organized events / parties, retailers and corporate organizations,
supermarkets, hotels / guest houses using our Van Sales Marketing Strategy with the Port Harcourt
metropolis divided into zones with a designated Van Sales Representative assigned weekly targets.
Secondary distribution will consist of direct sales at our production facility.

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2.7 Availability

Since the perception and success of a product depends on it regular and consistent availability in their
target market, Alphaville Ventures Limited will ensure the availability of its products at all the major /
popular retail outlets in Port Harcourt Town, its environs and key target market segments in Port
Harcourt. We currently operate a failsafe production method with back-up machinery to constant
availability of our products.

2.8 Packaging

Our products will be packaged in line with the industry norms. Our bottles and sachet containers are
clear. The bottle gives a reflection of light sky blue color, which is considered a natural symbol of water.
Our water products will also carry on the bottle and sachet label, the following information in addition
to the logo of the company:

 Brand Name

 Water specification

 Certificate number of NAFDAC (National Agency for Food and Drug Administration and Control)

 Name and address of producer

 Batch number or Code number.

 Chemical Composition

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Chapter Three: Production Plan

3.1 Description of the factory

Alphaville Ventures Limited’s production site is strategically located at 20 Elder Joe Close, Rumorlu,
Rivers State. The factory is situated on approximately 2 ½ plots of land. The factory’s location is
excellently motor-able with great accessibility potentials to all the surrounding locations, town and
cities.

The total built up area of the project site is about 335.35 square meters housing one structure separated
into several units namely: offices and a production facility, a storage facility and a Gatehouse. Also
present at the production facility is a borehole complete with submersible pumps and four water tanks.
The total forced sale value of the property is put at N70, 000,000 (Seventy Million Naira only)

3.2 RAW MATERIALS / CONSUMABLES NEEDED / SUPPLIES

PRODUCTS

Bottled water in 0.50cl, 0.75cl and 1.50cl

Sachet water in 0.50cl sachets with 20 sachets per bag

Dispenser Water Jugs (5 Gallons)

RAW MATERIALS

I. Raw water from deep - well

II. PET Preform (Polyethylene Terephtalate bottles -18g, 22g and 36g @ N450 per kg)

III. Caps (1.80 each)

IV. Labels (0.50cl bottle – N1.30 per each; 0.750cl bottle N1.50each; 1.50cl\n1.80 each

V. Shrink wrapping Nylon – N520,000 per ton

VI. Sachet Nylon – N500, 000 per ton

VII. Packing Bags – N3.60 each

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3.3 Cost Assumptions

The plant will produce for 6 days a week and 4 weeks in a month

The horizontal sections represent the direct material cost per carton of producing the various product
denominations.

Table 2: Direct Material Cost - Bottled Water

Product PET Caps Labels Shrink Total

Bottles / Nylon
Preforms
0.5L*12 89.52 19.8 15.6 24.6 149.2
0.75L*12 111.84 39.6 15.6 28.57 195.61
5 gallon Jar 90 11 10.5 33.08 144.58
Total 201.36 69.3 41.7 86.25 489.39

Sachet:

R/Material Cost (N)

Sachet Nylon = 27.78 / bag

Packing bag = 3.50

31.28

Table 3: Opening Inventory (Bottled Water) Based On Projected Average Monthly Sales

S/N Stock/Items Daily Output Unit Control Total Amount (N)

1. 0.5L x 12 4,500 12/Carton 9,000 Cs 2,637,000

2. 0.75L x 12 1,000 12/Carton 2,000 Cs 698,000

3. 5 gallon Jug 1,000 N/A 24,000 2,160,000

TOTAL 20,500 25,000 Cs 5,495,000

Cs= Cartons.

Table 4: Opening Inventory (Sachet Water)

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 S/N Stock/Items % Total

1. Nylon Rolls 89 2,000160

2. Packaging Bags 11 252,000

TOTAL 100 N2,252,160

Table 5: Utility Requirement

S/N Description Unit Annual Unit Cost (N) Total Cost (N)
Requirement
1 Electricity KWh 940012.8
2 Diesel Lt. 10137.39 170 1723357
3 Lubricants Lt 313.33 500 156668.8
4 Water Gallons 720,400 2.30 313337.6
Grand Total 3,133,376

3.4 Production Process

3.5 Description of Production Process

Raw water is pumped from borehole to four water head tanks of 8000 litres capacity. The water is then
let through sieved containers called aeration tanks. This is the only place where it comes into contract
with air. The aerated water is then piped into aerated water holding tank. From the holding tank, the
water is pumped in the stainless steel filtration tanks containing activated sand, activated gravels of
various sizes and active carbon.

From there the filtered water is then stored in the filtered water holding tank. From this tank the filtered
water is then pumped into the micro filters of 0.10, 0.50 and 1.0 microns and also micro carbon filters.
The water is then passed through the ultra violet sterilization unit-from where it is pumped into
automatic rinsing, filling and capping machine.

The bottled water is then conveyed to the shrink-labeling machine passing through the coding machine
that stamps the batch number, date of manufacture, and expiry date. The coded and labeled bottle of
water is then manually packed into the open-ended nylon bags and fed into the shrink wrapping
machine.

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The finished product is stored in the warehouse ready for marketing and distribution (See also the
diagram)

3.6 Specific Water Purification Process

The purification of our water is more or less akin to natural spring water purification where water flows
through layers of sand and rocks. Our purification process involves the use of three stainless steel tanks
in which the first tank is filled with 2(two) grades of activated river sand. The second tank is filled with
2(two) grade of activated river gravel and the third tank is filled with activated carbon.

The function of the carbon is to make the water odourless. Thereafter the water is passed through
2(two) grade of micro filters and a carbon micro filter.

The micro filters ensure that the mini test impurity that might have passed through the composite filters
does not get into the bottled water. This process was recommended to us by our consultant from the
unset and we have found it very efficient.

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PRODUCTION PROCESS FLOWCHAT

Borehole
Stainless Composite Filter Tanks
ks
Activated
Aerated Aerated Aerated Treate Carbon
Elevate Water
Water Filter
Funnel Holding
d Sand
d Feed Trough Tanks Filter
Water
Tanks

Product
Water
Tank

Automati Micron Micron Micron

Ultra
c Filters Filters Filters
Shrink Violet
Washing, Carbon
Labeler Sterilize
Filling &
r
Capping
Machine

Shrink Warehouse
Wrapper (Finished
Products)

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4. Organizational and Management Plan

4.1 Organization

Basically, Alphaville Ventures Limited will operate with a traditional hierarchical management structure with
authorithy cascading from the top to bottom. The organization is headed by Mrs. Iwo Edward-Pepple who is the
CEO/Managing Director of the Company. Mrs. Iwo Edward-Pepple is a seasoned business professional who has
diverse business experience in the agriculture, retail trade and services sectors. She brings this wealth of
experience on board this venture.

Proposed Organization Chart

4.2 Ownership of the Business

The organization is an indigenous Private Limited Liability Company with an initial capital of One Million
Ordinary Share of One Naira each which has been fully paid for. The company is owned by three members of
the Edward-Pepple Family who are also the directors of the company. The owners and their shareholdings are
Mrs. Iwo Edward-Pepple (CEO - 40%), Mrs. HelenEbenezer Pepple (Director – 30%) and Miss Edwina Edward-
Pepple (Director – 30%).

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Chapter Five: Financial Analysis:

The financial analysis will capture the following information:

Revenue and Cost at proposed level of operation, Cost projection based on proposed production level, revenue
projection based on proposed production, Profit and loss accounts, cash flows balance sheet covering a five
year period from commencement. It will also include a repayment schedule and timeline for the loan sum.

The information provided is subject to the following assumptions; firstly, the company is operational six (6)
days a week and 4weeks a month, productions levels will be taken progressively at 5% increments for the five
year period.

Other Key Assumptions of relevance to this project is itemized in the table below.

Table 6: Key Assumptions

Assumptions Rate Actual value in first year

FINANCIAL ASSUMPTIONS

Project assumptions

Period of Equipment Delivery and 1 week (from date of

Installation (Months) payment)

Total area Covered 867.81 Sq. meters /

Operating Assumptions

No. of working days in a day 6 days (312 days /yr)

No. of working hours in a day 8 hours/day

Revenue Assumptions

Plant Capacity (Bottles/hr) 1000

Plant Capacity utilization 90%

New Plant Capacity (bottles/hr) 1000

Capacity at current Level 2.04million bottles

Production of 0.5Litre bottle 68%

Production of 0.75Litre bottle 12%

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Production of 5 gallon jar 10%

Sales Price of 0.5Litre X12 N380

Sales Price of 0.75Litre N470

Sales Price (Sachet water bag) N70

Sales Price (5 gallon Jar) 400

Production Capacity Utilization Growth 5%

rate

Production Cost Assumptions

0.5L x 12 (Cost /Carton) 149.52

0.75L x 12 (Cost /Carton) 185.61

5 gallon jar 152.84

EXPENSE ASSUMPTIONS

Cost of goods sold growth rate 5%

Operating cost growth Rate 5%

Management & Labour

Equipment Maintenance & repairs 5%

Advertisement / Business Promotion 2% of revenue

Expenses
Delivery / Transport 1,540,367

Communication Expenses (Telephone 0.5% of revenue 541,643

and Postage)
Printing & Stationery Base Year 2013 472,433

Office Furniture 20% 1,750,000.00

Land and Building 1% 63,000,000.00

The information contained on the rest of these financials are based on the forgoing assumptions as provided by
the promoter and relevant regulatory statutes.

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Relevant products include:

 Bottled water in 0.5L and 0.75L variants

These are produced in the following bulk units
 0.5L x 12 Packs
 0.75L x 12 Packs
 5 liter Dispenser Jar
 Sachet water in 0.5L sachets with 20 sachets per bag.

Required raw materials are as follows:

 PET Bottles / Preforms (18g, 22g and 36g)

 Caps
 Labels ( cost varies for various bottle sizes)
 Shrink wrapping nylon
 Sachet Nylon
 Packing Bags

Table 7: Revenue Forecast

Based on our projected production level and targeted pricing per product, the estimated revenue for the initial
5 year period is captured in the table below:

Year 1 Year 2 Year 3 Year 4 Year 5

164,068,000.00 172,271,400.00 189,498,540.00 217,923,321.00 261,507,985.20

5.1 CAPITAL & OPERATING COST COMPONENTS

5.2 Infrastructural Requirements

In this sub-section we shall consider complete infrastructural requirements of the proposed project
such as:

- Basic factory premises.

- Plant and machinery
- Furniture and fittings
- Motor vehicles.

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 Land and Building

Land N12,000,000
Factory Building Construction N7,000,000
Bore Hole N1,500,000.00
Total N20,500,000.00

Machines & Equipment (Existing) N29,000,000.00

Machines & Equipment (Proposed) N10,000,000.00
==========
N39,000,000.00
Vehicles for the Project Proposed)
10 Nos. Delivery vans @ N3,000 each N30,000,000.00
Insurance N1,500,000
==========
N31,500,000.00

Pre – Project Expenses

Business Plan N600,000.00
Legal Fees N200,000.00
Other Professional fees N400,000.00
Travel Expenses N200,000.00
==========
Total 1,400,000

5.3 Loan Utilization Breakdown

Table 8: Loan Utilization Breakdown
S/N Name and Description of Machine/Vehicles Quantity Unit Price (N) Total (N)
Required
1 Delivery Buses – Hyundai 10 3,000,000 30,000,000

2 Dispenser Bottles 5,000 750 3,865,000

3 Automatic 20ltr. Jar Washing, Filling & 1 2,750,000 2,750,000

Capping Machine

4 Bottle Blow Mould 75cl & 1.5cl 1 1,100,000 1,100,000

5 110 KVA FG Wilson Generator set 1 5,620,193.60 5,620,193.60

6 1month Working Capital 7,282,427 7,282,427

TOTAL 19,753,371 50,617,621

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5.4 Working Capital Requirement Breakdown

This is a permanent facility, which should be available to the business. Based on the estimated operating
expenses, the working capital requirement in the first year of expansion of its operation is estimated as follows:

Table 9: Monthly Raw materials requirement

Product Monthly Output Raw material cost Total Amount

5 gallon Jar 21,600 144.58 3,110,400

0.5 cl 8640 149.2 1,289,088

0.75 cl 5760 195.61 1,126,713

Sachet Water 9,600 31.28 300,288

Total 5,829,089

Table 10: Additional Working Capital requirements

Item Monthly Requirement

Salaries 910,000

Utility 313337.6

Secretarial 110,000

Logistics 120,000

Total 1,453,338

Grand Total (Working Capital Requirement (1 month): 7,282,427

5.5 OPERATING COST COMPONENT

Repairs & maintenance

The average annual budget for repairs and maintenance of existing equipment was fixed at about 5% of
equipment cost.

Year Year 1 Year 2 Year 3 Year 4 Year 5

Maintenance& 4,000,000. 4,800,000.0

4,200,000.00 4,400,000.00 4,600,000.00
Repairs(@5%) 00 0

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Utilities

Incorporating the annual increase of 5% will present the utilities schedule for a five year period as follows:

Year Year 1 Year 2 Year 3 Year 4 Year 5

3,133,376 3,290,045 3,454,547 3,627,274 3,808,638 3,999,070

Other cost components will be calculated an annual increment of 5% Communication Cost This is estimated as
follows:

Year Year 1 Year 2 Year 3 Year 4 Year 5

Telephone & 541,643 568,725 597,162 627,020 658,371

Postage(Naira)

Secretarial: The costs are estimated as follow:

Year Year 1 Year 2 Year 3 Year 4 Year 5

Printing & Stationary 472,433 496,055 520,858 546,901 574,266

(Naira)

Transport, Delivery and Travels

Year 1 2 3 4 5
Transport & Delivery
1,260,367 1,323,385 1,389,554 1,459,031 1,531,983
Total
1,260,367 1,323,385 1,389,554 1,459,031 1,531,983
General Overhead

The general overhead cost in the first year of operation is estimated as follows:

 Audit and Legal Fee N1,500,000

 Travel Expenses N 500,000
 Newspaper / Periodicals N240,000

N2,240,000

It is then assumed to increase by 5% annually

Salaries Schedule for Proposed Staff

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 ANNUAL
S/N DESIGNATION MONTHLY SALARY(N) SALARY(N)

1 CEO/MD 200,000.00 2,400,000.00

2 PRODUCTION MANAGER 80,000.00 960,000.00

3 ACCOUNTS MANAGER 80,000.00 960,000.00

4 PRODUCTION STAFF (12) 360,000.00 4,320,000.00

5 SALES PERSONNEL (2) 60,000.00 720,000.00

6 ADMIN (2) 50,000.00 600,000.00

7 SUPERVISORS (2) 80,000.00 960,000.00

  TOTAL 910,000.00 10,920,000.00

Salaries and Welfare Costs Schedule for Five Years

It is assumed annual increase of 5% on salaries and wages. On the basis of this assumption, the salaries and
wages schedule can be estimated as follows

Estimated Salary Cost

Year 1 Year 2 Year 3 Year 4 Year 5

13,012,000.00 13,662,600.00 15,028,860.00 17,283,189.00 20,739,826.80

5.7 Financing Plan

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The Project is expected to be financed with equity contribution of the promoters, term loan and overdraft.
Including existing infrastructure, the overall capital requirement for the project sums up to 100.9 million and
we recommend the financing structure to be as follows:

N’ million %

i. Equity Contribution - 50.9 50

ii. Term Loan - 50.00 50

Total Capital Requirement - 109.9 100.0

The equity contribution of N50.9million has be used to finance the following components:

 Factory Land/Building - N20,500,000

 Machinery/Equipment - N29,000,000

 Pre-project Expenses - N1.4 million

N50.9 million

The term loan of N50.00 million will be used to finance:

a. Machines/Equipment - N million

c. Motor Vehicles - N18 million

N 30.00 million

In view of the profitability of the project, we do not envisage any difficulties in securing necessary funding (term
loan), especially, from any of the development financing institutions, especially (Nigeria Bank of Industry).

5.8 LOAN REPAYMENT

It is projected that the term loan will have a maturity period of 5 years including a moratorium period of six
months. The overdraft will be repaid within a period of one year. Based on these assumptions and the
prevailing interest rates, the loan repayment schedule, together with the finance charges, are presented in the
table below:

Recalling Some the Key Assumptions

1. Bank of Industry (BOI) Lending Rate (all inclusive) 9%

2. BOI only provides credit for capital assets

3. Corporate Tax Rate 30 %

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 4. Promoter’s minimum required rate of return on equity 25%

5. Capacity Utilization in first year of expansion 90%

6. Production Capacity Utilization growth rate 5%

Other Operating Assumptions

7. No. of working days in a week 6

8. No. of working days in a month 24

9. No. of working days in a year 288

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5.9 SUMMARY OF FINANCIAL ANALYSIS

Projected Profit and Loss

The Projected Profit and Loss can be seen in the following table and charts.

Projected Profit and Loss

Year 1 2 3 4 5

Less

Less

Less

Chart: Projected Profit and Loss

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Projected Cash Flow

The following table and chart are the Projected Cash Flow figures for the period 2018-2022 for this project.

(N’000)
Year 1 Year 2 Year 3 Year 4 Year 5

37,138,452.33 76,231,426.45 120,305,726.88 172,729,156.59 237,984,733.60

Chart: Projected Cash Flow

Payback Period

The payback period indicates the time it would take for the project to repay itself. This is computed as follows:

Year Capital Cost Cash Flow Balance

(N’M) (N’M) (N’M)

1 101.6 37.13 64.47

2 64.47 76.23 -

The preceding analysis indicates that the overall capital outlay of the business can be recouped in two years.

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5.10 SENSITIVITY ANALYSIS
The sensitivity analysis is to test or measure the extent to which the evaluation results obtained are sensitive to
unforeseen changes, especially, in the assumptions underlying the appraisal results. Consequently, we have
sensitized the appraisal results to a 10% fall in revenue, a 15% rise in the operating costs, and a combined fall in
revenue/rise in costs. The effects are presented below.

a) 10% Fall in Revenue

An unforeseen 10% fall in the revenue of the project still posted a positive cash flow. The net cash flow
falls to N33.33 million in year 1 which is still very positive and remains positive for the following years.

b) 15% Rise in Costs

An unforeseen 15% rise in operating costs across board will reduce the net cash flow to N19.77 million,
which is still positive and more than large enough.

The above sensitivity analysis indicates that the appraisal results are very reliable and could withstand the test
of time. In other words, the sensitivity analysis has shown that unforeseen changes in revenue and cost are not
likely to negate the profitability of the project.

Chapter 6: Business Risk And Mitigating Factor

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Business Risks

The possible risk associated with projects of this nature can be outlined as follows:

I. Technical (Equipment, Technology failures)

II. Competition

Technical Failures (Low Risk)

The major technical risk is the ability to ensure optimal performance of equipment on a sustained basis as
required by the client. The low risk rating here results from quality of our equipment, and planned maintenance
culture. Consequently, selection of equipment is clearly of vital importance. Very detailed information has been
assembled and is still being assembled from manufacturers and the criteria being considered include useful life,
trouble free operation, ease of operation and maintenance ease.

Competition (High)

There are many local providers of this service and so strong local competition is to be expected within the short
term and even long term. Competition is mainly expected from larger firms with more equipment and can
afford to reduce their rates to gain competitive advantage. However we expect to counter this challenge
through use of the following strategies:

a. High quality Service

b. Comparative price advantages for long term projects

c. Continuous improvement in operational standards

6.1 Swot Analysis

Strengths:

 We have standard equipment and technology to ensure competitiveness in the industry

 We have a clear cut cost effective project implementation strategy

 We have creative and innovative ideas coupled with years of experience and adequate skill sets

Weaknesses:

 Limited access to adequate capital at single digit rates.

 We are deficient in controlling price fluctuations of raw materials

Opportunities:
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  Universal demand for our product

 The continued population increase will guarantee a market for the products

Threats:

 Competition is very high with many operators trying to harness the same market share.

Economic Analysis And Recommendation

The project has indicated positive economic contribution to the overall development of the national economy.
In terms of employment, about 20 additional persons will be gainfully engaged by the project. The employees
are expected to earn about N13 million in year 1, rising to N20.07 million in year 5. This will boost national
income and the multiplier effect on the economy is significant. In terms of tax revenue to the government, the
project promises to return a tax of about N9.4 million to government coffers in the first year of its operation. By
the 5th year, tax return will rise to over N18.6 million. This is, no doubt, a positive contribution to government
revenue and its impact on national development cannot be assumed away.

Conclusion/Recommendation
From the foregoing, therefore, there is no doubt that the project is commercially profitable and its execution
will be highly financially rewarding. We therefore strongly recommend that the project be implemented
without further delay. We envisage no obstacle in attracting necessary funding in view of its apparent
attractiveness.

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