BUSINESS PLAN

INVESTMENT OPPORTUNITY PROFILE FOR MINERAL WATER IN BANGLA DRINKS LTD.

February 28, 2012

SUBMITTED TO FAROQUE AHMED KHAN FCA CHARTERED ACCOUNTANT OCTOKHAN CHARTERED ACCOUNTANTS Dhaka, Bangladesh

BY Rashiduzzaman Khan Dipto ACA Trainee & Amzad Hossain Sumon ACA Trainee

Disclaimer All material included in this document is based on data/information gathered from various sources and certain assumption. Due care and diligence has been taken to compile this document. The document may contain human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or unintentional misrepresentation will be accepted. We reserve the right to make correction and changes wherever desired in this document or its subsequent versions.

PROJECT EXECUTIVE SUMMARY PROJECT BRIEF

This proposed project presents an investment opportunity for establishing a bottled water plant along with jar water plant for providing pure drinking water. The proposed product line will consist of bottles of 0.5 liters and jar of 18.90 liters. In the initial phase of the project only 0.5 liters and 18.9 liters jars will be introduced in the local market. After successful introduction of the new brand of bottled water the product line may be extended to 1 and 2 liters bottles. The market for mineral water has been showing a mushroom growth trend over the last few years. The countrys market is very small on a global scale and was estimated at 33 million liters a year by the end of 2008. The last three years have shown more growth and the market have been estimated to grow 70 million liters and the per capita consumption is 0.5 liter. The annual growth rate for bottled water is 40%. According to a study conducted in 2001, Bangladesh registered the highest growth of 140% in 2000 amongst the countries in Asia and Middle East region. The potential markets for bottled / mineral water consist of city dwellers, MNC employees, tourists, foreign tourists and foreigners working in Bangladesh, hotel industry, patients (bottle water is also used to avoid the possible consumption of contaminated water) and travelers. Moreover, the bottled / mineral water has been emerging as a daily preference of the elite class. The project can bottle 7,000 Gallons of water per day; the size of bottles will be 0.5 Lt and 18.9 Lt Jar to make the water convenient and attractive to end users. The sale at 100% capacity utilization is Tk 21,534,426. The project would be set up in Ashulia near Uttara (Dhaka) where all the required infrastructure and amenities are available. Sales Gross Profit Margin Payback period Net Profit Margin before tax Internal Rate of Return Tk 21,534,426 61% 9 Years 2% ___ %

Foreign collaboration sought

StudiesAvailable Date:

0 Joint Venture 0 Loan 0 Market access 0 Sub contracting 0 Buy back arrangement 0 Equipment purchase 0 Feasibility study 0 Other Specify ______________

0 0 0 0 0 0 0

Management expertise Technical expertise Marketing expertise Technology transfer Joint R&D Other :Project description

PROJECT RATIONALE:
Ashulia and its surrounding areas is a fertile land where ground water is hygienic and arsenic free which is purify able, there is ample opportunity to bottle this water locally and for export. As the awareness of water born diseases is increasing coupled with modern trends of living the market of bottled mineral water is growing faster than the supply. There is thus the opportunity for investment in this sector. The market for purified bottled / mineral water is a growing market. Usually the top target market for bottled mineral water follows the perception. The stronger the distribution the more successful will be the new brand. The local market is huge in Bangladesh but there is a lot of opportunity to export water. While exports are very lucrative there will be implementation of WTO, for open and competitive commodity pricing and tough market competition.

MARKET OPPORTUNITY
There are around 15 players in the bottled water sector and more than hundreds of jar water plant manufacturers but very few well branded companies is in the Jar Water Market. According to the industry sources, the number of bottlers scales up well above 30 during summer season due to increased demand for drinking water. Bangladeshs bottled water market comprises of two main segments i.e. retail market and bulk market. The retail market consists of 0.5 liter, 1.5 liter, 3.1 liter and 5.0 liter capacity PET bottles. The bulk market consists of home and office delivers in 5 gallon jars or 18.9 liters jars.

The process of purified bottled water manufacturing consist of collecting water from a suitable source, filtration, demineralization, blending with salts, aeration, testing for standards conformation, bottling and packaging. But today there are more than 15 brands of drinking water available in the market thus showing a substantial growth by the industry.

Mineral Water Consumption in Bangladesh

Year Quantity Value (0000 Tk)

1992-93 1993-94 1994-95 1995-96

694,249 814,338 1,660,951 2,328,460

3,188 5,384 10,741 12,856

BUSINESS PLAN
High quality goods to taste bottled water will be processed/produced for the end user. The plant will start its operation from 80 % capacity and finally reach 100 % capacity by the end of 5 years. There is also anticipated growth of 10 % in sale price of the product. As the expertise is developed the product can also be exported.

PRODUCT SALES
Plant Capacity liters per day Production per year (liters) Ratio of 18.9 liter Jar and 0.5 liter bottle Production of 0.5 liter bottle Sale price of 0.5 liter bottle (Tk) Capacity utilization in first yr Sales price growth rates Production capacity utilization growth rate Maximum Capacity utilization Sales 100% capacity 7000 Gallons 92,73,250 93:07 648000 bottles Tk 8 /= 80% 10% 10% 97% Tk 2,15,34,426 /=

RAW MATERIALS
There are many sources of ground water in Ashulia, the project shall be located at site where require water is available.

PRODUCTION PROCESS
The first step for setting up a water purification plant is the analysis of source of water. After the chemical analysis, the specifications of the purification plant are set. In the purification plant, source water is stored in the feed water tank, passes through the sand filter for preliminary water filtration. Water then passes through the dosing pump-I where chlorine is added to kill the germs in the water. After the chlorination, water passes through carbon filter. It helps in the maintenance of proper odor and taste of the water. It also removes chlorine from water. Water is then passes from dosing pump-II, where Sodium Meta Bisulphate is added. It helps in dechlorination of water.

Water is filtered next and passes through dosing pump-III, where anti scallant is added. It prevents scaling of membrane from calcium, magnesium and biological growth. Water then passes through reverse osmosis module. This stage of the process makes water clear from all the contaminations and minute particles. Water then passes through dosing pump-IV, where minerals are added for taste development. After this stage, water undergoes Ultra Violet treatment to avoid any contamination from bacteria and other micro organisms. Water then passes through automatic washing, filling and capping plant. Here water is filled into bottles. After filling bottles are taken into the warehouse or shipped to the retailers. The complete process flow diagram is as under.

DISTRIBUTION CHANNELS
Branding and marketing of bottled water is as essential as water for the survival of the human body. The traditional marketing tools include site advertisement, TV and print media advertising and brochures. This study allocates 04% of the revenue for advertising and promotional purposes. Apart from the traditional marketing tools, this study suggests to focus more on other marketing magnets that include interactive marketing, interactive marketing may include educating the general public

about the importance of water and its daily consumption requirements for human body through the participation in seminars and in general public gatherings (e.g. College and University gatherings). One of the marketing options is to sponsor public events like cricket matches or hospital campaigns, distributing free brochures about water and its daily consumption, water requirements in different age brackets. The interactive marketing may be designed through seminars and workshops about the daily human consumption requirements and diseases originating from the lack of pure water. Overall marketing strategy may change with the change of target market. A market research study is recommended to design the different dynamics of marketing before launching the new brand.

Marketing expense has been included in the total project cost and it has been estimated around Tk 4,80,000 annually. The entrepreneur may decide to increase or decrease the amount of marketing expense depending upon this choice of promotion activities and type of media used. Following table gives the breakup of the marketing expense.

TV Advertisement SITE Advertisement Newspapers Magazines Point of Sales Marketing

40% 10% 38% 4% 8%

Distribution is very important for the success of the new brand. The stronger the distribution the more successful will be the new brand. The distribution strategy should be designed after a careful study of the market for going for regional distribution or for nationwide distribution.

HUMAN RESOUCE REQUIRMENT

The following requirement of staff along with their levels and monthly salary is foreseen for this project. Designation Admin and Marketing Administration Manager Accountant Director Other Staff Marketing Area sales Manager Sales Supervisor Sales Rep. Driver Marketing Advertisement and 480,000 40,000 2 2 12 3 1 1 1 3 No. of Staff Annual 1,809,8 40 504, 000 108,0 00 96,0 00 120,0 00 180,0 00 1,305,8 40 192,0 00 144,0 00 717,8 40 252,0 00 Monthly 190, 820 42, 000 9,00 0 8,00 0 10,0 00 5,0 00 108, 820 8,00 0 6,0 00 4,9 85 7,0 00

Factory salaries (Lab assistant) Specialist Lab Manager Lab Assistant Direct wages Production Supervisor Washer Loader Plant helper Filler Others 1 9 9 6 7 5 1 1 2

591, 000 300,0 00 123,0 00 168,0 00 2,614,2 62 134,4 62 567,0 00 604,8 00 576,0 00 462,0 00 270,0 00 00 00 00 00 50 05 855 00 50 00 250

49, 25,0 10,2 7,0 217, 11,2 5,2 5,6 8,0 5,5 4,5

PROJECT FINANCIALS

OPERATIONAL DATA
The plant will be operated in the first year at 90% capacity and as the expertise develops the 100 % pant capacity will be attained by the end of fifth year.

FIXED COST
The fixed cost is expected to be Tk 2.78 Crore as described below. Land Building / Infrastructure Machinery & Equipment Vehicles Marketing Equipment Capping Machine Total Capital Costs 50,00,000 350,666 1,21,00,231 48,00,302 31,00,012 25,00,000

2,78,51,212

WORKING CAPITAL
The investment in the initial working capital is of Tk. 45, 36,194 /=

OVERHEAD COSTS
In the first year following overhead cost are estimated.

Rent of cover van Salary(Selling) Conveyance Vehicle maintenance Gas of vehicle Depreciation of marketing equip Traffic Entertain Stationary vehicle

Photocopy Cleaning of motor Inspection of office Tips Interest on loan Plastic bottles

179840 228984 0 286515 .2 723331 .2 118241 .6 and 550016 .4 89856 52416 127296 35642. 88 42820 513056 675248 0 972000

Financial Plan
The financial plan is to borrow Tk 3 Crore now as a long-term loan from a Bank, at an interest rate of 18% along with a capital of Tk 87 lac which is equal to the Net Worth to buy machineries and extend building which is suitable to our needs. We will repay

this loan within nine years from the cash flow of the business. We expect to have a cash flow from the very 1st month of the business operation. This investment will allow us to start our business which include producing: Jar water along with Mineral water which will give us a further edge over the local competition and enabling us to further expand into our target market, while increasing recognition of our name and services.

From the very start, management will start building the business and taking it to the highest level. There is a huge demand of drinking water in Bangladesh, and other than that the export opportunity is huge, so it is expected that the management will experience good time in the recent years. The management aim to be a leader in the mineral water market.

Important Assumptions
This business plan was developed for Bangla Drink Ltd. assuming the following:

Steady growth from good management, barring any unforeseen local or national disasters such as the economic slowdown seen by most of the country following the September 11th, 2001 tragedies. An adequate loan amount to allow for initial implementation of plans. Competition and buying patterns remain similar to those used for forecasting. Existing customer base maintained. Market research is on target and current (received from different state organizations). New customers will be gained through direct sales and advertising. Long-term interest rate will be no more than 18%. Income tax rate is 35%. Sales tax rate is 15%.

Projected Profit and Loss

Outlined below and in the following table and chart, are some of the intrinsic facets of the projected profit and loss for Bangla Drinks Ltd. Cost of sales reflects our cost to produce mineral water. Gross margin will be at an attractive position and will continue to be stable throughout the years forecasted. Payroll expenses currently include the salary and wages of the employees in the management, sales agents, operators and

labourers and also directors. Further details are available in our Personnel table (above). Advertising and marketing expenses (news ads, magazine ads, etc.) are projected to be stable. Depreciation forecasted includes building and machineries in the mill(details provided in appendix). Depreciation is based on reducing balancing method at 10%. Fuel costs are projected to be stable as the capacity of the mill is stable. But if the management again on the 2nd or 3rd year expand their capacity, then fuel along with all other costs will go up. Assuming that 100% of production will be sold immediately and capacity being stable all other expenses are kept stable, but with the sales percentage fluctuating and capacity increasing or utilization not being 100% of capacity, the scenario will differ. The scenario analysis is explained later on. (Where we have seen that the company makes good profit and balance sheet is healthy enough).

BANGLA DRINKS (PVT.) LTD.

INCOME STATEMENT FOR THE YEAR ENDED 31st DECEMBER 2012 Note Sales: Units(Jar) SPPB 179, 357 45 306, 643 27 648, 000 8 Amount 8,071,065 8,279,361 5,184,000 21,534,42 6 Cost of goods sold Gross Profit Less:Expensers Rent of cover van Salary(Selling) Marketing Exp (Adv) Conveyance Vehacle maintainance Gas of vehicle Depreciation of marketing equip Traffic Entertain Stationary vehicle 1 9 2 0 2 2 0 2 5 2 1 2 2 and 2 6 2 6 3 6 3 6 127,29 52,41 89,85 550,01 118,24 723,33 286,51 1,809,840 480,00 179,84 8,322,667 13,211,75

Pet bottle Total sales

Photocopy Cleaning of motor Inspection of office Tips Interest on loan Plastic bottles Total Expenses Net profit before tax

3 3 4 0 4 6 7 8 0

35,64 42,82 513,05 6,752,480 972,00 12,733,351 478,40 8 107,67 2 370,735.84

Tax Profit after tax

Projected Cash Flow

The cash flow projection for Bangla Drinks Ltd. shows that provisions for ongoing expenses are adequate to meet the needs of the company, as the business generates sufficient cash flow to support operations and future expansions. Cash flow projections are critical to our success. The annual cash flow figures are included here and in our Cash Flow table. Detailed monthly numbers are included in the Appendix

Cash Flow shows the purchase of long-term assets as follows:

PROJECTED CASH FLOW FOR THE YEAR ENDED ON 31 DEC 2012 Particulars A Cash flow from operating activities:

2012 Taka 478,

Net Income/(Loss) Depreciation Accounts Receiveable Accounts payable Total cash flow from operating activities

407.97 1,443, 563.57 1,921, 971.54

Cash flow from investing activities: Land Building Machinery New Machine (Pet Bottle) Marketing Equipment Vehicle -

Cash flow from financial activities: (1,469,8 Bank loan Directors Loan Total Cash flow from financial activities: Total cash flow for the year(A+B+C) Add:Opening cash and bank balance 01.01.2012 Closing cash balance on 31.12.2012 31.01) (1,469,8 31.01) 452, 140.53 on 194.80 4,988, 335.33 4,536,

PROJECTED CASH FLOW FOR INVESTMENT Particulars A Cash flow from operating activities: Net Income/(Loss) Depreciation

01/01/2012 Taka

(54,5 Accounts Receiveable Accounts payable 07.83) (126,4 71.76)

(180,9 Total cash flow from operating activities B Cash flow from investing activities: Land Building Machinery New Machine (Pet Bottle) Marketing Equipment Vehicle (8,766,7 14.00) (2,500,0 00.00) (1,514,0 00.00) (3,155,0 00.00) (15,935,7 14.00) C Cash flow from financial activities: 26,736,4 Bank loan Directors Loan Total Cash flow from financial activities: Total cash flow for the year(A+B+C) Add:Opening cash and bank balance 01.01.2012 Closing cash balance on 31.12.2012 57.41 (6,083,5 69.02) 20,652,8 88.39 4,536,1 94.80 on 4,536,1 94.80 79.59)

Projected Balance Sheet

The Balance Sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the Appendix. The balance sheet for Bangla Drinks Ltd is quite solid. We do not project any trouble meeting our debt obligations.

Our management is strong enough and more than capable of keeping the business on track for total repayment of any obligations (loans). Our major capital asset (the property and affixed buildings and other mill equipments) is valued at about Tk 27,851,212.72. Our current assets include Raw Material which is to be purchased at the beginning of business amounting to Tk 40,000 along with a provision of spending Tk 1.5 lac per month for Electricity consumption. We will have a solid starting balance in the company account. This will allow us to start the business with a security nest and will allow us to grow our cash balance at a steadier pace. Our projected balance sheet is presented in the table below.

PROFORMA SHEET
Particulars

BALANCE
On 01/01/2012 11,915,498 .72 5,000,000. 00 350,666. 38 3,333,517. 32 40 63 1,586,012. 1,645,302. 120,00 (Budgeted after acquiring) on 01/01/2012 27,851,2 12.72 5,000,00 0.00 6.38 350,66 0.00 3.06 49.15 5,000,00 333,13 On 31/12/2012 26,407,6

Non current Assets Land Building Machinery New Machine (Pet Bottle) Marketing Equipment Vehicle Current Assets Cash in hand Accounts Receivable Total Assets Capital Authorized Share Capital Paid up capital(10000 Shares @100) Profit and loss and appro. Acc. Directors Loan Total Capital and Reserve Non Current Liabilities

0.00 00

120,000.

12,035,498 .72 30,000,000. 00 1,000,000. 00 35 02 8,645,484 .37 .59 3,263,542 1,561,915. 6,083,569.

12,100,23 1.32 2500000.00 3,100,01 2.40 4,800,30 2.63 4,710,7 02.63 4,536,19 4.80 174,50 7.83 32,561,9 15.35 30,000,00 0.00 1,000,00 0.00 5.35 2,561,9 15.35 00.00 30,000,0 1,561,91

11,374,217 .44 2350000.00 2,790,01 1.16 4,560,28 7.49 5,162,8 43.16 4,988,33 5.33 174,50 7.83 31,570,4 92.31 30,000,000 .00 1,000,00 0.00 3.33 3,040,3 23.33 68.99 28,530,1 2,040,32

3,263,542. Bank Loan nbl 126,47 Current Liabilities Accounts Payable Total Liabilities Total Capital and Liabilities Net Worth 1.76 126,471. 76 3,390,014 .35 12,035,498 .72 8,645,484 .38 00.00 15.35 15.35 30,000,0 32,561,9 2,561,9 68.99 92.31 23.32 28,530,1 31,570,4 3,040,3 59 30,000,00 0.00 .99 28,530,168

Business Ratios
Bangla Drinks Ltd. projected business ratios are provided in the table below.

APPENDIX