Академический Документы
Профессиональный Документы
Культура Документы
-TERM PAPER-
2009
Hand-in date:
11.12.2009
Campus:
BI Oslo
Exam code and name:
11.12.2009
CONTENTS
CONTENTS
EXECUTIVE SUMMARY________________________________________ iii
FACTORS ___ 1
1.1.2.
1.1.3.
1.1.4.
1.1.5.
1.2.2.
1.2.3.
1.2.4.
1.2.5.
1.3. COMPETITION___________________________________________6
1.3.1.
1.3.2.
1.3.3.
3.
11.12.2009
5. ACTION PLAN______________________________________________ 15
List of Figures
Fig i: Incremental Earnings Forecast for first 5 years of operation __________ vi
Fig 1.1: Sales of over-the-counter herbal medicines in Europe (in USD) _____ 4
Fig. 1.2: World Leading Importers of essential oils in 2008 _______________ 5
Fig. 1.3: Trade Data (Value in USD millions) on essential oils, France_______ 5
Fig. 1.4: Trade Data (Value in USD thousand) on essential oils, Norway _____ 5
Fig 3.1: Operation sequence ________________________________________ 10
Fig 3.2: Production Growth Projection for first 5 years ___________________ 12
Fig 7.1: Projected after-tax earning for 5 years __________________________ 17
List of Tables
Table 3.1: Chamomile oil production estimate for 1st year of operations ____ 11
Page ii
11.12.2009
Table 3.2: Spikenard oil production estimate for 1st year of operations ______ 12
Table 6.1: Funding requirements for year 2 to 5 ________________________ 16
Table 7.1: Projected Initial Five Years Income Statement _________________ 17
Table 7.2: Projected Initial Five Years Balance Sheet ____________________ 18
Table 7.3: Projected Initial Five Year Cash Flow Statement _______________19
Table 7.4: Different Ratios for the project _____________________________ 20
REFERENCES
APPENDICES
Appendix 1: Production Calculations ___________________________________22
Page iii
11.12.2009
EXECUTIVE SUMMARY
OBJECTIVES / DESCRIPTION OF THE PROJECT
NATURE OF OPERATIONS
The company will be registered in Dec 2011 as a private limited company with
four shareholders. The company will be established with the objective to produce
and supply high quality essential oils to the worlds reputed markets and focus on
aromatherapy as its niche market. It will be ISO 9001:2008 certified and USDA
organic certified. It will collaborate with the Community Forest Users Groups
(CFUGs) of Nepal and promote farming of essential oil yielding plants in the
community forests. The plants will be processed at the processing facility of
Parbat Redolence Limited and the farmers will be paid a fair price depending on
the oil yield of their produce. It will share a portion of its profits with the CFUGs
for carrying out social development programs beneficial to the community.
MARKET ANALYSIS
The value of world import of essential oils in 2008 stood at around USD 29
billion, an increment of 13.45% from 2007 and 30.28% from 2006. The world
leading importing country was the USA followed by France, UK and Germany.
Parbat Redolence will therefore focus on these markets as they are mature markets
with quality consciousness and growing demands. Parbat Redolence will also
focus on Norway as it is a growing market with about 35% increment in values of
Page iv
11.12.2009
import in 2008 from that in 2006. Its clients will be existing importers and
aromatherapy practitioners with focus on building good networks with the
practitioners to exploit the market further.
Parbat Redolence will also appoint two advisors, Mr. Guru Baral, chairperson,
Madan Bhandari Memorial Academy who will assist with manpower
development with focused training development, and Mr. Kamal Belbase with
over 20 years experience in essential oils will assist with cultivation and
processing.
FINANCIAL SYNOPSIS
FINANCIAL REQUIRMENT
Parbat Redolence Limited will require an initial investment of USD 1.1 million in
its first year of operations, of which about USD 422,000 will be capital
expenditure and USD 739,000 will be working capital requirement. 40% of the
initial investment will be raised through equity investment by the directors and the
remaining 60% will be through bank finance via soft loan.
Page v
11.12.2009
2,000,000
1,500,000
1,000,000
500,000
0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
PRODUCT CYCLE:
Total Cycle
: 150 days
In-Stock: 15 days
Parbat Redolence will however divert a small portion of its production to the
market in India to maintain contact with the Indian market which, although not as
profitable as the targeted markets, is a huge and stable market.
Page vi
11.12.2009
1. BUSINESS OVERVIEW
LEGAL NAME:
BUSINESS ADDRESS:
MECHINAGAR MUNICIPALITY
JHAPA DISTRICT
NEPAL
TEL:
+977-23-XXXXXX
FAX:
+977-23-XXXXXX
E-MAIL:
office@parbatredolence.com
Parbat Redolence Limited will be an ISO 9001:2008 certified and USDA organic
certified company.
1.1.1. MAJOR
DEMOGRAPHIC,
ECONOMIC,
SOCIAL
AND
CULTURAL FACTORS
Parbat Redolence Limiteds products fit well into overall current social and
economic trends. The targeted market is growing rapidly with increasing
concentration on quality of products. Parbat Redolence will be able to provide
high quality essential oils because of its strict adherence to international standards
(ISO 9001:2008, USDA organic) and at a good price because of its low cost of
production. It will be fairly easy to acquire the organic certification as the herbs
will be cultivated on the community forests land which has never been cultivated
before.
It will start with two community forests in Taplejung with combined holding of
227.7 acres of land and two Forest User Groups in Jhapa with a combined land
holding of 666.11 acres. The reason for choosing Taplejung is that Spikenard
grows in the wild here which reduces the risk of environment and soil
Page 1
11.12.2009
Parbat Redolence will collaborate with the Community Forest Users Groups
(CFUGs) of Nepal and promote farming of essential oil yielding plants in the
community forests. The plants will be processed at the processing facility of
Parbat Redolence Limited and the farmers will be paid a fair price depending on
the oil yield of their produce. This will improve the living standards of the
community. Parbat Redolence will also share a portion of its profits with the
CFUGs for carrying out social development programs beneficial to the
community.
Using the community forests land for herbs cultivation ensures low cost to the
farmers (community) and hence low product cost for Parbat Redolence Limited.
The cultivation will cover only 40% (maximum) of the community forest area and
thus will play a positive role in its conservation (financial incentive for the
community to protect the forest and clearing unfavorable vegetation growth).
1.1.2.
The processing unit will be procured from an internationally reputed ISO certified
manufacturer in India. The lab equipments will be procured from a world
renowned Australian company. The packaging containers will be procured from
an ISO certified company in India.
Page 2
11.12.2009
Impoters from the targeted markets will initially distribute the products. Within
two years, Parbat Redolences international office, in coordination with aroma
therapy practitioners and the importers will be the main distributors.
Parbat Redolences initial clients base will be dominated by existing importers
and distributors in the target market. Within two years, the clients base will
include at least an equal percentage of aroma therapy practitioners and home
users.
1.1.3.
Essential oils use is not a modern phenomena but it has gained much impetus
now. They are being extensively used as flavoring agents, fragrance in the modern
industries, constituent of herbal medicines, and in aroma therapy. However, the
sector is very much fragmented with many small producers and very little sharing
of trade data.
1.1.4.
The essential oils market is a rapidly growing market with increasing world trade.
Some countries are now using aromatherapy as a complimentary therapy to the
modern medicine. So, the demand for high quality essential oils is on the rise
worldwide.
1.1.5.
GOVERNMENT REGULATIONS
Page 3
11.12.2009
11.12.2009
2002
150
2003
100
2004
50
2005
2006
Fig. 1.3: Trade Data (Value in USD millions) on essential oils, France
2000
2002
1500
2003
1000
2004
500
2005
0
Export (USD, Thou.)
2006
Fig. 1.4: Trade Data (Value in USD thousand) on essential oils, Norway
Page 5
11.12.2009
Its clients will be existing importers and aromatherapy practitioners with focus on
building good networks with the practitioners to exploit the market further.
excellent service
strategic location
Parbat Redolence will establish and maintain contact with the Indian market by
exporting a small portion of its production to India. This will provide an
alternative and secure market for Parbat Redolences product. Although not as
profitable as the targeted markets, India is a huge and stable market.
1.3. COMPETITION
1.3.1. COMPETITORS AND TYPE OF COMPETITION
Parbat Redolence will face competition from the small scale producers in Nepal
and the established producers from Europe and USA.
The small scale producers will have pricing advantage over Parbat Redolence, and
the European and American companies will enjoy better market experience.
Page 6
11.12.2009
community. This might provide them a slight price advantage. Trade is dominated
by export to the Indian market. However, lack of proper testing and high quality
processing equipments has cast doub over the quality of their products.
The companies in Europe and the USA have higher production costs but good
quality adherence. Other low cost producers face the issue of lower grade of
products.
Page 7
2.
2.1.
11.12.2009
2.2.
SUPPLIERS
High quality two layered alumunium containers will be imported from an ISO
certified producer in India.
member
of
www.alibaba.com,
paid
member
of
Page 8
11.12.2009
Page 9
3.
11.12.2009
OPERATING PLAN
Page 10
11.12.2009
Tree plantation in adjoining area and forest conservation will be on priority list of
Parbat Redolences corporate social responsibility (CSR) program.
3.8. PRODUCTION
Cultivation of the essential oil yielding plants will take place in only 30% of the
total area of the selected community forests.
Total Area, Hectares
Cultivated Area, Hectares
Estimated
cultivation/Hectare, KG
Total estimated cultivation
Oil Extraction
1st season
666
266
800
213,155
532.89
1,600
426,310
1,065.78 @ 0.25%
Table 3.1: Chamomile oil production estimate for 1st year of operations
Page 11
Annual
227.70
68.31
800.00
54,648.00
1,092.96
11.12.2009
@30%
@2%
Table 3.2: Spikenard oil production estimate for 1st year of operations
Yr 2
Yr 3
Yr 4
Yr 5
Page 12
11.12.2009
11.12.2009
(2)
keeping, support
qualified manager
Accountant
Book-keeping
Technical knowledge,
(2)
3
Office Assistant
Experience, reliability
Asministration, support
Consultant,
Technical knowledge,
Farming (1)
support to farmers
experience, reliability
Consultant,
Technical knowledge,
Testing (1)
lab tesing.
experience, reliability
Supervisor
Operations supervision
Technical knowledge,
(2)
4
(2)
7
Operators
reliability
Processing units operation Technical knowledge,
(6)
reliability
Helpers (42)
Operation assistance
Reliability
Drivers (4)
Transportation
Reliability
management
Technical knowledge,
experience, reliability
ADDITIONAL INFORMATION
More operators and helpers will be recruited as production capacity increases.
Page 14
11.12.2009
5. ACTION PLAN
ACTION
BY WHEN
September 2011
September 2011
October 2011
November 2011
January 2012
organic certification.
6
Start export
March 2012
May 2012
Seeds and saplings of the plants will be handed over to the CFUG member who
will then distribute it among the farmers within October. Plantation should be
started within Novemer. In the mean time, necessary actions will be taken to
obtain ISO certification and USDA organic certification.
Oils thus produced will then be exported to the target markets of the USA, UK,
France, Gemany and Norway from May, 2011.
Page 15
11.12.2009
Required funds will be raised through equity and bank loan, of which 40% will be
equity and the remaining 60% bank loan. Parbat Redolence Limited will try to
secure soft loans from banks as per the legislation of the government of Nepal.
Page 16
11.12.2009
7. FINANCIAL DATA
7.1. IMPORTANT ASSUMPTIONS
Bank Interest rate (soft loan) : 12.5%;
Selling Price:
Chamomile essential oil: USD 500 / KG (USD 700 / KG from the 4th year)
Spikenard essential oil: USD 500 / KG (USD 700 / KG from the 4th year)
Depreciation: 20% straight line
Corporate Tax: 20%
(Department of Inland Revenue, Government of Nepal, www.ird.gov.np)
Parbat Redolence Limited will incur a loss of around USD 1.3 millions in the first
year of operations. However, it will be profitable from the second year onwards
with after tax earnings of around USD 497,000.
The NPV of the project from the forecast for first five years of operation is
calculated to be around USD 4.3 millions.
1,000,000
-1,000,000
Yr. 1
Yr. 2
Yr. 3
Yr. 4
Yr. 5
Year 1
Year 2
Year 3
Year 4
Year 5
6,328,179 8,327,682
Cost of Sales
452,348 925,726
1,641,821
2,443,457 3,440,440
Contribution
3,884,722 4,887,241
42%
45%
Page 17
50%
39%
41%
11.12.2009
705,849 596,497
969,616
1,009,616 1,455,878
75,205 107,077
165,667
196,359
257,538
Capital Expenditures
422,179 159,359
292,949
153,462
305,897
155,692 257,369
401,690
531,301
725,711
52,772 72,692
109,311
128,494
166,731
Operating Profit
-78,829 532,921
671,963
2,875,107 3,431,364
PBIT
-78,829 532,921
671,963
2,875,107 3,431,364
52,772 34,423
53,854
63,446
-131,601 498,498
618,109
2,811,661 3,348,800
Expenses
Depreciation
Cost of Capital
Financing Costs
PBT
-158
Taxation
Earnings after Tax
1,066
-131,444 497,432
1,236
616,872
5,623
82,564
6,698
2,806,038 3,342,102
Assets
Y/E 1
Y/E 2
Y/E 3
Y/E 4
Y/E 5
Fixed Assets
346,974
399,256
526,538
483,641
532,000
Assets Purchased
422,179
159,359
292,949
153,462
305,897
Depreciation
Current Assets:
75,205
182,282
347,949
544,308
801,846
Stock
18,848
38,572
68,409
101,811
143,352
365,111
1,407,600
1,581,936
4,597,878
8,099,326
730,933
Equity & Liabilities
1,845,429
2,176,883
5,183,330
8,774,678
452,894
1,069,766
3,875,804
7,217,906
Debtors
Cash
Share Capital
Retained Profit
Total Equity
Non-Current
Liabilites:
Loans
78,816
78,816
464,441
917,335
1,069,766
3,875,804
7,217,906
696,662
696,662
696,662
696,662
696,662
Page 18
11.12.2009
Current
Liabilities:
Creditors
113,087
231,431
410,455
610,864
860,110
730,933
1,845,429
2,176,883
5,183,330
8,774,678
Year 1
Year 2
Year 3
Year 4
Year 5
Operating Profit
-78,829
532,921
671,963
2,875,107
3,431,364
Depreciation
Cash Flow from
Trading
Changes in W.C.
Balances
75,205
107,077
165,667
196,359
257,538
-3,624
639,998
837,629
3,071,466
3,688,902
94,239
98,620
149,186
167,008
207,705
Stock
-18,848
-19,724
-29,837
-33,402
-41,541
113,087
118,345
179,024
200,409
249,246
90,615
738,618
986,816
3,238,473
3,896,607
-422,179
-159,359
-292,949
-153,462
-305,897
-422,179
-159,359
-292,949
-153,462
-305,897
643,890
430,018
-518,296
-63,446
-82,564
464,441
-464,441
696,662
-52,772
-34,423
-53,854
-63,446
-82,564
158
-1,066
-1,236
-5,623
-6,698
312,483
1,008,212
174,335
3,015,943
3,501,448
Nil
312,483
1,320,695
1,495,030
4,510,973
312,483
1,320,695
1,495,030
4,510,973
8,012,421
Debtors
Creditors
Cash Flow from
Operations
Investing
Activity
Purchase of
Fixed Assets
Financing
Activities
New Share
Issues
Debt Taken
On (Repaid)
Finance
Costs
Taxation
Cash Flow for
the Period
Opening Cash
Position
Closing Cash
Position
Page 19
11.12.2009
Year 1
Year
2
Year
3
Year
4
Year
5
Return on Equity
Percentage
166.8%
54.2%
57.7%
72.4%
46.3%
Return on Assets
Percentage
-10.8%
28.9%
30.9%
55.5%
39.1%
Gross Profit %
Percentage
58.1%
55.0%
50.0%
61.4%
58.7%
Operating Profit %
Earnings after Tax
%
Percentage
-7.3%
25.9%
20.5%
45.4%
41.2%
Percentage
-12.2%
24.2%
18.8%
44.3%
40.1%
3.1
5.1
6.2
13.1
15.7
1.5
1.1
1.5
1.2
0.9
Performance Ratios
Profitability Ratios
Asset Efficiency
Ratios
Fixed Asset
Turnover Rate
Total Asset
Turnover Rate
Turnover/
time cover
Turnover/
time cover
Stock Days
Avg Days
15.0
15.0
15.0
15.0
15.0
Creditor Days
Avg Days
90.0
90.0
90.0
90.0
90.0
-883.9%
75.9%
65.1%
18.0%
9.7%
-0.7
0.1
0.1
0.0
0.0
3.4
6.2
4.0
7.7
9.6
0.2
0.2
0.2
0.2
0.2
Captial Structure
Ratios
Debt % of Equity
Interest Cover
Percentage
Turnover/
time cover
Liquidity Ratios
Current Ratio
Acid Test
Turnover/
time cover
Turnover/
time cover
Page 20
11.12.2009
References:
Book references
Philip A. Wickham, Strategic Entrepreneurship(Harlow: Pearson Education
Limited, 2006)
Ben-Erik van Wyk, Food Plants of the World: An Illustrtaed Guide (Portland, Or.:
Timber press, 2005)
Website
List of Community Forests in Nepal, Federation of Community Forestry Users,
Nepal, www.fecofun.org
Page 21
11.12.2009
Yr. 1
1,332
Yr.2
2,522
Yr. 3
4,675
Yr. 4
6,638
Yr. 5
8,301
533
1,009
1,870
2,655
3,321
1,600
1,600
1,600
1,600
1,600
426,310
1,066
807,130
2,018
1,495,974
3,740
2,124,013
5,310
2,656,410
6,641
Yr. 3
Yr. 4
228
Yr.2
436
68
Yr. 1
589
777
Yr. 5
1,095
131
177
233
328
800
800
800
800
800
54,648
1,093
104,623
2,092
141,343
2,827
186,511
3,730
262,783
5,256
Page 22
@30% of
total area
@0.25%
@30% of
total area
@2%
FUG_NAME
Bahu Ban
Talpani
Hanse-dumse
Namuna
Juke Khadi
Shanti
Haluwagadh
Hachumasa
Jamun Bari
Prajapati
Area
Hectares
308.87
357.24
498.28
96.75
729.60
346.72
250.11
731.20
401.25
430.62
4,150.64
DISTRICT
NAME
Jhapa
Jhapa
Jhapa
Jhapa
Jhapa
Jhapa
Jhapa
Jhapa
Jhapa
Jhapa
Page 23
Region
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
11.12.2009
11.12.2009
2. Spikenard cultivation
SN
1
2
3
4
5
6
7
8
9
10
11
Area
Hectares
88.20
139.50
FUG_NAME
Gyasipemba Bhedichauk
Batasedamli Bhita
Aiekha Lambayak Phungphunge
Manabhara
Shibu
Mechi Community
Banpale
Isera
Phurumba Kha?
Mayampatal
Pokhari Sypatri
72.11
29.12
107.00
153.00
31.55
3.90
102.75
50.00
317.80
1,094.93
Page 24
District
Taplejung
Taplejung
Region
Eastern
Eastern
Taplejung
Taplejung
Taplejung
Taplejung
Taplejung
Taplejung
Taplejung
Taplejung
Taplejung
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Eastern
Page 25
11.12.2009
11.12.2009
4.19%
4.95%
252
UK
17
50
Value of essential
oils and perfume
materials imported
into Norway in
NOK, 2007
Increase in
Imports of
essential oils and
perfume materials
into Norway (in
terms of NOK
millions)
Decrease in
Exports of
essential oils and
perfume materials
from Norway (in
terms of NOK
millions)
Number of centres
offering Aroma
therapy treatment
in Norway
No. of institutions
offering
Aromatherapy
courses in Norway
No. of institutions
accredited by
AAPA offering
Aromatherapy
courses in UK
No. of institutions
accredited by IPF
offering
Aromatherapy
courses in UK
Statistic Norway
www.ssb.no
Statistic Norway
www.ssb.no
Statistic Norway
www.ssb.no
Norge Online
www.nol.no
ALTERNATIVopplysnin
gen
www.alternativ.
no
www.norskpranainstitutt.no
www.aapa.org.u
k
International Federation
of Professional Aroma
therapists (IFPA)
www.ifparoma.o
rg
Page 26
122
48
Nepal
0% duty on
imports of
equipments
required for
processing
essential
oils. 0%
duty on
export of
essential
oils
Registered
practitioners in
UK at
Aromatherapy and
Allied
Practitioners'
Association
(AAPA)
Certified members
of the
Aromtherapy
Trade Council of
UK
No. of companies
waiting for
certification from
the Aromtherapy
Trade Council of
UK
www.aapa.org.u
k
Aromatherapy Trade
Council
www.a-tc.org.uk
Aromatherapy Trade
Council
www.a-tc.org.uk
No Duty levied on
raw materials and
auxiliaries
imported by
industries in
EPZ./SEZ.
Industries
exporting more
than 40 percent of
the production to
be granted similar
facilities as given
to industries in
EPZ.
Federation of Nepalese
Chambers of Commerce
and Industry
www.fncci.org
Central Bureau of
Statistics, National
Planning Commission of
Nepal
www.cbs.gov.np
Central Bureau of
Statistics, National
www.cbs.gov.np
Area (Sq.
Km)
Area (Ha.)
11.12.2009
1,606
160,600
Page 27
Planning Commission of
Nepal
Area (Sq.
Km)
Area (Ha.)
3,646
160,600
Page 28
11.12.2009