Business plan for “Nelli Sense”

8/19/2010
Prepared by “Defenders”

Facilitator: -Mrs. Surangi

Faculty of Commerce and Management

Department of Commerce and Financial Management
University of Kelaniya
 Contents

Title Page Number

1. Executive summary. 1
2. Business Concept (Indian Hills(Private) Limited) 3
3. About our company 5
3.1. Indian Hills private Limited 5
3.2. Lanka Milk Foods (CWE) PLC 6
3.2.1. Product categories of Lanka Milk Foods (CWE) PLC 6
3.2.2. Significant achievements of Lanka Milk Foods (CWE) PLC 7
3.2.3. Financial Highlights of Lanka Milk Foods (CWE) PLC 7
4. Business and Industry Profile. 8
4.1. Stage of growth 8
4.2. Critical Success Factors for the projected product. (Nelli Sense) 9
5. Business Strategy 10
5.1. Desired image and position in the market. 10
5.2. SWOT analysis 11
5.3. Competitive strategy of Nelli Sense. 12
6. About “Nelli Sense” 13
6.1. Production Process 14
7. Marketing Strategy 15
7.1. Market segmentation of “Nelli Sense” 15
7.2. Pricing Methods 17
7.3. Promotion Methods 17
7.4. Distribution methods. 17
8. Location and layout 18
8.1. Demographic analysis of the location vs. target market. 18
8.2. Allocation of production facilities. 18
8.3. Labor Meads and supply 19
9. Competitor Analysis. 20
10. Description of the management team. 21
11. Plan of operation. 22
11.1. Form of ownership. 22
11.2. Company Structure 22
11.3. Decision making authority. 23
11.4. Compensation and benefit packages 24
12. Financial Forecast 25
12.1. Income statement 25
12.2. Loan amortization scheme. 25
12.3. Expected growths 26
12.4. Balance Sheet 27
12.5. Expected growth 28
12.6. Cash Flow statement 29
12.7. Analysis of the Net Present Value 30
13. Loan investment proposal. 31
13.1. Amount requested 31
13.2. Purpose of loan 31
13.3. Repayment 31
13.4. Highlights 31
14. Appendixes 33
 1. Executive Summary.

In present positioning each company’s value proposition is crucial. To accomplish the desired
outcome in a proper manner each company should be able to develop their corporate strategy
in line with other functional areas of the organization.

As we an emerging company (Indian Hills Limited) we decided to form a joint venture with
Lanka Milk Foods CWE (PLC) as a successful strategy for our survival. The term joint venture
refers to a limited company owned principally by two or more corporate shareholders. This
process involves work with a local partner and sharing in the costs/ profits of an operation.

Within the 5 year period we hope to be as joint ventured, soon after we established in the
market we hope to run our own. We believe to achieve following gains within the period.

• Lanka Milk Foods consists with advanced product technology, knowledge, and other
pertaining resources which can be gained by us within the period.
• Shared costs / risks of developments.

As a conceptual framework Indian Hills implemented following model.

Corporative Strategy

Conflict Resolution Strategy

Strategic Competiveness
Dynamic
Strategic Coalignment Learning JV Performance
Capability

Channel Network
Integration
Commitment

The Product

In this modern world, the demand for natural products has increased significantly compared to
last few decades since there are lesser products in the market which are manufactured based
on natural raw materials. Specially, when it comes to soft drinks and energetic drinks, the
general public has the conception that almost all of them are artificial. Recent market surveys
conducted by researchers show that 90% of the public bear the opinion that the soft &
energetic drinks in the market are artificial other than few which they exclude from that
category.
The product that we are launching to Sri Lankan market in the near future is manufactured
based on 100% natural ingredients by Indian Hills Limited. Further we present it to Sri Lankans
to an affordable price of Rs. 25 which is very much lower than the existing products of same
type.

The ingredients, the container, the colour everything in our product are based on the
customers’ requirements. We carried out poster campaigns at the initial stage of our promotion
period and subsequently we shifted to paper advertising and TV advertising to familiarize the
product to Sri Lankans. We had a good respond from our customers to our Advertising
campaigns as well as pre advertising promotions.

Financial Highlights

Financial data (forecasted) pertaining to Indian Hills can be graphically illustrated as follows.

600,000

500,000

400,000

300,000 Turnover
Gross profit
200,000

100,000

-
year 1 year 2 year 3 year 4 year 5
 2. Business Concept. (Indian Hills Limited)

Our Vision.

Our Mission.

“We committed to providing superior value and services to our customers and sustained
profitability to our shareholders by investing in our people and products. We lead through
innovation and outstanding product safety, efficiency and performance”

Product Uniqueness.

One of the most important requirements of a product is that it must fulfill a need or
want.

a. One of the most important requirements of our product is that fulfills our
consumers’ needs or wants. [Environmental healthy product, 100% natural, The company
produce the product while covering Green Marketing :-( being good to environment while
satisfying customers)

• Factors to emphasize Green Marketing concept.

o Our customers are demanding.

o Government environmental legislations of Sri Lanka.
o To increase satisfaction of our employees.
o Our company’s own existence.
o For increase corporate image, regards to the company.

b. Sufficient profit margin is another crucial attribute that our product has.

c. Increase the perceived value of your product

• What customers think our product should cost, or more specifically, what value
they think it has to them and what they would be willing to pay for it.
d. Improving perceived value

Here are the eight ways to improve the perceived value of our product.

1. Emphasize quality

2. Display success stories

3. Tell of our top quality customer service

4. Stress convenience

5. Improve the design of our product's packaging and labeling

6. Distinguish our product from competitor's product and tell why our is best

7. Develop our unique selling proposition.

 3. About our company

3.1 Indian Hills (private) limited

Indian Hills (Private) Limited is a company led by private shareholders. It was founded by
Deshamanya Dr. Nipuna Subasinghe in 1998. Initially it was started as a sole proprietorship
under his name in 1993 as a small business of producing mineral drink namely “Pavithra”. In the
latter part of 1994, he started manufacturing 100% natural drink free from artificial ingredients
under the name of “Necta” using a small manufacturing plant. This drink was made using ripen
mangos which were sooner popularized in the society, specially among children.

In 1996, “Necta” was the island’s number one natural drink which was manufactured and sold
throughout the country. Again in 1997, he introduced “Essence”, a carbonated energetic drink
which was popularized among youth and sportsmen.

Since the product range and the transaction volume gradually increased, he converted his
business to a private limited company on 24 March 1998 under the name Indian Hills (Private)
Limited.

Currently, Indian Hills is an emerging company in manufacturing natural cosmetics, beverages,

energetic food and consumables and some of its core products are Indiana, Beauti, Cocala,
Riders. There are around 200 employees working in the company at its manufacturing plant
situated in Kaduwela. Initially, the company’s target was to cater the consumers in the districts
of Colombo and Gampaha and later it started distributing its products to Kandy and Galle
districs as well.

The company was awarded with the President award for the Emerging business for the year in
2007.

Presently, the company is running with a stated capital of Rs 150 million and a competent
management team comprised of industry experts.

The company’s current working capital management indicates that it will succeed in its future
years.
As mentioned above the strategic alliance would be exists as a Joint Venture. Data followings
illustrate facts pertaining to the main company, Lanka Milk Foods (CWE) PLC

3.2 Lanka Milk Foods (CWE) PLC

Lanka Milk Foods (CWE) PLC is a Sri Lanka-based company. The Company, through its
subsidiaries, is engaged in importing, packaging, manufacturing, marketing and distributing of
dairy and beverage products. The Company also distributes Happy Cow Cheese, Casilan and
Farley's. The Company’s brands include Lakspray, Ambewela, Daily, Lakspray Trim, My Juicee
and Dairy Farm.

3.2.1 Product categories of Lanka Milk Foods (CWE) PLC

Lanka Milk Foods produces excellent quality milk powder, meeting not only local but also
foreign requirements. With hygiene standards matching the best in Denmark, Australia and
New Zealand it boasts one of the finest milk powder packaging operations in Asia. Lakspray,
Dano and Daily Milk are now household names in Sri Lanka due to their commitment to quality,
service and excellent management.

Lakspray
Lakspray, local brand of milk powder, is a household name in Sri Lanka and
presently retains the highest market share. With an efficient and extensive
distribution network in Sri Lanka, Lanka Milk Foods is aiming to be the leader
in the full cream milk powder market within the next five years.

Suntop
Suntop was launched on the 1st January 2003 by Lanka Dairies. It contains a
minimum 10% fruit juice but no carbon dioxide gas has been added. This
means that you can consume more of this still drink as opposed to a
carbonated drink since it is not gassy and is known to be more appealing to
children. Suntop comes in 4 different flavours namely: Orange, Pineapple, Red fruit and Grape.
Suntop is sold in a handy 200ml Tetra brick pack and requires no refrigeration which makes
transportation and storage so much easier. This makes suntop an ideal product to be brought
along to school, work or to sports and leisure activities. Suntop is rich in Vitamin C and provides
your daily requirement of Vitamin C.

DailyMilk
Lanka Dairies, a subsidiary of Lanka Milk Foods is the producer of Daily Milk.
Daily, is a liquid pack of milk of 250 ml that is available in four flavors
(chocolate, vanilla, strawberry and banana) and is endorsed by the Australian
Dairy Corporation for its high quality. The Lanka Dairies Factory meets all international
standards, and is recognized for the introduction of UHT (Ultra Heat Treatment) packaging to
Sri Lanka.

3.2.2 Significant achievements of Lanka Milk Foods (CWE) PLC

Followings are the snapshot of significant achievements pertaining to the industry.

• ISO 9000:2000 certified tea-bag factory to cater for all tea-bag requirements.
• HACCP and is currently working towards ISO 14000 international standards.
• Factories are also certified to ISO 9001:2000 global standards.
• Lakspray Brand which is the flagship brand in Sri Lanka was awarded the Super
Brand status in Sri Lanka in 2008

3.2.3 Financial Highlights of Lanka Milk Foods (CWE) PLC

Annual turnover Rs. 3 Billion

The company has also recently invested Rs.One Billion on a new plant in Ambewela with the
hope of launching a host of new products within the overall dairy category.
 4. Business and Industry Profile.

As a newly launched company we are still do not have the ability to illustrate facts with regards
to the industry. We still have 10 years of experience. We believe to be stable it will take
decades. We are still merely depending on Lanka Milk Foods company’s strengths. Following
data provided are pertaining to the Lanka Milk Foods (CWE) PLC’s stage of growth and critical
success factors.

4.1. Stage of growth (Application of the Product Life Cycle model for existing products
Lakspray, Suntop, DailyMilk)

Sales/
Profits

Introduction Growth Maturity Decline

Sales curve

Profit curve

Time

The company Lanka Milk Foods has been engaged in the industry for decades. Currently the
company’s product categories (Lakspray, Suntop, DailyMilk) lie in between the maturity stage.
Further, the projected product’s (Nelli sense) forecasted product life cycle would be elaborated
below.

Introduction Growth Maturity Decline

Sales curve

Profit curve
Illustration of the above graph.”Nelli Sense” facts pertaining to pricing and other related areas.

• Market penetration strategy would be used, because the product has to match industry
standards, further the particular product is a FMCG.
• 6 months of promotional period will be carried out to attract more and more
consumers.
• Due to the patent right and high sophisticated technology potential rivalry companies
will not be able to imitate the product.
• After 3rd year similar substitutes may appear.
• Consequently, the company has to reduce the price correspondingly; further
promotional campaigns will also be carried out in order to meet expected sales level.
• After 5 year period the particular product will meet with the heavy competition with
full substitutes.
• At last the company has to move away from the market, soon after acquiring much
benefits as per projected.

4.2. Critical Success Factors for the projected product. (Nelli Sense)
• Continuing new product developments: - The Company’s mission statement illustrates
that the company is always striving to be innovative. As a totally innovative product we
were able to launch Nelli Sense as a beginning.
• Successful growth strategies: - As per our observations we were able to identify that
there are immense strategies that can be pursued in order to position our value
proposition. Through acquisitions, mergers, joint ventures are some of them. To
position our value proposition in a desired manner we selected to form a joint venture.
Our strategy is to be the number one.
• Commitment to excellence.
• Integrity
• Customer orientation: - The demand for natural products has increased significantly
compared to last few decades since there are lesser products in the market which are
manufactured based on natural raw materials. Specially, when it comes to soft drinks
and energetic drinks, the general public has the conception that almost all of them are
artificial. Recent market surveys conducted by researchers show that 90% of the public
bear the opinion that the soft & energetic drinks in the market are artificial other than
few which they exclude from that category.
• Proper corporate strategy.
• Stay focus on the business.
 • Corporate social responsibility: - As an organization, the company is striving to be a good
corporate citizen. In other words to implement CRS practices.
• Talent management: - Company is firmly believes that the company’s employees are the
key to success. In fact the company is focusing to implement talent management
strategies to enhance knowledge, skills of employees.
• Distribution system: - Indian Hills plans to be Joint ventured within 5 years. So, therefore
within the period other than financing, all other resources will be obtained by the Lanka
Milk Foods. In fact, it can be emphasized that the company Lanka Milk Foods is
comprises with large fleet of vehicles in order to implement a proper distribution
channel. Further it can be stressed that it can be assured to implement an island wide
distribution network.
• Effective advertising

5. Business Strategy
5.1. Desired image and position in the market.

Observing a wide distribution of questionnaires, the company was able to identify various
conclusions with regards to the desired product.

One of the main objectives of our product was, will the product attract the youth? Or, will it
attract elders? Our observation was, the product will attract by the youth. 85% of observations
hold that attitude. And the questionnaire was distributed among schools as well. 80% of the
observations helped to identify the product as a packet, not as a bottle. Around 90% of the
target audience was likely to be the product as an energy drink. Mostly sports persons are hold
those attitudes as well.

One of the highlighting questions of our questionnaire was, do they like to be the product as an
artificial product? Or they likely to be the product as a natural product? Their response for that
question was highly attractive and highly responsive.

Ultimately the observation was the Product should be a natural product. Obviously our
innovation is 100% natural product. 95% of the responds was likely to be the product as a
natural product.
Ultimately, as per the above data findings the target market segment’s response was to be
the product as 100% natural product. Consequently, the company took necessary actions to
launch the product as it is. That is the fact with highlights the product uniqueness. Further,
the desired image in the market is to be 100% natural, and to be an energetic product not like
other commodities in the market.

5.2. SWOT analysis.

According to our Research and Development staff report we identified there are several
Strength and Weaknesses in the internal as well as Opportunities and Threats externally of the
company. Those are as follows,

• Strengths of the Product

o Using the world’s best technology to manufacture the product. Normally we use
the Tetra pack filling machine technology.
o We have highly skilled labour and Sri Lankan specialists for lab experiments and
also in top management.
o The company (Lanka Milk Foods) has developed a stable market condition in Sri
Lanka while undergoing good marketing strategies.

• Weaknesses of the product.

o The main drawback is the company and products both are newly launcher to Sri
Lankan market.

• Opportunities of the product.

o There is no such competitor in the Sri Lankan market to the product.
o We can get highly skilled employees at low price in Sri Lankan market & we can
be implemented them.
o Significant losses can be shared with Lanka Milk Foods.
o Opportunity to obtain necessary strategies of Lanka Milk Foods within the joint
venture period.

• Threats of the product.

o The main threat is strike Government legislation in Sri Lanka.
o We have to import all the inputs and machine spare parts to Sri Lanka so we
have to paid high taxes after the joint venture period.
 o There no such Natural Energy drinks In Sri Lankan market so we have to adopt
customers in special way.
o Threat of imitating Nelli Sense.

5.3. Competitive strategy of Nelli Sense.

Competitive strategy that the company is pursuing in order to gain a competitive advantage can
be illustrated by employing following strategic model.

* Resoureces Competences

Threshold resources
Threshold Threshold
( Tangible/
capabilities competences
Intangible)

Capabilities for
Unique resources
competitive Core competemces
(Tangible/ Intangible)
advantage

External environment in which and organization operating can create both strategic
opportunities and threats. But successful strategies are also dependent on the organization
having the internal strategic capability required for survival and success. An organizations
strategic capability may be the leading edge of strategic development. In order to be surviving
and prosper Indian Hills implemented above strategy to gain a competitive advantage.

• Resources:-
o Tangible resources – Physical assets that can be used within 5 year period.
Manufacturing facilities etc.
o Intangible resources – Non physical assets of the organization. Such as human
skills and knowledge, reputation of Lanka Milk Foods, etc
• Competences: - The activities and processes through which Indian Hills deploys its
resources effectively.
 • Threshold competences: - Those activities and processes essential to stay in the target
market segment.
• Unique resources: - Critically underpin competitive resources which cannot or obtained
by other competitors. E.g., technology

6. About Nelli Sense.

o Our product ‘Nelli Sense’ is a 100% natural product which comes under the brand names
of Indian Hills. Its ingredients to produce 500 liters are as follows.

Ingredients Quantity
• Add water 380 kg
• Sugar 60 kg
• Nelli concentrate 60 kg
• Citric acid .702 kg
• Nelli flavor .450 kg
• Salt .227 kg
• Ascorbic acid .200 kg
• Stabilizer .150 kg
• Coloring .033 kg

Other attributes of the product.

o Company Indian Hills was eligible to obtain a Patent certificate for five years for this
particular product. This is for Raw Material and for the methodology used for the
production process.
o Filled with Tetra Pack.
o The product is comprises with daily requirement of energy.
o 100% natural ingredients obtained to produce the product.
o Corresponds with the Green marketing concept.
 6.1. Production process.

Stabilizer (Sugar with

Bitter Lemon Put hot water (100 0c)
Concentrate using regulator.
hot water)

Reduce temperature to 400C

300 liter 4 mixing tanks

at 90 0C temperature
\

Transfer this to mixing

Tank 500 liter.

Pasteurize to 620 C

Termize (keep the

temperature at 30C for
40 mints)

Add Citric Acid, Viatmins Transfer to storage tank

(Ascobic Acid) & Natural and keep at 30C

Transfer to filling
machines.

Pack in to Tetropack

Final product (At 18-200c

temperature, Weight
215g &200ml Pack)
 7. Marketing Strategy.
7.1 Market segmentation of Nelli Sense

As a profit focus your Company it is certain face that due to financial and resource constrain
we couldn’t target entire market space which is available. There for strategic decision
makers alone with the marketing expertise decided to offer our product to highest
profitable target ordinance. To select the most suitable segmentation we involved in
following techniques and mythologize.

1. A retail Audit.

2. Focus group results.

3. Sales force feedback survey.

4. Online quest nary.

5. A.C nelson research agency finding.

The suitable segmentation selection process transmits the following results.

A Retail Sales Force A.C Nilson Research Focus Group Online

Audit Feedback Agency Finding Result Questioning

Individuals Urban Age 15 - 30

(Male /Female) 45 60 50 35 40

Individual Rural Age 15 - 30

(Male /Female) 30 50 35 15 25

Mature Consumers Including

45+ 15 35 10 20 15
 70

60

50

40

30 Urban Age 15 - 30
Rural Age 15 - 30
20
Mature cunsumers 45+
10

0
A retail audit Sales Force A.C Nilson Focus Group Online
Feedback Research Result Questioning
Agency
Finding

The above graph illustrates facts pertaining to segmentation bases as per company
observations.

From the feedback obtain through the surveys suggested us that our profitable segmented
target audience probably would be, Individuals who are in urban areas aged with 15-30 both
male & female. Our selected segment & product computability with the target segment.

1. Urban younger crowd move value given on status symbols. Since our product position
as an up market Icon it symbolizes the required status factors.

2. Lack of energy drink product for competitive price in the current market space.

3. Emerging health conciseness among the younger crowd

4. Younger audience more involved in instant energy required activities (Ex: Athletics, gym
workouts)

5. Market extensive search on ‘a sure a product’ that gives refreshment health substitutes
with instant energy gaining.
 7.2. Pricing Methods

Normally we are using market penetration strategy to estimate the selling price. The price will
below the total cost because we can easily catch the market share and get awareness of the
customers. According to our Standard cost card we give it in covering for variable cost. Also we
look at existing products. According to our cost card we had incur Rs23/= per pack. So we
decided to launch product to market at Rs25/=

Demand is estimated together with cost and profitability. The unit price was assigned based on
the following cost structure.
Tetra pack 7.75
Ingredients 7.50
Labor 4.75
Overhead 3.00
Total cost 23.00
Profit 2.00
Selling price 25.00

7.3. Promotion Methods

We are doing huge campaign in promotion stage; before we enter in to the market we use
some pre campaign method using froe Printing and Electronic media. After launch new product
we advertise it in bill boards, electronic media & some selling promotions, such as free samples,
competition and contests.

7.4. Distribution methods.

The company which the Indian Hills ventured with is consists with large fleet of vehicles.
Compared to the other existing competitors Lanka Milk Foods has been acquired a wide range
of distribution channel. The advantage of being joint ventured is that the ability to use the
above mentioned transportation method.
8. Location and layout.

8.1. Demographic analysis of the location vs. target market.

As per our observation we were able to identify that our target audiences would be in main
cities. Consequently we decided to launch our product firstly in cities including Colombo, Kandy
and Galle. Target market segment can be illustrated geographically on follows.

8.2. Allocation of production facilities. (Lease rent or own)

The company Indian hills limited is warranty hawing one production plant. Preclusion of
existing comedies have been engaged in that particular plant. The company has not the
technology which is known the tetra pack filling technology. To obtain that facility to produce
Nelli sense the company Indian hills. Joint vectored with Lanka Milk foods which is one of the
leading companies in the industry.

Allocation of the production facilities for all particular products gained under an agreement
signal with lanka Millk food. It’s running under Rent basis which is paid. According to the
number of units produced in a particular period.
 8.3. Labor Meads and supply

Labor required for production will be obtained though lanka millk food plants and further for
labor wages will be calculated recording to the piece work systems. By implementing this
method worked will be highly motivated because they will gain according to the quantity that
they are producing. Wage rate determined per industry stranded. A brief description of wage
rate would be as follows.

Per Hour rates

Machine operators
Line workers
Supervisors

Layout plan

The company Lanka Milk food is consists with many production plants. As per the range of
product categories (Lakspray,suntop,daily milk).They have their own production plants
separately. To product Nelli sense our management team selected to produce the product in
Suntop manufacturing plant. A typical layout plan would be as follows.

Final products.
Warehouse.
(warehouse)
(raw
materials)

Tetropack packing

Bitter Lemon
Concentrate
filling machines.

4 mixing tanks

storage tank
Transferring

Termizer
9. Competitor Analysis.

Obviously the product” Nelli sense” does not have competitors at the moment. But, it can be
stressed that more imitative products and substitute products can also be emerged. Analysis of
potential competitors’ strengths and weaknesses can be illustrated using 5 forces model.

Application of 5 forces model.

Potential entrants

Suppliers Competitive Rivalry Buyers

Substitutes
Threat of new entrants.

In the short run threat of new entrants might be less. Because “Nelli sense” is totally new to the
market, and further it will take a considerable time to imitate the product. In fact it can be
stressed that, at the time when a new entrant emerged Nelli Sense would be in the maturity
stage.

Threat of substitutes.

Day by day many soft drinks categories are launching. But it can be emphasized that a close
substitute will not be emerged, because Nelli Sense it totally natural which comprises with
100% natural ingredients.

Bargaining power of customers.

With this commodity bargaining power of customers is less. In fact this is a FMCG.
Consequently the particular customer should have to be bought under the price which has been
quoted.

Bargaining power of suppliers.

Corresponding power with regards to bargaining power of suppliers can be stated in a

considerable stage. Because the commodity has been acquired 100% natural ingredients which
suppliers are very less.

Rivalry among existing players.

Competitive rivals are organizations with similar products and services aimed at the same
customer group
10. Description of the management team.

Board of directors of Lanka Milk foods (CWE) PLC

Data followings are about a brief snapshot of company board of directors.

D. Jayawardena: - Balangoda Plantations

D. Amarasekera (ACA B.Sc):- Lanka Milk Foods Ltd

Zaki Alif: - Lanka Milk Foods Ltd.

R. Obeyesekere: - Balangoda Plantations

C. Jansz: - Distilleries Company of Sri Lanka PLC

A. Shakthevale: - Lanka Milk Foods Ltd.

D. Jayawardena: - Lanka Milk Foods Ltd

Management team of Indian Hills Limited

Dr.S.A.N.K. Subasinghe: - Managing Director

D.M.N.S.W. Dissanayake: - Head of marketing

R. Dalugoda: - Head of Finance

Chandrasekara: - Head of Human Resource

P.V. Kasunsiri: - Head of Production

B.T.V . Pieris: - Head of Public Relations

Data above given is a snapshot of both company employee profiles. Lanka Milk Foods
comprises with a wide range of companies, and above details are about each company
directors.

When it comes to Indian Hills Limited, each functional area has been given to each key
employee of the organization. Further 100 of other employees can be seen including,
managers, supervisors, machine operators, laborers, etc.
11. Plan of operation.

11.1. Form of ownership.

Lanka Milk Foods (CWE) PLC

The main company, which we ventured, Lanka Milk foods (CWE) PLC with the addition of a
number of subsidiary companies including, Lanka Dairies (Pvt) Ltd, Danish Dairy Products Lanka
(Pvt) Ltd, Ambewela Livestock Company Ltd, Pattipola Livestock Company Ltd, Ambewela
Products (Pvt) Ltd

The company also bought two of Sri Lanka’s biggest Farms namely Ambewela Farm and
Pattipola Farm in order to ensure the highest quality standards for our products. The company
revolutionized the milk industry and was a pioneer in introducing UHT Tetra Packaging
technology to Sri Lanka in the mid 1990’s by introducing the Daily Range of flavoured milks. The
company also embarked on many other new products including Ambewala UHT milk which is
the highest quality liquid milk in Sri Lanka, Suntop range of international quality standard
flavoured fruit drinks, My Juicee range of fruit drinks and it’s latest introduction was the Dairy
Farm brand of full cream milk powder in 2008 which is exclusively imported from New Zealand.

Indian Hills Limited.

Indian Hills Limited is a limited liability company with shared capital of RS. 150,000,000. The
company took actions to be as joint ventured within the period of 5 years continuously to
launch and to stabilize within the market while acquiring sophisticated technology, and other
required competences.

11.2. Company Structure.

Indian Hills Limited.

As a newly formed company the Indian Hills limited has been established their company
structure while be as much as flat. Because, narrow structures acquire much benefits than
other tall structures.The company is consists with three layers, making the organization more
effective. Following facts describes advantages of flat company structures.

12. Communication flow operates in a sound manner. Because, company layers are less.
13. Delegation of authority can be seen.
14. Job rotation, job enlargement and other reengineering processes can be implemented
properly.
15. Less functional conflicts.
16. Employees are highly motivated.

Following chart illustrates the flat structure of the organization.

Top management

Middle management

Supervisors

11.3. Decision making authority.

As above mentioned the company’s structure is a flat structure. Consequently, making the
decision making power also practiced. Making the organizational structure more flatter will
caused to more delegation of authority.

In the lowest level of the organization supervisory level can be seen. Further there are number
of lower level workers who are directly report to desired supervisors.

Middle management consists with managers and assistant managers who directly report to the
higher level. All functional areas are handled by the middle management. Soon after the
delegation of authority practiced by the middle management the accountability comes into
play.

Top management plays a vital part. Making most strategic decisions pertaining to the
organization. They lead the company towards success.
11.4. Compensation and benefit packages.

Compensation

Compensation is the total amount of the monetary and non-monetary pay and benefits
provided to an employee by an employer in return for work performed as required. Desired
salary levels are paid according to industry levels for each managerial level.

Paycheck

A paycheck is a check issued by the company in order to satisfy the compensation commitment
the employer has with the employee.

Mileage Reimbursement:

Mileage reimbursement rate is an optional rate, recommended by the Internal Revenue

Service. Sales representatives also should be eligible for mileage reimbursements.

Paid Holidays

Paid sick days are time off from work that an organization voluntarily provides employees as a
benefit. The number of paid sick days is often accrued by employees based on years of service
to the organization and the level of their position.

Sales Compensation: Retain Sales Super Stars

Keeping salespeople motivated can be a real challenge. What motivates one might not
motivate another. Sales force also plays a vital part of the company. So therefore they should
be motivated and well paid in order to be efficient.

Employee Training.

To ensure that employees have and maintain the necessary skills to perform their duties it is
important that continued education and training be an ongoing part of the employee
management and maintenance package. Each employee will be given continuous training
programs to acquire pertaining skills and so on.
 12. Financial Forecast.

12.1 Income statement for the year ended (Rs '000)

Current Forcasted

31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15

Turnover 258,326 297,075 371,344 436,329 479,962 479,962

Cost of sales (142,079) (163,391) (204,239) (239,981) (263,979) (287,977)

Gross profit 116,247 133,684 167,105 196,348 215,983 191,985

GP margin 45% 40% 40% 40% 40% 40%

Administrative expenses
Staff Cost (24,567) (31,937) (38,325) (42,157) (46,373) (51,010)
Repair & Maintenance (2,456) (2,579) (2,708) (3,249) (3,899) (3,704)
Management fees (2,000) (2,100) (2,205) (2,315) (2,431) (2,553)
Depreciation (18,220) (21,864) (24,050) (28,860) (31,747) (34,921)
Amortization of Patent
right - (2,000) (2,000) (2,000) (2,000) (2,000)
Other Administration
expenses (32,213) (38,656) (46,387) (44,067) (48,474) (53,322)

Marketing & distribution

expenses (12,223) (15,279) (18,335) (19,251) (21,176) (21,176)

Other operating income 23,475 24,649 25,881 27,175 28,534 29,961

Operating profit 48,043 43,919 58,977 81,623 88,417 53,260

Finance income - net (9,865) (17,865) (19,652) (17,686) (17,686) (15,918)

Profit before tax 38,178 26,054 39,326 63,937 70,731 37,342

Taxation (8,735) (10,045) (12,557) (14,754) (16,229) (16,229)

Net profit 29,443 16,008 26,769 49,183 54,502 21,113

12.2. Loan amortization scheme.

Loan amount 200,000 40,000 160,000

Interest @ 20% 40,000

Interest p.a 8,000

12.3. Expected growths (5 year period) as per the income statement.

2nd 2
3rd 2 years of
years of
1st 6 months of introduction maturity Last 6 months of drop
growth

Expected growth percentage

31-Mar- 31- 31- 31-
31-Mar-15
11 Mar-12 Mar-13 Mar-14

Turnover 115% 125% 118% 110% 100%

Adminstrative expenses
Staff Cost 130% 120% 110% 110% 110%
Repair & Maintenance 105% 105% 120% 120% 95%
Management fees 105% 105% 105% 105% 105%
Depreciation 120% 110% 120% 110% 110%
Amortisation of Patent right 100% 100% 100% 100% 100%
Other Administration expenses 120% 120% 95% 110% 110%

Marketing & distribution

expenses 125% 120% 105% 110% 100%

Other operating income 105% 105% 105% 105% 105%

Finance income - net 100% 110% 90% 100% 90%

Taxation 115% 125% 118% 110% 100%

12.4. Balance Sheet as at (Rs '000)

Current Forecasted
31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar-
31-Mar-10
11 12 13 14 15

ASSETS

Non Current Assets

Property, plant & equipment 142,766 170,902 171,852 152,991 131,245 106,323

Patent right - 8,000 6,000 4,000 2,000 -

Investments 85,000 200,000 220,000 240,000 250,000 220,000

227,766 378,902 397,852 396,991 383,245 326,323

Current assets

Inventory 13,560 14,916 16,408 18,048 19,853 21,839

Receivables & prepayments 86,754 138,806 152,687 160,321 152,305 144,690

Cash & cash equilents 23,454 24,627 25,858 27,151 28,508 29,934

123,768 178,349 194,953 205,521 200,667 196,462

Total assets 351,534 557,251 592,804 602,512 583,912 522,786

EQUITY & LIABILITIES

Stated capital 150,000 150,000 150,000 150,000 150,000 150,000

Other reserves 30,000 30,000 30,000 30,000 30,000 30,000

Retained earnings 86,563 102,571 129,341 178,523 233,025 254,138

266,563 282,571 309,341 358,523 413,025 434,138

Non current liabilities

Borrowings 10,000 160,000 120,000 80,000 40,000 -

Defined benefit obligations 8,652 9,517 10,469 11,516 12,667 13,934

18,652 169,517 130,469 91,516 52,667 13,934

Current liabilities

Trade & other payables 51,584 46,117 102,438 96,719 60,990 17,485

Current tax liabilities 9,735 9,045 10,557 15,754 17,229 17,229

Borrowings 5,000 50,000 40,000 40,000 40,000 40,000

66,319 105,162 152,995 152,473 118,219 74,714

Total liabilities 84,971 274,679 283,463 243,989 170,887 88,648

Total equity & liabilities 351,534 557,251 592,804 602,512 583,912 522,786
12.5. Expected growth (5 year period) as per the balance sheet data.

Expected growth percentage

31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar-
11 12 13 14 15

Inventory 110% 110% 110% 110% 110%

Receivables & prepayments 160% 110% 105% 95% 95%
Cash & cash equilents 105% 105% 105% 105% 105%

Defined benefit obligations 110% 110% 110% 110% 110%

12.6. Cash Flow statement for the year ended (Rs '000)

Current Forecasted
31-Mar-
31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-15
14

Profit before tax 38,178 26,054 39,326 63,937 70,731 37,342

Adjustments for:

Depreciation 18,220 21,864 24,050 28,860 31,747 34,921

Amortisation of patent right - 2,000 2,000 2,000 2,000 2,000

interest cost 9,865 17,865 19,652 17,686 17,686 15,918

changes in working capital

- trade and other receivables (10,236) (52,052) (13,881) (7,634) 8,016 7,615

- inventories (1,120) (1,356) (1,492) (1,641) (1,805) (1,985)

- payables (5,765) (5,467) 56,321 (5,719) (35,729) (43,505)

Defined benefit obligations 997 1,065 1,152 1,247 1,352 1,467

Cash used in operations 50,139 9,972 127,128 98,736 93,998 53,773

Interest paid (9,865) (17,865) (19,652) (1,817) (12,890) (13,176)

Tax paid (8,187) (2,247) (9,872) (6,752) (8,376) (7,798)

Defined benefit obligations paid (200) (200) (7,374) (7,374) (7,374) (7,374)
Net cash used in operating
activities 31,887 (10,340) 90,231 82,793 65,358 25,425

Purchase of property, plant and

equipment (5,000) (50,000) (25,000) (10,000) (10,000) (10,000)

Investment in long term projects (15,000) (115,000) (20,000) (20,000) (10,000) 30,000
Proceeds from disposal of long
term investments - 230,513 - - - -

Dividend received 3,500 3,500 3,500 3,500 3,500 3,500

Net cash used in investing
activities (16,500) 69,013 (41,500) (26,500) (16,500) 23,500

Payment of long term

borrowings (5,000) (50,000) (40,000) (40,000) (40,000) (40,000)

Dividend paid to shareholders (7,500) (7,500) (7,500) (15,000) (7,500) (7,500)

Net cash used in financing
activities (12,500) (57,500) (47,500) (55,000) (47,500) (47,500)

Increase in cash and cash

equivalents 2,887 1,173 1,231 1,293 1,358 1,425

Movement in cash and cash

equivalents

At start of year 20,567 23,454 24,627 25,858 27,151 28,509

Increase in cash and cash
equivalents 2,887 1,173 1,231 1,293 1,358 1,425

At end of year 23,454 24,627 25,858 27,151 28,509 29,934

12.7. Analysis of the Net Present Value. (NPV)

Following NPV analysis illustrates cash inflows and outflows within the five year period.

Current Expected growth percentage

31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar- Total
10 11 12 13 14 15

Loan received 200,000 - - - - - 200,000

Loan repayment - (40,000) (40,000) (40,000) (40,000) (40,000) (200,000)

Interest repayment - (8,000) (8,000) (8,000) (8,000) (8,000) (40,000)

Initial investment in product (200,000) - - - - - (200,000)

Incremental cash inflows

Incremental revenue - 28,600 76,032 95,386 80,472 42,488 322,978

Subsidy received from
government - 25,000 - - - - 25,000
Interest cost bore by Joint
venture - 8,000 8,000 - - - 16,000
Incremental costs

Staff cost - (4,913) (5,405) (5,405) (5,405) (5,405) (26,532)

Repair & Maintenance - - - (406) (406) (386) (1,198)

Other Administration
expenses - (4,832) (5,557) (4,445) (4,668) (4,901) (24,403)
Marketing & distribution
expenses - (2,445) (2,322) - (963) (963) (6,692)

Tax payment - (4,290) (11,405) (14,308) (12,071) (6,373) (48,447)

Net cash flows - (2,880) 11,343 22,821 8,960 (23,539) 16,706

Discount factor @ 20% - 0.8333 0.6944 0.5787 0.4823 0.4019

NPV - (2,400) 7,877 13,207 4,321 (9,460) 13,546

Discount factor of 20% used which is the bank's interest rate.

13. Loan investment proposal.

13.1. Amount requested: - Rs.200, 000,000

As per the projected financial statements the company decided to determine the loan
amount that has to be obtained finally.

13.2. Purpose of loan:

Indian Hills is seeking to,

a) Obtain a loan of Rs. 200,000,000 that can be repaid within five year period. 31.03.2010-
31.03.2015.

13.3. Repayment:

Repayment on long-term financing will come from continuing net profits. Repayment of the
loan in line liquidation of inventory and receivables.

13.4. Highlights:

a) Nelli Sense brand name is presented along with the name of Lanka Milk Foods
b) Sales quantities are arrived at after having market surveys.

Expected growth percentage

31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15

Selling price
1st 6 months 25 60 60 50 40
2nd 6 months 45 60 55 50 35

Sales quantity
1st 6 months 280,000 576,000 829,440 812,851 677,105
2nd 6 months 480,000 691,200 829,440 796,594 440,118

Expected revenue 28,600 76,032 95,386 80,472 42,488

c) Lanka Milk Foods (LMF) has given a corporate guarantee that it will pay the loan if we
default.
d) LMF is always there behind us. LMF is a successful company which has been engaged
with past decades. They have the experience within the industry and they are backing us
to position our value proposition properly.
e) The technology is unique, product is unique and will help to grab the market easily. LMF
has been acquired sophisticate technology that can be used by us.
14. Appendixes

A typical questionnaire that distributed among target audience would be as follows.

• Whether customer can find the 100% natural energy drink in the market

• Present market full fill the customers daily energy requirement

• The main reasons for fail in the energy drink industry

• Whether current product covers the entire Sri Lankan Market

• Whether Sri Lankan customers’ awarded in the energy drink? If yes which market share
& age limit identified as a market share in this industry

• Present product prices can affordable to the customers

• The packaging method is recycled or not?

• The customers are aware the quality certificate, Standards & Production ingredients

• The customers more concern about the taste or quality of the product

• Macho do necessary changes. I’m only mentioned general ideas regarding the mkt.
haven’t time to more concern about this sorry macho