Essential Oils Business Plan

8/17/2019 Essential Oils Business Plan

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Business Plan: Parbat Redolence Limited

Student Registration Number: 0892684

-TERM PAPER- 2009

Hand-in date:11.12.2009

Campus:BI Oslo

Exam code and name:

GRA 3136 New Venture Creation

Programme:Master of Science in Innovation and Entrepreneurship


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Term Paper (Business Plan), GRA 3136 New Venture Creation 11.12.2009

Page i

CONTENTS

CONTENTS

EXECUTIVE SUMMARY________________________________________ iii

1. BUSINESS OVERVIEW ________________________________________ 1

1.1. DESCRIPTION OF THE BUSINESS _________________________ 1

1.1.1. MAJOR DEMOGRAPHIC, ECONOMIC, SOCIAL AND CULTURAL

FACTORS ___ 1

1.1.2. MAJOR PLAYERS (suppliers, distributors, clients) __________________ 2

1.1.3. NATURE OF THE INDUSTRY ___________________________________ 3

1.1.4. TRENDS IN THE INDUSTRY____________________________________3

1.1.5. GOVERNMENT REGULATIONS _________________________________3

1.2. THE MARKET ____________________________________________ 4

1.2.1. MARKET SEGMENT ___________________________________________ 4

1.2.2. PRODUCTS & SERVICES _______________________________________ 4

1.2.3. MARKET TRENDS _____________________________________________ 5

1.2.4. IMPLICATIONS OR RISK FACTORS ____________________________ 6

1.2.5. PLANNED RESPONSE __________________________________________ 6

1.3. COMPETITION___________________________________________6

1.3.1. COMPETITORS AND TYPE OF COMPETITION __________________ 6

1.3.2. COMPETITORS' STRENGTHS AND WEAKNESSES _______________6

1.3.3. COMPETITIVE ADVANTAGE __________________________________7

2. SALES & MARKETING PLAN _________________________________8

2.1 CUSTOMERS _____________________________________________82.2 SUPPLIERS ______________________________________________ 8

2.3 ADVERTISING & PROMOTION ____________________________ 8

2.4 PRICING AND DISTRIBUTION ____________________________ 9

2.5 CUSTOMER SERVICE POLICY ____________________________ 9

3. OPERATING PLAN __________________________________________10

3.1. LOCATION______________________________________________ 10

3.2. ADVANTAGES OR DISADVANTAGES _____________________ 10

3.3. LEASE OR OWNERSHIP DETAILS ________________________ 10


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Table 3.2: Spikenard oil production estimate for 1 st 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 _______________19Table 7.4: Different Ratios for the project _____________________________ 20

REFERENCES

APPENDICES

Appendix 1: Production Calculations ___________________________________22

Appendix 2: List of Community forest to be cultivated in five years _____23

Appendix 3: The Target Markets, Import and Export Figure __________25

Appendix 4: Some Facts and Figures _______________________________26


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EXECUTIVE SUMMARY

OBJECTIVES / DESCRIPTION OF THE PROJECT

To be a leading producer of high quality organic essential oils in Nepal

profitably and with considerable focus on corporate social responsibility.

To be a renowned supplier of high quality organic essential oils to theworld’s reputed markets with focus on aroma therapy sector.

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 world’s reputed markets and focus on

aromatherapy as its niche market. It will be ISO 9001:2008 certified and USDAorganic 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.

PRODUCTS AND SERVICES

Parbat Redolence Limited will produce high quality organic essential oils

adhering to strict high quality norms, focusing initially on two products:

1. Chamomile essential oils, used extensively in flavoring, fragrance and

aroma therapy.

2. Spikenard essential oils, used extensively in herbal medicines, fragrance

and aroma therapy.

Product diversification will be made as and when good market opportunity arises.

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


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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.

MARKETING AND SALESMarketing will be carried out through postings on reputed online B2B business

portals like www.alibaba.com, networking and interacting with aroma therapy

practitioners ’ associations and essential oils traders associations, and participating

in different international expositions and trade shows. Personal contacts will also

be made with leading aroma therapists and alternative medicine parctitioners

through e-mail, telephone and visits.

ORGANIZATION AND PERSONNEL

Parbat Redolence Limited will have four directors. Mrs. Lata Pyakurel, president

of Federation of Nepal Cottage and Small Industires (FNCSI) with over 20 years

of experinece in industries will handle business planning and networking with

stakeholders in coordination with Suyesh Pyakurel, Member, Industrial Promotion

Board, Ministry of Industries, Nepal who will also provide policy guidance. Mr.

Siraj Pyakurel, an affiliate of Chartered Certified Accountants (ACCA), UK will

handle financial operations. Mr. Swagat R. Pyakurel with his technical expertise

will be responsible for processing, administration and customer support.

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.


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PROSPECTIVE FINANCIAL PERFORMANCE

Promoting cultivation in four community forests, two each for chamomile and

spikenard in the first year of operations, the expected sales is estimated to be USD

1.08 million and a operating loss of USD 79,000. The estimated sales for the

second year of operations is expected to be around USD 2.05 millions as thecultivation will be expanded to four other community forests, two each for

chamomile and spikenard. The net after tax income for this period is estimated to

be USD 497,000. In the fifth year of operations, the estimated sales will be around

USD 8.3 millions with around USD 3.3 millions in net after tax income.

Fig i: Incremental Earnings Forecast for first 5 years of operation

PRODUCT CYCLE:

Total Cycle : 150 days

Harvesting: 90 days from plantation Processing : 15-20 days from harvest

Testing and Packaging: Immediate In-Stock: 15 days

Receivables: Irrevocable Sight LC, Advance Bank Transfer

RISK ASSESSMENT & CONTINGENCY PLANThe risk is assessed to arise mainly from financial slowdown, in which case the

market tends to lower consumption of such products. However, as evident from

the rise in import by 13.5% from 2007 to 2008 instead of the financial crisis, a

devastating effect is unlikely.

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.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Income from Spikenard(USD)

Income from Chamomile(USD)


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1. BUSINESS OVERVIEW

LEGAL NAME: PARBAT REDOLENCE LIMITED

BUSINESS ADDRESS: MECHINAGAR MUNICIPALITY

JHAPA DISTRICT

NEPAL

TEL: +977-23-XXXXXX

FAX: +977-23-XXXXXX

E-MAIL: [email protected]

1.1. DESCRIPTION OF THE BUSINESS

Parbat Redolence Limited will promote cultivation of herbs and extract essential

oil in the community forests of eastern region of Nepal. It will operate in two

districts, namely Taplejung in the upper hills and Jhapa in the plains. Initially it

will concentrate on Spikenard (Jatamansi) in Taplejung and German Chamomile

in Jhapa.

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 Limited’s 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 forest’s 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 Spikenardgrows in the wild here which reduces the risk of environment and soil

mailto:[email protected]:[email protected]:[email protected]


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incompatibility. The total area occupied by the community forests in Taplejung

alone is 4,472.10 acres. The reason for choosing Jhapa is its compatibility to

German Chamomile farming and good road connectivity. The total area covered

by community forests in Jhapa is 7,685.48 acres. So, there is great possibility for

expansion and diversification.

There is good possibility of product diversification as Taplejung is also suited for

Rosemary and Lavender cultivation. Jhapa has good potential for mentha and

french basil. Since Chamomile is a seasonal crop, the same fields can be used for

farming of mentha and french basil. And also perennial crops like lemon-grass

and palma rosa can be cultivated in Jhapa.

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 forest ’s 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. MAJOR PLAYERS (suppliers, distributors, clients)

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.


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Impoters from the targeted markets will initially distribute the products. Within

two years, Parbat Redolence’s international office, in coordination with aroma

therapy practitioners and the importers will be the main distributors.

Parbat Redolence’s initial clients’ base will be dominated by existing importers

and distributors in the t arget market. Within two years, the clients’ base will

include at least an equal percentage of aroma therapy practitioners and home

users.

1.1.3. NATURE OF THE INDUSTRY

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. TRENDS IN THE INDUSTRY

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

The government of Nepal has announced encouraging measures to promote local

industries by removing restrictive regulation hassles that previously existed. The

government has passed legislation allowing only herbs cultivation in thecommunity forests, duty free export of extracted essential oils, soft loans for

industries working in the sector. At the same time, the government has banned the

export of raw and dried spikenard.


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1.2. THE MARKET

1.2.1. MARKET SEGMENT

The flavoring, fragrance, herbal medicine industries, and the aroma therapy sector

constitute the major market segments for the essential oils to be produced by

Parbat Redolence Limited. From medicines to dog biscuits and child care to

deodorants, herbal essential oils are being used in a wide variety of consumer

products.

1.2.2. PRODUCTS & SERVICES

Parbat Redolence Limited will produce high quality organic essential oils

adhering to strict high quality norms, focusing initially on two products:

1. Chamomile essential oils:

Chamomile essential oil is used extensively in flavoring, fragrance and

aroma therapy. The products having chamomile essential oil range from

balm (organic babies balm etc.) to tea (Yogi Chamomile tea, Twinings

Chamomile tea etc.) to dog biscuits (Bark Wheats).

2. Spikenard essential oils:

Spikenard essential oil is used in herbal medicines (Himalaya Herbal

Healthcare Limited, Novartis Consumer Health Limited), fragrance and

aroma therapy. The sales of herbal medicines over the counter in Europe

stood at USD 4.96 Billion in 2003. The sales distribution is as shown

below.

Fig 1.1: Sales of over-the-counter herbal medicines in Europe (in USD)Product diversification will be made as and when good market opportunity arises.


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Its clients will be existing importers and aromatherapy practitioners with focus on

building good networks with the practitioners to exploit the market further.

1.2.4. IMPLICATIONS OR RISK FACTORS

Parbat Redolence will rely heavily on sales to the Europena and American

markets. So, there might be a situation of plummeting sales owing to extreme

financial conditions or some unexpected situations. But, there is very less chance

of complete annihilation of the market as evident of the increase in the trade value

of essential oils from 2006 to 2008 inspite of the financial crisis starting at 2007.

1.2.5. PLANNED RESPONSE

Parbat Redolence will rely on its basic strengths, which are:

superior quality products

affordable prices compared to competitors

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 Redolence’s 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.

1.3.2. COMPETITORS' STRENGTHS AND WEAKNESSES

There are several companies working in this sector in Nepal but they are of

smaller scale and operate individually without much collaboration with the


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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.

1.3.3. COMPETITIVE ADVANTAGE

Parbat Redolence will have lower production costs and quality will be maintained

by following strict quality norms of ISO 9001:2008 standards and USDA organic

certification requirements. So, Parbat Redolence will be able to compete with both

the national and international competition.


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2. SALES & MARKETING PLAN

2.1. CUSTOMERS

Parbat Redolence’s initial clients’ b ase will be dominated by existing importers

and distributors in the target markets (the USA, UK, France, Germany and

Norway). Within two years, the clients’ base will include at least an equal

percentage of aroma therapy practitioners and home users.

2.2. SUPPLIERS

Processing Machineries will be procured from an ISO certified internationally

renowned company in India. Importing the equipments from India will provide

the advantage of lesser delivery period and faster technical support.

Lab equipments will be procured from a world renowned Australian company

with four decades of experience.

High quality two layered alumunium containers will be imported from an ISO

certified producer in India.

2.3. ADVERTISING & PROMOTION

Marketing will be carried out through postings on reputed online B2B (Business

to Business) portals, networking and interacting with aroma therapy practitioners

and essential oils traders, and participating in different international expositions

and trade shows. Parbat Redolence Limited will be a Gold Certified (endorsed by

alibaba.com) member of www.alibaba.com, paid member of

www.globalsources.com and www.1stworldtradeportal.com, and post its profile

on other relevant B2B portals. Parbat Redolence will network with the alternativemedicine practitioners through their associations like Aromatherapy and Allied

Practitioners' Association (AAPA), International Federation of Professional

Aroma therapists (IFPA), ALTERNATIVopplysningen and so on. Parbat

Redolence Limigted will participate in World Congress of Medicinal and

Aromatic Plants, Asian Essential Oil Congress, Fragrance and Flavors Expo and

so on. Personal contacts will also be made with leading aroma therapists and

alternative medicine practitioners through e-mail, telephone and visits.


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2.4. PRICING AND DISTRIBUTION

Parbat Redolence Limited will enjoy pricing advantage because of low cost of

production due to utilization of community forests land, and duty free export and

soft loan facilities by the government. It’s pricing advantage will be enhanc ed

further by the quality certifications it will have acquired (ISO 9001: 2008 and

USDA organic certification). The ex-stock rate for both chamomile and spikenard

essentials oils will be USD 500 per KG for the first three years of operation after

which it will be increased to USD 700 per KG.

Distribution of the product will be handled by Parbat Redolence initially as the

clients will mainly be the importers in the target markets. Afterwards, Parbat

Redolence will carry out distribution through its international office with

coordination with aroma therapy practitioners and through the importers. Parbat

Redolence will open its first international office in the UK within 2 years of its

operations and will have at least an office in each of the target markets. Contacts

have already been established with some of the most reputed aroma therapy

practitioners in Norway and France.

2.5. CUSTOMER SERVICE POLICY

Customer service is going to be enhanced by a dedicated support team, regular

meetings with users, effective technical support and appropriate product

packaging.


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Testing equipments will be Gas Chromatography and Mass Spectrometry

(GCMS) machines which is the world standard for quality testing of essential oils

3.5. FUTURE EXPENDITURES /TECHNOLOGY REQUIREMENTS

Further additions of suitable processing plants, tesing equipmenst and packaging

machineries will be undertaken to facilitate the planned processing units. One set

of processing machinery for each processing unit will be added every year till year

five.

3.6. RESERACH AND DEVELOPMENT

R & D efforts will be centered on market studies and consumers, determining

changes in their requirements and responding to them. It will involve trial

cultivation of herbs like lavender, geranium, basil, mentha and so on.

3.7. ENVIRONMENTAL COMPLIANCE

The processing unit will consist of proper smoke filters and water recycling

equipments to minimize the environmental impact of the unit. The residues

remaining after distillation will be used to make incense sticks and as manure

which apart from providing additional income will reduce the solid waste to

virtually non-existent. Only natural cleaners will be used for cleaning the units.

Tree plantation in adjoining area and forest conservation will be on priority list of

Parbat Redolence’s corporate social re sponsibility (CSR) program.

3.8. PRODUCTION

Cultivation of the essential oil yielding plants will take place in only 30% of thetotal area of the selected community forests.

1st season 2nd season AnnualTotal Area, Hectares 666 666 1,332Cultivated Area, Hectares 266 266 532Estimatedcultivation/Hectare, KG 800 800 1,600Total estimated cultivation 213,155 213,155 426,310Oil Extraction 532.89 532.89 1,065.78 @ 0.25%

Table 3.1: Chamomile oil production estimate for 1 st year of operations


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AnnualTotal Area, Hectares 227.70Cultivated Area, Hectares 68.31 @30%Estimated cultivation/Hectare, KG 800.00Total estimated cultivation, KG 54,648.00Oil Extraction, KG 1,092.96 @2%

Table 3.2: Spikenard oil production estimate for 1 st year of operations

Fig 3.2: Production Growth Projection for first 5 years

0

2,000

4,000

6,000

8,000

10,000

12,000

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Production Growth Projection

Chamomile Oil (Kg) Spikenard Oil (Kg)


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4. MANAGEMENT AND OWNERSHIP

4.1. BOARD OF DIRECTORS (BOD) AND ADVISORS

The BOD will have four directors, each holding 25% equity in the company.

Director 1: Mrs Lata Pyakurel (25% Ownership), Chairman

President, Federation of Nepalese Cottage and Small Industries (FNCSI)

Over 20 years experience in industries.

Main responsibilities: business planning, and networking.

Director 2: Mr Swagat R Pyakurel (25% Ownership), Managing Director

Experienced in establishing essential oil processing unit.

Technical expertise in processing machinery and testing equipments.

Main responsibilities: operations, administration, and customer support.

Director 3: Mr Suyesh Pyakurel (25% Ownership)

Member - Industrial Promotion Board, Ministry of Industries, Nepal

Executive Member, Chamber of Industries, Morang, Nepal

President, Nepalese Young Entrepreneurs Forum, Biratnagar Chp., Nepal

10 years experience in processing industry and international trading

Main responsibilities: business planning, networking, and policy guidance.

Director 4: Mr Siraj R. Pyakurel, Managing Director (25% Ownership)

Member, Association of Chartered Certified Accountants (ACCA), UK.

Over 5 years experience in international trading.

Main responsibilities: marketing, business planning & financial operations.

Advisor 1: Mr Kamal Belbase

Over 20 years of experience in cultivation, harvesting and processing.

Extensive linkages with experts from India.

Main responsibilities: nursery development, cultivation and processing support.

Advisor 2: Mr Guru Baral

President, Madan Memorial Trust (Madan Bhandari Memorial Academy)Main responsibilities: trainings, and policy guidance.


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4.2. HUMAN RESOURCES PLAN

1 General Manager

(2)

Administration, book-

keeping, support

Highly experienced and

qualified manager

2 Accountant

(2)

Book-keeping Technical knowledge,

Experience, reliability

3 Office Assistant

(2)

Asministration, support Office / organizational skills

4 Consultant,

Farming (1)

Cultivation & harvesting

support to farmers

Technical knowledge,

experience, reliability

5 Consultant,

Testing (1)

Quality control through

lab tesing.



6 Supervisor

(2)

Operations supervision Technical knowledge,

reliability

7 Operators

(6)

Processing units operation Technical knowledge,

reliability

8 Helpers (42) Operation assistance Reliability

9 Drivers (4) Transportation Reliability

10 Caretaker, nursery

(2)

Nursery development &

management



ADDITIONAL INFORMATION

More operators and helpers will be recruited as production capacity increases.

4.3. PERFORMANCE ASSESSMENT

Initially most of the company's training will be done in-house with company

employees. Management employees will undergo total quality management

training. ISO 9000 certification and more training are planned for assured quality

control.

4.4. REMUNERATION AND BENEFITS

Benefits and salaries are comparable to those in the industry and overtime hours

are sometimes required. A profit sharing incentive plan is planned for the future.


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5. ACTION PLAN

ACTION BY WHEN

1 Site selection and construction September 2011

2 Place an order for Machinery and lab equipments September 2011

3 Seeds handover to CFUGs October 2011

4 Seeds distribution to the farmers by CFUGs November 2011

5 Implement ISO 9001:2008 standards & obtain USDA

organic certification.

January 2012

6 Start oil processing, testing and packaging March 2012

7 Start export May 2012

The plantation has to be completed by December first week so site will be

finalized by Septermber and construction work immediately begins. Processing

units are also ordered immediately to avoid any possible wastage of raw materials

due to inability to process.

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.

First batch of oil will be extracted in March.

Oils thus produced will then be exported to the target markets of the USA, UK,

France, Gemany and Norway from May, 2011.


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6. FUNDS REQUIRED AND THEIR USES

6.1. CURRENT FUNDING REQUIREMENTS

Initial investement for Parbat Redolence Limited will be around USD 1.2

millions, of which around USD 739,000 will be required for working capital and

around USD 422,000 for capital expenditure for the initial year (Yr. 1). The

amount for capital expenditure will be required at the start, Sep 2011, for purchase

of machinery and equipments and plant set up. Of the working capital, around

USD 450,000 will be required by March, 2012 for payment to farmers. The rest

will be imbursed in equal installments starting form September, 2011.

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.

6.2. FUNDING REQUIREMENTS OVER THE NEXT FOUR YEARS

Details Yr. 2 Yr. 3 Yr. 4 Yr. 5Working Capital 1,462,505 2,549,486 3,698,174 5,116,719Capital Expenditure 159,359 292,949 153,462 305,897

Total 1,621,864 2,842,435 3,851,635 5,422,617Table 6.1: Funding requirements for year 2 to 5

From second year onwards most of the required funds will be generated from the

net income earned by Parbat Redolence Limited.


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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 4 th year)

Spikenard essential oil: USD 500 / KG (USD 700 / KG from the 4 th 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.

Fig 7.1: Projected after-tax earning for 5 years

7.2. PROJECTED ANNUAL STATEMENTS

Turnover Year 1 Year 2 Year 3 Year 4 Year 5

Product Revenue 1,079,368 2,055,144 3,283,400 6,328,179 8,327,682

Cost of Sales 452,348 925,726 1,641,821 2,443,457 3,440,440

Contribution 627,020 1,129,418 1,641,579 3,884,722 4,887,241

Cost of Sales (%) 42% 45% 50% 39% 41%

-1,000,000

-

1,000,000

2,000,000

3,000,000

4,000,000

Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5

Earnings after Tax, USD


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Expenses 705,849 596,497 969,616 1,009,616 1,455,878

Depreciation 75,205 107,077 165,667 196,359 257,538

Capital Expenditures 422,179 159,359 292,949 153,462 305,897Selling, General &

Admin. Cost 155,692 257,369 401,690 531,301 725,711

Cost of Capital 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

Financing Costs 52,772 34,423 53,854 63,446 82,564

PBT -131,601 498,498 618,109 2,811,661 3,348,800

Taxation -158 1,066 1,236 5,623 6,698

Earnings after Tax -131,444 497,432 616,872 2,806,038 3,342,102Table 7.1: Projected Initial Five Years Income Statement

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 75,205 182,282 347,949 544,308 801,846Cur rent Assets:

Stock 18,848 38,572 68,409 101,811 143,352

Debtors - - - - -

Cash 365,111 1,407,600 1,581,936 4,597,878 8,099,326

730,933 1,845,429 2,176,883 5,183,330 8,774,678Equity & Liabilities

Share Capital - 464,441

Retained Profit-

78,816 452,894 1,069,766 3,875,804 7,217,906

Total Equity-

78,816 917,335 1,069,766 3,875,804 7,217,906Non-Current

Liabilites:

Loans 696,662 696,662 696,662 696,662 696,662


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CurrentLiabilities:

Creditors 113,087 231,431 410,455 610,864 860,110

730,933 1,845,429 2,176,883 5,183,330 8,774,678Table 7.2: Projected Initial Five Years Balance Sheet

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 75,205 107,077 165,667 196,359 257,538Cash Flow from

Trading -3,624 639,998 837,629 3,071,466 3,688,902Changes in W.C.

Balances 94,239 98,620 149,186 167,008 207,705

Stock -18,848 -19,724 -29,837 -33,402 -41,541

Debtors - - - - -

Creditors 113,087 118,345 179,024 200,409 249,246Cash Flow from

Operations 90,615 738,618 986,816 3,238,473 3,896,607Investing

Activity -422,179 -159,359 -292,949 -153,462 -305,897Purchase of

Fixed Assets -422,179 -159,359 -292,949 -153,462 -305,897Financing

Activities 643,890 430,018 -518,296 -63,446 -82,564 New ShareIssues - 464,441 -464,441 - -Debt Taken

On (Repaid) 696,662 - - - -Finance

Costs -52,772 -34,423 -53,854 -63,446 -82,564

Taxation 158 -1,066 -1,236 -5,623 -6,698

Cash Flow forthe Period 312,483 1,008,212 174,335 3,015,943 3,501,448Opening Cash

Position Nil 312,483 1,320,695 1,495,030 4,510,973Closing Cash

Position 312,483 1,320,695 1,495,030 4,510,973 8,012,421

Table 7.3: Projected Initial Five Year Cash Flow Statement


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Page 21

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)

Articles and analysis

S. Nautiyal*, K. S. Rajan and R. Shibasaki, “Interaction of Biodiversity and

Economic Welfare – A Case Study from the Himalayas of India”. Journal of

Environmental Informatics 6, no. 2 (2005),

http://www.iseis.org/JEI/pdfstart.asp?no=200500061

Website

List of Community Forests in Nepal, Federation of Community Forestry Users,

Nepal, www.fecofun.org

Trade statistics for international business development, International Trade

Centre, www.trademap.com

316 Imports and exports, by countries and commodity group 1. 2008. NOK

million, Statistics Norway, http://www.ssb.no/english/yearbook/tab/tab-316.html

Federation of Nepalese Chambers of Commerce and Industry, www.fncci.org

Population Census of Nepal, Central Bureau of Statistics, National Planning

Commission of Nepal, www.cbs.gov.np

http://www.iseis.org/JEI/pdfstart.asp?no=200500061http://www.iseis.org/JEI/pdfstart.asp?no=200500061


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Page 22

Appendix 1: Production Calculations

1. Chamomile Oil. (data is for twice a year)

Year Yr. 1 Yr.2 Yr. 3 Yr. 4 Yr. 5Total Area, Hectares 1,332 2,522 4,675 6,638 8,301Cultivated Area,Hectares 533 1,009 1,870 2,655 3,321

@30% oftotal area

Estimatedcultivation/Hectare, KG 1,600 1,600 1,600 1,600 1,600Total estimatedcultivation 426,310 807,130 1,495,974 2,124,013 2,656,410Oil Extraction 1,066 2,018 3,740 5,310 6,641 @0.25%

2. Spikenard OilYear Yr. 1 Yr.2 Yr. 3 Yr. 4 Yr. 5Total Area, Hectares 228 436 589 777 1,095Cultivated Area,Hectares 68 131 177 233 328

@30% oftotal area

Estimatedcultivation/Hectare 800 800 800 800 800Total estimatedcultivation 54,648 104,623 141,343 186,511 262,783Oil Extraction 1,093 2,092 2,827 3,730 5,256 @2%


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Appendix 2: List of Community forest to be cultivated in five years

1. Chamomile cultivation

SN FUG_NAMEAreaHectares

DISTRICTNAME Region

1 Bahu Ban 308.87 Jhapa Eastern2 Talpani 357.24 Jhapa Eastern6 Hanse-dumse 498.28 Jhapa Eastern7 Namuna 96.75 Jhapa Eastern8 Juke Khadi 729.60 Jhapa Eastern9 Shanti 346.72 Jhapa Eastern

10 Haluwagadh 250.11 Jhapa Eastern11 Hachumasa 731.20 Jhapa Eastern13 Jamun Bari 401.25 Jhapa Eastern14 Prajapati 430.62 Jhapa Eastern

4,150.64


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2. Spikenard cultivation

SN FUG_NAMEAreaHectares District Region

1 Gyasipemba Bhedichauk 88.20 Taplejung Eastern2 Batasedamli Bhita 139.50 Taplejung Eastern

3 Aiekha Lambayak Phungphunge 72.11 Taplejung Eastern4 Manabhara 29.12 Taplejung Eastern5 Shibu 107.00 Taplejung Eastern6 Mechi Community 153.00 Taplejung Eastern7 Banpale 31.55 Taplejung Eastern8 Isera 3.90 Taplejung Eastern9 Phurumba Kha? 102.75 Taplejung Eastern

10 Mayampatal 50.00 Taplejung Eastern11 Pokhari Sypatri 317.80 Taplejung Eastern

1,094.93


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Page 25

Appendix 3: The Target Markets, Import and Export Figures


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Page 26

Appendix 4: Some Facts and Figures

Some facts and figures

Norway

9281.3millions Value of essentialoils and perfumematerials importedinto Norway in

NOK, 2007

Statistic Norway www.ssb.no

4.19% Increase inImports ofessential oils and

perfume materialsinto Norway (interms of NOK

millions)


4.95% Decrease inExports ofessential oils and

perfume materialsfrom Norway (interms of NOKmillions)


252 Number of centresoffering Aromatherapy treatmentin Norway

Norge Online www.nol.no

6 No. of institutionsofferingAromatherapycourses in Norway

ALTERNATIVopplysningen

www.alternativ.no

Norsk Prana Institutt www.norsk- prana-institutt.no

UK

17 No. of institutionsaccredited byAAPA offeringAromatherapycourses in UK

Aromatherapy and AlliedPractitioners' Association(AAPA)

www.aapa.org.uk

50 No. of institutionsaccredited by IPFofferingAromatherapycourses in UK

International Federationof Professional Aromatherapists (IFPA)

www.ifparoma.org

http://www.ssb.no/http://www.ssb.no/http://www.ssb.no/http://www.ssb.no/http://www.ssb.no/http://www.ssb.no/http://www.nol.no/http://www.nol.no/http://www.alternativ.no/http://www.alternativ.no/http://www.norsk-prana-institutt.no/http://www.norsk-prana-institutt.no/http://www.norsk-prana-institutt.no/http://www.aapa.org.uk/http://www.aapa.org.uk/http://www.aapa.org.uk/http://www.ifparoma.org/http://www.ifparoma.org/http://www.ifparoma.org/http://www.ifparoma.org/http://www.aapa.org.uk/http://www.aapa.org.uk/http://www.norsk-prana-institutt.no/http://www.norsk-prana-institutt.no/http://www.norsk-prana-institutt.no/http://www.alternativ.no/http://www.alternativ.no/http://www.nol.no/http://www.ssb.no/http://www.ssb.no/http://www.ssb.no/


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122 Registered practitioners inUK atAromatherapy andAllied

Practitioners'Association(AAPA)

Aromatherapy and AlliedPractitioners' Association(AAPA)

www.aapa.org.uk

48 Certified membersof theAromtherapyTrade Council ofUK

Aromatherapy TradeCouncil

www.a-t-c.org.uk

4 No. of companieswaiting forcertification fromthe AromtherapyTrade Council ofUK

Aromatherapy TradeCouncil

www.a-t-c.org.uk

Nepal0% duty onimports ofequipmentsrequired for

processing

essentialoils. 0%duty onexport ofessentialoils

No Duty levied onraw materials andauxiliariesimported byindustries in

EPZ./SEZ.Industriesexporting morethan 40 percent ofthe production to

be granted similarfacilities as givento industries inEPZ.

Federation of NepaleseChambers of Commerceand Industry

www.fncci.org

Jhapa District ProfilePopulation 688,109 Central Bureau of

Statistics, NationalPlanning Commission of

Nepal

www.cbs.gov.np

Area (Sq.Km) 1,606Area (Ha.) 160,600

Taplejung District Profile

Population 134,698 Central Bureau ofStatistics, National

www.cbs.gov.np

http://www.aapa.org.uk/http://www.aapa.org.uk/http://www.aapa.org.uk/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.fncci.org/http://www.fncci.org/http://www.cbs.gov.np/http://www.cbs.gov.np/http://www.cbs.gov.np/http://www.cbs.gov.np/http://www.cbs.gov.np/http://www.cbs.gov.np/http://www.fncci.org/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.a-t-c.org.uk/http://www.aapa.org.uk/http://www.aapa.org.uk/


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Planning Commission of Nepal

Area (Sq.Km)

3,646

Area (Ha.) 160,600

Essential Oils Business Plan

Documents

Transcript of Essential Oils Business Plan