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Aqua monta – FINANCIAL PLAN – PART 4

The following table shows the basic structure of required investments for construction of water collection vaults, pipeline and for water bottling factory.

Investments are estimated to start in September 2009 and include construction works, equipment and founding costs. Investment for construction works in addition to major construction works includes the preparatory work and contingencies. Investment for the equipment is determined on the basis of current bid of equipment manufacturers. The value of the equipment includes the cost of the equipment, transportation, installation, insurance and other unspecified costs. Founding costs include the right to use the water from spring Ropušica, purchase costs and refund costs for site security, and other investments.

The cost of purchase and refund, in the amount of 40,000 EUR include:

  • the costs of providing enclosed area (25x50m) – 2600 EUR,
  • field purchase costs for water bottling factory – 25000 EUR,
  • damage costs for 12.4 km of pipelines – 12,400 EUR.

Other investments include the costs of research works, the cost of studies and design, as well as the costs of supervision, and are calculated by applying experience and the cumulative rate of 5%. The costs of investors are estimated by applying the rate of 1% of the value of construction works and equipment, and include costs related to securing the rights to use the spring water. Investments in permanent working capital are estimated in the amount of 2.5% of the total investment value. Total investment for the implementation of the project for exploitation of water sources from Ropušica spring, amounts to 4.1 mio EUR. From this amount 30% is already provided by the investor, Fin Invest doo, and the participation of other co-investors in the total investment are estimated approximately at 70% (foreign investor component).

It is planned that the works brought in the period from 8 months (since July 2010 to March 2011) by the following dynamics:

– 2010 – the 60% of the total investment,

– 2011 – the 40% of the total investment.

Trial operation of the 1 month is included in the offer of supplier of equipment for bottling plant for spring water, and would be carried out during April 2010.

OPERATING COSTS

The cost of investments and current maintenance, insurance costs and other costs of investments in some types of investments are calculated by applying empirical rate. The annual amount of these costs reaches the amount of 104,458 EUR.

The structure of employees and the calculation of gross employees pay-out fund

In the period of exploitation of the source and the construction of the bottling factory, the business organization of work, production, quality control, maintenance, storage and distribution of finished products, security and other jobs will employ 36 workers. Table in the forthcoming pages shows the calculation of gross pay-out fund. According to the specification shown in the period of exploitation, it is necessary to provide 227,340 EUR/year for the payment of gross personal income.

Material costs

Material costs in this analysis include the costs of chemicals and packaging costs. The technology part of the project foresees the use of the following chemicals:

NaOCl                                   0.3 EUR/l                              0.61/day

PACl                                       3 EUR /l                                0.821/day

Cost of packaging material is primarily related to pre-forms, bolt, glue, labels, polyethylene films, cardboards and other associated costs. These costs are estimated per unit:

  • for plastic bottles of 1.5 l 10 EUR
  • for plastic bottles of 0.5 l 07 EUR

Transport costs

Transport costs are estimated:

  • for plastic bottles of 1.5 l 04 EUR/bottle
  • for plastic bottles of 0.5 l 013 EUR/bottle

The cost of electricity and oil

In the technical part of the project the following consumption of electric energy is anticipated for the work of the plant for water bottling:

693 kW x 4000 h = 2,772,000 kWh/year

It is planned to use the extra light heating oil (JUS BH2 432). According to technical calculations annual costs of extra light oil for heating of rooms is 53,821 kg, or 64,000 l. Price of extra light oil is 0.5 EUR/l. The following tables illustrate the calculation of operating costs, and the review shows the structure of the total operating costs arising in the project. Overview of the calculation of fixed operational costs is given in the Appendix.

FINANCIAL CONSTRUCTION AND THE COST OF CAPITAL

According to the current perception of the realization of water bottling plant investment, the project would be funded in the following way:

  • Financial resources required for carrying out research work, preparation of technical documentation – designing, building and construction of pipeline the investor will provide from its own resources;
  • Financial resources required for the procurement of equipment for the factory for bottling of water will be provided using a credit with the following conditions: credit repayment period of 10 (ten) years, the interest rate of 5% on annual level, the grace period of 2 (two) years and 1% bank commission .

The following review is shown based on interim interest rate, bank fees and loans repay plan. Cost depreciation is made by applying the rate prescribed by law. Depreciation free funds, are used to repay the loan in the credit period. After a period of five years of exploitation, the costs of depreciation are reduced by the costs of depreciation of interim interest and other investments (cost of the research, design, supervision and cost of the investors). The greatest amount of depreciation costs arises from the depreciation of technological equipment, because the investment in technological equipment is significant.

FINANCIAL PROJECTIONS

Calculated on the basis of annual costs and financial revenue, projections are made of production costs, as well as the income statement and cash flow of inflows and outflows. The analysis refers to the period from 2010 to 2021 years.

The table provided in the Appendix shows the structure of bottled water production and selling price, in the means of defined terms of project implementation financing. Calculations show that the average selling price of water should be formed on the level above 0.15 EUR/l.

Income statement shows the distribution of income and profitability of business by some years. Projection shows that the bottling water business would be profitable, if the income from the sale of water would be formed at the adopted level of sales price of 0.25 EUR/1.5 l and 0.20 EUR/0.50 l.

Cash flow of financial inflows and outflows of funds shows the liquidity of operations, and the ability to cover all of the due financial obligations with the inflow. This review covers the period of construction and the period of exploitation. Calculation shows that if the income from the sales of bottled water will be formed at the level of the adopted sales price (EUR 0.25/1.5 l and 0.20 EUR/0.5 l) debt coverage ratio would be above 1 throughout the repayment period.

CASH-FLOW PROJECTIONS

See Appendix.

PROFITABILITY ANALYSIS

On the basis of the estimated flow of income and expenses, the following profitability indicators are calculated:

– internal rate of return,

– net present value of the project,

– relation of income and expenses,

– the period of return on investment and

– long-term average price of 1 l of bottled water.

The project for water bottling achieves profitability rate marginally significantly greater than the required rate of 10%. Net present value of the project, throughout the period of construction and exploitation and the discount rate of 10%, is approximately EUR 35 million, which points to the outstanding performance of the implementation of this project.

Indicator of the total revenues and expenses in the amount of 1.47, also points to the profitability and attractiveness of the investment in the implementation of the bottling water factory project.

Total funds invested in the project implementation, under the realization of the bottled water by sales prices of EUR 0.25/1.5 l and 0.20 EUR/0.5 l and discount rate of 10%, would be returned back in the second year of exploitation. The average long-term price of the bottled water in the period of 20 years and the accumulation rate of 10% is 0.154 EUR/l.

CONCLUSION

Aqua Monta is a perfect investment opportunity for any foreign investor seeking to become involved in the spring water bottling business. It offers advantageous compensation and favorable return on investment.

Ropušica spring is located at the altitude of 1,365 m, in utterly inhabited area. Minimal spring outflow is greater than 0.5 l/s. Technical solution for spring water bottling process proposed by this business plan involves the construction of water collection vault, pipelines for the transport of water and a plant for water bottling with relevant and adequate equipment. The capacity of the factory for water bottling is 8000 bottles of 1.5 l and 8000 bottles of 0.5 l, or 64,000,000 l/annually. It is planned to build up this facility in a period of 8 months.

Value of investments for the realization of this project is 4.1 million EUR. The total value of construction works participate with 18.2%, equipment 73%, funding costs 6.4% and permanent working capital 2.4%. Necessary financial resources will be provided by loans or foreign investors and from own funds. The existing owner has a financing need of 2,000,000 EUR that would cover the investment in the spring water bottling equipment.

The average long-term price of the bottled water in the period of 20 years and the accumulation rate of 10% is 0.154 EUR/I. Planned sales price of the bottled water is 0.25 EUR/1.5 l and 0.20 EUR/0.50 l. Total funds invested in the project implementation would be returned in the second year of exploitation, if the water is sold for the proposed bottled water prices.

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