INTERNATIONAL LEADERSHIP

INSTITUTE

NIYAT BOTTLING PLC

BUSINESS PLAN
Prepared By:
Helen Abdu
Submitted to Dr. Andualem

January 2020
ADDIS ABABA ETHIOPIA
 Niyat BOTTLING PLC BUSINESS PLAN

Executive Summery

The business plan is undertaken as part of the requirement for a short-term working

capital loan of birr 71.3 million to be repaid quarterly for five years.

The required short term working capital loan will ease the company’s permanent

shortage of working capital so that it runs its activities smoothly and efficiently. The

working capital requirement that necessitated this short term loan is to hold stock of

raw material minimum of six months as FCY approval has been done once or twice to

the maximum by banks. Owing to the shortage of the raw materials our company has

not been operational as per its plan.

After scrutinizing and assessing all identifiable factors and dimensions that are thought

to be relevant, this business plan has shown remarkable financial results to the

company, considerable interest revenue to the bank, enormous amount of tax revenue

to the government and above all contributes a significant role in the overall

development of the health sector of the country as well as the wellbeing of the society.

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1. INTRODUCTION

Before enactment of the new political system (i.e. before 1990), the country was ruled by

command economy where investment taking place in the country was under state

ownership. Immediately before the downfall of the Derge Regime, the country

launched mixed economy where private investment was partly allowed side by side

with state ownership. With the coming to power of Ethiopian People Revolutionary

Democratic Front , Ethiopia started to follow free market economy where the private

sector is fully and freely allowed to participate in investment activities.

In an effort to attract private investment to the country (both domestic and foreign), the

government provided different incentive system to investors. It is also continually

revising its investment policy through discussion and dialogue with private investors

and taking in to consideration the experience of other countries found successful in

attracting investment. As a result of the government’s move to attract investment, the

investment license given to investors is continually increasing both in number and

investment capital. Particularly for the sixteen years when the country has registered

GDP growth close to double digit level, the level of investment has incredibly increased

both by domestic and foreign investors. Some of the major investment incentives that

the government availed include tax incentive (profit tax, import tax, etc.), availing land

at reasonable charge, improved service delivery system, etc.

The owners of the company are Ethiopian nationals who hasinvested in the country’s

bottled water market after identifying a huge gap in the demand supply side of the

market.

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The local market for bottled water market is huge which is evidenced by the large

number of participants in the market. Moreover, considering the exceptionally good

performance of the country’s economy, population size and growth rate, change in the

urban lifestyle, growing number of conferences and summits in the capital and other

big cities of the country, the increased tourist traffic, and the development of the

hospitality sector, are other indicators for the growing demand of bottled water.

Therefore, from market point of view the company will not face a problem. The

company is also institutionally sound due to the appropriate organizational structure it

has and available human resource and state of the art technology. Given the conducive

business environment in the country and the wide experience of the owner in the

business arena of the country, the success of the companywill be certain.

1.1. Industry Incentives

Looking at the Governments manufacturing sector development over the Five Year of

the first and the second GTP, it is the priority agenda in the Government’s plan.

Likewise, it generates employment opportunities to a number of people. This fits the

government’s development strategy of encouraging industrialization and contributes to

the generation of employment opportunities.

The investment proclamation improved successively is also designed to support

investment growth in the country by providing tax and better access to infrastructure

service incentives. The most important incentive packages include the following:

 Importation of machinery and other investment items free of tax.

 Importation of raw materials for export oriented establishments free of import

tax;

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 Exemption from income tax for the period covering 1-5 years depending on the

location of the project, industry type and product markets .

 Deduction of expense incurred for research, improvement studies or training,

from taxable income;

1.2. Organization and Management

The factory will have a management structure capable of managing its operation.

Generally, the company is managed by a managing director; however the day to day

activities will be run by the general manger. The general manager in turn will form a

management team comprising heads of different departments including HR &

properties manager, plant manager, marketing manager, finance & supplies manager

and sales manager. There are different section heads, supervisors under each of the

above-mentioned department heads.

Managing Dirctor

General Manager

Legal Advisor

HR & Properties Finance &

Manager Plant Manager Marketing Sales
Supplies
Manager Manager
Manager

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2. Bottled Water Market in Ethiopia

Bottled water has become an essential aspect of life in the general urban lifestyle.  A

decade ago, the idea of bottled water for many Ethiopians was a trend that

characterized the Diaspora and the modern, wealth-driven way of life. Today, it is

common to see people purchase bottled water along with their groceries in super

markets and kiosks. Young people order bottled water in cafés and restaurants. In

several offices, bottled water also has become another choice in addition to the “tea or

coffee” offered by secretaries to visitors. Bottled water has a constant presence at

meetings and discussion forums. Since the introduction of the product to the country

through the Highland Springs brand in 1999, the sector has seen tremendous growth.

As one of the fastest growing economies in Africa, and home to the continent’s second

largest population, Ethiopia represents a compelling investment opportunity,

particularly in consumer-oriented sectors. The expansion of bottling firms as well as the

increased production and marketing of bottled water are clear indicators of high

demand for such products. To satisfy this demand, production and marketing of high-

quality bottled water will surely increase. 

Ethiopia has been identified as the water tower of Africa due to the potential of its

water wealth; as seen in the country’s abundant rivers, lakes and reserves of

underground water. If the bottled water industry grows and production is improved

and able to meet international standards, Ethiopian companies will soon be able to

penetrate the international market of bottled water. (Source: November 2013. No.9

Ethiopian Business Review)

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2.1. Export Opportunity

In recent years, Ethiopia is adopting export led strategy to enhance economic growth.

Some of the strategic instruments employed to realize the broader aims are:

 Lifting of non-tariff barriers except in areas of national security,

environment, health and safety regulations;

 Duty drawback on import of raw materials for production of exports;

 Elimination of export duty; and

 Foreign exchange surrender requirement on exporters was replaced by

permitting them to sell their foreign exchange receipts at freely negotiated

rate to Banks or permitting the use of foreign exchange proceeds for current

account transaction within four weeks. Exporters were also allowed to hold

10% of their foreign exchange earnings indefinitely.

The major export market for locally manufactured products in general and bottled

water in particular will be the South Sudan which has emerged from a prolonged civil

war. The two governments have agreed to cooperate on a wide range of joint projects

on social, economic, capacity building and security issues. Regarding the transport

sector, the two countries have agreed to promote road and air transport between their

neighboring states of Upper Nile, Jonglei and Eastern Equatorial with the adjacent

Ethiopian Regional States of Gambella, Southern Nations and Nationalities, and

BenishangulGumez. The construction of the above roads will provide enormous

potential for locally produced bottled water to utilize the location advantage of Ethiopia

to the region compared to competitors in the South Sudan market. Accordingly, based

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on the above discussion there will be huge export market potential for this envisaged

bottled water project.

2.2. Distribution of Bottled Water Manufacturers by Region

Regional distribution of manufacturers shows that there is high disparity in among the

national states. There is relatively high concentration in few major cities. Highest

concentration is in and around Addis Ababa which is the major market at the moment.

Other notable cities with large concentration are Dire Dawa, Dessie and Mekele. The

Southern Nations Nationalities and Peoples Regional State, which is home to the third

largest population, hosts only three manufacturers. On the other hand, there is twice as

much number of manufactures in Dire Dawa compared to the number in SNNP. The

hot weather condition in Dire Dawa and nearby areas- Harar, Somali Region- may be

the reason for relatively high concentration of bottled water manufacturers in the city.

2.3. Marketing Strategies

2.3.1. Product Description& Capacity of the Machinery

The company will offer a high-quality of organic spring water from the altitude of 3800

m above sea level. Product packaging and presentation is one of the main dynamics

which control the flow of target customers towards the product. Packaging would be in

line with the need of the consumers and industrial norms. The bottle would also give a

reflection of light sky-blue color, which is considered a natural symbol of the water. The

color and the design will create a positive perception for the new brand. The

mouth/opening of the bottle would also be large enough (30”) to accommodate out flow

and inflow of water. The label of the bottle will have the following information

 Major Water Analysis Data

 Certificate mark of the Ethiopian Food, Medicine Administration and Control

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Authority

 Expiry Date (Best Before Date)

 Addresses of the bottling plant

 Web site address of the Company

 Brand Name/Trade Name

 Net volume of the water

 Batch Number or code number

 Motto of the product

The company will produce different size of bottled water with the following percentage

composition: -

S.N. Product Mix Percentage Proportion

1 350 mm 3%
2 600 mm 27%
3 1,200 mm 20%
4 2,000 mm 50%

The production plan of the company is computed by considering the average industry

attainable capacity of 70%. The industry average is computed on the basis of the three

shifts of production. The production capacity of the project is a function of the market of

the products, the technical/mechanical capacity of the machineries to be employed in

the production process, the production, technical and management efficiency of the

employees involved in the course of production, and the timely supply of adequate raw

material for the project.

Consequently, the company planned to start its production equivalent to the industry

average, 70%, operating for 16 hours per day and 300 days per year since it is new to the

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market and learning curve. The capacity will be assumed to increase by 5% every year

owing to the learning curve. This is a conservative approach as it only considers 70% of

two shifts of production even if the industry average is considering the three shifts of

production.

Attainable Capacity of Attainable Capacity of

S.N. Product Mix Percentage Proportion
the product mix in Liter the Product Mix in Bottle

1 350 mm 3% 2,304,000.00 6,582,857.14

2 600 mm 27% 20,736,000.00 34,560,000.00
3 1,200 mm 20% 15,360,000.00 12,800,000.00
4 2,000 mm 50% 38,400,000.00 19,200,000.00
Total 100% 76,800,000.00 73,142,857.14

The capacity utilization rate is assumed taking in to consideration the industry average,

the industry average is set based on the empirical evidence of time the project could

take until it integrates in the market network for its products, the mechanical capacity

utilization level of the new machineries and equipment, availability of the required raw

materials and technical efficiency in production, is shown below:-

Product Mix Measurement 70% Capacity 2019/20

350 mm PCS/Bottle 70% 4,608,000.00
600 mm PCS/Bottle 70% 24,192,000.00
1,200 mm PCS/Bottle 70% 8,960,000.00
2,000 mm PCS/Bottle 70% 13,440,000.00
Total 51,200,000.00

2.3.2. Pricing Strategy

As a majority of the customers in Ethiopia are still relatively price-sensitive and price is

a major purchasing criterion, competitive pricing is one of the key success factors for

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bottled water companies operating in the country. The selling price for the different

types of the company’s product mixes for local and export markets are shown below: -

Selling price per Piece/bottle Selling price per Piece/bottle

S.N. Product Mix
for Local Market in ETB for Export Market in USD

1 350 mm 4.00 0.12

2 600 mm 4.58 0.13
3 1,200 mm 6.84 0.19
4 2,000 mm 9.17 0.26
2.3.3. Distribution Networks

The company will use agents and they are selected carefully based on the value and

mission and guiding principles of the company. After selection they will get training on

issues pertinent to market penetration, promotion, customer handling etc. and

agreement will be signed on roles and responsibilities. However, the company planned

to distribute the water to Addis market by its own.

The company will transport the bottled water from the factory site and bulk in Addis

where it will rent store in appropriate location and it is from there the regional agents

proximate to this location and the company will get the water for distribution. Other

agents like from Dilla, Wolaita, ShashmineHosannaetc will collect the water from the

factory site.

2.3.4. Promotion

Branding and marketing of bottled water is as essential as water for the survival of the

human body. The traditional marketing tools include site advertisement, TV and print

media advertising and brochures. Another marketing option is to sponsor public events

like Football match, and Ethiopian Great run. In addition, free brochures will be

distributed that talks about importance of water and its daily consumption, water

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requirements in different age level. Information about the Company as well as its

products will be post via its website, and send through direct mailings. The Company’s

promotional efforts also seek to differentiate its products from those of its competitors.

Overall marketing strategy may change with the change of target market. A market

research study will be carried out to design the different dynamics of marketing during

product selling launching the product.

3. Production Process

3.1. Production Process

The production and bottling of water in PET bottles involve the following process: the

raw water storage and treatment, filling and capping, labeling, wrapping and

dispatching. The major operations in water storage and treatment unit include water

color removal, raw water pumping and storage, filtration using different types of

filters, ultraviolet water disinfection system. The water before stored in the tank is

disinfected by means of ozonator. Suspended solids are removed from the raw water

by using as and filter which there by reduces the turbidity of water and helps in

obtaining clean and clear filtered water. Iron staining is eliminated by changing the

ferrous iron to ferric iron by the ozone oxidizing effect on the ferrous iron.

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Line process flow chart

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Water Production Filling Machine

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3.2. Working Capital Determination

The working capital Part of the factory includes the raw material cost, salary, utility

and fuel expense of the factory

WC Components Minimum Days of Coverage Coefficient of Turnover

Raw Material 180 2

Utility 30 12
Salary 30 12
Fuel Expense 30 12

 The annual Salary of the already recruited 242 employees will be birr10.58

million. The fuel and utility expenses are assumed to be 2% and 1% of the sales

revenue.

 Interest rate is 11.5% and profit tax is 30%

 The 70% attainable production capacity of the two shifts is tabulated here

under: -

Product Mix Measurement 70% Capacity 2019/20

350 mm PCS/Bottle 70% 4,608,000.00
600 mm PCS/Bottle 70% 24,192,000.00
1,200 mm PCS/Bottle 70% 8,960,000.00
2,000 mm PCS/Bottle 70% 13,440,000.00
Total 51,200,000.00

 Raw Material Utilization

The main raw materials required are petpre form of different sizes, label, enclosure

neck sleeve and shrink wrappers. The annual requirement of these items at

70%capacityof the two shifts is shown here under.

Summary of the above Raw Material Packaging Unit Cost in Birr per Bottle

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Description 350ml 600ml 1200ml 2000ml

Pet Pre-form 1.2 1.43 1.81 2.33
Cap Label 0.05 0.05 0.05 0.05
Body Label 0.14 0.17 0.24 0.31
Shrink Wrapper 0.13 0.14 0.37 0.43
Enclosure/Cap 0.24 0.24 0.24 0.24

On the basis of the above relationship, the total raw material cost for the 70% attainable

capacity of the two shifts of production of the different size product mixes is tabulated

here under. The one that has shown in the bracket is the production capacity of the

two shifts of each product size @ 70%.

Description 350ml(A) 600ml(B) 1200ml(C) 2000ml(D)

(4,608,000.00 (24,192,000.00) (8,960,000.00) (13,440,000.00)
)
Pet Pre-form 5,529,600.00 34,594,560.00 16,217,600.00 31,315,200.00
Cap Label 230,400.00 1,209,600.00 448,000.00 672,000.00
Body Label 645,120.00 4,112,640.00 2,150,400.00 4,166,400.00
Shrink Wrapper 599,040.00 3,386,880.00 3,315,200.00 5,779,200.00
Enclosure/Cap 1,105,920.00 5,806,080.00 2,150,400.00 3,225,600.00
Sub Total 8,110,080.00 49,109,760.00 24,281,600.00 45,158,400.00
Freight, Insurance & In ln 811,008.00 4,910,976.00 2,428,160.00 4,515,840.00
Land Related cost (10%)
Total 8,921,088.00 54,020,736.00 26,709,760.00 49,674,240.00
Grand Total raw material and packaging cost (A+B+C+D) 139,325,824.00

 Sales Revenue of the product mixes will be shown here under: -

Product 100% Attainable

Average Selling Price
Market Size in Production Year 1 Year 2 Year 3
per Pcs in ETB
ml capacity

        70% 75% 80%

350 4 5,266,285.71 14,745,599.99 15,798,857.14 16,852,114.28
Local (80%)
600 4.58 27,648,000.00 88,639,488.00 94,970,880.00 101,302,272.00

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1200 6.84 10,240,000.00 49,029,120.00 52,531,200.00 56,033,280.00

2000 9.17 15,360,000.00 98,595,840.00 105,638,400.00 112,680,960.00
Sub Total     58,514,285.71 251,010,047.99 268,939,337.14 286,868,626.28
350 3.48 1,316,571.43 3,207,168.00 3,436,251.43 3,665,334.86
600 3.77 6,912,000.00 18,240,768.00 19,543,680.00 20,846,592.00
Export (20%)
1200 5.51 2,560,000.00 9,873,920.00 10,579,200.00 11,284,480.00
2000 7.54 3,840,000.00 20,267,520.00 21,715,200.00 23,162,880.00
Sub Total     14,628,571.43 51,589,376.00 55,274,331.43 58,959,286.86
Grand Total     73,142,857.14 302,599,423.99 324,213,668.56 345,827,913.13

 The fuel and utility expenses are assumed to be 2% and 1% of the sales

revenue, which is birr 6,051,988.4&birr 3,025,994.24 respectively.

Working capital requirement of the company on the basis of the above assumptions is

shown below: -

Summary of WC Determination @70% capacity Utilization of 2 Shifts

WC Components 2019/20 Coefficient of Turnover WC Requirement of One Cycle

Raw Material 139,325,824.00 2 69,662,912.00

Utility 3,025,994.24 12 252,166.19
Salary 10,580,000.00 12 881,666.67
Fuel Expense 6,051,988.4 12 504,332.37
Total WC Requirement of the year 2019/20 71,301,077.22

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