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PROJECT PROPOSALFOR SETTING UP A

DAIRY FARM


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Dairy Farm Project Kantale Dairies

1. Project Scope

This project is to establish a large scale dairy cattle farm in Sri Lanka. It will be thestepping stone in establishing a sustainable dairy cattle industry in Sri Lanka. The

proposal is to initiate with 500 high producing hybrid cows and to expand up to 1000

milking cows with the use of initial parent stock. The farm establishment in turn is

developed as the coordination point in serving the small scale dairy farmers within the

region. In addition to the in house production it is intended to provide related services to

the small scale farmers at a profit.

2. Retrospect

Sri Lanka being an agricultural country possesses all vital requirements necessary to

establish a sustainable dairy cattle industry.

Having such a grate potential to be self sufficient with dairy production, yet the country

produces only 20% of the requirement of milk and related products. Rest of the market

requirement is directly imported from several other countries, that spends rupees 12

billion every year with grate difficulties.

Sri Lankan cattle population as at 2006 is 1,214,000 neat cows and 314,000 buffaloes. In

which only 430,000 are at the potential milk producing stage. The average production

remains at 1 liter per cow which is not viable at all to rear cattle for a business purpose.

The economic potential of this sector is badly neglected for many decades. During last

few years there was a growing attention on this sector it has become one of the most

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4. Technical FeasibilitySri Lanka has a considerable cattle population though it is not been developed as a

commercial industry. The climatic factors are highly favorable for rearing cattle. It gets a

considerable rain fall year around for healthy growth of pasture. Specially the region been

selected for the project possess biannual rainfall pattern with an annual rainfall of 2000

inches. In addition tanked water is available for irrigation year around. Under irrigated

conditions pasture gives a massive production of around 150 metric tons of dry matteryield per year.

The limitation for the industry is the unavailability of high productive cows tolerant to

temperate humid conditions. To overcome the limitation it is planed to import a

successful milking cattle breed from Australia which has proven the performance under

such conditions. This breed Australian Friesian Sahival is been recommended by the

government authorities after successful field researches conducted.

The availability of agricultural byproducts and concentrate feed would reduce the

production cost largely. The availability of cheap labour in the country is also a plus point

in financial view points.

5. Technical Know-how

Large scale dairy farming is not currently a general practice in Sri Lanka. It has been

highlighted as a reason to the poor growth in the industry. Therefore the skill should

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Several multi national companies dominate the market namely Fontera Brands, Nestle

and few Australian and Denmark companies in the absence of fresh milk supply. Fontera

itself bear 53% of the market share of the milk powder sector.

The increasing demand for locally produce milk powder and fresh milk has driven the

market leaders to collect milk from local farmers. However, the local production is not

enough even for the production of perishable daily product like pasteurized milk and

yoghurts.

7. Buyers

Several multinationals and local manufacturers are willing to come to an agreement to

purchase whatever the quantity produced locally at a premium price compare to the

imported product prices.

In 2008 the government set a price ceiling for fresh milk to protect the producers and to

encourage the investments in the sector.

8. Services Delivery to Smallholder Farmers

Providing industry services to community farmers is one of the strategic movements of

establishing as the leading outfit in the industry. Though it may not generate attractive

profits in short run this is a very prospective in long run.

Intended services to be provided:


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9. Financial Feasibility

Kantale dairies-Dairy Farm Project

Assumptions

Pre Operational Forecast

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Price Inflation - 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%

Investor Returns

Investor Repayment (on profits) - 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

Working CapitalStocks for 15 days 15 days 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%

Debtors (30% on credit) 30 days 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%

Creditors as a % of Operating Expenses 30 days 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%

Depreciation Rates

Building 5%

Plant & Machinery 10%

Farm Vehicles 10%

Fences 15%

Motor Vehicle 10%


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Kantale Dairies- Dairy Farm Project

Set-up Cost

Description Estimated Cost

Land -2000 Arcs (Acquisition cost) 2,000,000

Livestock (cows & bulls) 100,000,000

Milking plant-30/30 herringbone 150,000,000

Storage unit-20,000 liters 10,000,000

Cow housing- open corrals 500 heads 60,000,000

Office & other permanent buildings 25,000,000

Vehicles, Machinery & equipments 60,000,000

Land preparation &development 10,000,000

Infrastructure (Roads, Electricity, Water) 5,000,000

Irrigation system 5,000,000

Fencing 3,000,000

Project initiation charges (Govt & local authorities) 5,000,000

Project Management 5,000,000

Contingencies 5,000,000

Total Cost 445,000,000

Fixed Assets Gain 320,000,000

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Kantale Dairies-Dairy Farm Project

Operational Cost


Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Land lease 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

Labour (8 staff & 15 workers) 4,000,000 5,000,000 5,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000

Electricity 1,000,000 1,000,000 1,500,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

Telephone & Internet 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000

Fuel 1,000,000 1,500,000 1,500,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

Concentrated animal feed 1,000,000 1,000,000 1,500,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

Fertilizer 1,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000

Medicine & veterinary inputs 0 1,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000

Chemical inputs 0 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000

Insurance 1,000,000 1,000,000 1,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000

Maintenance 0 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

Consultancy 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000

Miscellaneous 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000

To ta l A nnua l Ope ra tional C ost 11 ,5 00 ,0 00 16 ,0 00 ,0 00 1 7, 50 0, 00 0 2 0, 50 0, 00 0 2 0, 500 ,0 00 20 ,5 00 ,0 00 2 0, 500 ,0 00 2 0, 50 0, 00 0 2 0, 500 ,0 00 2 0,5 00 ,0 00

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Kantale Dairies-dairy Farm Project

Turnover


Source Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Milk (Liters) 0 31,500,000 42,000,000 70,000,000 105,000,000 105,000,000 105,000,000 105,000,000 105,000,000 105,000,000

Live stock (bulls and Calves) 0 0 10,000,000 15,000,000 20,000,000 40,000,000 40,000,000 40,000,000 40,000,000 40,000,000

Other Products (Grass, Manure) 250,000 500,000 1,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000

Services 250,000 500,000 750,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

Total 500,000 32,500,000 53,750,000 87,500,000 127,500,000 147,500,000 147,500,000 147,500,000 147,500,000 147,500,000

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Kantale Dairies-Dairy Farm

Project

Working Capital Schedule

Pre

Operationa

l Forecast

Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Current Assets

Stocks 1,500,000 2,000,000 2,500,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000

Debtors 150,000 9,750,000 16,125,000 26,250,000 38,250,000 44,250,000 44,250,000 44,250,000 44,250,000 44,250,000

150,000 11,250,000 18,125,000 28,750,000 41,250,000 47,250,000 47,250,000 47,250,000 47,250,000 47,250,000

Current LiabilitiesCreditors 3,000,000 4,000,000 5,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000

3 ,0 00, 00 0 4, 00 0, 000 5 ,0 00 ,0 00 6 ,00 0, 00 0 6 ,0 00, 00 0 6 ,0 00 ,00 0 6 ,00 0, 00 0 6 ,0 00, 00 0 6 ,0 00 ,0 00

Working Capital 150,000 8 ,250,000 14,125,000 23,750,000 35,250,000 41,250,000 41,250,000 41,250,000 41,250,000 41,250,000

Change In Working Capital (150,000) (8,100,000) (5,875,000) (9,625,000) (11,500,000) (6,000,000) 0 0 0 0

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Kantale Dairies- Dairy

Farm Project

Income Statement

Pre

Operational Forecast

Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Gross Turnover

Milk (Liters) 0 31,500,000 42,000,000 70,000,000 105,000,000 105,000,000 105,000,000 105,000,000 105,000,000 105,000,000

Live stock (bulls and Calves) 0 0 10,000,000 15,000,000 20,000,000 40,000,000 40,000,000 40,000,000 40,000,000 40,000,000

Other Products (Grass,

Manure) 250,000 500,000 1,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000

Services 250,000 500,000 750000.000 1000000.000 1000000.000 1000000.000 1000000.000 1000000.000 1000000.000 1000000.000

Total 500,000 32,500,000 53,750,000 87,500,000 127,500,000 147,500,000 147,500,000 147,500,000 147,500,000 147,500,000

Price Inflation Factor 8% 1.000 1.080 1.166 1.259 1.359 1.467 1.584 1.710 1.846 1.993 2.152

Inflation Adjusted turnover 540,000 37,908,000 67,671,250 118,912,500 187,042,500 233,640,000 252,225,000 272,285,000 293,967,500 317,420,000

Less payment to ProvincialCouncil 3% 16,200 1,137,240 2,030,138 3,567,375 5,611,275 7,009,200 7,566,750 8,168,550 8,819,025 9,522,600

Net Turn over 523,800 36,770,760 65,641,113 115,345,125 181,431,225 226,630,800 244,658,250 264,116,450 285,148,475 307,897,400

Expenditure

Total Operational

(11,500,000) (16,000,000) (17,500,000) (20,500,000) (20,500,000) (20,500,000) (20,500,000) (20,500,000) (20,500,000) (20,500,000)expenditure

Pre Operational Cost (125,000,000)

Price Inflation Factor 8% 1.000 1.080 1.166 1.259 1.359 1.467 1.584 1.710 1.846 1.993 2.152

T ot al Ex pe nd it ur e ( 12 5, 00 0, 00 0) ( 12 ,4 20 ,0 00 ) ( 18 ,6 62 ,4 00 ) ( 22 ,0 32 ,5 00 ) ( 27 ,8 59 ,5 00 ) ( 30 ,0 73 ,5 00 ) ( 32 ,4 72 ,0 00 ) ( 35 ,0 55 ,0 00 ) ( 37 ,8 43 ,0 00 ) ( 40 ,8 56 ,5 00 ) ( 44 ,1 16 ,0 00 )

P ro fit B ef or e T ax ( 12 5, 00 0, 00 0) ( 11 ,8 96 ,2 00 ) 1 8,1 08 ,3 60 4 3,6 08 ,6 13 8 7,4 85 ,6 25 1 51 ,3 57 ,7 25 1 94 ,1 58 ,8 00 2 09 ,6 03 ,2 50 2 26 ,2 73 ,4 50 2 44 ,2 91 ,9 75 2 63 ,7 81 ,4 00

Taxation

P ro fit A ft er Ta x ( 12 5, 00 0, 00 0) ( 11 ,8 96 ,2 00 ) 1 8,1 08 ,3 60 4 3,6 08 ,6 13 8 7,4 85 ,6 25 1 51 ,3 57 ,7 25 1 94 ,1 58 ,8 00 2 09 ,6 03 ,2 50 2 26 ,2 73 ,4 50 2 44 ,2 91 ,9 75 2 63 ,7 81 ,4 00

-

(1, 810, 836) (4, 360, 861) (8, 748, 563) (15 ,135,773) (19 ,415,880) (20 ,960,325) (22 ,627,345) (24 ,429,198) (26 ,378,140)Investor Payment 10%

Profit/(Loss) for he Year (125, 000, 000) (11 ,896,200) 16, 297, 524 39, 247, 751 78, 737, 063 136,221,953 174,742,920 188,642,925 203,646,105 219,862,778 237,403,260

Profit Brought Forward (125, 000, 000) (11 ,896,200) 4 ,401 ,324 43, 649, 075 122,386,138 258,608,090 433,351,010 621,993,935 825,640,040 1 ,045 ,502,818

Profi t Carri ed Forward (125, 000, 000) (136, 896, 200) 4 ,401 ,324 43, 649, 075 122,386,138 258,608,090 433,351,010 621,993,935 825,640,040 1 ,045 ,502,818 1 ,282 ,906,078

10 Confidential


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Kantale Dairies- Dairy Farm Project

Cash Flow Statement


Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

P ro fit B ef or e Ta x ( 12 5, 00 0, 00 0) ( 11 ,8 96 ,2 00 ) 1 8,1 08 ,3 60 4 3,6 08 ,6 13 8 7, 48 5, 62 5 15 1,3 57 ,7 25 1 94 ,1 58 ,8 00 2 09 ,6 03 ,2 50 2 26 ,2 73 ,4 50 2 44 ,2 91 ,9 75 2 63 ,7 81 ,4 00

Adjustments For Non-Cash Items

Depreciation 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000

Adjustment For WC (150,000) (8,100,000) (5,875,000) (9,625,000) (11,500,000) (6,000,000)

Cash Flow from Operati ng Activ it ies (125, 000, 000) 19, 953, 800 42, 008, 360 69, 733, 613 109,860,625 171,857,725 220,158,800 241,603,250 258,273,450 276,291,975 295,781,400

Income Tax Paid

Operati ng Cash Flow After Tax (125, 000, 000) 19, 953, 800 42, 008, 360 69, 733, 613 109,860,625 171,857,725 220,158,800 241,603,250 258,273,450 276,291,975 295,781,400

Acquisition of Fixed Assets (320,000,000)

Cash Posit ion after Investm ents (445, 000, 000) 19, 953, 800 42, 008, 360 69, 733, 613 109,860,625 171,857,725 220,158,800 241,603,250 258,273,450 276,291,975 295,781,400

Financing Activities

Equity Infusion 450,000,000

Investor Repayment (1,810,836) (4,360,861) (8,748,563) (15,135,773) (19,415,880) (20,960,325) (22,627,345) (24,429,198) (26,378,140)

Net Cas h Flow 5,000,000 19,953,800 40,197,524 65,3 72,751 101,112,063 156 ,721,953 200 ,742,920 220,642,925 235,6 46,105 251,862,778 269,403,26 0

Cash B/F 5,000,000 24,953,800 65,151,324 130,524,075 231,636,138 388,358,090 589,101,010 809,743,935 1,045,390,040 1,297,252,818

Cash C/F 5,000,000 24,953,800 65,151,324 130,524,075 2 31,636 ,138 3 88 ,358,090 589 ,101,010 809,743,935 1,045 ,390, 040 1,297,252,818 1,5 66,656, 078

N et Ca sh P os it io n 5 ,0 00 ,0 00 2 4, 95 3, 80 0 6 5,1 51 ,3 24 1 30 ,5 24 ,0 75 2 31 ,6 36 ,1 38 3 88 ,3 58 ,0 90 5 89 ,1 01 ,0 10 8 09 ,7 43 ,9 35 1 ,0 45 ,3 90 ,0 40 1 ,2 97 ,2 52 ,8 18 1 ,5 66 ,6 56 ,0 78

11 Confidential


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Kantale Dairies-Dairy Farm Project

Discounted Cash Flow


Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Free Cash Flow (445,000,000) 13,103,800 43,108,360 68,608,613 112,485,625 176,357,725 219,158,800 234,603,250 251,273,450 269,291,975 288,781,400

Discounting Rate 10%

Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386

Discounted Cash Flows (445,000,000) 11,912,545 35,626,744 51,546,666 76,829,195 109,504,272 123,709,429 120,388,562 117,220,919 114,206,085 111,337,731

Net Present Value 427,282,149

Payback - Normal (450,000,000) (438,087,455) (402,460,711) (350,914,045) (274,084,849) (164,580,577) (40,871,148) 79,517,414 196,738,333 310,944,418 422,282,149

12 Confidential


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Kantale Dairies-dairy Farm Project

Balance Sheet


Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Non-current Assets

Fixed Assets 320,000,000 288,000,000 256,000,000 224,000,000 192,000,000 160,000,000 128,000,000 96,000,000 64,000,000 32,000,000

Live Stocks 25,000,000 35,000,000 45,000,000 55,000,000 75,000,000 90,000,000 90,000,000 90,000,000 90,000,000 90,000,000

Current Assets

Stocks 1,500,000 2,000,000 2,500,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000

Debtors 150,000 9,750,000 16,125,000 26,250,000 38,250,000 44,250,000 44,250,000 44,250,000 44,250,000 44,250,000

Short term Investments 5,000,000 24,953,800 65,151,324 130,524,075 231,636,138 388,358,090 589,101,010 809,743,935 1,045,390,040 1,297,252,818 1,566,656,078

5,000,000 25,103,800 76,401,324 148,649,075 260,386,138 429,608,090 636,351,010 856,993,935 1,092,640,040 1,344,502,818 1,613,906,078

Current Liabilities

Creditors 3,000,000 4,000,000 5,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000

Taxation

Overdraft

0 0 3,000,000 4,000,000 5,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000

Ne t C ur re nt A ss et s 5 ,0 00 ,0 00 2 5, 10 3, 80 0 7 3,4 01 ,3 24 1 44 ,6 49 ,0 75 2 55 ,3 86 ,1 38 4 23 ,6 08 ,0 90 6 30 ,3 51 ,0 10 8 50 ,9 93 ,9 35 1 ,0 86 ,6 40 ,0 40 1 ,3 38 ,5 02 ,8 18 1 ,6 07 ,9 06 ,0 78

Non-current Liabilities

Gratuity Provision

Ne t A ss et s 5 ,0 00 ,0 00 3 70 ,1 03 ,8 00 3 96 ,4 01 ,3 24 4 45 ,6 49 ,0 75 5 34 ,3 86 ,1 38 6 90 ,6 08 ,0 90 8 80 ,3 51 ,0 10 1 ,0 68 ,9 93 ,9 35 1 ,2 72 ,6 40 ,0 40 1 ,4 92 ,5 02 ,8 18 1 ,7 29 ,9 06 ,0 78

13 Confidential

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