Entrepreneurial Finance Term Report

Extension of Walls

SYED WASAY FARHAN ZAFAR SYED M. TALHA YOUMNA RIZVI

Extension of the walls product line

1. Executive summary Ice Dreams will sell flavored ice pops or ice lolly as they are most commonly known in this part of the world. They are a delicious alternative to the fruit juices and the other ice creams that are present in our market. How? Read on.

The frozen pop has its origins in frozen desserts that are as old as civilization. The ancient Romans had blocks of ice carried down from the mountains in the summer. The blocks were ground into crushed ice that was flavored with fruit and syrup. The Chinese are credited with the same practice, and these sherbets, sorbets, and frozen ices were served in the thirteenth century court of Kublai Khan (1215-1294) when the Italian adventurer Marco Polo (1254-1324) visited. Other ancient cultures including those of Turkey, Persia (now Iran), the Arabian Peninsula, and India also knew of frozen, flavored ices. They were usually a privilege of the wealthy and were made of ice, fruit pulp, fruit syrup, and flowers for flavor, fragrance, and color. Frozen treats were served to honor guests at banquets or to cleanse the palate between courses, as sorbets are still used today. In the sixteenth century, Catherine de Medicis (1519-1589), the Italian-born wife of French King Henry 11 (1519-1559), brought recipes for frozen ices from Italy and introduced the concept of freezing the ices artificially by plunging their containers into icy brine. The next major landmark in the development of frozen novelties occurred in three capital citiesParis, London, and New York in the 1820s. Street vendors sold ice cream and penny ices (frozen ice dollops, rather like small snow cones) that were held on tiny glass goblets. The customer bought an ice for a penny and ate it directly from the goblet (without any spoon or stick), and the vendor recycled the goblet for the next customer. The little scoops of frozen ice or ice cream were called "hokeypokey" (probably derived from an Italian catchphrase), and the pennyice men were also called hokeypokey men. The hokeypokey men were the original Good Humor men, named for the brand of ice cream on a stick that was introduced in 1922. Good Humor grew out of two popular inventions. The automobile (and the truck) helped vendors cover a larger area and carry more novelties than the street vendors with their push carts. And, in 1910, lollipops had become a popular candy for children in America and England. Ice cream on a stick and the Good Humor bar followed. Meanwhile, another icy revolution was underway. The discovery of the frozen pop is attributed to an 11-year-old boy. In 1905, Frank Epperson mixed powdered soda pop and water but forgot about his preparation and left it outside on the porch of his home in Oakland, California. The concoction froze overnight, and the stick he had used to stir the powder in the water stuck in the frozen liquid. Frank pulled out the whole frozen mass and found that he had invented a new treat. He named it the "Epperson icicle." The following summer, he made his frozen treats in his family's icebox and sold them around his neighborhood under the shortened name of "Epsicle." Frank again rechristened his discovery the "popsicle" to show that they were made from soda pop. The selling price for the original Epsicles was five cents apiece.
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Epperson patented his treat in 1924 when he was 30 years old as the Popsicle. We take Epperson's idea a step further. For him the idea was to sell frozen treats as a dessert, we have built our idea on the idea of beating the heat! The ice pops will be available in flavors of fruits that help beat the heat by keeping the water content in your body to an optimal level, while the salts and sugar keep your energy levels up, so the kids, who will be our prime target market, will not have to spend Rs.25 to buy a juice when they can buy our ice pops for Rs.15. Our main competitors will be the local ice cream brands as well as the local brands that manufacture fruit juices. Our Unique Selling Point (USP) will be the addition of a sugar alternative which is commonly found in the indo-pak subcontinent, the madhu-patta. It is being used by several other companies around the world as a diet supplement. The addition of this plant to our products makes it a healthy dessert for kids as well as people who have a sugar problem.
2. The Company INTRODUCTION TO UNILEVER

Unilever is one of the world's leading fast moving consumer goods companies. It offers products across foods, home and personal care categories. Unilever sells in over 150 countries and manufactures in more than 70 countries. Its products are used by consumers 150 million times per day. The group operates in Europe, the Americas, Asia and Africa. It is headquartered in London. Unilever has a history that dates a century back. In the 1900s Unilever's founding companies produced products made of oils and fats, principally soap and margarine. At the beginning of the 20th century their expansion nearly outstrips the supply of raw materials. In 1910s Tough economic conditions and the First World War make trading difficult for everyone, so many businesses form trade associations to protect their shared interests. In 1920s with businesses expanding fast, companies set up negotiations intending to stop others producing the same types of products. But instead they agree to merge - and so Unilever is created in 1930. Today Unilever employs 163 000 people, sells products in 170 countries worldwide, and supports the jobs of many thousands of distributors, contractors and suppliers. Unilever is the worlds largest manufacturer of ice cream; in fact Unilever holds almost 18% of the global market share, vs 14% for Nestle, the closest competitor.
Introduction to Walls

Wall's is an international brand of ice cream, belongs to Unilever's Heartbrand ice cream business and has one of the best-known symbols in ice cream, the *Heart. *. Ice cream production for Walls as a subsidiary of Unilever commenced in 1922 at a factory in Acton, London. In 1959, Wall's doubled capacity by opening a purpose built ice cream factory at Gloucester, England. Though Unilever has been selling ice cream globally for years, the Heartbrand was launched globally in 1999. Walls products are sold in more than 40 countries. Walls is one of the most profitable units of Unilever and has 38 plants all over the world and has a share of 22% of international ice cream market. In Pakistan it has around 50% of total ice cream market (both organized and unorganized sectors combined).
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The company invests around 50 million in ice-cream research and development each year, of which 40% is spent in the health and wellbeing sector. Walls is ranked as # 24 in Newsweeks list of Asias top brands. Wall's was introduced in Pakistan at the start of 1995. It was launched firstly in Lahore in 1995 and later year in Karachi and Islamabad. In 1996, it was launched in Faisalabad and in 1997 it was launched in Multan, Quetta, Hyderabad, Peshawar and Sukhar as well. At that time, the only large competitor in Pakistan to Wall's ice cream was Polka Ice Cream whose assets were purchased soon after Walls launching by Lever Brothers. Walls is one of the most active players in the market and is striving to offer lighter, healthier products as well as providing old favourites, hence catering to a variety of diverse tastes. Walls ice creams are consumer, nondurable, convenience, packaged goods. Walls has a variety of products, ranging from low priced desserts like jet sport to premium priced ones like Magnum. Walls Pakistan has one Unit at Manga Mandi with a production capacity of 10,000 Litres / day.

3. The Industry INDUSTRY ANALYSIS

For every company, understanding the industry dynamics is essential. This is due to the reason that there are external forces which impact the industry as whole and there are various competitors in the industry, who are competing for the same set of resources and fighting for the market share. The ice pop industry is an offshoot of the ice cream industry which is an offshoot of the dairy industry of Pakistan and a product of value addition in the dairy industry. Remaining within the scope of this report, this industry analysis is focused on the ice cream industry itself. There are small, medium and large manufacturers of ice cream in Pakistan. Up to early nineties there were only 4 well known brands manufactured in Pakistan namely IGLOO, POLKA, ROCCO and YUMMY. In 1995 Lever Brothers Pakistan entered in field and started manufacturing Wall's in Pakistan. It has been estimated that total installed capacity for Punjab including recognised manufacturers, hotels, restaurants and unorganised sector is about 15.5 million litres annually. The provinces of NWFP and Balochistan installed capacity has been estimated about 6 million litres per annum. Now the total installed capacity of ice cream in Pakistan is about 47.5 million litres per annum. The industry continues to grow at a reasonable rate. The manufacturers have various products available in the market like ice lollies and frozen desserts, which are not really ice cream with respect to the composition but fall in the same industry and target the same consumers. The drive of volume growth continues through geographical expansion with the addition of new concessionaires and satellite towns, this makes the distribution network and channel coverage very important for the companies. Heavy investment and sponsorship are also important factors in
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the industry for companies in the industry to increase the exposure of their products among the large population of the country which eventually affects the sales. The industry is being impacted by increasing prices of Raw materials as well as power outages which are impacting production and squeezing profits for even the largest players in the industry. There are numerous suppliers in the industry and big companies like Unilever has established a very strong network with various suppliers which does not let the production to be affected if there were only a few ones, still there are times when difficulty is faced as in the time of the sugar crisis.

4. The Market

For any company, understanding the market it is operating in is essential to be successful. It is only after understanding the market that a company can utilize its competencies or design strategies and bring successful products to the market. Before we proceed with our product development, this section briefly presents the market analysis for ice cream in Pakistan. Ice cream is not graded on the market, as it is sold by the manufacturers directly to the retailer or consumer. The qualities that constitute a good ice cream are left more or less to the judgement of the individual manufacturers and his ability to judge the preference of the public. In general it is conceded that a high quality ice cream should have a rich creamy, sweet taste, be smooth of body, and close texture. The temperature that ice cream is consumed at makes it a pleasurable treat during the warmer months of the year. The sugar, stabilizer and milk solids not fat in ice cream contribute to its quality and palatability. The sugar content should not be below 12 per cent, this is very important particularly for Popsicles, which is not a dairy product but sugar is a main component in the manufacturing of our product and is important for the right taste as well as for managing the nutritional component. The market for Ice Cream in Pakistan increased between 2001 and 2006 and currently it is growing at an average annual rate of 5.7%. In Pakistan, 347,000,000 litres of ice cream is consumed every year and the per capita litre per person is 2.48 Ice creams may generally be categorized as Convenience Products, products which consumers buy frequently, immediately and with minimum of comparison and buying effort. Although in case of the Pakistani ice cream market, consumers do give preferences to certain brands and compare quality from one brand to another, yet, ice cream is a convenience product in the market as it requires minimum search effort and little planning. The density of user can also be categorized geographically. Some brands are more popular in urban areas while others are more preferred in rural areas. Although Pakistan is considered a hot climate country generally but it does have areas with low temperature where ice creams are not consumed much. Walls is the largest player in the Pakistan ice cream market and holds the lions share of the market with Igloo ice cream being in the runner up position. The instant success of Wall's after it was launched and clear consumer preference for the brand ever since has proved the willingness of the Pakistan market to support high quality,
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hygienic, innovative products in the market. There is growth in the industry and last year Ice cream sales grew at a somewhat tepid 9%.

5. Product Description CONCEPT GENERATION

Popsicles, also known as ice lollies are the ideal way to beat the heat due to the cooling effect that it gives to the body. One major problem in having such products in the hot summer season is that the product melts down too quickly. The idea is also to introduce unique flavors which are not available in the market but desired by the consumers e.g. mango Popsicle, which was once produced by Walls but was later discontinued as the Paddle Pop range was introduced. The product should cater to a new market segment as well by making the product a healthy one without charging too high a price. Product Concept: Our product concept is to introduce a new Popsicle in the market this summer season. This will not just be another Popsicle but one which offers unique benefits to the consumers. It will use natural fruit flavours instead of the artificial ones and by using natural flavours, the product offers nutritional value such as vitamins and less artificial sweeteners. Product Attributes: Features: Use of ice structuring protein (ISP) Major use of natural fruit flavours Use of sugar alternative; madhu patta Fun to see and easy to eat shape Use the present manufacturing system for ice lollies with few minor changes
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 Benefits:

Priced at not more than Rs.15 and not less than Rs.10

Natural Flavours Good for health due to no sugar and calories and benefits offered by fruits like Vitamins Lesser mess created by children due to slower melting Cooling effect in summers/ Beating the Heat

6. Competition

The main competitors in the industry for Walls are Hico and Yummy. Igloo is also a market player but has little market share. Another competitor has recently entered the industry called Omore but its presence is currently limited to only a few cities of the country. There are also multinational companies which have brought their products to the Pakistani market but they are premium brands like Movenpick which are targeted at a different market segment than Walls. According to a survey conducted by Unilever a few years back, the market situation with respect to the market share among the competitors may be portrayed somewhat as following:

10% 10% 50% 20% 10%

wall's hico yummy igloo others

7. Marketing and Sale

Our primary marketing campaign will be aimed at creating awareness among our target market. It will include teaser advertisements on television as well as on billboards and newspaper ads. These promotional campaigns will be aimed at increasing sales for the first year. Once we have made our mark in the market our 7|Page

campaigns will be aimed at retaining our customers by emphasizing on the importance of our product as a solution to their heat problem. Now comes the tricky part, summers do not stay all year long, so our product line will include guest appearances of ice lollies which would include fruits that come in the winter or fruits which people like to eat just for the taste and nothing else.

PRODUCTION PLAN
Description Popsicle Machine (HM-PM 30) Qty 2 Cost/Unit Total Amount (Rs.) 185,000 370000

Roller Crusher (Length 18, Dia 24, RPM 35) 1 200,000 200,000 Installation cost 200,000 _____________________________________________________________________________ Total 770,000 _____________________________________________________________________________

Other Equipment Details: Other Equipment Details Qty Cost/Unit Total Cost

Computer 1 50,000 50,000 Computer Printer 1 20,000 20,000 Telephone sets 2 500 1,000 Fax Machine 1 20,000 20,000 Copier 1 200,000 200,000 ______________________________________________________________________________ Total Equipment Cost 291,000 ______________________________________________________________________________

Furniture & Fixture Details: Description Total Cost

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Furniture and Carpeting 200,000 Electric Wiring and Lighting 100,000 Air Conditioner (2 ton split) 55,000 ______________________________________________________________________________ Total 355,000 ______________________________________________________________________________

Human Resource Requirement Details: Positions No. Salary/Month Total Monthly Salary Total Salary/Year

Manager 1 50,000 50,000 600,000 Mechanic 1 10,000 10,000 120,000 Assistant / Peon 2 5,000 10,000 120,000 Watch Man 2 5,000 10,000 120,000 Admin. In charge 1 15,000 15,000 180,000 Marketing Officer 1 25,000 25,000 300,000 _________________________________________________________________________ Total 8 130,000 1440,000 _________________________________________________________________________

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PROJECT ECONOMICS
Project Cost: Capital Investment Rs. in actual Building/Infrastructure Machinery & equipment Furniture & fixtures Office equipment Pre-operating costs Total Capital Costs Working Capital Rs. in actual Equipment spare part inventory Raw material inventory Upfront insurance payment Cash Total Working Capital Total Investment 11.2 Cost of Goods Sold Cost of goods sold Cost of goods sold Cost of goods sold growth rate Operating costs 2 (Transportation) 11.3 Project Returns Description IRR MIRR Payback Period (yrs) Equity 51% 30% 2.69 1,660,000 770,000 355,000 291,000 730,000 3806,000 419,271 3,941,146 118,000 500,000 4,978,417 49, 82,223 1 4,200 2 500 5.0% 1,000 Project 39% 24% 3.09
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NPV

12,302,318

18,438,533

11.4 Project Financing Description Percentage Amount in Rs Debt Financing 40% 4962,888 Equity Financing 60% 7,511,528 ___________________________________________________________________________ Total 12,474,417 ________________________________________________________________________

POTENTIAL RISKS
There is a wide range of potential business impacts associated with your sourcing or investment activities. They need to be looked at systematically. Just as important, however, is to take an overview of what level of risk is acceptable strategically.

Financial risks: These risks involve number of other risks under its umbrella namely: Legal costs Penalties, compensations Communications Re-sourcing Access to capital share value Commercial risks: Business interruption Loss of market share Re-sourcing Brand value Reputational risks: Market brand Customer loyalty Investor confidence Public and consumer trust Employee retention, motivation Recruitment strengths Media and NGO pressure Legal risks:
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 Product import compliance Pirate goods Patents, licenses, IPR Bribery and corruption Business ethics, fraud Human rights

PURCHASING PLAN
Our Value delivery network consist of just the backward integration company which is named as Hommy Enterprise Co. Ltd wholl be supplying us the popsicle machines.

Popsicle Machine (HM-PM-30) Origin Model Number Brand Name China HM-PM-30 Hommy

Machine Product Specifications: Main Power: 380V, 50Hz/60Hz Rate Power: 4.5KW Refrigerant: R22/R404A Cooling type: Water/Air Daily output: 20000pcs Function : one machine can produce : popsicle ice block and ice candy Overall Dimensions: 2200 x 1040 x 1075 mm Packing: 1 unit/case

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POPSICLE MACHINE
Imported from China, the Machine benefits in various ways while helps improving production and make more units with lesser input. The machine is built with luxury appearance and easy operation and low cost of maintenance.

Inside material tank made in pure stainless steel that can resist hydrochloric acid erode.

Operation is easy.

Several types of Popsicle moulds for selection.

Stainless steel mould can resist erode.

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 Mould have auto-shell function and easy to work

Airproof cover and keep the material use long time.

Low capital investments with max production.

Make profit from water, incredible profit potential.

You can use one machine to produce 3 kinds of goods: Popsicle, small ice block, ice candy.

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