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KINGDOM MULTI-PURPOSE CO-OPERATIVE SOCIETY LTD

PRESENTS

A Proposal On The Development Of A Comprehensive Localised Poultry Farmers Incubation Center To Be Located In The Federal Capital Territory, Abuja, Nigeria

TO

PROSPECTIVE INVESTORS AND MEMBERS

Corporate Head Office:Nigeria:39B Danude StreetMaitama

KIMCS 2010 1

AbujaNigeria.Telephone: +2347098814236, +2347025465604,

CONTENT

01. EXECUTIVE SUMMARY 3

02. INTRODUCTION 9 02.01 Project Background02.02 Objective of Study02.03 Methodology

03. MARKET ANALYSIS 1103.01 Overview03.02 Product Market03.03 Major Consumers03.04 Demand Level03.05 Projected Demand03.06 Major Suppliers03.07 Level of Supply03.08 Projected Supply03.09 Competition03.10 Proposed Marketing Strategy

04. TECHNICAL ANALYSIS 2004.01 Operational Details and Structure 04.02 Machinery/Equipment Requirements 04.03 Housing

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04.04 Raw materials and sources,04.05 Infrastructural Requirements

05. MANAGEMENT AND ORGANISATION 29 06. INVESTMENT COST ANALYSIS 3207. REVENUE PROJECTION 37 08. FINANCING PLAN 3909. FINANCIAL PROJECTIONS AND APPRAISAL OF COMMERCIAL VIABILITY

41

CHAPTER ONE

EXECUTIVE SUMMARY

Kingdom Multi-purpose Cooperative Society (KIMCS) was incorporated on July 16, 2008 under the supervision of the Central Bank of Nigeria (CBN). The main object of the cooperative is human capital development thereby alleviating poverty in all facet of human endeavour. The cooperative trains, manage and administer contributions for employees of Government at all levels, Corporate Establishments, Groups and Individuals.

The cooperative was conceived out of an ambition to: Revolutionise the activities of cooperative societies Cater for the down trodden Develop human capital Provide funds for the establishment of businesses Monitor businesses and Total financial advisory services for the class that cannot afford

such A complete solution centre for poverty alleviation

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Our main aim is to reverse the ugly stories and sights associated with cooperative societies and other SMEs establishment administration and management in both public and private sectors in Nigeria. We wish to achieve this by bringing the practice of cooperative society in Nigeria to international standard, adapting and improving on the international best practices. This is synonymous to the practice in Nigeria before colonialism and present cooperative society set up in India. We intend to provide quality training and allied services to corporate and individual Nigerians like never before with high level of honesty and integrity in business relationship by doing the following:

Make quality education/training and information available to government, corporate organizations, groups and individuals in order to impact communal responsibilities at all levels

Make cooperative society practices pleasurable to Nigerians Make illiterates, elites, self-employed, corporate workers, public

servants, etc have sense of responsibilities and hope Render financial assistance to the members Monitoring of members business and taking the business to a

profit making level Financial advisory services for members Liaising and with working with the Government in order to

achieve the poverty alleviation agenda via empowerment Raising funds from investing members, investments, business

activities and government where available Setting up communal businesses for training purpose and

raising of funds for the cooperative society

Kingdom Multi-purpose Cooperative Society (KIMCS) has been organizing various in-house and public Sensitization/enlightenment workshops on the need for viable and purposeful practice of cooperative society in Nigeria. The workshops are to enlighten members of the public on the dynamics, implementation and benefits of cooperative societies in Nigeria.KIMCS 2010 4

On Capitalisation of KIMCS, the promoters have approved =N=500 million as authorized share capital out of which =N=20 million should be called-up. This would be sourced through financial member investment. Major investors who have like minds with the promoters of the cooperative will be identified in the Nigerian society for this purpose. The principal promoters of the company have already committed =N=20 million out of this amount towards take-off, while additional =N= 480 million is to be injected as additional paid-up share capital of the cooperative before major projects kick off.

The cooperative’s affairs would be driven by a Board of Directors, composed of men of integrity and positive business antecedents. This is one of the key strategies for awareness and general acceptability of the cooperative society.The cooperative’s primary target is made up of employees in the Public, Private sectors (organized and informal) and individuals in the rural areas. We have mapped out strategies for penetrating the informal sector to sell the new contributory scheme successfully in that sector.

On this note, KIMCS will use training, workshops, seminars, and enlightenment programmes to get prospects to internalize the concept workings and benefits of the new and reformed cooperative society to enhance quality participation and substantial fund raising for the cooperative.

KIMCS will appoint a Financial Adviser with wide branch network coverage within the country to give us leverage in rendering prompt and efficient services to all our contributors and financial members.

KIMCS operation coverage will include Lagos, Abuja and the six geo-political zones in the country, with our zonal offices located in each of KIMCS 2010 5

the zones to coordinate the cooperative society activities of the states and local governments in the zones. As part of our branch network development, the cooperative will establish unit offices in any state of the federation where it has secured large number of contributors to the scheme.

When KIMCS is in full operation, there will be unit offices in all the states of the federation with representative offices in some big local government areas to harmonise our service delivery and satisfaction of members.The zonal and unit offices will be connected to the head office via satellite communication to enhance our on-line real-time service delivery and control. Our operations would be Information Technology (IT) driven to enable our contributors and prospective members have access to view the operational progress of the cooperative society and also print our membership forms from our web site.

KIMCS’s investment philosophy would be anchored mainly on security of the contributions, grants and investment incomes without compromising fair returns on investments to our contributors and members, since we are aware that the object is not profit making but development of human capital and poverty alleviation.

In order to achieve this business objective, KIMCS intends to employ a crop of young experienced people who would be given first class training and publicity tools, complemented by a challenging remuneration and motivation scheme. The clear focus is to offer the best cooperative society planning, training programme and communal products/services in the industry.

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Based on the financial projections for the first five years of operation, KIMCS is expected to break-even in the third quarter of the first year.

The original promoter of KIMCS, Mr. Moses Ajayi , who is the General Coordinator & Chief Executive Officer, had his Bachelor of Arts in Business Administration degree in 1980, from Andrews University, Berrien Springs, Michigan, USA. He became an Associate of both the Chartered Insurance Institute (ACII) London and Insurance Institute of Nigeria (ACIIN) in 1991.

Mr. Ajayi’s work experience has seen him through Insurance Brokerage, Insurance Agency, Underwriting, Management and Marketing, before joining the banking sector in 1993 during which he served as Deputy Treasurer of Gulf Bank of Nigeria Limited. In 1995, he moved to Continental Trust Bank Limited as the Bank’s Treasurer to oversee the treasury functions of the Bank. He was later to become Regional Director (Business Development) (North), Head of Corporate Services Group, Zonal Coordinator Lagos/Western Zone (Business Development),

and Head of Credit Management Group at different times.

He retired as Deputy General Manager in January 2003 to take up the challenge of managing XYZ, having undergone both local and international training in several areas of management. He has brought into XYZ his diverse capabilities and versatility in insurance, pension funds administration, finance and banking, along with his rich experience as a manager of men and material resources.

THE PROJECT

Poultry Farming business in Nigeria can be said to be as old as history can remember. However, its development and growth compared to what is obtainable in developed nations is still lagging behind, hence, making it an emerging market in Nigeria. Due to the enormous KIMCS 2010 7

demand not met by both the Government and private companies and the ever increasing population and the demand for protein, the poultry farming business development necessitates a paradigm shift, if we must only meet the high demand for it, but also make it a commodity for both the rich and poor. The present global economic meltdown has no doubt affected the rate of Agriculture development in the country owing to the following factors:

Lack of fund from the developers/cooperative societies

Banking reforms that placed embargo on credit

Global recession in other developed countries

Government apathy

Poverty and living standard of the citizens

Monitoring Problem

Besides, the capital requirement for the execution of various Agricultural Businesses and ability to break even either as a private or commercial entity putting into consideration the Direct and Indirect labour factors, are huge enough to scare investors.

PROJECT OBJECTIVESOur localized poultry farmer’s initiative was conceptualized to;

Through constant training/self development, bring to the fore all the modern technology and expertise required for effective Poultry Management and Service to the knowledge of all those who want to do commercial poultry business in Nigeria

Put in place a realistic and reliable method of mobilizing and training a Nigerian workforce that can provide effective Poultry Management and Services capable of meeting both local and international demands

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Ensure that every State in Nigeria has a localized poultry incubation center that will continually provide chicken and eggs alike at considerable prices to its citizens and dwellers

Description of the project idea Localized Poultry Incubation Center housing 20 Commercial Poultry Farmers; with a Feed Mill Factory and Store, Borehole and Water House, Cold Room for Harvested Birds, Generator House, General Store, Administrative Office, Poultry Clinic and Security/Gate House to provide the required services/logistics for all the 20 Poultry Farmers. The Poultry Incubation Center will also accommodate 10 vegetable farmers who will take advantage of the manure that will be derived from the waste products generated by the 20 Poultry Farmers. GOALS OF THE FEASIBILITY STUDY To substantiate the profitability of poultry breeding based on the existing own production facilities and disposal/sales of poultry meat and eggs on the domestic and export market; To analyse the market and to forecast sales of the output finished

goods in the course of the increase of production capacities

To estimate the expected financial results and to work out the financial strategy of the company in terms of payments for the credits to bank or financier

Tasks of the company for the investment period To construct the poultry house in order to provide closed

technological cycle (the first stage – poultry breeding based on the purchased young birds; the second stage – home brooding of young birds with the industrial egg production by a breeding flock and further down-and-feather raw materials and poultry meat production)

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To equip the poultry farm and relevant infrastructure, to continually upgrade all vehicle depots and technological equipments

To enlarge the share of the regional poultry meat market based on the direct contracts with sales companies/agents

To implement contracts and to develop distribution channels for export of down-and-feather raw materials

To ensure profit accumulation from production and sales that meets existing market demands at every point in time

To take advantage of our agricultural sector for the improvement of the nation’s economy and increment of supply of the population with products of its daily necessity, such as chicken and egg

FINANCIAL REQUIREMENTSThe total sum of =N=80.135 million is required to execute the project with over 20% rate of return per annum. The project has over 400% turn over in year and employment opportunity of over 3,000 per annum for unemployed graduates and individuals from the informal sub-sector of the economy.

CHAPTER TWO

INTRODUCTION

Project Background

The livestock sub-sector is an important component of the Nigerian Agricultural Economy. Its importance derives from the fact that it is

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one of the key contributors to the national economy. For example, using the 1984 factor based data, the sub-sector contributed on an annual basis, a little over 5% of the Gross Domestic Product (GDP) between 1996 and year 2000. According to CBN, the livestock sub-sector is second only to the crop sub-sector under the sub-sector contribution to the general agricultural sector, and represents an average over 13% of agriculture’s contribution during the period under consideration.

In terms of specific output, the livestock sub-sector can be broken into product sub-groups such as, poultry meat, goat meat, lamb/mutton, beef, pork, milk and eggs.

Table 1: Estimated Output of Livestock in Nigeria: 1994 – 2000(‘000 tonnes)

Product1994

1995

1996

1997

1998

1999

2000

2001

2002

Poultry 63 73 74 76 77 82 88 95 107

Eggs 377 399 4224 35 436 450 465

487 514

Goat meat 80 88 92 95 96 101 107 114 129Lamb/Mutton 85 94 96 101 102 107 113 117 126Beef 183 192 197 200 202 208 215 228 239Pork 25 31 39 43 45 47 50 55 62

Milk 951 961 972 9899 91

1000

1012

1038

1046

Source: CBN Annual Report and Statement of Accounts (1998-2000)

However, it is noteworthy that the livestock sector has not provided sufficient volumes and the capacity to meet the demand of teeming Nigerians for protein. The annual growth rate has been low for most of the products, particularly for poultry and eggs sub-group, whereas, KIMCS 2010 11

the sub-group, if properly managed, could impact greatly on the income and quality of life of the citizenry. This is because poultry production is a socio-economic activity that has high rating for the reason that the net return on investment is relatively higher than that of other animal species and its contributing role to national economy cannot be overemphasized. Thus it is the major source of high quality protein that is necessary for the continued survival of the fast growing human population of the developing economy.

Based on the foregoing, the proposed integrated poultry intends to invest in comprehensive poultry farming which entails the production of day old-chicks, eggs, broilers and layers.

Objective of StudyThe objective of this study is to undertake a detailed investigation of the technical, market, and financial feasibility of the project, bearing in mind the size of the target market (potential customers), the existing competition, project location, investment costs and financial returns of the project.

MethodologyIn carrying out the study, we adopted the following methodology:

1. A field survey of the market including potential consumers, existing competition, and marketing practices of competitors.

2. Collation and detailed analysis of data so collected;

3. Appraisal of the commercial viability of the project, and

4. Preparation of comprehensive Feasibility Report.

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This feasibility report will, thus provide the necessary guide, to not only the project promoters in evaluating and carrying out their investment proposal, but also to the financiers to enable them determine the viability and feasibility of the project.

CHAPTER THREE MARKET ANALYSIS

Overview

Nigeria, with a population of about 130 million is grossly underprovided with the essential food component, which is protein. For example, data from the FOS, CBN, and FAO indicate that from cattle, less than 2kg of beef is available to an average Nigerian per year and just mere 4kg of eggs per annum is available to each Nigerian. In fact, milk production has been nose diving or at best has remained constant since 1994. This scenario is compounded more so when the volume of egg supply is very low, being 10.56g per person per day as compared with the usual recommendation that an egg should be consumed by an adult per day. This recommendation would imply a crate of 30 eggs per month. This story also holds for other meat products including, chicken.

To ameliorate this problem of low-level of protein intake, there is the need for concerted effort, among the various stakeholders to bring about the massive production of protein based food items at competitive costs so that they would be affordable to the general masses. Aside from the other necessary economic reforms, massive investment poultry farming is one way of resolving the problem.

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What is poultry farming? Poultry farming is the commercial production of poultry birds, which include chicken, turkey, geese, pigeon, guinea and gamebirds. They are easy to produce, and have a high meat to carcass ratio. Hence, they are excellent products for meeting the protein needs of the populace.

Chicken constitutes about 90% of the poultry population in Nigeria. Consequently, poultry farming is generically used to refer to chicken farming in the country.

Poultry Products

The main products of the proposed project include eggs, day-old chicks and poultry meat, which will be generated from, culled birds (i.e. layers and breeders), and broilers. Poultry by-products such as poultry droppings, poultry offal and hatchery wastes will also provide additional income to the project. Poultry dropping can be used as manure for vegetable gardening and feed ingredient in fish farming which the cooperative has considered viable.

Indeed, a wheelbarrow of fresh poultry droppings costs between N50.00 – N80.00 in some parts of Lagos State and more in Abuja at the moment. Poultry offal and other hatchery wastes when grounded are good supply of calcium for growing birds.Hence, they can also be sold in their re-cycled forms. In brief, the proposed products of the projects will include:

(a) Main Products Day-Old Chicks Farm Eggs Poultry Meat

- From Culled birds (Layers and Breeders)- Broilers

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(b) By-products Poultry droppings Poultry Offal and other hatchery wastes.

PROPOSED CAPACITY

5000 Birds per production cycle are the minimum economic size to commence a poultry farm, as the operational and fixed costs are justifiable. This is even more relevant for a non-automated poultry farm. For a fully automated and integrated farm, the recommended minimum economic size is between 8,000 and 10,000 birds.

The proposed project, which is an automated and integrated poultry farm, is proposed to commence with 10,000 to 15,000 birds per production cycle in the poultry section and 10,000 birds in the Hatchery Section. However, the output of the farm is proposed to increase to 20,000 birds in the poultry section and 15,000 day-old chicks within the first five years of the production period.

In the poultry section, the ratio of layers to broilers is proposed as 70%: 30% or 7: 3, while 40% to 60% is proposed for the hatchery section.

PROPOSED CAPACITY (%) OF THE INTEGRATED POULTRY FARM(a) Poultry Section

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(b) Hatchery Section

CONSUMERS OF POULTRY PRODUCTS

Generally, there are few taboos, religious or cultural practices that prohibit the use of poultry products in human diet. Hence, nearly all members of the Nigerian populace are potential consumers of poultry products.

Specifically, there is sustained high demand for live birds for home consumption or as gifts at the time of festivals such as Christmas, New Year, Easter, Id El-Fitri, Id-El Kabir etc. Also fast food operators such as hotels, restaurants, and supermarkets also have very high demand for poultry products.KIMCS 2010 16

Egg, in its own case, has a wide variety of utilisation. Thus, it is used in the preparation of products such as chicken burger, scotch eggs,salad, and egg soup among others. Apart from home consumption, eggs can be used as leavening agent in baked foods, and as an ingredient in the manufacture of hair shampoo and for the production of egg powder that can later be incorporated into baby food.

Poultry farmers, especially the ones specializing in broiler and layer production, are the potential consumer’s of the day-old chicks produced by the hatchery section. Point of lay for egg production involves the raising of the pullet chicks from 0 – 18 weeks. Such chicks must be obtained from reputable hatcheries.

Nigeria’s Poultry Market

While some countries are reputed to be important exporters of poultry products after consistently meeting local demand, Nigeria’s main problem is meeting its local demand for poultry products. Nigeria’s poultry market problems start in 1984 when the Federal Government banned importation of maize. This indeed contributed to steadily declining poultry production in addition to the effects of the structural adjustment programme.

But the Nigerian poultry market had seen more prosperous times for the two decades after independence in 1960; poultry production grew substantially, peaking in 1982, with 40 million commercially reared birds. Since then, the bird population has dipped steadily, to an estimated low of 6 million in 1997. The new political dispensation has brought about a little improvement to poultry farming. Hence, the poultry population increased to 20 million in 2003.

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CURRENT SOURCES OF SUPPLYThe bulk of current sources of supply of poultry products come from the informal sector, which is made up of farmers with smallholdings of 50-700 birds’ capacity. However, there are some big suppliers especially in the southern parts of the country. Such suppliers include:1. Amo Farm Sanders Hatchery Ltd.,2. Animal Care Services Konsult (Nig.) Ltd.,3. Cee-Jay Farms4. Harmony Projects Ltd.,5. Mayfield Farms Ltd.,6. Obasanjo Farms (Nig.) Ltd.,7. Richmond Foods Nigeria Ltd.,8. Samrose Agro-Industrial Company Limited9. Tuns Farm Nigeria Ltd.,10. U.O.O. Agricultural Industries11. UAC Foods (Integrated Poultry Farming)12. Zartech Limited13. Abiola Farms Limited

LEVEL OF SUPPLYIn the course of our survey, we observed that production figures for poultry are not properly maintained by government agencies that are charged with the responsibility. Hence, we came across varieties of production figures from different sources. However, we are able to come out with an estimated supply level by conducting a mini survey, and aligning the results with data from reliable sources such as the Federal Office of Statistics (FOS), Central Bank of Nigerian (CBN) and Food and Agriculture Organisation (FAO)

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On the basis of the foregoing methodology we are able to estimate the supply level of poultry products in the country as follows:

50 million birds per annum60 million eggs per annum 60 day old chicks “

Considering infrastructural constraints and other limiting factors, we may estimate the projected level of supply of poultry products to increase by 5%. Hence the projected level of supply from 2003-2008 is provided hereunder: (‘Million)

2003

2004

2005

2006

2007

2008

Chicken

50 52.5 56.13

57.88

60.78

63..81

Eggs 60 63 66.15

69.46

72.93

76.58

Day-old Chicks

60 63 66.15

69.46

72.93

76.58

Estimated Demand for Poultry

There are very few taboos prohibiting the consumption of poultry products in Nigeria. Hence, nearly all the 129 million Nigerian are consumers of poultry products, in one form or the other.

In terms of the household population, Nigeria presently has about 22 million households. Assuming that each household consumes 20 chickens per annum which include the ones consumed during the major festive periods such as Christmas, New Year and Easter for Christian; Idel Malud, Idel Kabir for Muslims and during the birthday celebration of members of the household or during any special KIMCS 2010 19

occasion, these assumptions bring the estimated poultry consumption to about 440 millions chickens consumed by the households.

It should, however, be noted that the households are not the only consumers of chicken and poultry products. The other consumers include Fast Food Companies, Hotels and other food processing companies. Let us conservatively assume that demand from these groups is about 60 million chickens per annum.This brings the total estimate demand for poultry chicken to 500 million per annum. If we further assumed that this demand increase by 2.00% per annum, then the projected demand for chicken is as follows: (‘Million)

2004 2005 2006 2007 2006

500 510 520.2 530.60 541.5

COMPETITIONCompetition is not so keen in Nigeria‘s poultry markets. The

reasons for this are obvious:1. Poultry products, in their present forms, are not branded

products. Hence, what is essential in this respect is the effective positioning of the distribution outlets, at the appropriate times.

2. As a result of the substantial shortfall in supply, Nigeria’s poultry market is a sellers’ market.

3. Large proportions of the production are being sold through informal channels. However, some degrees of competition exist between the locally produced poultry products and the

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imported ones. A strong indication of this is the phenomenal rise of poultry products shipped in container’s from the United States to Nigeria between 1995 and 1999 (see chart below)

Source: PIERS, Journal of Commerce, New York

To reduce the massive importation of frozen poultry products and to stimulate local production, the Federal Government placed embargo on the importation of poultry products in year 2002.

COMPETITORS MARKETING ANALYSIS As mentioned earlier, the distribution chain in Nigeria’s poultry industry tends to be short, with more than 80% of total production delivered directly to the informal trade sector. The remaining 20% is normally distributed through a longer chain of the formal sector.

In this wise, the marketing practices of the operators in the market can be considered under the headings of quality of service, promotion, and pricing.

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(a) In the area of distribution, poultry farmers sell directly to operators in the informal sector.

These include Butchers Restaurants Boarding hotels Small retail stores Hawkers Live chicken markets Spent – hen depots Individual consumers, Hotels

However, a few big operators sell their farm products directly to operators in the formal market. Members of this group include

Big retail outlets Wholesalers Franchise stores Broiler processing plants Egg processing plants Exporters (Occasionally)

(b)Pricing: Pricing in the informal sector of the industry is relatively stable. However, price determination greatly depends on the grade of the products. In the case of eggs, they are classified to the following three grades.

Grade 1 Grade 2 Under grade

PROPOSED MARKETING STRATEGIESKIMCS 2010 22

The proposed integrated farm will strive to produce highest possible quality of the various products. The proposed farm will explore the following strategies:

1. SUPPLY TO MAJOR HOTELS, RESTAURANTS AND CATERING OUTLETS

There are many tourist initiatives and developments in the cities that need to be catered for. Unfortunately, at the moment, they are under – serviced and still depend on the traditional distribution channels. The proposed farm will aim at meeting the needs of the outlets, initially in Lagos, and subsequently other parts of the country.

2. SUPPLY TO HAWKERS Live chickens or egg will be sold registered to hawkers on a regular basis. As most retailers have transport problems, the farm could entice them by delivering the chickens or eggs at their outlets

CONTRACTINGThe farm may enter into a contract with medium or large-scale broiler users to supply stipulated number of chickens or eggs at specified periods. This will, hopefully, provide a steady market for the farm

SUPPLY TO TOWNSHIP COLD STORAGE DISTRIBUTORSSome cold storage outlets have positioned themselves very well in the town to sell frozen food and meat products. The farm will endeavor to supply these distribution centers.

CHAPTER FOUR

4.1 OPERATIONAL DETAILS AND STRUCTURE

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Fertile Eggs Fumigations of Eggs

The proposed project, which is to be sited in the Abuja suburbs, will be a fully automated and integrated poultry production farm, which will be made up of the following units.

Hatchery Unit, Broiler grow-out facility, Layer/breeder grow-out facility, Table eggs production unit, Broiler/culled birds processing plant,

4.11 Hatchery Unit

This is the unit where fertile eggs will be incubated to produce Day-Old Chicks (DOC). The proposed hatchery Unit is expected to have a brooding capacity of 10,000 fertile eggs per production cycle, and will be made up in the proportion of 60% broilers and 40% breeders. The hatchery production line will include:

a) A Setter Incubatorb) A Hatchers Incubator

The process – flow of the proposed hatchery is as follows:

4.12 Broiler Grow-out FacilityBroiler production involves the raising of day-old chicks (DOC) from 0 – 50 days. The breed of such chicks should be such that has with excellent meat to carcass ratio.

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Setter Incubator

Candling Room

Hatchers Incubator

Day-Old Chicks (DOC)

The proposed broiler production capacity is proposed to be between 3000 -6000 birds per cycle.

There are some essential requirements for growing broilers successfully. All these requirements will be put in place before the proposed project commences.

The requirements include:

Adequate housing Excellent brooding equipment Feeding equipment The modern watering equipment Miscellaneous equipments

All these will be discussed under facility requirements.

4.13 Breeders/Layers Grow out Facility

The breeders/layers production, otherwise known as point of lay production, involves the raising of pullet chicks from 0 – 18 weeks. The point of lay birds are used for producing fertile eggs in the process of producing replacement stocks, or infertile eggs in the process of producing ordinary table eggs.

The proposed farm is expected to produce between 7,000 and 14,000 breeders per production cycle

The basic requirements for a typical breeder grow out facility are similar to that of broiler grow out facility.

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4.14 Table Egg Production Unit

This involves the rearing of birds to sexual maturity, and then keeping them in lay for a year. The eggs produced are infertile and are called table eggs. In Nigeria, some producers begin their production process by raising the day – old pullets, while other buy point – of – lay pullets (e.g. 20 to 22 week old pullets) that are ready to begin production.

The proposed project would depend on its day-old pullets for egg production.

Since an average layer produces 2 eggs every 3 days, the table egg production capacity of the farm will depend on the number of layers deployed in the farm.

4.3 EQUIPMENT/MACHINERY REQUIREMENT

The proposed integrated farm is expected to be fully automated with modern poultry equipment and machinery. The equipment/machinery requirements will include.

a). Hatchery Unit Setter Incubator Hatchers Incubator Fumigation Equipment Candling Lamb

b) Broiler, Layer and Breeder Unit Brooding Equipment Feeding Equipment Watering Equipment Thermometer

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De-beaking scissors

Setter Incubator

The setter incubator would have a minimum capacity of 40,000 Eggs. The dimension of a typical one, “Chick Master 102” is 22’length,12.6’ Width and 8.7’Height

Hatchery

The Hatchery that will be utilized will have a minimum of 30,000 Day -old Chicks per hatching cycle

Drinking systems

An automatic water trough or drinking nipple system placed inside or preferably outside the shed will save labour and provide a constant supply of fresh water. It is important to provide shade in the hot season to keep the water cool.

A low-pressure drinking system is ideal for adult birds. The water flows through the nipples only when they are touched or pecked. Poultry quickly learn how to operate the system. Drinking nipples are more hygienic and use less water than open troughs.

Feeders

In deciding which feeder should be used, it important to put into consideration the type and the class of chicken that is being reared.

Basically, there should be

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Feeder for Pullets

Feeder for Cockerels

Feeder for Day –Old Chicks (DOC)

One hanging ‘tube’ feeder with a pan 400 mm in diameter will provide about 1200 mm of feeding space, enough for 15 hens.

Bulks feed storage are also a necessary part of the feeding equipment. The bins (Silos) are located outside the house.

Broiler Processing Plant

A set of poultry slaughtering and broiler processing that has the capacity to package 5000 broilers per day will be put in place.

Other Support Equipments

Other support equipments include:

Electric Generator –Preferably 250 KV Egg Lifter Debeakers Thermometer Cold room with the capacity to store about 20,000 processed

chicken.

4.4 HOUSING

The first requirement for growing commercial poultry is adequate housing. This is because broiler/layer production is essentially a chick brooding operation. Hence the house should contain necessary equipment so that such factors as temperature, moisture, air quality

KIMCS 2010 28

and light can be controlled easily. It should also provide for efficient installation and operation of brooding, feeding, watering and other equipment.

A poultry building should have the following general features:

* Excellent ventilation, air movement and sufficient lighting,.

* Optimal use of floor space.

* Should contain all necessary equipment such as brooding, feeding, watering and other equipment for efficient operation.

* The house should be sited on a well drained soil.

* Floor of the poultry houses must be concreted and littered.

Three types of houses are utilised in the commercial production of broiler, layer and breeder. Thus birds are transferred to the various houses depending on their age in the production cycle. These houses include:

Brooder House Growers House Deep Litter House Cage.

Brooder House

This is the house where a day-old chick stays until the first 8 weeks of the chick’s life. Brooder house must be maintained properly and kept warm always. Installation of brooder’s guards to confine chicks, flat feeders, drinkers and feed mash must always be available.KIMCS 2010 29

Grower House

After the first 8 weeks, chicks are transferred to the grower house. The purposes of this transference are to protect them and make them comfortable so that they can develop optimally. A well ventilated housing accommodation will suit the growers with enough floor space for the number of growers involved. The recommended floor space for a flock of 250 birds is 125 square meters.

Deep Litter HouseThe birds are transferred to the deep litter house after 20 weeks in the growers’ house. In case of broiler production, this is where the birds will domiciled until they reach the market weight of about 1.6kg in 3 -4 months.

CageThis is the final destination of layers and breeders. No litter is required. Cages are normally put under the roofed house. The usual number of birds required in a cell is 3 pullets or 2 layers.

KIMCS 2010 30

Figure 1. Modern broiler house, which uses two feed bins.

 Houses should be capable of maintaining appropriate temperatures during the entire growing cycle, regardless of the outside temperature. Colder climates require additional insulation, whereas proper air speed becomes crucial in a hot environment. Most broiler houses are built 40 feet wide, usually with two lines of lighting fixtures arranged so that all areas of the floor are well lit. Low-wattage bulbs are place 8 to 10 feet above the floor to provide 0.5 to 1.0 foot candle of light at bird level.

4.5 UTILITIES REQUIREMENT AND SUPPLY

A number of utilities would be put in place in order to ensure smooth functioning of the farm. These utilities include:

a) Water Supply,b) Supplementary Electricity supply,c) Paved Road Transportation,d) Drainage Facility

Water Supply

Clean water supply is a sine qua non of poultry business. Hence, there should be provision for an alternative source of water since constant and clean water supply can only be ensured through provision of an internal borehole and, a minimum of, one overhead water tank of 5000 litres capacity.

KIMCS 2010 31

Electricity Supply

Since public power supply is not reliable, provision will be made for a 250 KVA generating set to supplement National Electric Power Authority supply, and ensure uninterrupted supply of electricity.

4.6 RAW MATERIAL REQUIREMENTThe basic raw materials of a typical Poultry farm include

Feeds Drugs Vaccines

FeedsThe types of food birds feed on varies as they grow, and these include: Chicksmash, which is used for feeding chicks from a “ day old” to 8 weeks old; Growermash , which is used for feeding chicks from 8 weeks to 20 weeks old; Layermash , which is used from 20 weeks upwards .Broiler Startermash is used for feeding day old broiler chicks, while Broiler Finishermash is used from week 4 upwards.

The bulk of this feed will be sourced locally from bulk importers and local manufacturers of livestock feed. The cooperative will also manufacture its own feed mill.

Drugs

Some poultry drugs commonly used in the poultry farms are:

KIMCS 2010 32

Amprol Solube Powder, Tylan, Vitadol, Vibravet, Soluvita Stress, Teramycin eggs formular, Malathion insecticide, Vetox 85 insecticide.

Vaccines

Some popular vaccines include: Newcastle disease vaccine, Coccidants Vaccines, Gumboro Vaccine, Komoro Vaccine, Pox vaccine and Ant- C.R.D Vaccine

About 90% of these inputs are imported. These is why poultry production is highly sensitive to foreign exchange fluctuation In Nigeria

KIMCS 2010 33

CHAPTER FIVE

MANPOWER REQUIREMENT, MANAGEMENT AND ORGANISATIONMANAGEMENT

For the successful operation of the integrated farm, the management should have adequate and appropriate knowledge in specific features of poultry farming. These important areas include:

Diseases control, Housing and equipment , Feeding, Genetic improvement, Marketing,

Consequent upon the medium size of the farm, the management structure will not be too elaborate. Since a promoter will finance the farm, the composition of a board of directors may not be necessary, although it is advisable that this be put in place. The overall management functions, which will include broad policy formulation, approval of budgets and strategic plans, will fall on the promoter who will also function as the Managing Director and Chief Executive Officer of the farm, although a lot of assistance and value can be derived from the constitution of a board of Directors.

PERSONNEL REQUIREMENT

KIMCS 2010 34

Commercial poultry production involves the rearing of exotic breed of chicken that are highly sensitive to environmental changes, feeding pattern and diseases. Hence, its management requires highly skilled and experienced personnel.

The farm is a fully automated and integrated farm. Hence, there would not be need for too many staff. In this wise, the farm will require the following personnel:

The Managing Director (1)The promoter will assume the overall supervisory responsibilities as the Managing Director, carrying out (With the assistance of the key personnel), the function of the strategic policy formulation. He/She will draw monthly salary and allowance for performing this function. Farm Hands (2) Holders of Senior School Certificate Security Men (2) Relevant guards training Driver(s) (2) Holders of Nigerian professional

driving license

ESTIMATED PERSONNEL COSTS

The total estimated annual salary and allowance for the six staff and the Managing Director is =N= 600,000.00. If it is assumed that the salary would increase by 10% per annum, then the salary for the next 5 years is as follows:

N 600,000.00--------Year 1 N 660,000.00--------Year 2 N 726,000.00--------Year 3 N 798,600.00--------Year 4 N 878,460.00--------Year 5

ORGANISATION STRUCTURE

KIMCS 2010 35

Initially, the farm will maintain a lean structure in the first five years of its operation, during which it would enjoy full automation and the services of six staff. However, as the farm expands, in the nearest future, it will be imperative to put in place, a very good structure. Hence, the following structure is recommended.

The farm will be structured into four broad departments. The heads of these departments will report to the General Manager, who will serve as the overall Farm Manager of the integrated farm. He will report to the Chairman / Managing Director.

Hatchery Manager, who will supervise the hatchery operations of the farm, will head the Hatchery unit.

The Finance and Administration Department will be headed by Finance & Administration Manager and will supervise all administration accounts and personnel matters.

The Livestock’s Department will be headed by Livestock Manager, who will supervise the broiler, layers / breeder and egg production operations of the farm.

The Business Development Manager will head the Marketing and sales Department. He will be responsible for implementing marketing and sales strategies of the farm.

PROPOSED ORGANISATION STRUCTURE

KIMCS 2010 36

Chairman/CEO

KIMCS 2010

General Manager

Livestock Manager Hatchery Manager Finance & AdminManager

Business Development

Manager

Feed manHatchery Assistants

Account ClerksAdmin Clerks

Business Development Executives

Veterinary Assistant

37

CHAPTER 6INVESTMENT COST ANALYSIS

The costs of the project are estimated under two main headings, viz:Capital/initial cost and operating/maintenance costs.

1.0 Capital/initial Cost

Based on the estimates gathered during the market survey as well as internet searches, the principal cost component of the project are [1] land/building & Infrastructure, [2] Plant & Machinery, [3] office furniture, [4] delivery vehicles and [5] the pre-operational expenses. These are summarized below:

Construction sheds/store rooms:Land acquisition 5,000,000Broiler/grower shed 1,000,000Hatchery shed 1,000,000Layer Shed 1,000,000Store room 850,000Fencing 2,000,000Borehole construction 1,000,000Feed mill 1,000,000Sub-Total 12,850,000

1.2. Machines/Equipment:Automated Watering System 6,500,000Automated feeding system 12,000,000Automated manure removal 2,750,000Incubation and Hatchery equipment 15,000,000

KIMCS 2010 38

Generator (1 nos. 75 KVA) 2,500,000 Office Equipment (see details) 3,000,000Water bore hole equipment 1,000,000Sub-Total 42,750,000

1.3 Delivery Vehicles:a) Saloon Car (1 no.) 2,900,000b) Purchasing/Delivery Van (1 no.) 2,750,000

Sub-Total 5,650,000

1.4 Furniture & Fittings:a) Furniture (see details) 1,200,000b) Air conditioners (2 no.) 150,000 c) Telephone Installation

85,000 Sub-Total 1,435,000

1.5 Pre-Operating Expenses:

a) Company Incorporation & Legal Fees - 500,000b) Feasibility Study - 450,000h) Travel Expenses - 150,000I) Accounting Systems Manual - 500,000j) Personnel/Admin Policies Manual - 500,000k) Staff Recruitment - 650,000I) Sundry Expenses - 250,000

Sub-Total 3,000,000

1.6 Raw Material InputsKIMCS 2010 39

a) Day old Broilers (1,500 no) - 165, 000b) Day old Layers (3,500 no) - 385,000c) Feed stock - 10,000,000d) Vaccines, Spray, Litter & consumables - 150,000

Sub-Total 10,400,000The transfer price of day old chicks is put at N110 per DOC.

1.7 Working Capital:The working capital is a sum that should be available to the business. The working capital for the first year of operation of the Poultry is estimated, on the basis of the operating expenses.

2.0 OPERATING AND MAINTENANCE COSTS The operating and maintenance costs are estimated on the basis of assumptions of usage rates for utilities – water, light, fuelling and sundry expenses on a daily basis. The total is estimated at N350, 000 for two months. This is much in line with average rates for poultry facilities of similar standard.

2.1 Fuel ExpensesGiven at least 2 vehicles and using average fuel expenses of N65/litre and 5 litres/day, the fuel consumption is estimated at N650/day.

a) Maintenance of other machines/equipment is estimated to cost N75,000 per annum.

b) The Vehicles will be maintained at N300,000 per annum.

2.2 Management and Personnel Cost

KIMCS 2010 40

We note that due to the automation of the Poultry, staff head count should be kept at a Minimum until the mature birds are due for sale/processing. The estimated cost of staff emoluments in the first year of operation is N5million, and an annual increase of 10% per annum is expected for the next five years.

Detailed breakdown of manpower expenses can be seen at the section on manpower requirements and organization chart.

b. Poultry Feed, Vaccination, Spray, litter, etc The above are estimated based on a benchmarking with model poultry farms as well as industry best practices. We have however been a little conservative in this matter. Vaccination cost is put at N30 per bird. Spray cost is put at N5, 000 per flock, Feed cost is put at N1, 100 per bag of 25kg on average.

c. Utilities

These have been estimated as follows: Ni. Telephone bills (Admin) 100,000.00ii. Electricity 200,000.00iii. Water 300,000.00iv. Diesel for generator 300,000.00The period of time is for one operating cycle within a period.

d. Audit expensesThese have been pegged at N250, 000 in the first two years, then it moved to N350,000 as from the third year.

e. Facilities, Cleaning And MaintenanceThese include items such as manure equipment clean-up, disposal of birds’ litters and general material for the up keeping of the premises

KIMCS 2010 41

of the Poultry facility. It has been pegged at N300, 000.00 per annum and increases at the rate of 5% per annum.

2.3 General Overhead:The general overhead cost in the first year of operation is estimated as below:

I) Travel expenses N 200,000ii) Printing/Stationery 100,000iv) Staff Uniform 100,000v) Sundry Expenses 250,000

2.4 DepreciationDepreciation is estimated at N7, 304,625 on a straight-line basis on an

annual basis, given a 10% salvage value, as indicated below: (note that

building/poultry equipment is depreciated over a ten-year period).

DEPRECIATION SCHEDULEPLTRY.EQMT/BUILDING

ENERGY O/EQUIP.

VEHICLES

FURN./FIT

YEAR

4.721 0.450 0.540 1.27125 0.322875 14.721 0.450 0.540 1.27125 0.322875 27.161 0.450 0.540 1.27125 0.322875 37.161 0.450 0.540 1.27125 0.322875 47.161 0.450 0.540 0.000 0.000 5KIMCS 2010 42

58.185 2.250 2.700 5.085 1.2915 TOTAL5.819 0.250 0.300 0.565 0.1435 Salvage75.135 2.500 3.000 5.650 1.435 COST

KIMCS 2010 43

CHAPTER 7

REVENUE PROJECTION

The main sources of revenue of the Poultry facility are:

i) Sale of mature birdsii) Sale of eggsiii)Sale of bird litters/manureiv) Sale of day-old chicks

i) Revenue from sale of mature birds is based on initial capacity of 5,000 birds, given a mortality rate of between 6% - 10% per cycle. The production capacity is expected to increase by 100% to 10,000 birds after the first two years of operation and to 20,000 birds beginning from year five, all other things remaining as assumed. Following the assumptions, revenue from sale of mature birds should average N6.75million for a 5,000 bird capacity, N13.50million for a 10,000 bird capacity and N27.0million for a 20,000 bird capacity, all on a worst case scenario. The estimated industry growth rate is about 12.5% annually.

ii) Revenue from the sale of eggs is based on projected number of layers, which constitutes 70% of total bird count, the layers’ life cycle of 90 weeks, the laying period of 52 weeks, the ability to lay 2eggs in every 3 days during the laying period, and given the assumed mortality rate earlier stated above as well as the growth in bird count over the planning period. The total estimated revenue from this segment should be N6.899million for a 5,000 bird capacity, N13.80million for a 10,000 bird capacity and N27.6million for a 20,000 bird capacity on an

KIMCS 2010 44

annual basis. The average industry growth rate is 15% per annum.

iii) Revenue from sale of manure and bird litters is based on industry average revenue estimates and given the strategic location of the poultry. It is estimated that N129,000 – N492,000 will be realized from the above sales, given capacity utilization of between 5000 – 20000 birds respectively. The figure should grow by about 10% per annum

iv) Revenue from sale of day old chicks is based on estimated availability of hatchery systems, government policy on the importation of day old chicks and given the mortality rate of the day old chicks, among others. Therefore, it is estimated that N12.408million, N18.612million and N24.816million respectively will be realised on a capacity of 40,000, 60,000 and 80,000 day old chicks. The estimated growth rate in sales should be 15% per annum.

On the basis of above assumptions, total revenue for years 1 - 5 should as shown below. The capacity of 10,000 birds should be installed in year 3, while that of 20,000 birds should be installed in year 5. The average percent growth in revenue of 13% per annum is assumed as per general industry trend.

Year 1 N26.185 millionYear 2 N29.459 million 12.5% growth rateYear 3 N46.167 million 56.72% growth rateYear 4 N51.938 million 12.5% growth rateYear 5 N79.902 million 53.84% growth rate

KIMCS 2010 45

CHAPTER 8

FINANCING PLANTraditionally, any projects that have been found to be commercially viable are financed through equity contribution of sponsors and loans – term loans and bank overdrafts. Our various discussions with the promoter show that the financing structure and pattern should follow above path. Consequently, the Poultry facility’s capital cost of N80.135 million is recommended to be financed as follows:

N’Million %i) Equity Contribution 15.027 20.00ii) Investor members 50.000 66.55iii) Start-up funding 15.108 13.45

Total N80.135100.00

i. Equity contribution will cover the cost of initial acquisition of land and as well as for the construction and completion of the Poultry facility building. The sum should also cover the construction and part-furnishing of the administrative office and store rooms.

ii) The funds from the prospective investors of N50.00 million will be used to finance substantial part of the automated poultry and hatchery equipment and start-up operational expenses.

It is our view that the project will not have difficulties in securing term loans that can be achieved through Loan syndication with one of the leading commercial banks as a lead banker. United Bank for Africa (UBA), Union Bank of Nigeria (UBN), First Bank of Nigeria (FBN), Afribank and Wema Bank. The other buoyant commercial/merchant banks should be willing to participate. This

KIMCS 2010 46

project is expected to be backed up by the Central Bank of Nigeria (CBN)

Another viable source of financing the project is by lease finance. Once the viability analysis has indicated project acceptance, the question of whether to finance by leasing or borrowing becomes secondary since the project will do well whatever the choice of financing. However, lease financing is particularly attractive on the following grounds:

i) It allows 100% debt financing, as equity contribution is not required.

ii) It is easier and quicker to obtain a lease than to obtain a loan iii) Lower equity taxes are paid iv) It has greater tax savings over a buy decision

The capital injection by the investor members is expected to reduce the pains of servicing a regular bank revolving loan with periodic interest and principal repayments. The returns on the investors on the capital are lower than the interest charges on the loan.

KIMCS 2010 47

CHAPTER 9FINANCIAL PROJECTIONS AND APPRAISAL OF COMMERCIAL VIABILITYThis chapter undertakes the financial projection of the project by relating the projected streams of costs and revenue for the first five years of its operations.Thereafter, standard appraisal techniques are used to evaluate the feasibility or commercial profitability of the project.

1. Projected Profit and Loss AccountThe projected Profit and Loss statements of the company for 5 years shows that the project will post net profit after tax of N4.896million in the first year of operation. In the second year, net profit after tax is expected to be N2.735million. Beginning from year three, the project should begin to realize substantial profits of N7.379million, falling to N4.192million in year four due to expansion costs incurred in the latter part of year three. In the fifth year, it will rise to N14.461million. The high equipment costs at the beginning of the project as well as additional increases in capacity utilization by means of more birds and Day old chicks account for the fluctuations in revenue and cost structure. The range of annualized return on investment should be between 4.0% and 21.22% year over year as shown in the income statement.

2. Cash flow ProjectionThe cash flow projection indicates that the project will have a reasonable financial position over the five-year period. Almost all the Poultry facility’s services should be sold on a near-cash basis, except for a few corporate customers that might ask for short-term credit. As a result, the projected net cash flow is

KIMCS 2010 48

positive throughout the period, except for year two. This position is further strengthened by the fact that company operates little credit extension, has a proportionately huge SMIES debt portfolio and is managed professionally. The cash flow projection is attached.

KIMCS 2010 49

PROJECTED BALANCE SHEET FOR THE 5-YEAR PLANNING PERIOD

BALANCE SHEETS

All Figures are in Millions of Naira

Year   1 2 3 4 5

Cash and Near Cash items

14,296,796

17,442,255

23,912,471

24,976,542

27,218,884

Due from related parties

-

-

-

-

Prepaid Expenses

10,274,500

14,997,000

19,944,500

29,164,500

39,284,500

Inventory and WIP

18,421,499

20,724,187

32,478,485

36,538,295

56,211,057

Other Accounts Receivable

652,909

1,822,110

1,154,175

1,298,447

1,997,550

Total current assets

43,645,705

54,985,551

77,489,630

91,977,784

124,711,991

Gross property, plant & equipment

58,185,000

58,185,000

58,185,000

58,185,000

58,185,000

Less accumulated depreciation

(6,854,625)

(13,709,250)

(23,003,895)

(32,298,540)

(41,593,185)

Net property, plant & equipment

51,330,375

44,475,750

35,181,105

25,886,460

16,591,815

Total assets

94,976,080

99,461,301

112,670,735

117,864,244

141,303,806

Accounts payable

513,725

749,850

1,003,118

1,459,768

1,967,540

Taxes Payable

2,098,200

1,172,120

3,513,650

1,996,272

6,886,089

Dividends Payable

-

-

819,852

465,797

1,606,754

Current Portion of LTD

9,892,705

10,931,439

12,079,240

13,347,561

14,749,054

Other Accruals KIMCS 2010 50

1,548,651

2,950,145

4,218,465

5,366,266

6,405,000

Total current liabilities

14,053,281

15,803,554

21,634,324

22,635,663

31,614,438

Long-term debt

61,000,000

61,000,000

61,000,000

61,000,000

61,000,000

Common Stock - Paid up

15,027,000

15,027,000

15,027,000

15,027,000

15,027,000

Net Income

4,895,799

2,734,948

7,378,664

4,192,171

14,460,787

Shareholders equity

19,922,799

22,657,747

30,036,411

34,228,582

48,689,369

Total long-term debt and equity

80,922,799

83,657,747

91,036,411

95,228,582

109,689,369

Total Liabilities

94,976,080

99,461,301

112,670,735

117,864,245

141,303,806

Current Ratio 3.11

3.48

3.58

4.06

3.94

Total Liabilities/Equity

3.83

3.92

3.01

3.07

2.24

PROJECTED PROFIT & LOSS FOR 5-YEAR PLANNING PERIOD

INCOME STATEMENTS

All Figures are in Millions of Naira

Year   1 2 3 4 5

Sales 26,185,500

29,458,688

46,167,000

51,937,875

79,902,000

Growth rate (%)

- 12.50% 56.72% 12.50% 53.84%

Less COGS (10,274 ,500)

(14,997, 000)

(19,944 ,500)

(29,164 ,500)

(39,28 4,500)

Growth rate (%)

- 31.49% 24.81% 31.61% 25.76%

Gross profit 15,911,000

14,461,688

26,222,500

22,773,375

40,617,500

Growth rate (%) -10.02% 44.85% -15.15% 43.93%Less SG&A (513 (749, (997, (1,458 (1,96

KIMCS 2010 51

expenses ,725) 850) 225) ,225) 4,225)Growth rate (%) 31.49% 24.81% 31.61% 25.76%Earnings before Interest, Tax & Deprec.

15,397,275

13,711,838

25,225,275

21,315,150

38,653,275

Less depreciation

(6,854 ,625)

(6,854, 625)

(9,294 ,645)

(9,294 ,645)

(9,29 4,645)

Earnings after depr. b/4 Interest & Tax

8,542,650

6,857,213

15,930,630

12,020,505

29,358,630

-

-

-

-

-

Less int. repayment accrual

(1,548 ,651)

(2,950, 145)

(4,218 ,465)

(5,366 ,266)

(6,40 5,000)

Pre-tax income 6,993,999

3,907,068

11,712,165

6,654,239

22,953,630

Cumulative pre-tax income (NOL)

6,993,999

10,901,067

22,613,232

29,267,471

52,221,101

Taxes 2,098,200

1,172,120

(3,513,650)

(1,996,272)

(6,886,089)

Pre-tax income 6,993,999

3,907,068

11,712,165

6,654,239

22,953,630

Less taxes (2,098 ,200)

(1,172, 120)

(3,513 ,650)

(1,996 ,272)

(6,88 6,089)

Less Proposed Dividend

-

-

(819, 852)

(465 ,797)

(1,60 6,754)

Net income 4,895,799

2,734,948

7,378,664

4,192,171

14,460,787

Growth rate (%) -79.01% 62.93% -76.01% 71.01%

Return on Investment 7.19% 4.01% 10.83% 6.15% 21.22%Return on Sales 18.70% 9.28% 15.98% 8.07% 18.10%Return on Equity 19.48% 10.88% 29.36% 16.68% 57.53%

CASH FLOW STATEMENT FOR THE 5-YEAR PLANNING PERIOD

STATEMENTS OF CASH FLOWSAll figures are in

KIMCS 2010 52

Millions of Naira

Year   1 2 3 4 5

Net income 4,895,799

2,734,948

7,378,664

4,192,171

14,460,787

Plus depreciation

6,854,625

6,854,625

9,294,645

9,294,645

9,294,645

Less increase in inventory

10,171,755

(7,499)

6,761,186

(262,481)

3,928,450

Plus Interest on Investments

-

-

-

-

-

Less increase in accounts receivable

(130,928)

2,945,869

(46,167)

4,934,098

(3,859,267)

Plus increase in accounts payable

2,054, 900

4,49 9,100

199, 445

2,085, 262

1,178 ,535

Cash flow from operations

23,846,152

17,027,043

23,587,773

20,243,695

25,003,150

Less investment (75,135, 000)

-

-

-

-

Cash flow from operations and invests

(51,288,848)

17,027,043

23,587,773

20,243,695

25,003,150

Plus net new equity capital raised

15,027,000

-

-

-

-

Current year Interest

(1,548,651)

(2,950,145)

(4,218,465)

(5,366,266)

(6,405,000)

Less dividends paid

-

-

(819,852)

(465,797)

(1,606,754)

Inc. (Decr.) in long-term debt

51,107,295

(10,931,439)

(12,079,240)

(13,347,561)

(14,749,054)

Inc. (Decr.) Other borrowings

-

-

-

-

-

Cash flow from ops, invests, and fin

13,296,796

3,145,459

6,470,216

1,064,072

2,242,342

Beginning cash balance

1,000, 000

14,29 6,796

17,442, 255

23,912 ,471

24,976 ,542

Ending cash balance

14,296,796

17,442,255

23,912,471

24,976,542

27,218,884

KIMCS 2010 53

‘’WHAT IF’’ ANALYSIS FOR THE FIRST YEAR OF OPERATION

"WHAT IF" ANALYSIS YEAR 1 SCENARIOPessimistic

Planned

Optimistic

Sales 70% 100% 120%Mature birds 4,725

,000 6,750,000

8,100,000

Eggs 4,828,950

6,898,500

8,278,200

Day old Chicks 8,685,600

12,408,000

14,889,600

Manure/Litters 90,300

129,000

154,800

Net Sales18,329,850

26,185,500

31,422,600

Costs of Goods Sold 2.000 1.000 0.500Variable Cost of Goods Sold

20,549,000

10,274,500

5,137,250

Fixed Costs Reclassified to Variable Costs 0 0 0

Total Variable Costs20,549,000

10,274,500

5,137,250

1.100 1.000 0.900Fixed Costs of Goods & Services 0 0 0Total Costs of Goods Sold

20,549,000

10,274,500

5,137,250

Gross Profit

-2,219,150

15,911,000

26,285,350

% of Total Sales -12.11% 60.76% 83.65%

Operating Costs 1.200 1.000 0.900Sales & Marketing 308,235 256,863 231,176

G & A (without Depreciation) 308,235 256,863 231,176

Depreciation6,854,625

6,854,625

6,854,625

Fixed Costs Reclassified to Variable Costs 0 0 0

KIMCS 2010 54

Total Expenses7,471,095

7,368,350

7,316,978

Income From Operations-9,690,245

8,542,650

18,968,373

Interest Income (Expense) - "Fixed"

-1,548,651

-1,548,651

-1,548,651

Income Taxes - "Variable" 0

-2,098,200 0

       

Net Income After Taxes

-11,238,896

4,895,799

17,419,722

BREAK EVEN ANALYSIS FOR THE 5-YEAR PLANNING PERIOD

BREAK EVEN ANALYSIS (N'MILLIONS)YEAR 1 2 3 4 5

Sales 26,185,500

29,458,688

46,167,000

51,937,875

79,902,000

           Variable Costs          

Material & Labor 10,274,500

14,997,000

19,944,500

29,164,500

39,284,500

Commissions -

-  

-

-

Total Variable Costs

10,274,500

14,997,000

19,944,500

29,164,500

39,284,500

  0.392 0.509 0.432 0.562 0.492Fixed Costs (calc as % of sales)          Fixed Cost of Goods & Services 0.000% 0.000% 0.000% 0.000% 0.000%Sales & Marketing (w/o Commissions) 2.500% 2.500% 2.500% 2.500% 2.500%G & A (without Depreciation) 2.500% 2.500% 2.500% 2.500% 2.500%Total Fixed Costs (calc as % of sales) 5.000% 5.000% 5.000% 5.000% 5.000%           

KIMCS 2010 55

Fixed Costs (fixed amounts)          Fixed Cost of Goods & Services

-

-

-

-

-

Sales & Marketing (w/o Commissions)

256,863

374,925

498,613

729,113

982,113

G & A (without Depreciation)

256,863

374,925

498,613

729,113

982,113

Depreciation 6,854,625

6,854,625

9,294,645

9,294,645

9,294,645

Total Fixed Costs (fixed amounts)

7,368,350

7,604,475

10,291,870

10,752,870

11,258,870

 

Income from Operations

8,542,650

6,857,213

15,930,630

12,020,505

29,358,630

           

Interest Income (Expense) - "Fixed"

(1,548,651)

(2,950,145)

(4,218,465)

(5,366,266)

(6,405,000)

Income Taxes - "Variable"

(2,098,200)

(1,172,120)

(3,513,650)

(1,996,272)

(6,886,089)

           

Net Income After Taxes

4,895,799

2,734,948

8,198,516

4,657,967

16,067,541

           Analysis          Income from Operations           Contribution Margin 0.608 0.491 0.568 0.438 0.508

Break-Even Sales 12,126,449

15,490,437

18,119,735

24,523,428

22,148,242

Sales Volume Above Break-Even

14,059,051

13,968,251

28,047,265

27,414,447

57,753,758

SUMMARY OF ASSUMPTIONS

The accompanying financial projections are based on a number of assumptions made in the process of forecasting future events and circumstances. The assumptions disclosed below are those that are considered to be significant to the preparation of its financial KIMCS 2010 56

projections. Some assumptions, regardless of the amount of study or analysis, will not materialize, and unexpected events and circumstances may occur after the date of the financial projections. Thus, it should be expected that actual results will vary, to some degree, from the projected results and the variations could be material.

STRATEGIC DIRECTION To finance growth, the Company requires N50 million newly injected capital by the investing members in the first quarter of 2011, as well as N15.108million start-up expenses funding. This financing would enable the Company to develop a world-class Poultry facility, to strengthen the management team and to provide for:

Increases in sales and other staffing; Increases production capacity from 5,000 birds to 20,000 birds; Purchase of ancillary items.

OPERATIONS - 2011 -- 2015

1. The projections include actual results from a 12-month time span, beginning early 2011 through to early 2012.

2. Turnover will range from N26.2 million to N79.9million, over the 5-year planning period, assuming gross turnover remain steady, on a growth path of 13% per annum.

3. The cost of turnover is expected to peak at 68% of the sale price of the Poultry facility products and services, leaving 32% of revenues to cover operating and other expenses. This is much in line with the cost structure of the Poultry and egg industry in Nigeria at the time of this report.

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4. The focus on revenue from sales of mature birds and eggs is expected to increase such that a significant portion of the total revenue should be generated from these sources. The projection is that up to 80% of revenue should be from the sale of mature birds and eggs, leaving the balance of 20% to be from sales of day old chicks and manure/litters.

5. During the same period, spending on start-up costs such as marketing, advertising and promotion, general administration and consulting activities is expected to peak in order to launch the Poultry facility on a sound footing.

OPERATIONS - 2011 -- 20151. A major capital expenditure of N50.0million is expected to be

incurred in order to complete work on the construction phase of the Poultry facility and to purchase critical automated poultry and hatchery equipment. Major recruitment is also expected to be undertaken during the start-up phase.

2. Operating expenses especially salaries and wages are expected to rise as a result of the need to retain motivated workers over the long haul. Annual rate of growth in salaries and wages are to peak at 10%.

3. The productivity of Sales/marketing staff is expected to improve, riding on the general acceptance of the Poultry facility products and services.

4. Headcount should increase from 2 to about 5 within the planning period. The high degree of automation makes the need for new hires to be minimal.

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5. Annual salaries (except sales staff) increase 10% annually beginning 2011.

6. Interest expense for investing members funds are provided at 20% per annum and interest income on deposits is earned at 2%.

7. Depreciation is calculated using the straight-line method over 5 years.

8. Federal income taxes are provided at 30%

INVESTING - 2011 – 20151. Equipment purchases are projected at between N43.0million and

N63million. This may be staggered over a two period cycle to take account of expansion in number of birds.

Taxation and Capital Allowances

Annual Taxation on corporate body takes into consideration 30% of profits. In computing this taxation, allowances on assets have been allowed as follows:

Description: Land Plant FurnitureMotors

Building Machinery Fittings Vehicles

Initial 5% 20% 15% 25%

Annual 10% 12.5% 10%20%

FINANCING - 2011 -- 2015

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1. An overall ratio of about 37:63 is maintained between equity and debt, such that dilution of ownership and control is deeply affected. In 2011 the cooperative raises N50million from investing members and N15.057million of equity to fund investing and financing cash flow requirements. In year 2014, additional equity of N10million is introduced to finance growth in number of birds.

2. There are no provisions for bank loans, accounts receivable financing or additional loans from stockholders after the first operating cycle, beginning in 2012.

ASSUMPTIONS BEHIND PROJECTIONS AND CALCULATIONS

S/ PARTICULARS SIZE/COST/%1 Number of Birds in lay 5,000 – 20,0002 Rearing Period (weeks) 72 – 90

Brooding cum growing 18 – 20Laying period (weeks) 52

3 Number of batches or cycle 1 - 34 Space requirement per bird

Brooder cum grower period 1Layer period 0.8Hatchery Period 0.35

5 Cost of Construction Broiler cum grower shed 1000.00Layer shed 1000.00Hatchery shed 1000.00Store room and admin office 650.00

6 Mortality rate (%)Broiler cum grower stage 6% - 10%Laying stage 3% - 5%Day old chicks (DOCs) 4% - 6%

7 Total mortality loss (birds) 5008 Total number of birds laying 3500 – 12,6009 Rate of egg laying 2 eggs every 3 10 Egg price (N/egg) 9.00

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Egg Production capacity per 766,500 eggs11 Average body weight of 1kg – 2.5kg12 Feed requirement (kg/bird)

Brooding cum growing stage 4.5 – 7.5 kg/birdLaying stage 35 – 40 kg/birdHatchery/Day old chicks 0.35 – 1 kg/bird

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REVENUE ASSUMPTIONS:

Sale of mature Birds: [a] Broilers [b] Layers

No. of Broilers/Layers Mortality rate (%)Available for saleAverage sale priceFrequency

5,000 – 20,00010%4,500N450.002-3 times/year

Sale of Day old Chicks: [a] Broilers [b] Layers

Hatchery CapacityMortality rate (%)Available for saleAverage sale priceFrequency

10,000 DOCs6%9,400N110.003-4 times/year

Sale of Eggs: Initial No. of layers

Layer Mortality rateEffective no. laying eggsLaying PeriodRate of layTotal eggs laid/yearEgg Price/dozen

3,500 – 14,00010%3,150 – 12,60052 weeks2eggs every 3 days766,500 eggsN108.00

Sale of Manure and Litters Selling price/flock

Feed bags selling priceFrequency

N5000.00N15.00Twice/year

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EXPENSE ASSUMPTIONS:

PARTICULARS ASSUMPTION

Admin Overhead as a % of salesTransfer price of Day old chicksWeight of feed bag (Kg.)Feed Cost/BagRearing Period Feed use/bird/yr (Kg)Rearing Period cost of Feed/bird/yr.Laying Period Feed use/bird/year (Kg)Laying period Cost of Feed/bird/yearVaccination Cost per birdSpray Cost per FlockLitter Cost per FlockGrowth rate in input prices

12.5%N110.0050kgN850.000.95kgN1,400.001.5kgN3,000.00N5.00N1,500.00N1,350.006.5%

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