Investment project HADIGO STORE

I A DESCRIPTION OF THE PROJECT Preface Pollution problem has been no longer strange to any of us We all know that hundreds of “garbage patch” has been created all over the world, especially along the coast, on the floor of the ocean and underneath the surface We also know that it takes at least 400 years to disintegrate a plastic item, like packaging and straw which is often used for very short period before being discarded It is a fact that within 100 years since the Second Industrial Revolution happened, about 8.3 billion tons of plastic garbage has been discharged to the planet – an amount equals to 25,000 Empire State Buildings in New York, or a billion elephants We definitely not want to live on a Planet Plastic so it is high time we start replacing plastic by other type of material, using products which are made from environmentally friendly ingredients This is the idea driving us to establish “HadiGo” – a green store where you can make some simple changes with eco friendly products that can have big impacts on your environmental footprint What we sell are eco friendly products, and at our first stage, we focus on launching and improving our first product line: Tomato Lady After year of operating, we plan to extend the diversity of our products by providing more non-plastic and eco-friendly products to customers, from plates, bowls, take away containers and cups made from bamboo and sugarcane, which can be easily disintegrated; glass and metal straws which can be reused for a long time, to designed tote bags which can be convenient, fashionable and environmental - friendly Ultimately, our aim is not only to sell eco-friendly products, but also to create a ‘green’ lifestyle, to give a green solution to our beloved customers We hope that the waste water from sinks, toilets, drains of each small family will become cleaner, reduce environmental pressure for polluted rivers and streams, and increase balance regenerated ability We would like to accompany and cooperate with individuals, social organizations, state agencies to join hands in restoring our harmony with nature We believe that labor must be associated with the joy of life and the joy of creativity We aim towards product’s true quality Each and every product makes love and knowledge blossom form within our growers, researchers, producers, distributors, and consumers Mission Statement From the origin of idea, we have devoted our energy and our competencies solely to one business: environment This business is worth in meaning, as it enables all individuals to realise how important of the planet to themselves, and turn this awareness into action by saving the planet in every single activity in their daily life HadiGo has set itself the mission of offering all women and men in Vietnam sustainable products which are totally made of eco-friendly materials in terms of quality, efficacy and safety by meeting the infinite diversity of daily needs and desires all over the country We not only hope to gain profits for our stakeholders through efforts of running this business, but more than that, we also strive for giving our customers creative, discarding plastic items, and a great experience in changing into a green lifestyle Description of “Tomato Lady” Products Tomato is a micronutrient-rich product that is extremely available in Vietnam After making fermented, Tomato is left with residue and be ready to mix with microorganisms to create fertilizer that 100% in harmony with the environment Fragrance: A product that uses natural essential oils for a gentle, delicate scent Cleaning by microbiological fermentation instead of surface abrasion Support deodorizing, sterilizing, especially adding anti-fungal ingredients Because it is made from fermented microbiological herbs, the waste water from the washbasin, the washing machine or toilet will go out harmlessly If it is used by many households, the microorganisms will clean public sewers, wastewater will be cleaner, eliminate odors The product does not only clean during usage but only continue to clean clothes, floors and appliances after use because of the ongoing fermentation mechanism TOMATO LADY consists of products: ● Ms Tomato hand washer ● Ms Tomato dish washer ● Ms Tomato floor cleanser ● Ms Tomato cloth washing (soak 30-60 minutes before washing) ● Ms Tomato Super Clean (clean multi-purpose appliances) ● Ms Tomato Toilet Brush II SWOT ANALYSIS Table 1: SWOT Strengths Weaknesses ● High-quality and well-designed ecofriendly products ● Having a wide variety of product line that can satisfy the needs of different customer segments ● Being in the initial introduction phase; taking time and effort to educate target customers to change their consumption habits ● Haven't received strong brand ● We have ourselves a sales team and customer care They are loyal customers, they believe in us, believe in the services we provide That is the foundation, the system makes a difference recognition and reputation yet ● Have limited budget, service lines, management experiences and human resources Opportunities ● Consumers, especially young people, are taking into account environmental protection seriously and are aware of how their own actions affect the environment ● As income and consumer consciousness improve, green consumption trends are becoming more common in developing countries, particularly in Vietnam ● The market volume is very potential in the current time Only few businesses jump into eco-friendly products sector → a Threats ● Large businesses like Unilever can launch similar products or launch products that are less harmful to human health and the environment They can also enter green manufacturing Or giants may find ways to destroy small businesses ● Once green products have become popular in supermarkets and stores all over the country, it is difficult for our businesses to sell such products ● Competition with many businesses provides similar services but they have more resources promisingly opportunity of doing business in green products stores III MARKETING MIX Product What we bring to the customer is not products, we bring green solution to the customers in which its nature is services However, green solutions not meet the customers’ need, so our products must have good quality and meet the customer’s needs and satisfaction We innovate everyday, we change, we create to develop our products and services to be more perfect And diversification of them is essential to satisfy the customers from low level to the high level Price We set the price as listed on the market by manufacturers However, we would have discount campaigns and incentive policies to attract customers Place Products are sold on the ecommerce platform, stores and direct sales system Customers can enjoy shopping with just a smartphone and access the store's address on e-commerce sites Customers can shop directly at the store And especially, we have a sales team specializing in distributing, selling products and serving customers to each household Promote Table 2: Promotion Plan Constructing Developing Objectives Build trust and win customers' Develop businesses and trust Make our market dominating Hanoi construction and reach market potential customers Building a sales system and creating a loyal customer database Timeline From Jan to Dec 2020 Activities ● Establish Leading Expand business scale, establish facilities across provinces and cities nationwide and lead the market in the distribution industry, provide green products, green solutions From Jan 2021 to Dec From 2023 to 2030 2022 e-commerce ● Develop business ● Launch 10, 20, 50 and presences ● Build brand 100 branches throughout sale the country communicating content teams both in ● Clone sales teams ● Establish and promote quantity and quality ● Promote communication ● Promote marketing, sales teams and marketing networks ● Build and units in Hanoi and ● Develop the improve customer services ● Diversify products services portfolio KPIs and direct and indirect communication through direct sale team, advertising on e-commerce interfaces 30 salesman 400 salesman 1,000 salesman 1,000 customers 12,000 customer 1,000,000 customers IV FINANCIAL ANALYSIS Assumption The financial plan depends on important assumptions, most of which are shown in the following table as annual figures The key underlying assumptions are: Table 3: General Assumption Year Tax rate 15% 17% 17% Cost of equity 50% 50% 50% ● Based on the average index of Vietnamese retail industry provided by Viet Capital Securities (VCSC) in 12/2019 (31,18%), we assume that cost of equity of our project would be 50%, which is marked up 18.82% in order to cover our risk ● A slow growth economy, without great recession ● Growth and cash flows will be moderate ● Future cash investments will use NPV projections to achieve maximum return with limited risk ● There is no inflation or any changes in interest rates, or inflation is fully anticipated This is a reasonable initial assumption, and it can be modified ● There is an increasing interest of customers when we launch new project ● Our sales team can work effectively with a specified sales growth rate ● Our company will remain in business for the foreseeable future ● We assume our fiscal year starts from January 1st 2020 ● All the money figures are in Thousands VND (1,000 VND) ● Our financial forecasting would be carried out in the monthly basic for the first year, and then annually for the next two years For others specific assumptions, we will show them in each related part below Initial Investment At a very first stage, we have already made use of our personal venue as a warehouse, therefore minimizing the storage cost We have to invest in tools for management, in this case we will purchase a laptop for the CEO, which would be the long term asset of our company This asset would be depreciated each year using straight line method, without salvage value We would contract an outsourcing service in constructing our brand foundation This package will consist of logo design, webshop, sales management software, etc Table 4: Initial Investment Assets Value Lifetime Brand Foundation Package 20,000 Infinite Laptop 20,000 10 Depreciation per year 2,000 Fund Raising Our final initial investment is about VND 100 million The calculations in our financial analysis assume that we use 100% equity to finance this project This is a long-term project, which is reevaluated after every three years Incremental Earnings Forecast a Revenue Our project has only one source of revenue, which comes from selling products (we act as a wholesaler) According to our actual business results in the first month, our revenue is mainly from performance of the sales team In the first launched month this team has people, each salesman has an average of 30 products in sales We assume that there would be new salesman hired each month, and the sales growth rate would be stable as describing in the table: Table 5: Direct sales (Product) Month No of Salesman 11 13 Product sold per Salesman 30 40 48 58 69 KPI - sales growth rate 0% 33% 20% 20% 20% No of product through direct sales 150 280 432 634 899 10 11 12 15 17 19 21 23 25 27 83 91 100 110 121 134 147 20% 10% 10% 10% 10% 10% 10% 1,244 1,551 1,907 2,318 2,793 3,340 3,967 Total 19,515 In addition to build our sales team, we would participate in about events (start up exhibition, competition, fair, etc) each month, which mostly free to register, in order to promote our brand image to the customers Sales from those kind of events would increase the number of products sold by 20 units each month Table 6: Cumulative product growth Month No of product through event 20 20 20 20 20 No of product through direct sales 150 280 432 634 899 Total 170 300 452 654 919 10 11 12 Total 20 20 20 20 20 20 20 240 1,244 1,551 1,907 2,318 2,793 3,340 3,967 19,515 1,264 1,571 1,927 2,338 2,813 3,360 3,987 19,755 We assume that the number of products sold would be counted in the whole number at the end of the month The average price per product in the first month is nearly 70,000 VND Because we plan to keep the same product portfolio in the first six months, and then broaden our product range in the next 2-year period So, the average price per product would be 70,000 VND and 150,000 VND in the two periods, respectively Also, we assume that revenue rowth rate in 2nd year nearly equal to the average growth rate of the VN retail industry in 2018 - 11% The revenue growth rate of the 3rd year will be 11% plus 30% due to expansion Thus, the estimated revenues would be as the following table: 10 Table 7: Estimated Revenues b Cost of Good Sold Due to the nature of the wholesaler in general and our project in particular, cost of goods sold for this project is the cost of purchasing inventory Table 8: Supplier’s Credit Term Liter 100 - 300 300 - 500 500 - 1000 > 1000 Equivalent No of product 200 - 600 600 - 1000 1000 - 2000 > 2000 35% 40% 45% 55% Credit Term We apply our current credit term of Co Ca Chua products to assume COGS rate of the first six months After we broaden our product portfolio, the credit term could be higher, up to 55% for the next six months, and would go down to 50% in the 2nd and 3rd year due to our economies of scale The COGS would be added 1% of delivery cost Thus, the COGS for the three-year period would be as the table below: 11 c Expenses Table 9: Cost of Goods Sold We plan to business mainly online and through our sales team in the first year After that, we intend to invest in a physical store in the 2nd year and scale up the business model the year after Therefore, our expenses for the next 3-year period would be shown in the following parts: ● Salaries and Wages Salaries of sales team still extract from the revenue and the commision rate is 20% for every product, the fixed wage is 1.000.000 VND per salesman We not have to pay shopkeeper wages until we open physical store in the 2nd year We assume that our co-founder team (3 people) would be in charge of marketing (coordinator, content writer, designer), operation, finance and management and receive salaries for those tasks Table 10: Salaries and Wages 12 ● Sales and Marketing The marketing budget for this period is prepared mainly for Facebook Ads The detailed budget is shown in the following table: Table 11: Sales and Marketing ● Rental and Additional Investment The rental fees are paid for the physical store operated in the nd and 3rd year, and we have to invest in additional equipments (Point of Sales Material – POSM) to set up this kind of business We assume that those assets would be depreciated in years, using straight line method, without salvage value We would use our venue as a warehouse for the first months to minimize storage cost, after that, we would hire a bigger warehouse to match with our scale Table 12: Rental Expenses Moreover, to maintain our sales team’s effectiveness, we would hold a sales training course once a month The training budget would be increased proportionately with the revenue Based on these assumptions above, the incremental cost would be as the following table: 13 Table 13: Incremental Cost d Depreciation Based on our assumptions, our depreciation figures are as following: Table 14: Depreciation e Inventory and Account Payable We assume that: 14  In the first year, inventory at the beginning of the month equals to COGS for this month  Inventory turnover of the 2nd and 3rd year would be 12 (average inventory turnover of retail industry in 2018: 13.56 - According to Investopedia.com, reduced by 1.56)  Supplier’s credit term is months, delivery cost (1% revenue) must be paid at delivery Table 15: Inventory Table 16: Account payable g Incremental Earnings Free Cash Flow We assume that: Inventory of the 1st month in the 4th year is equal to that of the 12th month in the 3rd year The incremental earnings free cash flow is presented in the table below: Table 17: Incremental Earnings Free Cash Flow 15 16 Financial Indicators For Project Appraisal a Net Present Value We use the Incremental Earnings Free Cash Flow and the cost of equity as the assumed discount rate to calculate NPV We have: NPV = 1.246.867.000 VND Due to the lack of similar projects, we cannot compare this NPV with that of others b Sensitivity Analysis We examine the change of NPV based on the change of one of the following factors: Table 18: Sensitivity Analysis Based on the sensitivity analysis, we have found that the main factors which affects our performance could be revenue growth rate and the cost of equity Because the cost of equity is significantly difficult to manage, we will focus on maintaining our revenue stream and carefully plan budget for sales & marketing activities in order to keep the revenue growth rate stable 17 c BEP Analysis We calculate the Break Even Point (BEP) of our project based on: ● All the figures are estimated within 3-year period ● All the numbers are calculated by the par value ● The average price of our product is calculated by the weighted average method ● The average cost is subtracted from operating activities Table 19: BEP Analysis Based on our calculation, the Break Even Point in Time is nearly 10 months, which is a very optimistic number The reasons for this miracle capital recovery are: ● Our business is a service company, which has lower proportion of fixed expenses in the total overhead ● We have a very positive figure in revenue forecasting, due to our new and rapid growth industry (niche market - green product) 18 V CONCLUSION With an overall picture of finance and development plan, this project is feasible with an initial capital of not more than VND 100 million Due to the nature of our products that provide services, the cost is not too great The sensitivity analysis above showed that in many situations including the best case and the worst case, NPV is still higher than Because our project is launched to catch up with the upcoming trend in environmentally friendly products, this could be a great success in the long run if we could keep our revenue stream stable by applying strategic plan and risk management effectively 19 ... ecommerce platform, stores and direct sales system Customers can enjoy shopping with just a smartphone and access the store' s address on e-commerce sites Customers can shop directly at the store And especially,... use 100% equity to finance this project This is a long-term project, which is reevaluated after every three years Incremental Earnings Forecast a Revenue Our project has only one source of revenue,... etc Table 4: Initial Investment Assets Value Lifetime Brand Foundation Package 20,000 Infinite Laptop 20,000 10 Depreciation per year 2,000 Fund Raising Our final initial investment is about VND