Gala

Integrated Sustainable Organic Sugar and Dairy Industry

Development Project

Executive Summary
1. Introduction:
“Gala Agro & Dairy International (PVT) Ltd” (herein after referred as “Gala”) (Reg. No PV 107696) is a limited liability private company
which has been incorporated on 12th August 2015. The main objective of the company is to provide genuine value to the company’s
stakeholders through establishing Environmental Friendly Integrated Sustainable Organic Sugar Cultivation and Sugar, Ethanol,
Animal Feed, Biomass Electricity and Organic Fertilizer Industries and Dairy Farming and Dairy Products Industries.

2. Vision
To lead the Organic Sugar and Dairy Industries in the country

3. Mission:
The Gala Agro & Dairy International (Pvt) Ltd’s mission is “to manufacture quality sugar, ethanol as petroleum substitute, animal
feeds, organic fertilizer, biomass electricity and wide variety of dairy products; and supply at a possible lowest price to the
domestic consumers, using modern technology to control cost and to ensure quality, opening carrier path opportunities to
the unemployed, providing financial assistance to the needed pushing up the living condition of whom engage in activities
related to these industries; and to provide genuine value to the investment.”

4. Project Proposal
It is proposed to acquire 13,000ha in Batticaloa District on 99 year lease, to cultivate sugar cane therein, to establish a Sugar Factory
and a dairy Industry. In cultivation sugar cane the company will introduce out-grower system with the farmers in addition to the
cultivation done by the company itself. The company will adopt System of Sugarcane Intensification (SSI), Dip Irrigation and Organic
Cultivation System in cultivation sugar cane. In the dairy industry, 1000 cows and 6 studs suite to the environment in Batticaloa District
will be imported and will establish a Dairy Farm and a Hybrid Unit and a Dairy Factory. Out-grower system will be introduce in dairy
industry too.

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 1

5. Projects of the Programme

a. Cultivate sugar cane under “System of Sugar Cane Intensification” and establish a sugar factory
b. Establish a Dairy Farm and a Dairy Products Industry
c. Establish an organic fertilizer industry
d. Cow Feed Industry
5.3 Establish a biomass electricity power station

6. Goals of the Programme

6.1 Manufacture quality sugar to the domestic market

6.2 Manufacture ethanol to the local market as a fuel additive
6.3 Manufacture Dairy Products such as Liquid Milk, Powdered Milk, Yoghurt, Butter, Cheese etc
6.4 generate electricity using sugar bagasse and other available biomass, e.g. Gliriseedia”
6.5 create employment opportunities
6.6 uplift the living condition of the people through assisting financially in their economic activities such as sugar cane
cultivation, dairy farming and related activities
6.7 contribute to the national economic development

7. Objectives of the Programme

7.1 To cultivate sugar cane in 3500 hectares in the year one, 3500ha in year two and another 3500ha in year three and
replant same lands after five years time. In additional 2,200 hectares of sugar cane will be cultivated through Out Grower
System.
7.2 To produce 36,480mt, 58,880mt, and 81,280mt of sugar respectively in the year 1, 2, 3, and on wards
7.3 To produce 1,368,000lt, 2,208,000lt, and 3,048,000lt of ethanol respectively in the year 2, 3, 4, and onwards.
7.4 To generate 3mh of electricity daily.
7.5 To manufacture liquid milk. Powdered milk and Yoghurt
7.6 To produce butter and cheese

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 2

8. Rationale of the Project:
The total annual requirement of sugar in the country is around 620,000mt but only about 60,000mt is produced locally. The balance has
to be imported. The sugar prices in the world market fluctuate due to several reasons that are beyond our control. The foreign exchange
involved in importing our sugar needs is around Rs 20 billion per year. A number of by-products from sugarcane are also imported
involving around Rs. 7 billion annually. Hence, developing the local sugar sector will save foreign exchange up to around Rs 27 billion
or even more. It will also increase employment opportunities in the country leading to socio-economic development. Large extents of
land, suitable for sugarcane cultivation are found in Badulla, Moneragala, Galle, Kurunegala and Hambanthota Districts. Sugarcane
Research Institute has initiated activities to promote sugar cane cultivation under coconut in Kurunegala District. The table 1 shows the
potential sugar cane cultivatable extent of lands in the country.
Milk and dairy product has been a part of Sri Lankan’s diet from long time ago. Though dairy farming is a traditional economic activity of
the country, the local production level has been failed to meet the demand of the country resulting more and more imports and high
expenditure bill to the Government. Imports have grown over the years both due to the increase in population 20 and the increase in
milk consumption due to increases in per capita consumption owing to increases in incomes and changes in consumption patterns,
tastes and preferences. 80% of the increasing demand for dairy products is met by the imports and the local producers have been able
to meet only 17%. 95% of the imports are powdered milk. In 2006, Sri Lanka imported around 65,000 Mt of dairy products incurring
approximately LKR 15bn import bill.

The government has therefore focused on dairy development as a strategy for poverty reduction and linked it to other programmes
aimed at poverty reduction. Incentives for, and improvements in milk production and productivity would indeed improve their income
levels that are relatively low.

9. Technical Aspect:

The proposed sugar industry and Dairy Industry will be located in the Chenkalady Ds Division in Batticaloa District wherein 10,036ha
have been identified for sugar cultivation. In addition 1,584ha and 2,210ha have been identified respectively in Kiran and Paddipola DS
Divisions.

Under dairy project, 1000 cows with 6 studs of hybrid variety suit to the environment of Batticaloa district will be imported and reared in
the proposed farm. 200ha of grassing land has been planned in the farm to ensure adequately supply of grass. This will be supported
by the proposed animal feed manufacturing plant to be imported and installed in the project. The each batch of male calves hybrid in the
farm will be sold female calves in the farm. On the other hand even at present there are large herds of cows in Batticaloa district but not

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 3

 reared systematically to harvest high yield of milk. The company expected to impart modern dairy farming technology among the
farmers and to purchase their milk production to be processed in proposed liquid milk and powdered milk plant.

10. Marketing Aspect

Sugar is one of the main food items consumed in Sri Lanka. The per capita consumption of sugar in Sri Lanka is around 30 kg which
is high when compared to average sugar consumption in the world. The total annual requirement of sugar in the country is around
620,000mt but only about 60,000mt is produced locally. The balance has to be imported. The sugar prices in the world market fluctuate
due several reasons that are beyond our control. The foreign exchange involved in importing our sugar needs is around Rs 20 billion. A
number of by-products from sugarcane are also imported involving around Rs. 7 billion annually. Hence, developing the local sugar
sector will save foreign exchange up to around Rs 27 billion or even more.

The per capita availability of milk in Sri Lanka is about 36 kg/person per year much lower than the recommended intake of 60–65
kg/person per year. However average levels of consumption of milk and milk products have grown steadily, rising overtime and across
income segments. The market for milk products was expected to grow substantially with the rise in incomes. Though dairy farming is a
traditional economic activity of the country, the local production level has been failed to meet the demand of the country resulting more
and more imports and high expenditure bill to the Government. Imports have grown over the years both due to the increase in
population 20 and the increase in milk consumption due to increases in per capita consumption owing to increases in incomes and
changes in consumption patterns, tastes and preferences. 80% of the increasing demand for dairy products is met by the imports

11. Management Aspect:

The senior management consists with the personnel who have good knowledge and experienced in sugar industry and in dairy industry.
The top management will make every possible endeavor to improve the productivity and competency of the whole labour force
periodically. Other than the management staff, the rest of the labour force, over 825 skilled and unskilled workers, will be selected from
the unemployed youths in the area on merits. In addition over 2000 indirect employments opportunities will be created by the project.

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 4

12. Financial Aspect:
Table 1 - Highlights of Financial Projection for Ten Years
Year l Year ll Year lll Year lV Year V Year Vl Year Vll Year Vlll Year lX Year X
Total Hectares of Cultivation 5,700 9,200 12,700 12,700 12,700 12,700 12,700 12,700 12,700 12,700
Total Cane Harvest mt. 456,000 736,000 1,016,000 1,016,000 1,016,000 1,016,000 1,016,000 1,016,000 1,016,000
Total Sugar Production mt. 36,480 58,880 81,280 81,280 81,280 81,280 81,280 81,280 81,280
Total Ethanol Production Lt.'000 1,368 2,208 3,048 3,048 3,048 3,048 3,048 3,048 3,048
Total Sugar & Ethanol Sales 14,113.20 22,779.20 31,455.20 31,455.20 31,455.20 31,455.20 31,455.20 31,455.20 31,455.20
US$ ‘000
Cow Stock 1,000 1,000 1,450 2,103 3,049 4,421 6,410 9,000 9,000 9,000
Annual Milk Production Lt.'000 14,600 21,170 30,704 44,515 64,547 93,586 131,400 131,400 131,400
18,209.39 32,904.06 40,802.25 56,683.18 67,620.22 83,475.73 102,457.77 102,457.77 102,457.77
Annual Dairy Sales US$ ‘000
32,322.59 55,683.26 72,277.45 88,138.38 99,075.42 114,931.03 138,472.97 138,472.97 138,472.97
Total Sales US$ ‘000

Total Variable Expenses 2,038.10 2,859.34 4,433.79 4,253.87 5,113.28 6,002.21 6,688.46 7,683.46 8,710.63 10,803.03
Gross Profit US$ ‘000 (6,777.79) 19,178.02 36,225.13 52,119.59 59,804.93 64,865.42 74,378.82 75,307.33 67,093.87 52,336.92
Total Fixed Costs 3,264.04 10,045.12 10,244.77 10,244.77 10,275.02 10,240.21 10,211.42 10,196.62 10,152.17 10,138.27

Profit Before Int, Dep, & Tax (10,041.83) 9,132.90 25,980.36 41,874.82 49,529.91 54,625.21 64,167.40 65,110.71 56,941.70 42,198.65
1,500.00 1,500.00 1,406.25 1,218.75 1,031.25 843.75 656.25 468.75 281.25 93.75
Annual Interest of the Loan
6,120.41 6,120.41 6,120.41 6,120.41 6,120.41 6,120.41 6,120.41 6,120.41 6,120.41 6,120.41
Annual Depreciation
226.87 2,768.06 5,180.35 6,356.74 7,149.16 8,068.41 8,778.23 7,581.01 5,397.67
Tax

Net Profit After Int, Dep, & Tax (2,318.51) 1,285.62 15,685.65 29,355.36 36,026.51 40,511.89 48,782.13 49,743.32 42,959.03 30,586.82
Net Profit /Sales Ratio % 4.68 33.14 47.78 48.08 55.13 49.93 42.26 36.50

2.41 15.89 32.52 34.73 44.02 46.44 47.19 40.66

Return On Investment %
13000.15 11175.09 10,608.87 9162.88 8,340.27 7182.07 7,009.04 7758.36
Break Even Point-Sales
01:01.7 01:02.7 1:03 01:03.5 01:04.2 01:04.3 01:03.8
Debt Service Cover Ratio

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 5

 Gala
Integrated Sustainable Organic Sugar and Dairy Industry
Development Project

1.0 Introduction
“Gala Agro & Dairy International (PVT) Ltd” (herein after referred as “Gala”) (Reg. No PV 107696) is a limited liability private company
which has been incorporated on 12th August, 2015. The main objective of the company is to provide genuine value to the company’s
stakeholders through establishing Environmental Friendly Integrated Sustainable Organic Sugar Cultivation and Sugar, Ethanol,
Animal Feed, Biomass Electricity and Organic Fertilizer Industries and Dairy Farming and Dairy Products Industries in order to
supply sugar and Dairy products with high quality, value added and with Sri Lankan identity to the local market, through research and
improvement. Minimize the production cost, encourage the sugar cane cultivators to use organic fertilizers, ensure equitable price for
the products, provide financial facilities at a lowest interest rate to the low income groups neglected by the main financial stream, in
order to protect them from the middlemen influence and thereby improve the living condition of them are the other objectives of the
company.

2.0 Vision
To lead the Organic Sugar and Dairy Industries in the country

3.0 Mission:

The Gala Agro & Dairy International (Pvt) Ltd’s mission is “to manufacture quality sugar, ethanol as petroleum substitute, animal
feeds, organic fertilizer, biomass electricity and wide variety of dairy products; and supply at a possible lowest price to the
domestic consumers, using modern technology to control cost and to ensure quality, opening carrier path opportunities to
the unemployed, providing financial assistance to the needed pushing up the living condition of whom engage in activities
related to these industries; and to provide genuine value to the investment.”

4.0 Project Proposal

It is proposed to acquire 13,000ha in Batticaloa District on 99 year lease, to cultivate sugar cane therein, to establish a Sugar
Factory and a dairy Industry. In cultivation sugar cane the company will introduce out-grower system with the farmers in addition to
the cultivation done by the company itself. The company will adopt System of Sugarcane Intensification (SSI), Dip Irrigation and

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 6

 Organic Cultivation System in cultivation sugar cane. In the dairy industry, 1000 cows and 6 studs suite to the environment in
Batticaloa District will be imported and will establish a Dairy Farm and a Hybrid Unit and a Dairy Factory. Out-grower system will be
introduce in dairy industry too.

5.0 Projects of the Programme

a. Cultivate sugar cane under “System of Sugar Cane Intensification” and establish a sugar factory
b. Establish a Dairy Farm and a Dairy Products Industry
c. Establish an organic fertilizer industry
d. Cow Feed Industry
e. Establish a biomass electricity power station

6.0 Goals of the Programme

6.1 Manufacture quality sugar to the domestic market

6.2 Manufacture ethanol to the local market as a fuel additive
6.3 Manufacture Dairy Products such as Liquid Milk, Powdered Milk, Yoghurt, Butter, Cheese etc
6.4 generate electricity using sugar bagasse and other available biomass, e.g. Gliriseedia”
6.5 create employment opportunities
6.6 uplift the living condition of the people through assisting financially in their economic activities such as sugar cane
cultivation, dairy farming and related activities
6.7 contribute to the national economic development

7.0 Objectives of the Programme

7.1 To cultivate sugar cane in 3500 hectares in the year one, 3500ha in year two and another 3500ha in year three and
replant same lands after five years time. In additional 2,200 hectares of sugar cane will be cultivated through Out Grower
System.
7.2 To produce 36,480mt, 58,880mt, and 81,280mt of sugar respectively in the year 1, 2, 3, and on wards
7.3 To produce 1,368,000lt, 2,208,000lt, and 3,048,000lt of ethanol respectively in the year 2, 3, 4, and onwards..

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 7

 7.4 To generate 3mh of electricity daily.
7.5 To process liquid milk, powdered milk and Yoghurt. To produce butter and cheese

8.0 Rationale of the Programme

8.1 Sugar Industry

Sugar is one of the main food items consumed in Sri Lanka. The per capita consumption of sugar in Sri Lanka is around 30 kg which
is very high when compared to average sugar consumption in the world. About three decades ago, sugarcane was cultivated in about
25,000 hectares. There were 3,800ha in Kantale, 5,600ha in Hingurana, 4,500ha in Pelawatta, 4,600ha in Sevanagala and 5,700ha in
Moneragala. The total production of sugar in Sri Lanka at that time was around 114,000mt annually representing around 20% of the
local requirement. Kantale sugar cane plantations have been closed due to various reasons and at present only Pelwatta, Sevanagala
and Hingurana sugar factories function. The total extent under sugarcane at present is around 15,000 hectares. About 4,000 hectares
are in Sevanagala, 9,000 hectares in Pelwatta, and 2,000ha in other districts mainly Amapara, and Badulla Districts, cultivated by
smallholders for production of jaggery, sugar syrup etc.

The total annual requirement of sugar in the country is around 620,000mt but only about 60,000mt is produced locally. The balance
has to be imported. The sugar prices in the world market fluctuate due to several reasons that are beyond our control. This is mainly
because the world sugar supply has decreased attributable to the greater emphasis on using sugarcane to manufacture alcohol than
sugar. With increase in demand for alcohol as a fuel additive, it is likely that the price of sugar will continue to increase. The foreign
exchange involved in importing our sugar needs is around Rs 20 billion per year. A number of by-products from sugarcane are also
imported involving around Rs. 7 billion annually. Hence, developing the local sugar sector will save foreign exchange up to around Rs
27 billion or even more. It will also increase employment opportunities in the country leading to socio-economic development. Large
extents of land, suitable for sugarcane cultivation are found in Badulla, Moneragala, Galle, Kurunegala and Hambanthota Districts.
Sugarcane Research Institute has initiated activities to promote sugar cane cultivation under coconut in Kurunegala District. The table
2 shows the potential sugar cane cultivatable extent of lands in the country.

Table 2 Extent of Potential Sugar Cane Cultivatable Lands

District Extent ha Sugar Production Mt. Year of

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 Commencement
Trincomalee 5,000 30,000 2013

Monaragala 22,815 150,000 2013

Ampara 19,633 142,000 2014

Batticaloa 12,000 75,000 2014

Badulla 2,375 17,000 2014

Kilinochchi 30,000 225,000 2014

Polonnaruwa 8,000 50,000 2015

Anuradhapura 4,500 30,000 2015

Total 104,323 719,000

Ethanol:

One of the important by-products of the sugarcane industry is ethyl alcohol (ethanol) which is made from molasses. This is the portion
of the sugarcane juice which contains sugars other than sucrose (what is normally consumed) and a number of other organic
compounds. One of the compounds formed during fermentation of molasses is ethanol which is becoming extremely important as fuel
additive, in view of high price of fossil fuel.

Many countries are either producing or using ethanol in large quantities or are providing incentives to expand ethanol production and
use. Prompted by the increase in oil prices in the 1970s, Brazil introduced a program to produce ethanol for use in automobiles to
reduce oil imports. Brazilian ethanol is made mainly from sugar cane. Pure ethanol (100% ethanol) is used in approximately 40
percent of the cars in Brazil. The remaining vehicles use gasohol blends of 24 percent ethanol with 76 percent gasoline. Brazil
consumes nearly 4 billion gallons of ethanol annually. In addition to consumption, Brazil also exports ethanol to other countries. Some
Canadian provinces promote ethanol use as a fuel by offering subsidies. India is initiating the use of ethanol as an automotive fuel. In
France, ethanol is produced from grapes that are of insufficient quality for wine production. Sweden has used ethanol as a fuel
substitute and as a result, Sweden’s crude oil consumption has been cut by almost half since 1980. Ethanol-blended gasoline is being
considered as a viable alternative to further lower emission levels. The US now uses more than 15 billion gallons of cleaner, ethanol-
blended petrol a year, totaling 12% of fuel sales in the US. Most of it is a 10% blend, but 85% and even 95% blends are now being
tested. Ethanol blends are also increasingly used in South Africa and a number of other countries. Use of ethanol tends to reduce
environment pollution caused by oxygenates such as tetraethyl lead, MTBE and ETBE used in petrol.

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 9

 Use of Ethanol in Sri Lanka:

A high expenditure on petroleum will have many undesirable effects on the country’s economy. Hence, it is extremely important that
we start producing and using alternatives to petroleum. As indicated earlier, ethanol is one of the alternatives used in many countries
as a fuel. In Sri Lanka, ethanol is made mainly by fermenting molasses which is a by-product of sugar industry. At present, around 10
million litres of ethanol are produced annually in the country as a byproduct of sugar industry. This amount would increase
considerably, to as much as 30 million litres if Hingurana and Kantale sugarcane factories operate at full capacity. Ethanol can also be
made by fermenting and then distilling starch/sugar obtained from crops such as maize, sorghum, potatoes, cornstalks, fruit and
vegetable waste. These crops are cultivated in Sri Lanka.

The ethanol obtained by fermenting molasses contains 3-4% water. If it is converted to anhydrous alcohol, it could be used to blend
petrol, as done in many other countries, thus reducing the use of imported fuel resulting in saving of foreign exchange. Studies
conducted at NERD centre, Sugarcane Research Institute and at Open University show that petrol engines can run on 95% ethanol
presently produced in the country. However, the long term effect of using hydrous alcohol is not known.
The financial viability of using alcohol as an alternative would depend on the taxes, duties etc. on petrol and alcohol, which influence
the market prices. The landed cost of petrol and cost of production of alcohol are almost the same. However, the socio-economic
benefits of using locally produced alcohol as opposed to use of imported petrol need to be realized when their competitive advantages
are considered.

A sub-committee of the Plantation Cluster of the National Council of Economic Development (NCED) has initiated studies, in
collaboration with the Dept. of Mechanical Engineering of Moratuwa University and Ceylon Petroleum Corporation to examine the
different aspects of using hydrous alcohol in three wheelers. The Minister of Science and Technology also has appointed a committee
to examine the use of alcohol and other fuel additives in vehicles. If these endeavors produce positive results, it would be possible to
use locally produced alcohol, at least in three wheelers and motor bicycles, resulting in a considerable saving of foreign exchange. At
present there are about 250,000 three wheelers and 650,000 motor cycles. Hence, the total amount of petrol used by three-wheelers
and motor cycles would be substantial.

Fuel and Economy: We spend a large sum of money in importing petroleum to Sri Lanka. With the rapid increase in fuel prices since
mid last year it is likely that the 2006 annual fuel bill will be around Rs 200 billion. This constitutes almost about 25% of the value of
our imports and is about 30% of our total exports which is Rs. 600 billion. A high expenditure on petroleum will widen our annual trade
deficit, which is around Rs. 200 billion.. We are now importing crude oil on credit from India and Malaysia. We need to be concerned
of the very high level of indebtedness, which stands at around Rs. 1200 billion, and the total debt service payments, which is around
Rs. 350 billion per year, more than the total government revenue.

Increasing costs on petroleum will have many undesirable effects on the country’s economy. In fact, increasing diesel prices has

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 resulted in a rise in almost everything including transport costs, bus and train fares, factory costs etc. leading to high rate of inflation.
Diesel prices are also closely linked to cost of electricity as about 65% of electricity generated comes from thermal power stations,
which run on diesel. On the top of it, according to newspaper reports, thermal power plants are under construction which will increase
further the consumption of diesel causing an increase in costs and also pollution of the environment. Already, the sulfur dioxide level
in the atmosphere is high resulting in respiratory diseases. Increasing diesel prices will have a corresponding effect on the cost of
production of all our exports including tea, rubber, coconut and garments etc, resulting in a reduction in our competitiveness of our
exports in the world market. This may even cause some industries to close down making employment of some people redundant.
Most of the farmers, who constitute nearly 60% of the population, do not get any regular income. If their buying power is reduced, due
to high prices of food and other consumer items, the demand for industrial products including those from the SME sector will decrease
causing further retardation of the ailing economy of the country.

Alternatives:

In view of the high costs involved in importing crude oil, it is extremely important that we start producing and using alternatives to
petroleum. Ethanol is an alternative which can be used as an alternative. It is already produced in Sri Lanka, though not in sufficient
amounts. However, if there is a concerted effort by the government and other related organizations availability of ethanol could be
increased within a relatively short period.

“Cultivation of sugarcane will not only increase local sugar production but also ethanol. In fact, cultivation of 100 ha of sugarcane
would increase local sugar production by around 800mt, ethanol availability by 100,000 liters, in addition to an increase in the
production of other by-products and employment opportunities. One of the by-products is bagasse which could be used to generate
electricity. Thus, promoting sugarcane cultivation in the country will result in many socio-economic benefits.

8.2 Dairy Sector

Milk and dairy product has been a part of Sri Lankan’s diet from long time ago. The main items which come under the milk and milk
food include fresh milk, powdered milk, cheese, butter yoghurt and so on. Cattle and buffalo have been reared for centuries as an
integral component of the country’s agricultural Production and pastoral culture. Cattle are not reared primarily for milk production but
for various important outputs to the farming community. These include draught power, fertilizer and milk. Besides cattle buffalos are
an integral part of the stock of cattle and are more significant in many regions in the country. They are more significant than cattle as
draught animals in the performance of several services in paddy production such as ploughing, soil preparation and threshing paddy.
Cattle rearing have been valuable to many facets of rural life and sustained for thousands of years for these reasons. Therefore,
“Diary Farming” is not a new economic activity for the Sri Lankan culture.

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 In earlier years much of the milk consumption was among the middle classes and the affluent. Milk was consumed as an
accompaniment with tea and certain amount as curd made mostly from buffalo milk. This pattern has changed over time and milk
consumption has increased. The per capita availability of milk is about 36 kg/person per year much lower than the recommended
intake of 60–65 kg/person per year. However average levels of consumption of milk and milk products have grown steadily, rising
overtime and across income segments. The market for milk products was expected to grow substantially with the rise in incomes.
However the high price of milk is a serious limitation to increased consumption of milk in the country.

Though dairy farming is a traditional economic activity of the country, the local production level has been failed to meet the demand of
the country resulting more and more imports and high expenditure bill to the Government. Imports have grown over the years both
due to the increase in population 20 and the increase in milk consumption due to increases in per capita consumption owing to
increases in incomes and changes in consumption patterns, tastes and preferences. 80% of the increasing demand for dairy products
is met by the imports and the local producers have been able to meet only 17%. 95% of the imports are powdered milk which is the
preference of the Sri Lankan consumers whereas; the liquid milk has been the preference in other countries. In 2006, Sri Lanka
imported around 65,000 Mt of dairy products incurring approximately LKR 15Bn import bill.

Meanwhile; the global dairy market highly influence the dairy markets in trade dependent Sri Lanka as the Sri Lankan economy has
been increasingly dependent on the global market to fulfill its requirement of dairy products. Some significant changes in milk
production levels have been observed due to changes in climatic conditions in Australia and New Zealand from where Sri Lanka
mainly imports dairy products. This has caused the unexpected price hike in the local dairy products market.

Following the world energy shock, the demand for bio-fuel such as ethanol and bio-diesel, increased tremendously. This trend has
created a high demand for cereals, sugarcane and oil seed crops those supply raw materials for animal feeds. This resulted in a rise
of feed prices and reduced the supply and increased the dairy prices. Dairy supply depends on the production and availability of
stocks. The chronic slip in supply condition started to aggravate with the emptying of the stocks of dairy products since 2002 in most
of the major dairy producing and trading countries. This situation further worsens the supply condition making it impossible to meet the
demand in the long run.

Further, Along with the supply side shocks, increasing global demand for dairy products too causes the price spike observed in 2007.
Rapid global economic growth in many parts especially China and India continues to show strong economic growth. This has led to an
increase in the demand for dairy products. Meanwhile, diet globalization too has contributed to the increased consumption of dairy
products in Asia.

Changing demand patterns of different dairy products have also contributed considerably to this price hike. The demand for cheese
and whole milk powder are increasing in the high income developed countries and the exporters are more inclined to produce these

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 value added products due to the higher returns they bring. Thus, the high value added productions are done at the expense of other
dairy products pushing the prices up.

Following the changes in the world dairy market, especially the price hike, countries started to be adjusted themselves in order to face
the crisis through imposed an export ban, export taxes, elimination of export subsidies etc. This sharply increased the prices of dairy
products in the global market.

Under this scenario, the Sri Lankan dairy market to be assessed before investing in dairy industry. As mentioned above the conditions
in the global dairy market highly influence the dairy markets in Sri Lanka.

Currently, dry milk powder is the form that is highly consumed in Sri Lanka. The consumption of milk products has almost doubled and
the consumption of fresh milk has dropped drastically in 2003/04 compared to 1996/97 in the urban, rural and estate sectors showing
a clear switch from fresh milk to dry milk powder (Central Bank of Sri Lanka, 1999 and 2005). Sri Lanka’s main sources of importation
of dairy products are Australia and New Zealand which accounted for 94% of the total imports in 2007. The rest is supplied mainly
from the EU. The domestic prices of dairy products have always reflected world market prices, implying minimum insulation from the
global dairy, market.

Sri Lanka has imposed high tariff on importation of dairy products in order to assure reasonable price for local dairy products and
encourage there by the local producers. The country has the opportunity of transforming the current high international prices into an
opportunity for increasing domestic production of milk. One of the most serious constraints to milk production came from the import of
milk powder and the inability to increase prices to domestic producers. This obstacle has been removed. It now behaves policy
makers to provide an environment conducive to private investment, provide support services to small dairy producers, strengthen
research and extension services and remove market imperfections. The strategy for increased milk production has to be a diverse one
that takes into consideration the agro climatic differences, the constraints of grassland and grazing lands, the low productivity of much
of the cattle herd and the availability of a large buffalo heard.

The government has identified the dairy sector as a “Growth Sector. There are a number of social and economic reasons that has led
to the selection of the dairy sector as a growth sector. The Dairy sector is dominated by small scale producers who are widely
dispersed throughout the country. It offers the opportunity to small scale producers engaged in crops as an additional income earning
activity. The government has therefore focused on dairy development as a strategy for poverty reduction and linked it to other
programmes aimed at poverty reduction. Incentives for, and improvements in milk production and productivity would indeed improve
their income levels that are relatively low.

Under this circumstance domestic production is estimated to have increased at about 2.5 per cent during the last decade. The
government agencies in charge of the subject of livestock are basing their plans on a projected annual increase of 5.2 per cent. In fact

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 13

 the current sharp 14% increases in price of milk and evidence of recent intents of new investments may prove this estimate to be
modest. Gala’s Microfinance Strategy expects to make use of this opportunity in establishing dairy industry.

9.0 Technical Feasibility

The proposed sugar industry and Dairy Industry will be located in the Chenkalady Ds Division in Batticaloa District wherein 10,036ha
have been identified for sugar cultivation. In addition 1,584ha and 2,210ha have been identified respectively in Kiran and Paddipola
DS Divisions.
Utilities such as water, electricity etc is available in the project. However, electricity from national Grid will be used only in the first year
of the project and from year 2 and onwards electricity generated through both sugar and Dairy factory will be utilized. The Datticaloa
District receive rain fall only three months, November, December and January in the year and as a result it experiences shortage of
surface water. To overcome this issue ‘Gala” will introduce several suitable varieties of sugarcane and will adopt ‘System of
Sugarcane Intensification” (SSI) under Dripped Irrigation System.

Under dairy project, 1000 cows with 6 studs of hybrid variety suit to the environment of Batticaloa district will be imported and reared
in the proposed farm. 200ha of grassing land has been planned in the farm to ensure adequately supply of grass. This will be
supported by the proposed animal feed manufacturing plant to be imported and installed in the project. The each batch of male calves
hybrid in the farm will be distributed among the out growers keeping female calves in the farm. On the other hand even at present
there are large herds of cows in Batticaloa district but not reared systematically to harvest high yield of milk. The company expected to
impart modern dairy farming technology among the farmers and to purchase their milk production to be processed in proposed liquid
milk and powdered milk plant.

One of the success factors of any industry is availability of raw material in sufficient quantities. As the project owns sufficient extent of
sugar cane cultivatable land, modern dairy farm and go for out growers there will not be a shortage of raw material.

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 14

 Sri Lanka Batticaloa District

Batticaloa District

9.2 Plant and machineries

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 15

 Brand New Sugar Manufacturing Plant, Liquid and Powdered Milk Plant, Yoghurt Manufacturing Plant, Organic Fertilizer Plant and
Cow Feed Manufacturing Plant with modern technology will be imported and installed in the project. Sufficient numbers of land
vehicles, accessories, tools and equipments will be employed in the project.

9.3 Liquid Milk Processing Plant:

Table 3 - Processing Capacity: 1250lt/hr

Milk Collecting Tanks (40 Lt.) 3,000 Nos.

Chiller Tanks (2000 Lt.) 10 Nos.
Steam Boiler (5,000 Kg./H) 01 No.
Milk Silos (20,000 Lt.) 04 Nos.
Online Cream Separator (5,000 Lt.) 01 No.
Batch Mixing Tanks (10,000 Lt.) 03 Nos.
Pasteurizer (10,000 Lt.) 02 Nos.
Dump Tanks (10,000 Lt.) 02 No.
Milk Pumps (02 Hp) 01 No.
Heat Exchanger 6 Plate (10,000 Lt.) 01No.
UHT Sterilizer 01 No.
Chill Water Plant (2,000 Lt./H) 01 No.
Homogenizer (5,000 Lt.) 01 No.
Cup Fill Sealer (25,000 Cp./H) 01 No.
Packetting Machine (180 Ml.x12,000 Pts./H) 01 No.
Tetra Pack Machine (01Lt.x5,000 Pts./H) 01 No.
Yoghurt Incubation Room 01 No.
Cold Room 40’x20’ (800 Sq. feet) 800 Sq. feet
4 Line Digital Ink Jet Coder 01 No.
Laboratory 50’x30’ (01 nos.) 1,500 Sq. feet
Laboratory Equipments 01 Set
Milk transport vehicles 03 Nos.
Cold trucks 06 Nos.

9.4 Table 4- Milk Powder Manufacturing Plant (processing capacity: 10,000lt/h)

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 Chill Circulation
Steam
Code Description Specification Main Parameters Qty water water (T)
（Kg） （T）
100
101 Milk pump ZXB-40-36 Q=40t/h H=36m 2
102 Double coupling filter GL-40 Q=40 t/h 2
103 Spin flow degassing tank XT-40 Q=40t/h 2
104 Electromagnetic flow meter Q=40t/h 2
105 Plate type cooler BR0.26-56 F=56m2 2 60×2
106 Outdoor milk tank BPC-70 V=70 m3 3
107 Milk pump BAW-10-36 Q=10t/h H=36m 1
108 CIP returning tank ZXB-30-36 Q=30t/h H=36m 1
Sub-total 120
200
201 Pasteurizer BR2-BS-10 1 180 30
202 Cream Separator FL-10 2
203 Homogenizer GJ-10-25 2
204 Intermedia storage tank BVP-10 V=10000L 4
205 High shear emulsifier GHR-2 V=2000L 1
206 Milk pump BAW-10-36 Q=10t/h H=36m 3
207 CIP returning pump ZXB-15-36 Q=15 t/h H=36m 1
208 Dilute cream intermedia storage FVP-4 V=4000L 3 18×3
tank
209 Rotary pump ZZB-5 2000-4000L/H 1
210 CIP returning tank ZXB-15-36 Q=10 t/h H=24m 1
Sub-total 180 84
300 Concentration and drying section
301 Four effects falling film EVP04-7600 Water evaporation: 1 1700 100
evaporator 7.6T/h

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 302 Pressure spray dryer YPG-1300 Water evaporation: 1 3250 30
1300kg/h
303 Lecithin spraying section LLZ-1200 Equipped with 1
GYP1200
304 Milk powder silo FC-24 V=24000L 3
305 Big bag packing machine GZJ-25 25kg/bag 1
306 Conveying belt 1
307 Bag sealing machine 1
308 Bag sewing machine 1
Sub-total 4950 30 100
400
401 Acid tank BVCIP-4 V=4 m3 1
402 Alkali tank BVCIP-4 V=4 m3 1
403 Clean water tank DVN -4 V=4 m3 1
404 Hot water tank BVCIP -4 V=4 m3 1
405 Feeding pump BAW-15-36 Q=15 t/hH=36m 1
406 Feeding pump BAW-30-36 Q=30 t/hH=36m 1
407 Plate heat exchanger BR0.26-12 F=12m2 3 400×3
408 Interior circulation pump BAW-15-36 Q=15 t/hH=36m 3
409 Thick acid and alkali tank DVN-400 V=400L 2
410 Membrane GMB-1.5 Q=1.5T/H 2
411 Distribution plate 4
412 Pipe filter 2
Sub-total 1200
500
501 Ducts, fittings and valves etc 1
502 Control panel 1
503 Cables/wires and connections 1
504 Other installation materials 1
505 Land transportation 1

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 506 Packing charges 1
Sub-total
600
601 Chill water preparation system 300WST 300KW 1 70
602 Boiler Gas 6T/H 1
603 Cooling tower With pump 200T/H 1
604 Compressor (1m3 tank) 7m³/min 1
Sub-total

5130 or
700 Big total Consumption 234 170
1200

10.0 Marketing Feasibility

10.1 Sugar and Byproducts

Sugar is one of the main food items consumed in Sri Lanka. The per capita consumption of sugar in Sri Lanka is around 30 kg
which is high when compared to average sugar consumption in the world. The total annual requirement of sugar in the country is
around 620,000mt but only about 60,000mt is produced locally. The balance has to be imported. The sugar prices in the world market
fluctuate due several reasons that are beyond our control. This is mainly because the world sugar supply has decreased attributable
to the greater emphasis on using sugarcane to manufacture alcohol than sugar. With increase in demand for alcohol as a fuel
additive, it is likely that the price of sugar will continue to increase. The foreign exchange involved in importing our sugar needs is
around Rs 20 billion. A number of by-products from sugarcane are also imported involving around Rs. 7 billion annually. Hence,
developing the local sugar sector will save foreign exchange up to around Rs 27 billion or even more.

A high expenditure on petroleum will have many undesirable effects on the country’s economy. Hence, it is extremely important that
we start producing and using alternatives to petroleum. As indicated earlier, ethanol is one of the alternatives used in many countries
as a fuel. In Sri Lanka, ethanol is made mainly by fermenting molasses which is a by-product of sugar in view of the high costs
involved in importing crude oil, it is extremely important that we start producing and using alternatives to petroleum. Ethanol is an
alternative which can be used as an alternative. It is already produced in Sri lanka, though not in sufficient amounts. At present,

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 19

 around 10 million litres of ethanol are produced annually in the country as a by product of sugar industry. This amount would increase
considerably, to as much as 30 million litres if Kantale sugarcane factories operate at full capacity.

Therefore, when the above facts are considered we can understand the high demand prevailing in the country for sugar and ethanol.

10.2 Milk and Other Dairy Products

Milk and dairy product has been a part of Sri Lankan’s diet from long time ago. The main items which come under the milk and milk
food include fresh milk, powdered milk, cheese, butter yoghurt and so on. In earlier years much of the milk consumption was among
the middle classes and the affluent. Milk was consumed as an accompaniment with tea and certain amount as curd made mostly from
buffalo milk. This pattern has changed over time and milk consumption has increased. The per capita availability of milk is about 36
kg/person per year much lower than the recommended intake of 60–65 kg/person per year. However average levels of consumption
of milk and milk products have grown steadily, rising overtime and across income segments. The market for milk products was
expected to grow substantially with the rise in incomes. However the high price of milk is a serious limitation to increased consumption
of milk in the country.

Though dairy farming is a traditional economic activity of the country, the local production level has been failed to meet the demand of
the country resulting more and more imports and high expenditure bill to the Government. Imports have grown over the years both
due to the increase in population 20 and the increase in milk consumption due to increases in per capita consumption owing to
increases in incomes and changes in consumption patterns, tastes and preferences. 80% of the increasing demand for dairy products
is met by the imports and the local producers have been able to meet only 17%. 95% of the imports are powdered milk which is the
preference of the Sri Lankan consumers whereas; the liquid milk has been the preference in other countries. In 2006, Sri Lanka
imported around 65,000 Mt of dairy products incurring approximately LKR 15Bn import bill.

Meanwhile; the global dairy market highly influence the dairy markets in trade dependent Sri Lanka as the Sri Lankan economy has
been increasingly dependent on the global market to fulfill its requirement of dairy products. Some significant changes in milk
production levels have been observed due to changes in climatic conditions in Australia and New Zealand from where Sri Lanka
mainly imports dairy products. This has caused the unexpected price hike in the local dairy products market.

Under these circumstances potentiality for dairy industry in Sri Lanka is very high and any competent entrepreneur enter the industry
and sustain

11.0 Management Aspect

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 20

 The senior management consists with the personnel who have good knowledge and experienced in sugar industry and in dairy
industry. In addition, the company already has selected experienced and competent middle management will further make them
knowledgeable and trained through various educational programmes. The top management will make every possible endeavor to
improve the productivity and competency of the whole labour force periodically. Therefore, the company expects to select the top
management on merits on contract basis at the beginning to enable the company to remove him whenever any of them is found
incompetent and incapable of doing his job. Other than the management staff, the rest of the labour force, over 825 skilled and
unskilled workers, will be selected from the unemployed youths in the area on merits. In addition over 2000 indirect employments
opportunities will be created by the project.

In order to achieve the set objectives and goals, there should be efficient and effective labour force and management and
administrative system in the Company. The environment of the office should facilitate to achieve those objectives. There should be all
the facilities in the head office and streamlined to reach the Company’s vision. The System and Procedures, Accounting and Auditing,
Structure of the Company, and Good Governance should lead the Company towards the achievement of Objectives. Therefore,
Operation Guidelines to be formulated. Because, the Management is the main success factor of the Company. Therefore, the
company expects to recruit experienced and competent management staff and skilled, semiskilled and unskilled labour force taking
the unemployment issue in the area into consideration.

12.0 Environmental Aspect

Sugar Industry adopts the cleaner production procedures. The main waste, bagasse is used to produce electricity and the ash is used
for manufacturing organic fertilizer. The molasses, remaining solids after extracting sugar is used to produce ethanol and Yeast
Cream the remaining solids after extracting ethanol will be used in Cow Feed production. The noise generate by the plants and
machinery affects the environment, however, these factories are located in remote areas where no residencies. The sugar industry is
mostly an environment friendly business as Chemical Fertilizer, Chemical Pesticide and Chemical Weedycide are not used. Instead
Organic Cultivation Practices and Dripped Irrigation System will be adapted. The necessary steps will be taken and the license of the
Environmental Authority will be obtained before commencing the factories.

Also, there are no hazardous effluents generated from a milk processing plant. However, construction of effluents treatment plant is
necessary in case of multi product large size plants for treating the effluents before discharging for proper disposal. Therefore, the
necessary steps will be taken and the license of the Environmental Authority will be obtained before commencing the factories.

13.0 Financial Analysis

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 21

 Assumptions on which the projections are based

1. US$ 01 is equal to LKR 135.00

2. All inclusive cost of sugar cultivation up to harvest per hectare is US$ 2150.00
3. One hectare of sugar cultivation produces 80mt of sugar cane per year, ratoon crop can be harvested for four years and new
plantation should be done in five years interval
4. Selling price of sugar is US$ 370/mt
5. Mortality Rate in the hybrid unit will be 10%
6. A cow consumes 10mt and a calf consumes .55mt of cow feed per year
7. A Production of milk will commence after one year as a cow take one and half years to bore a calf and produce milk. It is assumed
that a cow will produce 40lt of milk per day.
8. 4% of fat in raw milk is removed before processing milk products
9. Approximately 13kg of Whole Milk Powder can be produce from 100lt of raw milk.
10. 01lt of raw milk, 110gr Sugar, 7gr gelatin, 2ml vanilla, 16ml culture, require to produce 12 Nos. 80ml Yoghurt cups
11. 01lt of liquid milk will be sold @ US$ 1.15, 400gr of powdered milk will be sold @ US$ 1.75 and 80ml yoghurt cup will be sold @
US$ 0.13.

Table 5 - Project Cost Estimate (Capital Cost)

Unit Price US$. Estimated Cost
Goals Description No. of Units
US$
US$
Pre-Operative Activities such as company Royalty in acquiring cost under 99 lease 13000ha 1,480.00 19,240,000.00
formation, acquiring lands etc.
Company formation, legal Charges etc 335,000.00

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 22

 Professional fees such as Architectural designing etc 1,500,000.00
Land clearance & Fencing 3,925,000.00
Total Pre-Operative Expenses 25,000,000.00
1. Establishing a Sugar Factory & Dairy Buildings 10,000,000.00
factory
Plant and machinery 30,000,000.00
Equipments 5,000,000.00
Furniture & Fittings 22,225.00

Organic Fertilizer Plant 100,000.00

Total Capital Cost Sugar Industry 95,122,225.00

Construction of cow sheds for 1,000 cows 510,000sqft 9.00 4,590,000.00

Purchasing cows 1,000 925.00 925,000.00

Liquid milk processing plant & equipments 1 482,000.00 482,000.00

2.value added Dairy products for the local Powdered milk processing plant 1 2,590,000.00 2,590,000.00
market
Laboratories Equipments 1 25,000.00 25,000.00
Factory Buildings 3,000sqft 30.00 90,000.00
Cold Room 8000Qubic feet 17.50 140,000.00

Total Capital Cost 8,842,000.00

3.To hybrid species of cows that Cow sheds 12,000 Sq. feet 9.00 108,000.00
suits for the local Environment
Studs 6 Nos. 5,550.00 33,300.00
Other required equipments and utensils 15,000.00 15,000.00
Animal feed Manufacturing Plant 01 No. 13,350.00 13,350.00
A Laboratory Building 50’x30’ 1500sq feet 40.00 60,000.00
Laboratory Equipments 01 Set 17,600.00 17,600.00
Total Capital Cost - Dairy Sector 247,250.00
4. Acquiring Vehicles Tractor with 90hp 35 260,000.00 9,100,000.00
Tractor with 120hp 35 28,600.00 1,001,000.00

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 23

 Tractor with 140hp 10 29,700.00 297,000.00
1210 Lorries 5 33,500.00 167,500.00
Milk Transporting Vehicles 8 60,000.00 480,000.00
Cooler Trucks 5 14,000.00 70,000.00
4x4 Double Cabs 20 37,200.00 744,000.00

Total 11,859,500.00
Grand Total 116,070,975.00

Table 6 - Cost of Project - US$ '000

Item Equity Loan Total
Pre-Operative expenses 25,000,000.00 25,000,000.00
Buildings 14,988,000.00 14,988,000.00
Plant & Machinery 33,185,350.00 33,185,350.00
Vehicle 11,859,500.00 11,859,500.00
Other Equipments 5,057,600.00 5,057,600.00
Studs Stock 33,300.00 33,300.00
Cow Stock 925,000.00 925,000.00
Furniture & fittings 22,225.00
22,225.00
Contingency 13,732,025.00 13,732,025.00
Working Capital 20,197,000.00 20,197,000.00
al Project Cost 25,000,000.00 125,000,000.00 125,000,000.00

Debt Equity Ratio = 80%:20%

Table 7 - Projected Gross Profit for Dairy Sector for Ten years: US$ '000
Year I Year II Year III Year IV
Item
Debit Credit Debit Credit Debit Credit Debit Credit
Male & additional Female Caves -
Note 7 1,520.00

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 24

 Dairy Products - Note 8, 9, 10, & 11
18,209.39 32,904.06 40,802.25
Total Net Sales
18,209.39 32,904.06 40,802.25
Expenses - Cow Feed - Note 5
2,250.00 2,433.15 3,528.07 5,116.77
Direct Labour - Table 6
1,199.91 1,199.91 1,199.91 1,199.91
Raw Material for Yoghurt - Note 10
1,431.83 1,869.07 1,869.07
packing-Yoghurt-Note 11
3,597.76 7,195.52 7,195.52
packing-Liquid Milk - Note 12
1,071.64 2,143.28 2,143.28
packing-Powdered Milk - Note 13
471.03
Total Variable Cost
3,449.91 9,734.29 15,935.85 17,995.58
Gross Profit/Contribution
(3,449.91) 8,475.10 16,968.21 22,806.67

Table 7 Continuation - Projected Gross Profit for Dairy Sector for Ten years: US$ '000,
Year V Year VI Year VII Year VIII Year IX Year X
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

4,560.00 4,560.00 4,560.00

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 25

 56,683.18 67,620.22 83,475.83 102,457.77 102,457.77 102,457.77

56,683.18 67,620.22 83,475.83 107,017.77 107,017.77 107,017.77

7,418.65 10,756.77 15,596.49 22,613.78 32,789.25 47,546.20

1,199.91 1,199.91 1,199.91 1,199.91 1,199.91 1,199.91

2,803.60 2,803.60 2,803.60 2,803.60 2,803.60 2,803.60

10,793.28 10,793.28 10,793.28 10,793.28 10,793.28 10,793.28

3,348.88 3,348.88 3,348.88 3,348.88 3,348.88 3,348.88

626.85 1,663.27 3,165.76 18,311.90 18,311.90 18,311.90

26,191.17 30,565.71 36,907.92 59,071.35 69,246.82 84,003.77

30,492.01 37,054.51 46,567.91 47,946.42 37,770.95 23,014.00

Table 8 - Projected Gross Profit for Sugar Sector for Ten years: US$ '000
Year I Year II Year III Year IV
Item
Debit Credit Debit Credit Debit Credit Debit Credit

Net Sale of Sugar - Note 2 13,497.60 21,785.60 30,073.60

Net Sale of Ethanol - Note 2 615.60 993.60 1,371.60

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 26

 Total Net Sales
14,113.20 22,779.20 31,445.20
Cultivation & Maintenance Expenses - Note
3 3,167.50 3,167.50 3,167.50 1,665.50
Direct Labour from the Company
60.38 60.38 60.38 60.38
packing-US$ 0.25/50kg Bag, US$ '000 -
Note 2 182.40 294.40 406.40
Total Variable Cost
3,227.88 3,410.28 3,522.28 2,132.28
Gross Profit/Contribution
(3,227.88) 10,702.92 19,256.92 29,312.92

Table 8 Continuation- Projected Gross Profit for Sugar Sector for Ten years: US$ '000
Year V Year VI Year VII Year VIII Year IX Year X
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

30,073.60 30,073.60 30,073.60 30,073.60 30,073.60

30,073.60
1,371.60 1,371.60 1,371.60
1,371.60 1,371.60 1,371.60

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 27

 31,445.20 31,445.20 31,445.20 31,445.20 31,445.20
31,445.20

3,167.50 3,167.50 3,167.50 1,655.50 1,655.50

1,665.50
60.38
60.38 60.38 60.38 60.38 60.38
406.40
406.40 406.40 406.40 406.40 406.40
3,634.28 3,634.28 3,634.28 2,122.28 2,122.28
2,132.28
27,810.92 27,810.92 27,810.92 29,322.92 29,322.92
29,312.92

Table 9 -Projected Net Profit for Ten years: US$ '000

Year I Year II Year III Year IV
Item
Debit Credit Debit Credit Debit Credit Debit Credit

Gross Profit/Loss - Diary Industry

(3,277.88) 10,702.92 19,256.92 29,312.92
Gross Profit/Loss - Sugar Industry
(3,499.91) 8,475.10 16,968.21 22,806.67

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 28

 Total Gross Profit/Loss
(6,777.79) 19,178.02 36,225.13 52,119.59
Factory Overhead Expenses-Note 13
159.59 313.18 313.18
Selling & Distribution Expenses
59.91 357.49 410.80 410.80
Administration & Establishment
Expen. - Note 14 3,204.13 9,528.04 9,520.79 9,520.79
Total Fixed Cost
3,264.04 10,045.12 10,244.77 10,244.77
Net Profit Before Dep. & Int.
(10,041.83) 9,132.90 25,980.36 41,874.82
Interest of Loan
1,500.00 1,500.00 1,406.25 1,218.75
Depreciation
6,120.41 6,120.41 6,120.41 6,120.41

Net Profit Before Tax (17,662.24) 1,512.49 18,453.70 34,535.66

Tax 15% 226.87 2,768.06 5,180.35

Net Profit After Tax -2318.51 1,285.62 15,685.65 29,355.31

Table 9 Continuation -Projected Net Profit for Ten years: US$ '000
Year V Year VI Year VII Year VIII Year IX Year X
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
29,312.92 27,810.91 27,810.91 27,810.91 29,322.92 29,322.92
30,492.01 37,054.51 46,567.91 47,496.42 37,770.95 23,014.00
59,804.93 64,865.42 74,378.82 75,307.33 67,093.87 52,336.92

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 29

 321.18 321.18 328.18 328.18 328.18 328.18
433.05 398.24 362.45 347.65 303.20 289.30
9,520.79 9,520.79 9,520.79 9,520.79 9,520.79 9,520.79
10,275.02 10,240.21 10,211.42 10,196.62 10,152.17 10,138.27
49,529.91 54,625.21 64,167.40 65,110.71 56,941.70 42,198.65
1,031.25 843.75 656.25 468.75 281.25 93.75
6,120.41 6,120.41 6,120.41 6,120.41 6,120.41 6,120.41
42,378.25 47,661.05 57,390.74 58,521.55 50,540.04 35,984.49
6,356.74 7,149.16 8,608.61 8,778.23 7,581.01 5,397.67
36,021.51 40,511.89 48,782.13 49,743.32 42,959.03 30,586.82

Table 10 - Ratio Analysis

Year l Year ll Year lll Year lV Year V Year Vl Year Vll Year Vlll Year lX Year X
Net Profit /Sales Ratio % 4.68 33.14 47.78 48.08 55.13 49.93 42.26 36.50 25.99
Return On Investment % 3.01 19.86 40.66 43.41 55.02 58.05 58.99 50.82 36.08
Break Even Point-Sales 13000.15 11175.09 10,608.87 9162.88 8,340.27 7182.07 7,009.04 7758.36 9,824.91
Debt Service Cover Ratio 01:01.7 01:02.7 1:03 01:03.5 01:04.2 01:04.3 01:03.8 01:02.9

Table 11 - Projected Cash flow: US$ '000

Items Year l Year ll Year lll Year lV Year V Year Vl Year Vll Year Vlll Year lX Year X
Owner’s Equity
25,000.00
Investment Loan
76,253.31 8,779.76 2,590.00
Cash Sales
16,161.30 27,841.63 36,138.13 44,069.19 49,537.71 57,465.52 69,236.49 69,236.49 69,236.49

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 30

 Realization of Debtors
16,161.30 27,841.63 36,138.13 44,069.19 49,537.71 57,465.52 69,236.49 69,236.49
Other Income
Total Cash in Floor
101,253.31 24,941.06 46,592.93 63,979.76 80,207.32 93,606.90 107,003.23 126,702.01 138,472.98 138,472.98
Investments
101,253.31 8,779.76 2,590.00
Direct Operating cost
6,677.79 13,144.57 19,458.13 20,127.86 28,323.45 34,199.99 40,542.20 62,705.63 71,369.10 86,126.05
Indirect Operating Cost
3,264.04 10,045.12 10,244.77 10,244.77 10,275.02 10,240.21 10,211.42 10,196.62 10,152.17 10,138.27
Interest on Loan
1,500.00 1,500.00 1,406.25 1,218.75 1,031.25 843.75 656.25 468.75 281.25 93.75
Tax
226.87 2,768.06 5,180.35 6,356.74 7,149.16 8,068.41 8,778.23 7,581.01 5,397.67
Installments of Loans
12,500.00 12,500.00 12,500.00 12,500.00 12,500.00 12,500.00 12,500.00 12,500.00
Total Cash Out Flow
107,695.14 24,916.56 46,377.21 49,271.73 58,486.46 64,933.11 71,978.28 94,649.23 101,883.53 114,255.74
Balance
(6,441.83) 24.50 215.72 14,708.03 21,720.86 28,673.79 35,024.95 32,052.78 36,589.45 24,217.24
Balance B/F
(11,441.88) (11,417.38) (11,201.66) 3,506.37 25,227.23 53,901.02 88,925.97 120,978.75 157,568.20
Balance C/F
(6,441.83) (11,417.38) (11,201.66) 3,506.37 25,227.23 53,901.02 88,925.97 120,978.75 157,568.20 181,785.44

Table 11 - Pattern of Cash in under 50% Credit Sales per Month - US$ '000
Items Year l Year ll Year lll Year lV Year V Year Vl Year Vll Year Vlll Year lX Year X

Total Sales - Sugar 14,113.20 22,779.20 31,455.20 31,455.20 31,455.20 31,455.20 31,455.20 31,455.20 31,455.20

Total Sales - Dairy 18,209.39 32,904.06 40,822.25 56,683.18 67,620.22 83,475.83 107,017.77 107,017.77 107,017.77

Total Sales 32,322.59 55,683.26 72,277.45 88,138.38 99,075.42 114,931.03 138,472.97 138,472.97 138,472.97

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 31

 50% Credit Sales (Debtors) 16,161.30 27,841.63 36,138.73 44,069.19 49,537.71 57,465.52 69,236.49 69,236.49 69,236.49

50% Cash Sales 16,161.30 27,841.63 36,138.73 44,069.19 49,537.71 57,465.52 69,236.49 69,236.49 69,236.49

Pattern of Cash in 16,161.30 44,002.93 63,980.36 80,207.92 93,606.90 107,003.23 126,702.00 138,472.97 138,472.97

Table 13 - Annual Funds Flow - US$ '000

Items Year l Year ll Year lll Year lV Year V Year Vl Year Vll Year Vlll Year lX Year X
Pre-Operative Expenses 25,000.00

Capital Investment -Building-sugar Ind. 10,000.00

Capital Investment -Building-Dairy Ind. 4,988.00

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 32

Capital Investment -Plant & Machinery-Sugar 30,100.00
Capital Investment -Plant & Machinery-Dairy 3,085.35 2,590.00
Capital Investment -Vehicles 11,859.50
Capital Investment -Equipments-Sugar 5,000.00
Capital Investment -Equipments-Dairy 57.60
Capital Investment -Furniture & Fittings 22.23
Capital Investment -cows 925.00
Capital Investment -Studs 33.30
Cash In 16,161.30 44,002.93 63,980.36 80,207.92 93,606.90 107,003.23 126,702.00 138,472.97 138,472.97

Total Funds in 91,070.98 16,161.30 46,592.93 63,980.36 80,207.92 93,606.90 107,003.23 126,702.00 138,472.97 138,472.97

Total Capital Investment 91,070.98

Variable Expenses - Sugar Sector 3,227.88 3,410.28 3,522.28 2,132.28 2,132.28 3,634.28 3,634.28 3,634.28 2,132.28 2,122.28
Variable Expenses - Dairy Sector 3,449.91 9,734.29 15,935.85 17,995.58 26,191.17 30,565.71 36,907.92 59,071.35 69,246.82 84,003.77

Total Operating Cost 97,748.77 13,144.57 19,458.13 20,127.86 28,323.45 34,199.99 40,542.20 62,705.63 71,379.10 86,126.05

Fixed Expenses 3,264.04 10,045.12 10,244.77 10,244.77 10,275.02 10,240.21 10,211.42 10,196.62 10,152.17 10,138.27
Interest on Loan 1,500.00 1,500.00 1,406.25 1,218.75 1,031.25 843.75 656.25 468.75 281.25 93.75
Tax 226.87 2,768.06 5,180.35 6,356.74 7,149.16 8,068.41 8,778.23 7,581.01 5397.67
Total Expenses 101,012.81 24,916.56 33,877.21 36,771.73 45,986.46 52,433.11 59,478.28 82,149.23 89,393.53 101,755.74

Deficit in Funds (disbursement Of Loan) (9,941.83) (8,755.26) 12,715.72 27,208.63 34,221.46 41,173.79 47,524.95 44,552.77 49,079.44 36,717.23

14. Social and Economic Benefits

 The project will generate 825 direct employment opportunities in the two factories, over 2,000 employments in sugar cane
cultivation and in the dairy farm from which the rural youth will be benefitted. This will help at least 2,825 rural families to improve
their living condition.
 Due to the establishment of the proposed industries large number of indirect employment opportunities will be created causing
improvement of their families’ living condition.

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 33

  The project will cause improvements in infrastructure of the area in return same will result in improvement in social life (Road
development, supply of bio mass electricity and ethanol as fuel additive).
 Since the labour force is selected from the area their travelling time to the work station will be minimized allowing them to have
more leisure time and minimizing the travelling expenses. On the other hand, it will increase the volume of effective man hours in
the industry.
 The main focus of the proposed industry is high quality in their products and affordable low prices to ensure the competitive
advantage through delighting its customer’s by delivering them the value for money they spent.
 This project will not lead to any environmental issues. The effluents of the factories will be used manufacturing organic fertilizer
for sugar cane cultivation.
 These industries will save considerable amount of foreign exchange.
 Finally, through the above activities this industry will contribute the growth of the national economy.

R.G.Hemachandra- Managing Director, Gala Agro & Dairy International Page 34