TAVUSH MINERAL WATER FACTORY

"Slovakia" Ltd

Registration number 81.110.808871

Date of foundation 2014-04-09

The legal address Village Voskevan, Tavush Marz of the RA Tax code 07616946

Director Seryozha Barsegyan Tel. +374-26-66-00-00, +374-77-44-55-99

Trademark Tavush

Yerevan 2017

BUSINESS PROJECT OF THE CONSTRUCTION AND EXPLOITATION OF TAVUSH MINERAL WATER FACTORY

1 The business project is a commercial secret and belongs to "Slovakia" Ltd.

1. Conclusive Chapter The goal of the given project is the evaluation of the efficiency of the construction a water bottling plant on the base of 5 mineral water and 2 spring water sources located on the territory of Tavush region villages Achajur and Vazashen. All the sources are managed by Slovakia LLC, 5 mineral water sources together have got bandwith of about 8,7 liters/second, and 2 sources of spring water together have got bandwith of about 2 liters/second. However at this stage we are planning to bottle 30% of water, with capacity of about 3,2 liters/second. In addition, Slovakia LLC owns a plot of 10 000 m2 - for building a factory, which is located in Vazashen village, and Vazashen is included in the list of villages exempt of taxes and in the future the plant will operate being free of all kinds of taxes. The sources of Vazashen village are located 2km away from the factory and the water will be supplied to the factory through pipes. The water of Vazashen has got stomach healing characteristics, on the base of which a dissertation has been written, and this water is the duplication of famous mineral water Narzan. The sources of Achajur village are 15 km away from the factory and the water will be transported to the factory by water trucks. Also the name TAVUSH (name of the region where the plant is built) belongs to Slovakia Ltd. with the right to use it as a trademark. Slovakia Ltd. has a license to provide construction works and a team of constructors, and all its construction projects it carries out substantively and on cost price. Slovakia Ltd. in Tavush region has a permission to install about 20 advertisement panels and 2 already placed advertisement shells on the interstate highways. As a great advantage it should be noted that the goods produced in Armenia, including bottled water are exported to the European Union and the Eurasian Union without customs clearance fee. In order the plant can start its operation it is necessary an investment of another 4 million dollars

Outgoing indicators Start of the project realization 07.2017 The planning horizon 1 years Currency unit USD Currency rate dollar/dram 486 The total area of the plant (plot) 10000m2 Industrial area (m2) 4000m2 The plant's production capacity (liters/day) 138 240

Production It is provided to produce sparkling mineral and spring water in glass bottles with capacity of 0.3 l, 0,5 l, 0.7 l and in plastic bottles - with capacity of 0.5 l, 1 l, 1.5 l, 5 l, about 35 million liters of production a year. Price Policy Takinng as a basis the competetive character of the market at working out its price policy the company is guided by the method «cost+», of course, also a study of the competitors was carried out and for each product present in the name list it was chosen a competetive price, which provides the maximum level of the price-quality correlation, hence of competitiveness too. Market Capacity The company is going to export its production mainly to the following countries: Russian Federation, United Arab Emirates, Kuwait, Qatar, Iran and China. Products Sale Sales of the production of the company in the domestic market will be carried out throuh its own sales team – in Yerevan and adjacent regions, in far regions it is provided to cooperate with regional distributor organizations. The distribution in foreign markets is planned to be realized in the frames of cooperation with specialized organizations, in accordance with principle: one country – one distributor, with this aim works are carried out both with the support of Armenian-Russian Palace of Trade and Industry and of Armenian-Qatar Palace of Trade and Industry, preliminary agreements are reached with the potential partners. 2. Marketing Study of the Target Market Mineral water is the underground (rarely - surface) water, it is formed through mixing of underground water of various aquifers, through their interaction with mineral atmosphere and silicates blown of mineral openings. They contain large amount of biologically active inorganic (less – organic) substances and are endowed with unique physical and chemical properties (composition, temperature, radioactivity), thanks to which have got healing effect on human organism. They are used as external and internal medication. The components of mineral water depend on the geological development of the area, the nature of tectonic structure, geo-termal conditions, and the gas composition depends on the transformation and volcanic processes. The above mentioned useful properties of mineral water served as a basis for the commercialization of the latter and for the dynamic growth of demand towards him, which is more expressed in developed countries, where there is a solvent demand, and, conditioned by higher level of living standards, great tendency of people towards «healthy lifestyle». Bottled mineral water consumption in the world per person is presented below: World dynamics of mineral water consumption per 1 person in 1970-2000 (liters/person)

World dynamics of mineral water consumption per 1 person in 2009-2013 (liters/person)

It is evident from the graphics the stabile, multiple long term growth of the world consumption, positive deviation from the world average index. Based on the foregoing, as well as on the company’s business relationships, the company considers it appropriate in the planned horizon to enter with its products first the Russian Federation, the United Arab Emirates, Kuwait, Qatar, Iran and China, furtheron on to expand the geography of the export.

The essential features of the Russian market are.  The fact of membership to EEU, which allows to gain a competetive advantage in the Russian market towards the mineral water inported from other countries  There is a widespread view, that actually (unofficially) in RF live more Armenians, than on the territory of RA, however this may be exaggerated, nevertheless the vast majority of Armenian diaspora lives in Russia.  For decades in the Russian market Armenian brand «Jermuk» was presented as Armenian mineral water. During these years Jermuk managed to gain its own place in the Russian market of mineral waters, especially in Moscow, where the biggest share of the company’s export is consumed (around 80%). The reasons for entry to Arab world are also the follows:  The problem of drinking water caused by climatic conditions  The presence of solvent demand. China has currently large amounts of water demand and applied to us looking forward to cooperation. Iran has removed the water import customs clearance fee.

Price – Price Policy Price policy is the component of marketing mix (4P), and as on the chosen price policy depends both the profitability of the project, as well as the competitiveness of the product in the market, therefore it is necessary to develop the most responsible approach while working-out the price policy. The price policy of the company sould consist of the following basic factors:  The full cost of the product (direct and indirect costs),  The price of similar and substitute products in the market,  The goals of the company,  Strategic approach,  Ensuring competitiveness in foreign markets,  Target Group solvency level. The Company has chosen its price policy in accordance with the principle of best optimal combination of the above mentioned factors. The prices of the products presented by the Company are competitive in the market – taking into account the offers presented by the concurrents. USD Type Mineral water in Spring water in Mineral water Spring water in Bottle glass bottle glass bottle in plastic bottle plastic bottle capacity

0.3 լ 0.27 0.25

0.5 լ 0.35 0.31 0.31 0.27

0.7 լ 0.39 0.35

1 լ 0.45 0.41

1.5 լ 0.53 0.47

5 լ 1.03 0.82

Actuation There are definitely approved stimulation means for actuation any production in the market. These are the advertisement, PR, sales promotion, individual sale, targeted marketing, internet- marketing. A certain orientation must be in the issue of the actuation object choice. In this case it is possible to observe 3 variants of the actuation of the object: 1. To promote the consumption of mineral water - at the same time we actuate the production of the concurrent. On the other hand taking nto account the specific taste characteristics of the Armenian mineral water and the mass consumption of mineral water (especially in Arab market) may be rational, but it supposes significant marketing costs. 2. To actuate the Armenian mineral water – it may be realised through propaganda. The aim is the enhancement of the Armenian mineral water authority, which will directly contribute to the sales’ increase. However, in the Armenian mineral water market there is a leader of the market - «Jermuk Group», and this variant of the actuation must be excluded for the planned period. 3. To actuate the trademaark – the mineral water is presented under the brand «TAVUSH» which belongs to the Company. The trademark nowdays represents a non-material «valuable» active, through the increase of the cost of which the businessmen have the possibility to buy back the expenses and investments spent on advertisement, marketing before, moreover, these expensesonce again have been included in the prime cost. 4. Human Resources People are the core of any business and only through reasonable human resources policy – clear definition of vacancies, correct choice of personnel, effective motivation and control provision, it is possible to secure the desired results planned by the project.

Number of Staff Salary (US $) employees

Monthly Total Annual Director 1 1 230 1 230 14 760

Deputy Finance Director 1 720 720 8 640

Deputy Director of 1 720 720 8 640 Production (technologist) Responsible person for 1 720 720 8 640 marketing and sales team Chief accountant 1 620 620 7 440 Accountant 2 310 620 7 440 Engineer 1 310 310 3 720 Driver 22 300 6 600 79 200 Operator 3 230 690 8 280 Worker 10 210 2 100 25 200 Security worker 4 200 800 9 600 Cleaner 3 180 540 6 480 15 670 188 040 Total 50 5 750 5. Financial plan The capital investments of the Factory ( technique, equipments and construction)

Investment direction Measurement Number Unit price Price unit Complete production line 138 240 liters / piece 1 1 200 000 1 200 000 day production capacity Complex equipment of water metal part piece 1 100 000 100 000 filtration and neutralization Water container 40 thousand liter, nerzh piece 3 30 000 90 000 Water pump piece 2 3 000 6 000 Plastic bottle production line piece 1 50 000 50 000 Plastic bottle form piece 4 2 000 8 000 Glass bottle form piece 3 30 000 90 000 Power /energy/ transformer piece 1 15 000 15 000 Heating boiler and equipment piece 1 8000 8000 Construction of the factory building and m2 4000 600 000 600 000 communication Վերամբարձ մեքենա Crab piece 2 12 000 12 000 Truck IVECO (24 tons) piece 6 70 000 420 000 Truck Citroen Jumper (2 tons) piece 10 15 000 150 000 Water transporting Truck Kamaz (20 tons) piece 2 30 000 30 000 Vehicle NIVA piece 5 8 000 40 000 Acquisition of warehouse in Yerevan m2 1500 200 000 200 000 Own billboards construction piece 18 3000 54 000 Office furniture and equipment 15 000 Other capital investments 150 000 Total 3 268 000

Production and profit calculation on a daily basis

Product Number of Price Profit Bottle capacity bottles / day Mineral water in glass 24 000 0.27 6 480 bottle 0.3 լ

Spring water in glass 8 000 0.25 2 000 bottle 0.3 լ

Mineral water in glass 18 000 0.35 6 300 bottle 0.5 լ

Spring water in glass 6 000 0.31 1 860 bottle 0.5 լ

Mineral water in plastic 18 000 0.31 5 580 bottle 0.5 լ

Spring water in plastic 6 000 0.27 1 620 bottle 0.5 լ

Mineral water in glass 24 000 0.39 9 360 bottle 0.7 լ

Spring water in glass 8 000 0.35 2 800 bottle 0.7 լ

Mineral water in plastic 21 000 0.45 9 450 bottle 1 լ

Spring water in plastic 7 000 0.41 2 870 bottle 1 լ

Mineral water in plastic 12 000 0.53 6 360 bottle 1.5 լ

Spring water in plastic 4 000 0.47 1 880 bottle 1.5 լ

Mineral water in plastic 4 500 1.03 4 635 bottle 5 լ

Spring water in plastic 1 500 0.82 1 230 bottle 5 լ

Total 162 000 62 425 Working 21 days a month you wiil have 1 310 925 dollars revenue a month.

Cash forecast

Cash flow forecast USD The The The The The The The The The preliminary The first second The third fourth The fifth The sixth seventh eighth ninth tenth eleventh twelfth ARTICLE investment month month month month month month month month month month month month Total INITIAL BALANCE 0 ². INPUTS

1 Input from realization 1310925 1310925 1310925 1 310925 1 310925 1310925 1310925 1310925 1310925 1310925 1310925 1310925 15 731 100 Total access 1310925 1310925 1310925 1 310925 1 310925 1310925 1310925 1310925 1310925 1310925 1310925 1310925 15 731 100

´. Outputs 0 1 Salary 15670 15670 15670 15670 15670 15670 15670 15670 15670 15670 15670 15670 188 040 2 Cost of realization 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 120 000

3 Wells exploitation right fee 10 300 10 300 4 Environmental fee 16 765 16 765 16 765 16 765 16 765 16 765 16 765 16 765 16 765 16 765 16 765 16 765 201 180 5 The stuff and materials 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 60 000 6 Amortization 34 000 34 000 34 000 34 000 34 000 34 000 34 000 34 000 34 000 34 000 34 000 34 000 408 000 Communication and communal 7 fee 4000 4000 3000 3000 3000 3000 3000 3000 3000 4000 4000 4000 41 000 8 Business trip fee 3000 3000 6 000 9 Advertisement 50 000 50 000 50 000 50 000 50 000 50 000 50 000 50 000 50 000 50 000 50 000 50 000 600 000

10 Design 5000 5000

11 Bottle 420 000 420 000 420 000 420 000 420 000 420 000 420 000 420 000 420 000 420 000 420 000 420 000 5 040 000

12 Label 62 000 62 000 62 000 62 000 62 000 62 000 62 000 62 000 62 000 62 000 62 000 62 000 744 000

13 Bottle cap 31 000 31 000 31 000 31 000 31 000 31 000 31 000 31 000 31 000 31 000 31 000 31 000 372 000

14 Office expenses 3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 36 000

9 Main resources 3 268 000 3 268 000 10 Working capital 727 000 727 000 11 Transportation tax 6000 6000 12 000 Maintenance and restoration of 12 the main resources 500 500 500 500 500 500 500 500 500 500 500 500 3 000 TOTAL EXIT 4 000 000 668 235 651 935 653 935 650935 650935 650935 659935 650935 650935 651 935 651 935 651 935 11 844 520 656 The final result -4 000 000 642 690 658 990 990 659990 659990 659990 650990 659990 659990 658 990 658 990 658 990 3 886 580

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