1. 3.
9B15M104
KASSATLY CHTAURA: TIME TO EXPAND ABROAD?
Ramzi Fathallah wrote this case under the supervision of
Professor Jean-Louis Schaan solely to provide material for class
discussion. The authors do not intend to illustrate either
effective or ineffective handling of a managerial situation. The
authors may
have disguised certain names and other identifying information
to protect confidentiality.
This publication may not be transmitted, photocopied, digitized
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Copyright © 2015, Richard Ivey School of Business Foundation
Version: 2015-12-01
On April 9, 2013, Nayef Kassatly got a phone call from his
father to confirm their meeting the following
day with other family members to discuss the next strategic

2. move of their company, Kassatly Chtaura,
which was headquartered in Beirut, Lebanon. The producer of
both alcoholic and non-alcoholic beverages
was doing very well in terms of revenues and market share and
had succeeded in building a strong cash
flow. However, last year’s figures showed little growth, and the
family was concerned that sales had reached
a plateau. Building on the legacy of his father, Nayef1 wanted
to expand the company and keep the family
business going for future generations. Was it time to invest in
international markets, given the uncertain
political situation in Lebanon? Or should the company stay put
and expand its operations in Lebanon?
LEBANON: ECONOMIC AND POLITICAL ENVIRONMENT2
Lebanon, a small country in the Middle East, experienced a
civil war between 1975 and 1990, followed
by years of social and political instability. Its security
institutions were inherently ineffective, being prone
to continuous conflict and constant interference from the
neighbouring countries of Israel and Syria. Also,
there was an ongoing internal conflict triggered by different
sectarian units that interfered in the
administrative institution of the state. The grouping of people
by religion played a critical role in
Lebanon’s political and social life and had given rise to some
bitter conflicts.
Lebanon had a population of around four million people and
was characterized by a free market economy
and a laissez-faire commercial tradition. The Lebanese economy
was service-oriented; the main growth
sectors included banking and tourism. The government did not
restrict either domestic or foreign business
investments and was open to markets abroad with easy capital

3. and labour mobility. The private sector
contributed around 75 per cent of aggregate demand. The
business investment climate suffered from
corruption, arbitrary licensing decisions, archaic legislation and
weak intellectual property rights.
The Lebanese economy enjoyed a relative attractiveness in
2009/2010 when it was considered a safe
haven for investments. However, after four years of 8 per cent
average growth, the conflict in
neighbouring Syria had slowed the country’s economic growth
to the 1 to 2 per cent range in 2011/2012.
Gross domestic product (GDP) per capita was estimated to be
around $15,8003 in 2012. The Syrian Civil
War that erupted in 2011 had a strong spillover to Lebanon in
2013 as Lebanese political parties were
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divided between supporters and opponents of the Syrian
government. This led to incidents of violence in
some parts of Lebanon.
LEBANON’S BEVERAGE MARKET
The dynamics of the beverage market in Lebanon was different
from that of Western markets because
around half of the Lebanese population didn’t drink alcohol due
to religious beliefs. Thus, growth was
mostly driven by non-alcoholic drinks such as the carbonated
drinks, bottled water and fruit juice. The
market for soft drinks and juices was well-developed. PepsiCo

4. had the largest market share in the
carbonated category; Coca Cola was trying to compete by
investing in promotions and out-advertising its
rival. The soft drinks market was expected to continue growing
by just over 27 per cent in sales value
from 2012 to 2017 to reach $675 million.4 Although the market
in Lebanon was growing, it was still
considered small. For example, it was estimated that the soft
drinks industry in Saudi Arabia was $5.2
billion in 2010.5
The leading fruit juice producers in Lebanon were Bonjus,
PepsiCo (Tropicana brand) and LibanJus.
Another significant beverage category was bottled water, which
witnessed an increase in the market due
to concerns over the safety of tap water.6 Tea and coffee
markets were considered relatively mature sub-
sectors as the consumption of those drinks was part of local
social traditions.
The alcoholic drinks sector was also witnessing one of the
biggest growths in the region. Data from
International Wine and Spirits Research (IWSR) showed that
alcohol consumption in Lebanon had
increased by 6.3 per cent from 2007 to 2012; almost one million
litres of alcohol were consumed in 2012.
There were many distributors of foreign brands in Lebanon, but
the market for alcoholic drinks was
sometimes affected by the country’s instability. When violence
erupted, the number of tourists went down
and the local market tightened. The premium or mid-level range
products were usually the most consumed.7
Nevertheless, by the end of July 2009, CNN reported that Beirut
may be the “Best Party City in the
World.”8 Beirut had become a very important nightlife spot,

5. despite its instability and the political
violence surrounding its borders. In 2012 and early 2013, the
mushrooming of many bars in new districts
helped the alcoholic beverage industry to grow.
The country’s beverage exports grew by an average annual rate
of 25 per cent during the years 2009 to
2011 due to the country’s growing wine industry.9 Over 30 new
wineries had been launched since 2000,
compared to just three in 1990. Lebanon had a strong
agricultural industry and a “terroir” (geography,
geology and climate) that was ideal for the industry. For
instance, in 2011, Carlos Ghosn, the chief
executive officer of Nissan-Renault, teamed up with Lebanese
wine distributors to start a new vineyard,
Ixsir, with an estimated investment outlay of $10 million.10
Many firms could leverage the extensive trade network of the
many Lebanese who had immigrated to
countries around the world in the last decades.11 The three
largest wine exporters in Lebanon were Ksara,
Kefraya and Chateau Musar. Many wineries exported more than
they distributed locally.12 Although in
2012 there was a decline in wine exports, there was a rising
export rate of other alcoholic beverages,
especially as Lebanon’s beverages production expanded.13
Arak, an anise infused drink made from distilled grapes, which
turns white when water is added, was an
important part of Lebanon’s culinary heritage. However, there
were many commercial and homemade
producers of this drink, so there were no official figures
available for the annual production of arak.14
28

6. Page 3 9B15M104
Brasserie Almaza, owned by Heineken International, was the
country’s leading brewer. It offered Almaza
and Amstel popular brands and Laziza, a non-alcoholic beer.
Whisky was the number one spirit in Lebanon, dominating more
than 50 per cent of the market. Vodka
was the fastest growing spirit, but consumption was still lower
than whisky. The popularity of vodka in
Lebanon was part of a global trend. In early 2013, a Lebanese
start-up enterprise began producing J2
Vodka that was distilled in Poland; it was the first Polish vodka
to use Lebanese mountain water.15
Johnnie Walker held 31.6 per cent of the market share in
whiskey consumption, and its parent company,
Diageo, a leading premium drinks business headquartered in
London, United Kingdom, had a regional
office in Lebanon. Its corporate relations director described the
country as “the showcase of the Middle
East and the leader of nightlife in the region.”16
KASSATLY CHTAURA: HISTORY
Akram Kassatly, Nayef’s father, founded the business in 1974.
He studied winemaking in Dijon, France
and was very eager to start a winery in Lebanon. However, the
civil war put his dream on hold as the
town where he wanted to establish his winery was controlled by
militias whose religious values
prohibited alcohol. Therefore, he decided to start a bottling
business for Jallab,17 a beloved non-alcoholic
Lebanese drink.

7. At the time, street vendors who pushed their carts through the
streets of Beirut prepared the unnamed
drink from dates and distilled rose water; to attract customers,
they would call out, “Jallab!” Motivated by
entrepreneurial curiosity, Akram approached one of them and
asked him to prepare the drink in front of
him to learn its recipe. He decided that it was a great business
idea to manufacture and sell the syrup in
concentrated bottles for home preparation18; he named the
product Jallab after the vendors’ cry. Since that
day, the beloved drink had become such a huge success in
Lebanon and the Arabic region that Akram had
to expand his small factory to cater to local and international
demand. He soon complemented Jallab with
a wide range of other concentrated syrups and flower extracts.
The products became successful and
helped the family name prosper in the beverage market. As the
factory was based in Chtaura, a town in
the fertile Beqaa valley, the homeland of the largest producers
of fruits and vegetables in Lebanon, Akram
branded all his products with the name “Kassatly Chtaura.”
In the 1980s, the company expanded its successful syrup
product range to include a wide variety of
liqueurs, as well as fruit jams and finally fruit juices and
smoothies in the 1990s. In the early 1990s, the
company went more extensively into the food business, making
pickles, jams and other canned food
items. However, in 1994 when Nayef, Akram’s only son, joined
the company, he opposed the company’s
diversification strategy into this segment. He argued: “Kassatly
Chtaura is a beverage business, and we
need to leverage our market advantage in this sector to be able
to grow. We could definitely use our
bottling plant to make other drinks such as carbonated ones.”

8. Subsequently, the company focused more on beverages,
developing different kinds of fruit juices, and
gradually stopped the production of all food items except small
30-gram packets of jam (strawberry and
apricot only). It decided to keep the jams as they helped to
introduce its products to new places and
clients, such as airlines, hotels and restaurants. Nayef
commented: “We don’t make money out of the jam
product, but it is an image focus product. . . . It is for marketing
purposes.”
The company was always innovative in introducing new
products and flavours. For example, it was the
first to produce mixed flavoured juices (tropical mix, banana
strawberry and other mixes) when the local
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market offered only pineapple or orange juice. Also, it was
actively involved in international exhibitions
to showcase its products, making its first contact with Saudi and
Kuwaiti customers at the Gulf Food
show in Dubai during the early 1990s.
Kassatly Chtaura was known to focus a lot on its marketing
strategy and to be a big spender on
advertising campaigns to promote its products. From the period
of the civil war, it always had very
popular radio and TV commercials promoting Jallab, other
syrups and liquors. Many of its ad jingles
were memorized by a large number of Lebanese.

9. Akram’s other children became part of the business gradually.
After Nayef joined in 1994, Ghida
followed him to lead the marketing department. Upon her return
from the United States in 2011, Reem
also joined to handle export markets. Nayef was promoted to the
position of managing director, and the
father was happy to have his children in Lebanon working in the
family business. The company was
owned 100 per cent by the family members, and they
discouraged having any non-family owners.
Nevertheless, many non-family managers joined the company in
the early 1990s, starting their careers in
entry-level positions, and contributed to the growth of the
business. Some employees left to work for
multinational corporations in the Middle East, but they returned
to Kassatly Chtaura with their newly
acquired experiences and visions.
The family also relied on foreign exports to help the company
survive some of the seasonal political
turmoil that affected local consumption. However, they did not
shy away from investing and growing the
business. The family always believed that the security situation
in Lebanon was volatile — it could get
very bad in five minutes, but five minutes later, it would be
better again — so it was important to persist.
Most of the management team had lived in Lebanon during past
wars and turmoil, so they had the
experience and the acquired flexibility to navigate the
challenging business environment.
During the six-week war in Lebanon in 2006, the factory shut
down for one month; many surrounding
factories were destroyed by air strikes in the Beqaa, and roads
leading to the factory were blocked. That

10. was a wake-up call for the family. They decided to buy annual
political violence insurance to cover the
factory. In 2012, they paid $75,000 over a 12-month period for
a full coverage including business
interruptions of $30 million.
KASSATLY CHTAURA: MAKING A BUZZ OUT OF READY-
TO-DRINK PRODUCTS
When Nayef joined Kassatly Chtaura in 1994, the company had
average yearly revenues of $3.5 million
(see Exhibit 1). He wanted to expand the business as he felt that
it had a strong brand and know-how in
the beverage market that could be leveraged to explore many
more growth opportunities.
During a personal trip to Switzerland, Nayef was amazed by the
craze for vodka mix drinks in bars and
dance clubs where young men and woman in their early 20s
partied. It was part of a global trend as vodka
mix drinks were practical and relatively cheaper than other
alcoholic drinks. In 1999, Diageo, the
producer of Smirnoff Vodka, launched Smirnoff Ice, a new
flavoured vodka mix. Upon his return to
Lebanon, Nayef asked his father: “Why don’t we produce a
vodka mix drink in our facility in Chtaura? I
want to do the same new products as Smirnoff in Lebanon! We
can expand the factory and buy some new
machines to enter the ready-to-drink [RTD19] market.” He
already had a brand for this product in his
mind: “Buzz.”
Kassatly Chtaura invested $2 million in the bottling machinery
needed to manufacture the new drink. (The
newly expanded plant could also be used to make other
beverages.) In 2000, Buzz, an RTD beverage made

11. 30
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with vodka and a variety of flavours, was introduced and
became an instant success in Lebanon and other
export markets. The company recognized that it was hard to
compete with the brand equity of the global
players, Smirnoff and Bacardi, but managed to compete on price
to gain market share and build its brand.20
As Kassatly Chtaura exported lots of juices to Saudi Arabia,
Nayef discussed with the company’s Saudi
agent the opportunity to make a product similar to Buzz but in a
non-alcoholic format. The agent
suggested, “Buzz non-alcoholic” as a brand for the product.
Nayef preferred to create a new brand,
“Freez,” so there would be no confusion, and it was launched
within the year. This new non-alcoholic
carbonated fruit beverage set a new trend and was quite
successful.
Another addition to the Buzz line in 2003, Buzz Extra Strong
Plus, was a milestone in the growth of the
business. Nayef was inspired by the success of energy drinks
such as Red Bull in European and North
American markets as well as the rising demand among clubbers
in these markets for drinks that mixed
vodka and energy drinks. However, he was concerned with the
side effects of these products on the health
of his consumers. So, Buzz Extra Strong Plus mixed vodka (10
per cent alcohol) with a special flavour
that did not contain any caffeine or taurine21 but tasted like an

12. energy drink. In the second year of the
introduction of the “Plus” flavour, the volume of its sales
doubled and grew, on average, 30 per cent
yearly since then.
Kassatly Chtaura’s RTD beverages had become very popular
due to the company’s high quality products,
a range of flavours and alcohol content and strong
communication strategy (see Exhibit 2). The company
made witty and funky advertising campaigns to target young
consumers and kept changing its products’
flavours and packaging. The bottles had been redesigned four
times so far because they were trendy
products in a category that was new and growing very rapidly.
The alcoholic beverages’ share of Kassatly
Chtaura’s total sales grew from 20 per cent in 1999 to 38 per
cent in 2003.
The campaign for these new products was ranked as one of the
highest budgets spent in Lebanon for TV
and billboards ads — around $500,000 in 2005, mainly on
billboards, advertising Buzz and Freez.22 The
company was making good margins on these products and
spending money on development of the
brands. It allocated certain budget amounts per box and per
range of product according to the previous
year’s sales to set spending on production of commercials and
air time. It knew the market very well and
how to communicate with its customers.
Eighty per cent of the raw materials and ingredients of Kassatly
Chtaura’s products were imported. For
example, the company had to start importing its glass bottles
from Kuwait and Saudi Arabia after the
supplier in Beqaa was destroyed in the July 2006 war. Other
materials, such as vodka, were imported from

13. European distillers; some flavours came from Switzerland.
Seventy per cent of its imports came from
Arabic countries with an Arabic Union certificate that translated
into an exemption from customs duties.
Kassatly Chtaura relied on its own in-house distribution team to
cover the Lebanese market. The factory
in Chtaura covered the Mount Lebanon and Beqaa areas, and the
office in Beirut covered regions in the
north, south and Beirut.
The company’s markets were both on-trade and off-trade. The
on-trade market consisted of restaurants,
bars, clubs and beach resorts, where consumers bought the
product and consumed it on the premises. The
off-trade market included food and beverage retailers, grocery
stores and corner stores, where customers
bought the product but consumed it at home. The off-trade
sector was the major market for Kassatly
Chtaura as people consumed more alcohol at home, mainly
because the products were cheaper when
bought off-trade. However, the company had to be always
present in the on-trade sector to build its brand
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image. Reaching the consumer was easier in the off-trade
division because all the brand choices were
displayed right on the shelf, and some neighbourhood grocery
stores extended credit to their customers,
who could then afford to buy more products. In a bar, the choice
of products was influenced by exclusive

14. deals with distributors.23
EXPANDING THE BEVERAGE PORTFOLIO: GOING BACK
TO WINE AND VENTURING INTO
ENERGY
Kassatly Chtaura had continuous average growth of 25 to 30 per
cent annually since launching the RTD
products. This growth encouraged the family members to see the
future of the firm on a bigger scale and
to appreciate the potential of many varieties of drinks.
In 2004, the family was ready again to pursue the dream of their
father in winemaking. They bought a
vineyard in Baalbek, close to their factory in Chtaura, and built
the winery in six months at a cost of $1.5
million. Its first wines were bottled in 2005 under the “Château
Ka” brand. At first, it was a challenge to
compete with Lebanese winemaking giants such as Ksara and
Kefraya. The wine business was growing,
but a company needed at least 15 years to build a strong market
share. Château Ka produced between
100,000 and 150,000 bottles per year and was number three in
2013 in Lebanon per volume, but it was
still far from the market leaders.
Nevertheless, the success of the wine surpassed the family’s
expectations as it met standards of excellence
in winemaking in many European countries and earned many
awards. Its fine wine became appreciated in
Lebanon, the United States, Canada, France and the United
Kingdom, where it was sold in high-end stores.
Although Buzz Extra Strong Plus accounted for more than 50
per cent of its Buzz products sales, Kassatly
Chtaura had to reconsider its strategy in 2008 when its previous

15. agent in Iraq started to import a new
product from Germany, “XXL,” and sell it in Lebanon. The new
competitor introduced XXL Vodka Mix
beverages, but its most successful product was XXL Energy that
mixed vodka with caffeine and taurine.
Nayef commented: “My dad was very worried and was saying
that XXL Energy is taking our market
share. We have to do the same product to compete. But, I said
no, it is dangerous, we will not do it. . . .
XXL started to take a lot of our market share, and I was still
stubborn.”
However, after losing a major share of the market, Nayef
supported his family decision in 2009 to venture
into energy drinks by offering a vodka mix with caffeine or
taurine added. Kassatly Chtaura’s RTD products
had been offered only in glass bottles, but the new product,
Buzz Energy, was packaged in cans. As the
family was late in reacting to the competition, it had to invest a
lot in communication but still had to be
patient before reaching 40 per cent of the market share in vodka
energy drinks. Energy drink consumption in
2010 was around two litres per capita per year and the total
market was around $20 million.
Changes in Government Laws and Regulations
In June 2012, the Lebanese government issued a new law
allowing only energy drinks with maximum
alcohol of 10.2 per cent and caffeine concentration of 0.01 per
cent to be produced and sold. There was
some expectation that the government would soon prohibit the
sale, production and import of any product
that mixed alcohol and energy substances, as new studies had
shown that these drinks were dangerous.24
Nayef expressed his opinion: “Personally, I didn’t like Buzz

16. Energy from its early introduction and was
not convinced that Kassatly Chtaura should produce it because
the product has side effects, and I don’t
want to link my brand with risks to consumers’ health.”
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Although the family wanted to discontinue this product, it was
not an easy task. As a large manufacturer,
Kassatly Chtaura had ordered millions of printed cans in
advance for bottling Buzz Energy. It had to incur
extra costs to wrap the cans with new labels to use them for the
Buzz beverages that had no caffeine or
taurine added.
KASSATLY CHTAURA IN 2013
Since the entry of XXL into the Lebanese market, a media war
between Buzz and XXL products helped
to expand the new market segment of RTD beverages in
Lebanon. By 2012, the market represented 35
million cans, or around 170,000 hectolitres.
Although the spillover from the Syrian crisis was escalating in
Lebanon, the family believed that the
beverage sector had the potential to stay healthy and even grow.
Nayef remembered well the period of
civil violence and war in his country. People played cards and
drank alcohol while they were in
underground shelters hiding and waiting for the bombs to stop
so they could go to work. He commented:
“Even when there is war, people don’t stop drinking. When you

17. are happy, you drink; and when you are
sad, you drink.” Moreover, there were fewer imports reaching
the Syrian market due to economic
embargos from different nations, which created an opportunity
for the company to continue selling in
Syria through the open border. The location of the factory in
Beqaa was strategic as it was halfway
between Beirut and Damascus.
By 2013, Freez represented some 50 per cent and Buzz some 30
per cent of Kassatly Chtaura’s sales.
Freez was very successful in the Gulf countries — around 70
per cent of Freez products were exported to
the Gulf Cooperation Council (GCC)25 market, while 35 per
cent of Buzz production went to export
markets, mainly to Syria, Iraq and some African countries.
Jallab and liquors represented only 10 per cent
of the company’s turnover.
By April 2013, Kassatly Chtaura had become a leading drinks
manufacturer, having grown from a $2
million business to almost $25 million in 20 years and from 20
employees in 2002 to 170 full-time and,
during peak seasons, 300 employees. The new management team
was relatively young and motivated to
expand the business, but the company still depended on family
members.
Kassatly Chtaura did not have any production or distribution
facility outside Lebanon. It exported many
of its products to markets in the Middle East and some other
markets in Europe, Africa and North
America (see Exhibit 3). Saudi Arabia was the major export
market with total sales of $3.07 million in
2012. Kassatly Chtaura also exported to Kuwait and the United
Arab of Emirates. In 2012, the company

18. sold around $2.12 million in Kuwait and $1.88 million in the
United Arab of Emirates. Angola was the
largest market in Africa with $1.65 million. Although Syria w as
an important market for Kassatly
Chtaura’s products, the management team considered the Syrian
market as an extension of the domestic
Lebanese market because many products were smuggled across
the borders.
Many of Kassatly Chtaura’s products relied on raw materials
and ingredients from suppliers in
international markets, but everything the company sold was
produced locally.
GROWTH OPPORTUNITIES
The company had been growing more than 25 per cent annually,
but the sales figures were slowing. Its
financial statements remained very healthy and showed a strong
cash flow. Following its philosophy to
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always expand into new beverage production, the family wanted
to expand the business, but they had
different opinions regarding how to do so.
1. Freez Production Plant In Saudi Arabia
Nayef, who was interested in taking the business international,
believed that Kassatly Chtaura should
venture into Saudi Arabia by building a manufacturing plant
there to produce and bottle Freez products.

19. This was not the first time that the family had considered
venturing into the Saudi market. In 2006, the
six-week war in Lebanon affected many industrialists as many
ports were closed, including the airport,
restricting imports and exports. Nayef commented: “We thought
of a plan B during the war, and it was
about a new plant in Saudi Arabia, but family restrictions and
emotions played a role and the situation got
better, so we decided to stay.” He continued:
Today we should consider opening a bottling plant for Freez as
it is very successful in the
countries of the GCC, and our biggest export market for Freez
is Saudi Arabia. Freez is 50 per
cent of the turnover of all our business today; 90 per cent of its
market is GCC, and 45 per cent of
its market is for Saudi Arabia. So it is worth it, and if we go
there, there is also potential to get
bigger because we can start also distributing our own products.
Saudi Arabia, the largest economy in the Arab World, is a
monarchy governed along Islamic lines. Nayef
was very familiar with the new government’s economic reforms
that promoted foreign investment in the
kingdom by establishing six “economic cities” in different
regions of the country.26 Growth in the
beverage industry was attributed to a large and growing younger
population and to the aggressive
marketing activities of manufacturers, such as new product
development and innovative marketing
campaigns aimed to appeal to the personalities and lifestyles of
this young population.27
Kassatly Chtaura was a top Arab brand — number 25 according
to Forbes Arabia — and it already had an

20. official Freez Arabia page on Facebook that had many followers
and loyal customers.
Nayef believed that Saudi Arabia would be the largest market
for the company’s beverages, especially
since the market was based on local Saudis and not expatriates,
but the United Arab Emirates (UAE) and
Qatar were also forecasted to show rapid growth over the next
five years. He argued:
There are many advantages to investing in Saudi Arabia: energy
cost is very low, transportation cost
is very affordable and we can cover all the GCC countries from
Saudi Arabia. Labour cost of
foreign workers is very low, but we will need to recruit some
Saudis to work for us following the
Saudization law . . . but this should not be a problem. There are
almost no taxes, and the country is
relatively more politically stable than Lebanon. The state is
more solid and there are stronger
institutions of inspections and rules and regulations. . . . Raw
materials …
Kassatly Chtaura Supplemental Data Analysis
Ghida and Reem were very interested in the possibility of
opening up a plant in Angola, due to the good recent sales and
positive growth rate of the market. Search online for data to
examine this option. You can use the data available in
Wikipedia because it is based on IMF data.
https://en.wikipedia.org/wiki/Economy_of_Angola
1. Produce a forecast of GDP growth rate data for 2014-2020
based only on what Ghida and Reem would have known up to,
and including, 2013.
a. What does the forecast show? Are the forecasted results
positive or negative? Describe the 95% confidence interval for
these estimates.

21. b. How accurate were the forecasts in comparison to reality?
2. Repeat Q1 (a & b) focusing on the inflation rate.
3. Your professor has provided an excel worksheet with
estimates you could use for estimating NPV of the 3 projects.
a. Check the Professor’s calculations of WACC to see if you
think they are reasonable. Feel free to challenge or change these
estimates in your work.
b. Your professor provided some estimates of cashflows and
some probability estimates (assuming a 10yr life of the project).
Use the WACC (discount rate) and cashflows to estimate the
NPV of each of the 3 international expansion project options.
i. Feel free to change the probability estimates if you disagree
ii. Feel free to change cashflows if you disagree
iii. Create your own cash flow estimates for Angola and Saudi
Arabia projects based on market knowledge available in 2013
(as much as possible, just do your best)
4. What does the valuation tell us about which project the
company should pursue?
WACC CalculationsKassatly Chtaura in 2013 (Professor
estimates)CAPM estimate of the weighted-average cost of
capitalCost of Equity (KC has 7M cash savings onhand)Amount
of EquityBeerSaudiAngolaRiskfree
rate2.85%Value500070007000Beer Beta1.50Saudi
Beta1.20Angola Beta2.00Market return13.46%Lebanon Cost of
Equity18.77%Saudi Cost of Equity15.58%*Saudi project does
not require debt because the company can invest cash and get
8M from Saudi investorAngola Cost of Equity24.07%Amount of
DebtValue1000008000Cost of DebtRate7.40%Total Capital
needed15000700015000Taxrate15%Cost of
Debt6.29%ProjectBeerSaudiAngolaWACC10.45%15.58%14.59
%Notes:1. Professor's Beta estimates based on risk of
investment (feel free to challenge this, or change it)2. risk free
rate based on 2013 data from

22. https://tradingeconomics.com/lebanon/risk-premium-on-
lending-prime-rate-minus-treasury-bill-rate-percent-wb-
data.html3. Since the relevant cost of equity in this situation
seems to be the opportunity cost of equity reinvested into the
business, Professor used annualized growth rate (2M to 25M
over 20 years = 13.46%) Feel free to challenge this or change it
if your team has a better estimate.4. For cost of debt, Prof used
the Lebanon bank lending rate from 2013
https://www.ceicdata.com/en/indicator/lebanon/bank-lending-
rate5. Business tax rate in Lebanon was 15% in 2013, Individual
rate 20%
Cashflow estimatesBeer cash flowsAngola cash flowsSaudi
Cash flowsProbability estimateProbability EstimateProbability
Estimate0.30.40.30.50.30.20.20.40.4PessimisticModerateOptimi
sticPessimisticModerateOptimisticPessimisticModerateOptimist
ic-2500000-2000000-1500000-1000000-10000000-
6000005000001000000-
20000010000003000000300000250000050000002000000400000
07000000400000050000008000000600000060000009000000650
00006500000100000007000000700000011000000