Investment Office ANRS

Project Profile on the Establishment of

Absorbent cotton Making plant

Development Studies Associates

(DSA)

JULY 2016
Bahir Dar
 Table of Contents

1. Executive Summary................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program...................2
3.1 Market Study.......................................................................................................2
3.1.1 Present Demand and Supply........................................................................2
3.1.2 Projected Demand........................................................................................3
3.1.3 Pricing and Distribution...............................................................................4
3.2 Plant Capacity......................................................................................................4
3.3 Production Program.............................................................................................5
4. Raw Materials and Utilities....................................................................5
4.1 Availability and Source of Raw Materials...........................................................5
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................5
5 Location and Site.....................................................................................6
6 Technology and Engineering.................................................................6
6.1 Production Process...............................................................................................6
6.2 Machinery and Equipment...................................................................................7
6.3 Civil Engineering Cost........................................................................................8
7 Human Resource and Training Requirement......................................9
7.1 Human Resource..................................................................................................9
7.2 Training Requirement..........................................................................................9
8 Financial Analysis.................................................................................10
8.1 Underlying Assumption.....................................................................................10
8.2 Investment..........................................................................................................11
8.3 Production Costs................................................................................................12
8.4 Financial Evaluation..........................................................................................12
9 Economic and Social Benefit and Justification..................................13
ANNEXES....................................................................................................15
 1. Executive Summary
This project profile deals with the establishment of absorbent cotton making plant in Amhara
National Regional State. The following presents the main findings of the study.

Demand projection divulges that the domestic demand for absorbent cotton is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 160 ton annually. The
total investment cost of the project including working capital is estimated at Birr 13.09 million
and creates 40 jobs and Birr 1.42 millions of income.

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 24.6% of capacity utilization and it will
payback fully the initial investment less working capital in 3 years. The result further shows that
the calculated IRR of the project is 28% with NPV of Birr 13,539,277.22

In addition to this, the proposed project possesses wide range of economic and social benefits
such as increasing the level of investment, tax revenue, employment creation and import
substitution.

Generally, the project is technically feasible, financially and commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Product Description and Application

Absorbent cotton is sterilized, deoiled and bleached loose cotton wadding. Originally absorbent
cotton was developed for the purpose of medical use. At present absorbent cotton is used for
sanitary use and in surgical operation as well as for ordinary daily living. Since absorbent cotton
is a material which comes in direct contact with the human body, it must satisfy the
pharmacopeia requirements. In Ethiopia absorbent cotton is usually needed by women during
their menstruation period and hence the viability of establishing the plant is examined from this
point of view.

2
 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

At present the demand for absorbent cotton is met from domestic production as well as import.
However, there is no exact figure as to the level of domestic production per annum. Similarly,
the information obtained from Customs Authority aggregates the sanitary pad with other similar
materials so that the actual level of import could not be documented. However, a market research
conducted in various supermarkets and shops in Addis Ababa revealed that most of the sanitary
pads on sale are imported ones. This suggests that domestic production is unable to meet the
growing demand for the product.

To arrive at the present effective demand for the product, this profile employed a proxy approach
as follows. As has been stated earlier, women use sanitary pads during their menstruation period.
Therefore, the demand for the product depends on the number of women in the age group 15-49
years that are believed to make use of the product. According to CSA, Annual abstract (2006),
currently there are 3.5 million women in urban and 14.9 million women and rural areas of the
country as shown in table 1 below.

Table 1: Population of Women Between the Age of 15-49

Age Group Urban Rural Total

15-19 291417 938720 1230137
20-24 260242 694980 955222
25-29 181767 650241 832008
30-34 107484 471572 579056
35-39 102398 470484 572882
40-44 59026 346048 405074
45-49 53282 301725 355007
Total 1055616 3873770 4929386
Source: CSA, Annual Report (2006)

3
The age group listed in the above table represents the age group that demands sanitary pads.
However, for a number of reasons such as ability to pay, awareness, etc, women in the urban
areas use the product more frequently than the rural areas. Therefore, in estimating the present
demand, it is important to make some assumption as to the demand for the product. In this
connection it is assumed that about 30% of the urban women and 1% of the rural women make
use of absorbent cotton during their menstruation period. Given the importance of the product,
this assumption can be considered as a conservative approach. Thus, about 1,061,984 women in
the urban area and about 148,938 of the urban females make use of the sanitary towel every
month. This makes the total potential users to be 1,210,922. On average a woman uses 4 pads in
a given month, and, therefore, the annual demand for the absorbent cotton is estimated to be
about 58,124,235 pieces per year. Roughly speaking this is equivalent to 581.2 tons. Therefore,
this figure can be fairly taken as the current level of demand for the product.

3.1.1 Projected Demand

In forecasting the future demand for absorbent cotton the population growth rate is used. This is
because as the number of women with in the age group of 15 to 49 increases, the demand for the
product also increases. Accordingly, 3% growth rate is considered to arrive at the following
forecast figure.

4
 Table 2: Projected Demand for Absorbent Cotton (in tons)

Year Projected Demand

2014/15 736
2015/16 758
2016/17 781
2017/18 804
2018/19 829
2019/20 854
2020/21 880
2021/22 906
2022/23 933
2023/24 961
2024/25 990
2025/26 1020

Thus, as per the above table, demand for the product will increase substantially in the coming
years. This suggests the relevance of establishing a small plant.

3.1.2 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price of
absorbent cotton is set to be Birr 141,130 per ton. In other words it is Birr 14 per packet. In
distributing the product the envisaged plant shall make use of the available retail and wholesale
network.

3.2 Plant Capacity

Thus, given the expected demand for absorbent cotton as presented earlier, and the planned
technology, the envisaged plant is set to produce 160 tons annually. For a plant that may start
operation in 2016/17 this capacity represents about 19% of the total demand.

5
 3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 55 percent capacity and then it grows to 75
percent in the 2nd year and 90 percent in the 3rd year. The capacity will grow to 100 percent
starting from the 4th year. This consideration is developed based on the assumption that market
and logistics barriers would take place for the first three years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The main raw materials required in the production of absorbent cotton are raw ginned cotton,
soda ash, caustic soda, bleaching agent, other chemicals, wetting agents and packing materials.
The raw cotton shall be secured from the region while the other materials are imported from
abroad.

4.2 Annual Requirement and Cost of Raw Materials

and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 below.

6
 Table 3: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Raw Cotton 170 ton 3079200
Soda Ash 13 ton 166790
Caustic Soda 18 ton 277128
Bleaching Agent 13 216827
Other Chemicals Lump sum 41505.05
Wetting agent Lump sum 62258.858
Packing Material Lump sum 103763.908
Total Material Cost   2721083.908 764508.908
Utility    
Electricity 120,000 kwh 66,000  
Furnace Oil 60,000 lit 420,000  
Water 10,000m3 26,500  
Total Utility Cost   512,500  

According to the above table the annual cost of material and utility at full capacity of operation is
Birr 3,998,093.

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of input,
infrastructure as well as market for the output are Bahir Dar, Combolcha and Gonder towns.

6 Technology and Engineering

6.1 Production Process

The production process in producing absorbent cotton involves the following. First of all the raw
cotton is opened and loosened, separated from dust particles and other contaminants. Then the
cotton is boiled using steam for up to four hours with various chemicals like detergents, caustic
soda, soda ash etc. This treatment removes oils, waxes and other and foreign matters. The Cotton
is then washed in large thanks. The washed cotton is then bleached with chemicals like hydrogen
peroxide or sodium hypochlorite. The bleaching not only whitens the cotton but also improves its

7
moisture absorbing qualities and further cleans it. The bleached cotton is thoroughly washed
again to remove adhering chemicals. A small quantity of dilute sulpheric acid may be used to
neutralize any excess alkali. The neutralized cotton is then processed in a hydro extractor to
remove absorbed water and dilute sulpheric acid. It is then opened again in a wet cotton opening
machine.

The opened cotton is then dried or subjected to sun drying. Sun drying in the open, however, is
not advisable as it attracts fresh dust and requires a huge amount of open space. After drying the
cotton is sent to the blow room where it is opened more thoroughly and made into laps. The laps
of cotton are then fed into a carding machine which turns the cotton laps into 6” to 12” wide
brands. A special indigo colored paper is placed under each band and the cotton is rolled,
compressed, weighed and cut into packaging of different sizes. The rolls are then packed in a
polyethylene roll after labelling and stamping with correct weight. The final packing is done in a
card board or corrugated board cartons.

The alternative technology requires a fully automatic production process. In this situation much
of the work will be handled by the machines and minimizes the role of labor in the process. This
approach is very expensive and produces very large amount of finished absorbent cotton per day
when compared with the process discussed earlier. For the envisaged plant the manual approach
is more preferable since its production capacity is lower, relatively labor intensive and the
technology is cheaper than the fully automated one.

6.2 Machinery and Equipment

The machineries and equipment required for producing absorbent cotton is detailed in table 4
below.

Table 4: Machinery and Equipment

8
 Machinery and Equipment Quantity
 High Pressure Kier Boiler (cap 500 kg) 1
 Carding Machine 1
 Wet Cotton Opener 1
 Hydro extractor (centrifugal type) 1
 Cotton drier (steam operated continuous type) 1
 Dry Cotton Opener 1
 Porcupine Cleaner 1
 Lap Forming Machine 1
 Rolling Machine 1
 Rolling Cutting Band Saw 1
Multi-Fuel Boiler (1000kg/hr evaporation
capacity at 150 psig) 1
Water Reservoir (15,000 litters cap) 1
Water, Steam, Discharging piping and fittings 1
Laboratory and testing equipment set

The total cost of machinery and equipment including freight insurance and bank cost is estimated
to be about Birr 20,528,000.
The following are some of the machineries suppliers’ address for the envisaged project
1. Machinery Manufacturers Corporation
B-61, Circular Garden Road,
Calcutta – 600 043, India

2. Gujarat Machinery Manufacturers Ltd.,

187, Worli, Mumbai – 400018, India

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 500m 2 where 350m2 is allocated for
the production place and the remaining space is left for stores (100m 2), office buildings and
facilities (50m2).

7 Human Resource and Training Requirement

9
 7.1 Human Resource
The list of required manpower for the envisaged plant is stated in table 5 below.

Table 5: Human Resource Requirement

Monthly Total Annual
Position No. Required Salary Salary
Manager 1 11547 138564
Production Manager 1 10264 123168
Finance Head/Administrator 1 7698 92376
Accountant 1 3079.2 36950.4
Secretary 1 2566 30792
Sales Clerk 2 2052.8 49267.2
Chemist 1 3079.2 36950.4
Store Keeper 1 2052.8 24633.6
Technician 2 2566 61584
Supervisor 2 3079.2 73900.8
Operators 14 2052.8 344870.4
Daily Labourers 6 1026.4 73900.8
Cleaners 2 1026.4 24633.6
Messengers 1 1026.4 12316.8
Driver 1 2052.8 24633.6
Guards 3 1026.4 36950.4
Benefit (20%)   237098.4
 Total 40 1422590
[[[[[[[[[[[

The envisaged plant creates 40 jobs and about Birr 1.4 millions of income. The professionals and
support staff for the envisaged plant shall be recruited from Amhara region.

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focus on the production technology and machinery
maintenance and trouble shooting. Birr 256,600 will be allocated as training expense.

8 Financial Analysis

10
 8.1 Underlying Assumption

The financial analysis of absorbent cotton making plant is based on the data provided in the
preceding sections and the following assumptions.

A. Construction and Finance

Construction period 2 years

Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 1% of fixed investment

B. Depreciation

Building 5%
Machinery and equipment 10%
Office furniture 10%
Vehicles 20%
Pre-production (amortization) 20%

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 C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

8.2 Investment

The total investment cost of the project including working capital is estimated at Birr 33.09
million as shown in table 6 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60% is to be financed by bank loan.

Table 6: Total initial investment

Items L.C F.C Total

Land 3849 3849
Building and civil works 2566000 2566000
Office equipment 256600 256600
Vehicles 1283000 1283000
Plant machinery & equipment 2566000 23094000 25660000
Total fixed investment cost 6675449 23094000 29769449
Pre production capital expenditure* 1488472 1488472
Total initial investment 8163921 23094000 31257921
Working capital at full capacity 1505039 333603.1 1838642
Total 9668960 23427603 33096563

*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.

The foreign component of the project accounts for 70.8% of the total investment cost.

12
 8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 18.3 million as detailed in
table 7 below.

Table 7: Production Cost

Items Cost
1. Raw materials 3485592.816
2. Utilities 1315075
3. Wages and Salaries 1422590.4
4. Spares and Maintenance 297694.49
Factory costs 6520952.706
5. Depreciation 3274254.49
6. Financial costs 1985794.042
  Total Production Cost 18301953.94

8.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. A modest profit, however, is
obtained starting from the second year of operation. Ratios such as the percentage of net profit to
total sales, return on equity and return on total investment are 0.14%, 0.13% and 16.64%
respectively in the first year and are gradually rising. Furthermore, the income statement and
other profitability indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 24.6% of capacity utilization.

13
 III. Payback Period

Investment cost and income statement projections are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in 3 years.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 27.9%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
28% and the net present value at 18 % discount is Birr 5,276,413.57

VI. Sensitivity Analysis

The envisaged plant incurs loss of Birr 116,424.11 in the first year of operation when cost of
production increases by about 10%. The plant will generate profit starting from the second year.
This result is accompanied by somewhat similar NPV obtained earlier.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that promote the socio-economic goals
and objectives stated in the strategic plan of the Amhara National Regional State. It boosts the
inter sectoral linkage between the agricultural and industrial sectors. At the same time, therefore,
it helps diversify the economic activity. The other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 2.88 million per
year and Birr 28.81 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.

B. Tax Revenue

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In the project life under consideration, the region will collect about Birr 11.3 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result creates
additional fund for the regional government that will be used in expanding social and other basic
services in the region.

C. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of US Dollar
8.09 million will be saved as a result of the proposed project. This will create room for the saved
hard currency to be allocated to other vital and strategic sectors.

D. Employment and Income Generation

The proposed project is expected to create employment opportunity for several citizens of the
region. That is, it will provide permanent employment to 40 professionals as well as support
staff. Consequently the project creates income of Birr 1.4 millions per year. This would be one of
the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

F. Diversification and Inter Sectoral linkage.

The proposed project helps to diversify ANRS’ and Ethiopian economy. It contributes to
industrialization of the region as well as the county’s economy.

15
16
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0 0 55% 75% 90% 100%

1. Total Inventory
0.00 0.00 1193740.792 1627828.369 1953394.032 2170438
Raw Materials in Stock- Total 0.00 0.00 346747.1724 472837.0509 567404.4663 630449.4
Raw Material-Local 0.00 0.00 163265.0345 222634.1403 267160.9632 296845.5
Raw Material-Foreign 0.00 0.00 183452.1379 250202.9107 300243.5031 333603.9
Factory Supplies in Stock 0.00 0.00 5877.11508 8014.2595 9617.1114 10685.67
Spare Parts in Stock and Maintenance 0.00 0.00 53585.0082 73070.46806 87684.55654 97427.3
Work in Progress 0.00 0.00 146928.1079 200356.5132 240427.8107 267142
Finished Products 0.00 0.00 293856.2159 400713.0263 480855.6213 534284
2. Accounts Receivable 0.00 0.00 1354848 1847520 2217024 2463360
3. Cash in Hand 0.00 0.00 164259.924 223990.8101 268788.9619 298654.4
CURRENT ASSETS 0.00 0.00 2366101.544 3226502.128 3871802.528 4302003
4. Current Liabilities 0.00 0.00 1354848 1847520 2217024 2463360
Accounts Payable 0.00 0.00 1354848 1847520 2217024 2463360
TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 1011253.544 1378982.128 1654778.528 1838643
INCREASE IN NET WORKING CAPITAL 0.00 0.00 1011253.544 367728.5589 275796.4256 183864.3

17
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
  5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

2170437.80 2170437.80 2170437.80 2170437.80
1. Total Inventory 8 2170437.808 8 8 8 2170437.808
630449.392 630449.392 630449.392 630449.392
Raw Materials in Stock-Total 7 630449.3927 7 7 7 630449.3927
296845.528 296845.528 296845.528 296845.528
Raw Material-Local 9 296845.5289 9 9 9 296845.5289
333603.889 333603.889 333603.889 333603.889
Raw Material-Foreign 5 333603.8895 5 5 5 333603.8895
10685.6707 10685.6707 10685.6707 10685.6707
Factory Supplies in Stock 8 10685.67078 8 8 8 10685.67078
Spare Parts in Stock and Maintenance 97427.2993 97427.2993 97427.2993 97427.2993 97427.2993 97427.2993
267142.026 267142.026 267142.026 267142.026
Work in Progress 1 267142.0261 1 1 1 267142.0261
534284.026 534284.026 534284.026 534284.026
Finished Products 5 534284.0265 5 5 5 534284.0265
2. Accounts Receivable 2463360 2463360 2463360 2463360 2463360 2463360
298654.404 298654.404 298654.404 298654.404
3. Cash in Hand 9 298654.4049 9 9 9 298654.4049
CURRENT ASSETS 4302002.82 4302002.82 4302002.82 4302002.82 4302002.82 4302002.82
4. Current Liabilities 2463360 2463360 2463360 2463360 2463360 2463360
Accounts Payable 2463360 2463360 2463360 2463360 2463360 2463360
TOTAL NET WORKING CAPITAL REQUIRMENTS 1838642.82 1838642.82 1838642.82 1838642.82 1838642.82 1838642.82
INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

18
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
17467603.
TOTAL CASH INFLOW 15628961 5 13774288 17428272 20692224 22827136
17467603.
1. Inflow Funds 15628961 5 1354848 492672 369504 246336
6987041.4
Total Equity 6251584 1 0 0 0 0
10480562.
Total Long Term Loan 9377376 1 0 0 0 0
Total Short Term Finances 0 0 1354848 492672 369504 246336
2. Inflow Operation 0 0 12419440 16935600 20322720 22580800
Sales Revenue 0 0 12419440 16935600 20322720 22580800
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
15628960. 11493661.7 11593440.1
TOTAL CASH OUTFLOW 15628961 7 6 1 14651581 15278378
15628960.
4. Increase In Fixed Assets 15628961 7 0 0 0 0
14884724.
Fixed Investments 14884725 5 0 0 0 0
744236.22
Pre-production Expenditures 744236.2 5 0 0 0 0
2366101.54 860400.558
5. Increase in Current Assets 0 0 4 9 645300.4 430200.3
3776188.41 5040430.49
6. Operating Costs 0 0 6 4 5988612 6620733
7. Corporate Tax Paid 0 0 0 0 2722218 3329153

19
 5351371.77 2382952.61
8. Interest Paid 0 0 9 9 1985794 1588635
3309656.43
9.Loan Repayments 0 0 0 7 3309656 3309656
10.Dividends Paid 0 0 0 0 0 0
1838642.8 2280626.23 5834831.89
Surplus(Deficit) 0 2 6 1 6040643 7548758
1838642.8 4119269.08 9954100.97
Cumulative Cash Balance 0 2 2 3 15994744 23543502

Annex 2: Cash Flow Statement (in Birr): Continued

PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 22580800 22580800 22580800 22580800 22580800 22580800
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 22580800 22580800 22580800 22580800 22580800 22580800
Sales Revenue 22580800 22580800 22580800 22580800 22580800 22580800
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
14180432.7 10592765.1
TOTAL CASH OUTFLOW 14570167 14458443.8 1 3 10592765 10592765
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production
Expenditures 0 0 0 0 0 0

20
 5. Increase in Current Assets 0 0 0 0 0 0
6620733.05 6620733.05
6. Operating Costs 6620733 6620733.05 3 3 6620733 6620733
3852884.46 3972032.07
7. Corporate Tax Paid 3448301 3733736.82 2 9 3972032 3972032
397158.782
8. Interest Paid 1191476 794317.54 7 0 0 0
3309656.43
9. Loan Repayments 3309656 3309656.44 7 0 0 0
10.Dividends Paid 0 0 0 0 0 0
8400367.29 11988034.8
Surplus(Deficit) 8010633 8122356.15 1 7 11988035 11988035
48076859.1 60064893.9
Cumulative Cash Balance 31554136 39676491.8 1 7 72052929 84040964

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 12419440 16935600 20322720 22580800
1. Inflow Operation 0 0 12419440 16935600 20322720 22580800
Sales Revenue 0 0 12419440 16935600 20322720 22580800
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
4787441.98 5408159.05
TOTAL CASH OUTFLOW 15628961 15628960.7 5 3 8986626 10133751
3. Increase in Fixed Assets 15628961 15628960.7 0 0 0 0

21
 Fixed Investments 14884725 14884724.5 0 0 0 0
Pre-production Expenditures 744236.2 744236.225 0 0 0 0
1011253.54 367728.558
4. Increase in Net Working Capital 0 0 4 9 275796.4 183864.3
3776188.41 5040430.49
5. Operating Costs 0 0 6 4 5988612 6620733
6. Corporate Tax Paid 0 0 0 0 2722218 3329153
7631998.01 11527440.9
NET CASH FLOW -1.6E+07 -15628961 5 5 11336094 12447049
-
12098482.4
CUMMULATIVE NET CASH FLOW -1.6E+07 -31257921 -23625923.4 6 -762389 11684661
5481182.15 7015956.45
Net Present Value (at 18%) -1.6E+07 -13244882 2 6 5847031 5440720
-
16376704.1
Cumulative Net present Value -1.6E+07 -28873843 -23392660.5 1 -1.1E+07 -5088953

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 22580800 22580800 22580800 22580800 22580800 22580800
1. Inflow Operation 22580800 22580800 22580800 22580800 22580800 22580800
Sales Revenue 22580800 22580800 22580800 22580800 22580800 22580800
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0

22
 10473617.5
TOTAL CASH OUTFLOW 10069034 10354469.9 2 10592765.13 10592765 10592765
3. Increase in Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
4. Increase in Net Working Capital 0 0 0 0 0 0
6620733.05
5. Operating Costs 6620733 6620733.05 3 6620733.053 6620733 6620733
3852884.46
6. Corporate Tax Paid 3448301 3733736.82 2 3972032.079 3972032 3972032
12107182.4
NET CASH FLOW 12511766 12226330.1 8 11988034.87 11988035 11988035
48529939.3
CUMMULATIVE NET CASH FLOW 24196427 36422756.9 7 60517974.24 72506009 84494044
3220972.60
Net Present Value (at 18%) 4634753 3838151.08 3 2702775.241 2290488 1941091
6604923.38
Cumulative Net present Value -454200 3383950.81 8 9307698.63 11598186 13539277
Net Present Value (at 18%) 13539277.22
Internal Rate of Return 28.0%

Annex 4: NET INCOME STATEMENT ( in Birr)

PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 55% 75% 90% 100% 100%

1. Total Income 12419440 16935600 20322720 22580800 22580800

23
 Sales Revenue 12419440 16935600 20322720 22580800 22580800
Other Income 0 0 0 0 0
2. Less Variable Cost 3163696 4314131 5176956.7 5752174.128 5752174.128
VARIABLE MARGIN 9255744 12621469 15145763.3 16828625.87 16828625.87
(In % of Total Income) 191.244 191.244 191.24398 191.24398 191.24398
3. Less Fixed Costs 3886747 4000554 4085909.8 4142813.415 4142813.415
OPERATIONAL MARGIN 5368997 8620915 11059853.5 12685812.46 12685812.46
(In % of Total Income) 110.9282 130.6094 139.64172 144.15788 144.15788
4. Less Cost of Finance 5351372 2382953 1985793.86 1588635.08 1191476.323
5. GROSS PROFIT 17625.32 6237962 9074059.63 11097177.38 11494336.13
6. Income (Corporate) Tax 0 0 2722217.9 3329153.213 3448300.856
7. NET PROFIT 17625.32 6237962 6351841.73 7768024.164 8046035.304
RATIOS (%)
Gross Profit/Sales 0.14% 36.83% 44.65% 49.14% 50.90%
Net Profit After Tax/Sales 0.14% 36.83% 31.25% 34.40% 35.63%
Return on Investment 16.64% 26.41% 25.33% 28.27% 27.91%
Return on Equity 0.13% 47.12% 47.98% 58.68% 60.78%
Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
  6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%
1. Total Income 22580800 22580800 22580800 22580800 22580800
Sales Revenue 22580800 22580800 22580800 22580800 22580800
Other Income 0 0 0 0 0
2. Less Variable Cost 5752174 5752174 5752174 5752174 5752174

24
 VARIABLE MARGIN 16828626 16828626 16828626 16828626 16828626
(In % of Total Income) 74.53 74.53 74.53 74.53 74.53
3. Less Fixed Costs 3588519 3588519 3588519 3588519 3588519
OPERATIONAL MARGIN 13240107 13240107 13240107 13240107 13240107
(In % of Total Income) 58.63 58.63 58.63 58.63 58.63
4. Less Cost of Finance 794317.5 397158.8 0 0 0
5. GROSS PROFIT 12445789 12842948 13240107 13240107 13240107
6. Income (Corporate) Tax 3733737 3852884 3972032 3972032 3972032
7. NET PROFIT 8712053 8990064 9268075 9268075 9268075
RATIOS (%)  
Gross Profit/Sales 55.12% 56.88% 58.63% 58.63% 58.63%
Net Profit After Tax/Sales 38.58% 39.81% 41.04% 41.04% 41.04%
Return on Investment 28.72% 28.36% 28.00% 28.00% 28.00%
Return on Equity 65.81% 67.91% 70.01% 70.01% 70.01%

Annex 5: Projected Balance Sheet (in Birr)

CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 15628960.73 33096564.27 34469037.59 37890016 41301705 46006408.59
1. Total Current Assets 0 1838642.82 6485370.626 13180603 19866547 27845505.1
Inventory on Materials and Supplies 0 0 406209.2957 553921.8 664706.1 738562.3628
Work in Progress 0 0 146928.1079 200356.5 240427.8 267142.0261
Finished Products in Stock 0 0 293856.2159 400713 480855.6 534284.0265
Accounts Receivable 0 0 1354848 1847520 2217024 2463360
Cash in Hand 0 0 164259.924 223990.8 268789 298654.4049

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 Cash Surplus, Finance Available 0 1838642.82 4119269.082 9954101 15994744 23543502.28
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 15628960.73 31257921.45 27983666.96 24709412 21435158 18160903.49
Fixed Investment 0 14884724.5 29769449 29769449 29769449 29769449
Construction in Progress 14884724.5 14884724.5 0 0 0 0
Pre-Production Expenditure 744236.225 1488472.45 1488472.45 1488472 1488472 1488472.45
Less Accumulated Depreciation 0 0 3274254.49 6548509 9822763 13097017.96
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 15628960.73 33096564.27 34469037.59 37890016 41301705 46006408.59
5. Total Current Liabilities 0 0 1354848 1847520 2217024 2463360
Accounts Payable 0 0 1354848 1847520 2217024 2463360
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 9377376.435 19857938.57 19857938.57 16548282 13238626 9928969.286
Loan A 9377376.435 19857938.57 19857938.57 16548282 13238626 9928969.286
Loan B 0 0 0 0 0 0
7. Total Equity Capital 6251584.29 13238625.7 13238625.7 13238626 13238626 13238625.7
Ordinary Capital 6251584.29 13238625.7 13238625.7 13238626 13238626 13238625.7
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 17625.32 6255588 12607429.45
9.Net Profit After Tax 0 0 17625.31514 6237962 6351842 7768024.164
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 17625.31514 6237962 6351842 7768024.164

Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION
  5 6 7 8 9 10
TOTAL ASSETS 50742787.49 56145183.64 61825590.93 71093666 80361741 89629815.51
1. Total Current Assets 35856138.49 43978494.64 52378861.93 64366897 76354932 88342966.51
Inventory on Materials and Supplies 738562.3628 738562.3628 738562.3628 738562.4 738562.4 738562.3628
Work in Progress 267142.0261 267142.0261 267142.0261 267142 267142 267142.0261
Finished Products in Stock 534284.0265 534284.0265 534284.0265 534284 534284 534284.0265
Accounts Receivable 2463360 2463360 2463360 2463360 2463360 2463360
Cash in Hand 298654.4049 298654.4049 298654.4049 298654.4 298654.4 298654.4049

26
 Cash Surplus, Finance Available 31554135.64 39676491.82 48076859.11 60064894 72052929 84040963.69
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 14886649 12166689 9446729 6726769 4006809 1286849
Fixed Investment 29769449 29769449 29769449 29769449 29769449 29769449
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 1488472.45 1488472.45 1488472.45 1488472 1488472 1488472.45
Less Accumulated Depreciation 16371272.45 19091232.45 21811192.45 24531152 27251112 29971072.45
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 50742787.49 56145183.64 61825590.93 71093666 80361741 89629815.51
5. Total Current Liabilities 2463360 2463360 2463360 2463360 2463360 2463360
Accounts Payable 2463360 2463360 2463360 2463360 2463360 2463360
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 6619312.849 3309656.437 0 0 0 0
Loan A 6619312.849 3309656.437 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 13238625.7 13238625.7 13238625.7 13238626 13238626 13238625.7
Ordinary Capital 13238625.7 13238625.7 13238625.7 13238626 13238626 13238625.7
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 20375453.61 28421488.91 37133541.5 46123605 55391680 64659754.94
9. Net Profit After Tax 8046035.304 8712052.588 8990063.728 9268075 9268075 9268074.868
Dividends Payable 0 0 0 0 0 0
Retained Profits 8046035.304 8712052.588 8990063.728 9268075 9268075 9268074.868

27