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Economic Performance Sector

Feasibility Study on
Cooking Oil Extraction and Refining Activity

Prepared by
Economic Performance Sector
Central Department of Feasibility Study
General Department of Economic Feasibility Studies

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I. Basic Information

Project Cooking Oil Extraction and Refining Plant

Governorate Ismailia
Land Area 15000 m2
Land Price Usufruct – EGP48/m2
Project Economic Life
10 years
Expectancy
Soybean Oil – Sunflower Oil – Soybean and
Targeted Products
Sunflower Meal
Expected Labour 57 worker and administrative officer
Expected Investment
EGP220,220,000
Costs
Expected Annual Costs EGP154,000,000
Return on Investment
25%
(RoI)
Payback Period 3.5 years

II. Marketing Study

1. Demand Volume
 The global demand for edible oils is rising and trade in edible oils estimated $93.2
billion in 2018 with a 9% annual growth between 2014 -2018.
 The primary objective is to bridge the domestic gap in demand for animal fats and oils;
mainly the edible oils, where the imports reached $1.3 billion in 2018.
 The consumption of oils and fats in Egypt Per capita is estimated between 10-13 kg/
year. The total domestic consumption is 1.3 million tonnes annually, while production
does not exceed 100,000 tonnes annually. Egypt is developing a new vision to increase
oil crops to reduce spending on imports that saturate edible oils market in Egypt, and to
take advantage of edible oils waste as a production-free-of-charge value to bridge the
animal feed gap that amounted to $ 616 million in 2018.
An opportunity to establish a refinery and an extraction plant still exists to bridge the
domestic gap, as well as to work as a regional source for Africa and countries in the
Middle East.
The production of edible oils is expected to achieve a 10% annual growth in the local
market due to the culture of using edible oils in Egypt and the industrial multiple uses
of edible oil and its products, also due to the population unlimited growth that will lead
to the derivation of demand.

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2. Supply Volume
 Oil production is available in the local market such as olive oil, peanut oil, soybean oil
and sunflower oils however; the domestic market has a deficit of 1.1 million tonnes
annually.
 Egypt’s imports of edible oil imports valued $1.3billion in 2018. The imports consists
of 54% of palm oil and 25% of sunflower oil.
 Egypt started cultivation of new crops for oil industry such as canola oil, which was
added to the Food Safety Regulation "GRAS Associates LLC” in 1985.

3. Market Gap
The primary objective is to bridge the domestic gap in demand for animal fats and oils;
mainly the edible oils, where the imports reached $1.3 billion in 2018. The below graph
presents the volume and distribution of the Egyptian oils export market.

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4. Marketing is carried out using the following methods:

 Export
 Sale to wholesalers, retailers, distributers and hyper markets.
 Sale to large consumers such as hotels and restaurants.
 Direct sale through establishing many distribution outlets in different districts.

5. Marketing Study Conclusion:

In light of the above-mentioned study, the feasibility of the marketing study is achieved due
to the demand for the product and the existence of a market gap.

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III. Technical Study:

1.Project Location: Ismailia Governorate.
2.Land: 15,000 m2
3.Buildings: Buildings will be built on 50% of the land area
4. Final Product: Soybean oil – sunflower oil – soybean and sunflower meal.
5. Labour Required:
Post Number
Factory Director 1
Sales and Marketing Manager 1
Financial Manager 1
Production Supervisor 1
Accountant 1
Personnel Affairs Officer 1
Quality Supervisor 1
Industrial Safety Officer 10
Sales Representative 5
Security Guard 10
Storekeeper 2
Production Worker (trained) 10
Handler, …etc. 10
Janitor 3
Total 57
6. Main Raw Materials and Supplies:
 Soybean seeds
 Sunflower seeds
 Bleaching powder
 Phosphoric acid
 Caustic soda
7. Main Machinery and Equipment:
 Crude oil and seeds storage silos
 Bleaching equipment and its components
 Purification unit
 Fatty acids storage tanks
 Extraction equipment and its components
 Refining equipment and its components
 Refined oil storage tanks

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8. Production Capacity:
 20,000 tonnes of Soybean oil per annum.
 1000 tonnes of sunflower oil per annum.
 55,000 tonnes of soybean and sunflower meal per annum.

IV. Financial Study

Financial feasibility study is a tool that assists the investor to decide on the investment. In
order to facilitate making such decisions, all costs related to investment and production must
be clearly and accurately determined, taking into account that profitability of the project
depends on the volume and components of investment and production costs.
1. Fundamentals and Hypotheses of the Financial Study
 The data used in the study and the expected revenue estimates of the volume and value
of sales have been estimated according to results of the market study.
 Investment spending values and other elements of costs and expenses have been
estimated according to results of the technical study.
 The annual depreciation installment for buildings and machinery is estimated
according to results of the technical study, assuming that the sales value at the end of
the period is according to its book value.
 The estimated value of the fixed assets mentioned in this study is related to a specific
period according to the prevailing circumstances at the time of preparing this study;
and that this value may change with the change of circumstances by the limitation
period of the report or by the change of the economic climate in general.
 Incorporation and pre-commencement expenditure have been assumed that they are
fully depreciated with the first year of revenue as per the Egyptian Accounting
Standards.
 The estimated income statements have been prepared on the assumption that there is
no fundamental change in the revenue values and expected annual costs during the
study period.
 The annual cash flows were estimated using the indirect estimation method by making
the necessary adjustments to the results of the estimated income statements for the
years under study.
 The study assumed that all purchases include VAT.

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2. Annual Sales:

 The annual sales revenue is estimated on the basis of selling all the
planned quantity of production according to the prevailing average
prices.
Quantity/ Sale Price/ Total
# Product
Tonne Tonne Revenue
1 Soybean Oil 20,000 4,378 87,552,000

2 Sunflower Oil 1,000 10,214 10,214,400

3 Soybean Meal 25,000 2,918 72,960,000

Sunflower
4 30,000 1,459 43,776,000
Meal
Total 76,000 178,752,000

3. Project Investment Costs:

3-1 Land:
A land with an area of 15,000 m2 at a price of EGP48/m2, with a total
value of EGP720, 000.
3-2 Buildings, Constructions, Finishes, Infrastructure and Facilities:
 A building on an area of 7,500m2 divided into an administrative part
that includes the factory manager and administrative officers, and a
production part that includes production facilities and warehouses ...
etc.
 The cost of buildings, construction, finishes, infrastructure, and
facilities was estimated at EGP25,000,000, including the cost of
fences and security rooms.
3-3 Machinery and Equipment
 Oil extraction line consisting of concentrators, solvent extraction
devices and steam distillation apparatus, deodorization and filtering
devices.
 Centrifugal oil separator
 Final product tank
 Refrigeration unit
 Sedimentation tanks
The value of the machines required for production was estimated at
EGP40,000,000.

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3-4 Legal and Incorporation Expenses:

Expenses was estimated at EGP5 million.
Accordingly, the total value of the investment costs is as follows:
# Item Value
1 Land 720,000
Buildings, construction, finishes,
2 25,000,000
infrastructure and facilities
3 Machinery and Equipment 40,000,000
4 Legal and Incorporation Expenses 500,000
Total 66,220,000

4. Running Costs:
The running costs are defined as the costs necessary to complete the operation process until
the production of the final product, passing through the successive stages of the product.
The costs are divided into fixed costs and variable costs, as well as direct costs directly
related to the product and indirect costs that are not directly related to the product such as,
the administrative officers' payroll. The running costs are divided into several elements,
namely (the cost of materials, the cost of direct and indirect payroll, and other running costs),
where the operating cycle is calculated on one operation per annum and presented as
follows:
4-1 The annual cost of materials is as follows:
The required amount of materials is estimated at 100 tonnes, at a total
cost of EGP150,000,000.
4-2 Payroll costs is as follows:
Salary/
Item Number Salary/Month Total/Month
Annum
Factory Director 1 15,000 15,000 180,000
Sales and Marketing Manager 1 13,000 13,000 156,000
Financial Manager 1 13,000 13,000 156,000
Production Supervisor 1 5,000 5,000 60,000
Accountant 1 6,000 6,000 72,000
Personnel Affairs Officer 1 6,000 6,000 72,000
Quality Supervisor 1 5,000 5,000 60,000
Industrial Safety Officer 10 4,000 40,000 480,000
Sales Representative 5 6,000 30,000 360,000
Security Guard 10 4,000 40,000 480,000
Storekeeper 2 4,000 8,000 96,000
Production Worker (trained) 10 3,500 35,000 420,000
Handler, …etc. 10 2,500 25,000 300,000
Janitor 3 3,000 9,000 108,000
Total 57 250,000 3,000,000

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4-3 Annual depreciation

Depreciation Annual
Item Cost
Years Depreciation
Land 720,000 0 0
Buildings 25,000,000 20 1,250,000
Machinery and equipment 40,000,000 20 2,000,000
Legal and incorporation
500,000 1 500,000
expenses
Total 66,220,000 3,750,000

4-4 Other Running Costs

 For example, electricity, water, fuel and any other expenses, which
were estimated at EGP1 million.
4-5 Based on the foregoing the value of running cost of the operating
cycle (not encompassing the first year depreciation) is as follows:
Item Cost
Materials 150,000,000
Payroll 3,000,000
Other expenses 1,000,000
Total 154,000,000

4-6 Based on the foregoing the value of investment costs as per the first
year is as follows:
Item Cost
Investment costs 66,220,000
Running cost of first
154,000,000
operating cycle
Total 220,220,000
5. Project Financial Statements and Indicators, and Expected
Profitability Ratios:
 The financial statements and indicators, and profitability ratios are
among the most important tools used to assess the economic viability
of projects. The assessment comes upon calculating the net income
of the project and the project net cash inflows, as well as the net
present value of money resulting from an increase in the inflation
rate using the prevailing interest rate.
 Financial indicators are also used to make a comparison between the
available investment options, and used to compare between the
average return on investment and the payback period for each project
separately.

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5-1 The projected income statement for the first five years of activity:
With 10%estimated annual increase in revenue and costs.
Year 2 Year 3 Year 4 Year 5
Item Year 1
+10% +10% +10% +10%
Total Sales 214,502,400 235,952,640 259,547,904 285,502,694 314,052,963
Sales cost
(running cost)
Materials 150,000,000 165,000,000 181,500,000 199,650,000 219,615,000
Payroll 3,000,000 3,300,000 3,630,000 3,993,000 4,392,300
Other running costs 1,000,000 1,100,000 1,210,000 1,331,000 1,464,100
Depreciation 3,750,000 3,750,000 3,750,000 3,750,000 3,750,000

Profit before Tax

56,752,400 62,802,640 69,457,904 76,778,694 84,831,563
(PBT)
Tax 11,350,480 12,560,528 13,891,581 15,355,739 16,966,313
Profit after Tax (PAT) 45,401,920.00 50,242,112 55,566,323 61,422,955 67,865,250

5-2 The projected cash flow statement for the first five years of activity:

Item Year 1 Year 2 Year 3 Year 4 Year 5

Cash inflows 214,502,400 235,952,640 259,547,904 285,502,694 314,052,963

Cash outflows
Materials 150,000,000 165,000,000 181,500,000 199,650,000 219,615,000
Payroll 3,000,000 3,300,000 3,630,000 3,993,000 4,392,300
Other running
1,000,000 1,100,000 1,210,000 1,331,000 1,464,100
costs
Tax 4,200,400 4,695,440 5,239,984 5,838,982 6,497,881
Total cash
158,200,400 174,095,440 191,579,984 210,812,982 231,969,281
outflows
Net cash flows 56,302,000.00 61,857,200.00 67,967,920.00 74,689,712.00 82,083,682.00

5-3 Net present value of cash inflows

The net present value is the difference between the present value of the net cash
inflows entered during the operating years and the present value of the net cash
outflows during the construction period and is illustrated by the following formula.
𝑛𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤𝑠 (𝑁𝑃𝑉) = 𝛴 [ ]
( 1 + 𝑟)𝑖

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This is according to the simple interest rate of projects' loans, which is

approximately 14% at the time of preparing the study.

Discount rate Current

Year Cash inflow
14% Value
Year 1 56,302,000 0.877 49,376,854
Year 2 61,857,200 0.769 47,568,187
Year 3 67,967,920 0.675 45,878,346
Year 4 74,689,712 0.592 44,216,310
Year 5 82,083,682 0.519 42,601,431
Total 342,900,514 229,641,128

5-4 Calculating the average return on investment

𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
= %
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡𝑠
Annual Net The Annual Rate of
Year
Profit Return
Year 1 45,401,920 21%
Year 2 50,242,112 23%
Year 3 55,566,323 25%
Year 4 61,422,955 28%
Year 5 67,865,250 31%
Investment costs 220,220,000 25%
The Average Return
25%
on Investment
6. Payback period
Year 0 1 2 3 4 5
Annual
56,302,000 61,857,200 67,967,920 74,689,712 82,083,682
cash inflow
Cumulative
(220,220,000) )163,918,000) (102,060,800) (34,092,880) 40,596,832 122,680,514
cash flow

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 The payback period is calculated according to the following equation:

the absolute value of the last negative
= Number of years of negative
cumulative cash flow
cash flow +
Cash inflow during the following year

34,092,880
+3=
40,596,832
Based on the previous equation, the payback period is estimated at 3.5 years.
7. Financial Study Conclusions
 The project achieves a NPV of positive cash in an amount of EGP229,641,128,
according to an interest rate of 14%.
 The project achieves 25% return on investment.
 The estimated payback period of the project is 3.5 years.

V. Conclusions and Recommendations

The project is economically viable in light of the following considerations:
 The capabilities of starting the project are available such as the abundance of raw
materials required for the production in Egypt, ease provision of packing materials
and machinery, in addition to the flourishing investment environment in Egypt.
 The project achieves a reasonable rate of return of 25%.
 The investment cost payback period of the project is estimated at 3.5 years.

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