Gharbia - Animal Feed Concentrates

The General Authority for Investment and
GAFI Translation Department

Free Zones
The General Authority for Investment & Free Zones

Economic Performance Sector
A Preliminary Feasibility Study

On the Production of Animal Feed Concentrates
Prepared by
Economic Performance Sector
Central Department of Feasibility Studies
General Department of Economic Feasibility Studies
March 2021
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GAFI Translation Department–Tel. + 2026736900-5. Ext: 2745 – 2748. Fax: 2745. -Mob. 201114650550 Email: m.fayez@gafinet.org.eg
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I. Project Basic Information

Project Animal Feed Concentrates
Gharbia Governorate, al-Anbutin Village,

Governorate
al-Santa Precinct
Land surface area 700 m2
Available act of disposition Usufruct
Usufrcut fees per annum EGP 50/m2 (an indicative price)
A building of a surface area of 500 m2
Available surface areas
200 m2 wareshousing space
Project Economic Life
5 years
Expectancy
Targeted prodcuts Various animal feed concentrates
Expected workforce 25 labourers and administrative staff
Expected Investment Costs EGP 8,270,000
Return on Investment (ROI) 27%
Payback Period 2.9 years
Study date March 2021
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II. Marketing Study:

1. Demand Volume:
 Lack of feed resources is a major constraint to the development of livestock
production. Several studies indicate that the feed budget (the relationship
between the food needed for the farm animal and the available feed resources)
in Egypt suffers an annual shortage of 2.5 million tonnes of feed concentrates
equivalent to 6 million tonnes of natural food resources.
2. Offer Volume:
 The Egyptian agricultural production increased to be EGP 6,398 constituting
6.11% of the GDP in 2016/2017. Egypt exported agricultural products worth
EGP 56 billion, representing more than 22% of the total exports in 2017, and
provided 5.6 million jobs in the agricultural sector in 2017, representing more
than 25% of the Egyptian workforce.
 Animal feed ingredients being abundant locally make it feasible for the project
to be implemented.
 Availability of raw materials, solvents, machinery and packing materials
demonstrates project's feasibility as well.
3. Market Gap:
 The following figures show that the market gap constitutes an amount of USD
166 million equal to 189,714 tonnes.
4. Distribution Outlets:
 Exporting to countries that do not have feeding concentrates industry.
 Sale to wholesalers and suppliers.
 Feed production factories.
 Livestock and poultry farms.
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5. Marketing Study Conclusion:

 It is concluded that there is high demand on the product and a market gap in
Egypt equal to 189,714 tonnes, which presents a favourable marketing
opportunity.
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III. Technical Study:

1- Project Location: Gharbia Governorate, al-Anbutin Village, al-Santa Precinct.
2- Land: a plot of land consisting of a surface area of 700 m2 to be allocated by way
of usufruct.
3- Buildings: The project includes one building constructed on a surface area of
500 m2. The building consists of one floor and is divided up into two partitions,
the first of which is an administrative partition and the other encompasses the
factory, warehouse, production hall, and 200m2 storage space.
4- Final Product: Various animal feed concentrates.
5- Labour Required: 25 labourers and administrative staff.
6- Main Raw Materials and Supplies:
 Mineral vitamins;
 Mineral salts and limestone;
 Table salt and lactose; and
 Packing materials.
7- Main Machinery and Equipment:
 Powder mixer;
 Packing machine;
 Digital scale;
 Printer;
 Finished product tank;
 Raw materials placement tank;
 Tables; and
 Compressor.
8- Production Capacity: 300 tonnes/annum
NB: The data mentioned in the technical study are estimates based on the data provided
by Industrial Development Authority (IDA).
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IV. Financial Study:

Financial feasibility study is considered a tool that helps the investor in making
decisions related to investment. To facilitate making such decisions, all costs related
to investment and production must be clearly and accurately determined, taking into
account that a project profitability depends on the volume and components of the
investment and the production costs.
1. Financial Study Fundamentals and Hypotheses:
 The data used in the study and the expected revenues based on the volume
and the value of sales have been estimated according to results of the
marketing study.
 Investment spending values and other elements of costs and expenses have
been estimated according to the results of the technical study.
 The annual depreciation premium for buildings and machinery is estimated
according to the results of the technical study, assuming that their sales
value at the end of the period matches their book value.
 It has to be considered that the estimated value of fixed assets mentioned in
this study is related to a specific time period according to the prevailing
circumstances at the time of preparing this study; and that this value may
change if the circumstances change, the report time limit expires, or the
economic environment undergoes changes in general.
 Incorporation and pre-commencement expenditure have been assumed to
have been fully depreciated during 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 the expected
annual costs during the study period.
 The annual cash flows are estimated using the indirect estimation method
by making the necessary adjustments to the results of the estimated income
statements for the years included in the study.
 It is assumed in this study that all purchases include VAT.
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2. Annual Sales:
The annual sales are estimated assuming that all quantities planned to be
produced have been sold at the average prevailing market price.
# Item Sales/ Ton Sale Price/ Ton Annual Sales Revenue
1 Animal feed concentrates 500 14,000 7,000,000
Total 7,000,000
3. Project Investment Costs:

3.1 Buildings, Constructions, Finishes, Infrastructure, and Utilities: The cost of
buildings, constructions, finishes, infrastructure, and utilities is estimated to
be EGP 1,500,000, assuming that each square meter costs EGP 3,000 and
that they will have been completely depreciated after 20 years.
3.2 Machinery and Equipment: the cost of machinery and equipment is
estimated at EGP 400,000 assuming that they will have been completely
depreciated after 10 years.
3.3 Legal and Incorporation Fees: They estimated to cost EGP 100,000 assuming
that such amount will be spent during the first year.
3.4 Transportation trucks: They are estimated to cost EGP 1,000,000 and
assumed to be completely depreciated in five years.
3.5 Cranes, Forklifts…etc.: They are estimated to cost EGP 1,000,000 and
assumed to be completely depreciated in five years.
4. Running Costs:
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. These costs are divided up into fixed costs and variable
costs, as well as direct costs intimately related to the product and indirect costs
that are ancillary to the product such as, the administrative staff payroll. The
running costs are also divided up 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. The running costs
are classified as follows:
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4.1 Raw Materials Cost per Annum:

The raw materials required to produce the aforementioned quantities are
estimated to cost EGP 3,000,000.
4.2 Payroll Cost:
Item Number Salary/ Annum
Factory Manager 1 120,000
Marketing Manager 1 120,000
Financial Manager 1 120,000
Accountant 1 60,000
Personnel Affairs Officer 1 60,000
Quality Supervisor 1 36,000
Industrial Safety Officer 1 36,000
Sales Representative 1 60,000
Production Supervisor 1 36,000
Driver 1 36,000
Security Guard 3 108,000
Storekeeper 3 108,000
Production Worker (trained) 6 180,000
Handling Worker and Similar Staff 2 60,000
Janitor 1 30,000
Total 25 1,170,000
4.3 Annual Depreciations:

Years of Annual
Item Cost
Depreciation Depreciation
Buildings 600,000 20 30,000
Machinery and Equipment 400,000 10 40,000
Legal and Incorporation Fees 100,000 1 100,000
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Transportation Trucks 1,000,000 5 200,000

Cranes and Forklifts 1,000,000 5 200,000
Total 3,100,000 570,000
4.4 Other costs such as utilities (power, water, gas) are estimated at EGP 100,000.
4.5 Based on the foregoing, the total amount of running costs is as follows:
Item Cost
Buildings 1,500,000
Machinery and Equipment 400,000
Transportation Trucks 1,000,000
Cranes, Forklifts…etc. 1,000,000
Incorporation Fees 100,000
Raw Materials 3,000,000
Payroll 1,170,000
Other Running Costs 100,000
Total 8,270,000
5. Project Financial Statements and Indicators, and Expected Profitability Ratios:

 Financial statements, financial indicators, and profitability ratios are
among the most important tools used to assess the economic viability of
projects. The assessment is made by calculating the project's net income
and net cash inflows, as well as the net present value of money resulting
from an increase in the inflation rate as per the prevailing interest rate.
 Financial indicators are also used to make a comparison between the
available investment options, to compare between the average return on
investment and the payback period for each project separately.
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5.1 Expected Income Statement for the First Five years of Business Activity (including an
estimated 10% Annual Increase in Revenue and Costs):
Item Year 1 Year 2 Year 3 Year 4 Year 5

Total Sales 7,000,000 7,700,000 8,470,000 9,317,000 10,248,700
Sales Cost
Usufruct Cost 35,000 35,000 35,000 35,000 35,000
Raw Materials 3,000,000 3,300,000 3,630,000 3,993,000 4,392,300
Payroll 1,170,000 1,287,000 1,415,700 1,557,270 1,712,997
Other Running Costs 100,000 110,000 121,000 133,100 146,410
Depreciation 570,000 470,000 470,000 470,000 470,000
Total Costs 4,875,000 5,202,000 5,671,700 6,188,370 6,756,707
Profit before Tax (PBT) 2,125,000 2,498,000 2,798,300 3,128,630 3,491,993
Tax 425,000 499,600 559,660 625,726 698,399
Profit after Tax (PAT) 1,700,000 1,998,400 2,238,640 2,502,904 2,793,594
5.2 A Projected Cash Flow Statement for the First Five Years of Business Activity:
Item Year 1 Year 2 Year 3 Year 4 Year 5
Cash Inflows 7,000,000 7,700,000 9,317,000 9,317,000 10,248,700

Cash Outflows
Usufruct 35,000 35,000 35,000 35,000 35,000
Raw Materials 3,000,000 3,300,000 3,630,000 3,993,000 4,392,300
Payroll 1,170,000 1,287,000 1,415,700 1,557,270 1,712,997
Other Running Costs 100,000 110,000 121,000 133,100 146,410
Tax 425,000 499,600 559,660 625,726 698,399
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Total Cash Outflows 4,730,000 5,231,600 5,761,360 6,344,096 6,985,106

Total Cash Inflows 2,270,000 2,468,400 3,555,640 2,972,904 3,263,594
5.3 Net Present Value (NPV) 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
This is according to the simple interest rate of projects' loans, which is approximately
10% at the time of preparing this study.
Discount
Year Cash Flow NPV
Factor 10%
Year 1 2,270,000 0.909 2,063,430
Year 2 2,468,400 0.826 2,038,898
Year 3 3,555,640 0.751 2,670,286
Year 4 2,972,904 0.683 2,030,493
Year 5 3,263,594 0.621 2,026,692
Total 14,530,538 10,829,799
5.4 Calculating Average ROI

𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
= %
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡𝑠
Year Annual Net Profit ROI/ annum

Year 1 1,700,000 21%
Year 2 1,998,400 24%
Year 3 2,238,640 27%
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Year 4 2,502,904 30%

Year 5 2,793,594 34%
Investment Costs 8,270,000
Average ROI 27%
5.5 Payback Period (PBP)

Year 0 1 2 3 4 5
Annual cash
(8,270,000) 2,270,000 2,468,400 3,555,640 2,972,904 3,263,594
inflow
Cumulative
(8,270,000) (6,000,000) (3,531,600) 24,040 2,996,944 6,260,538
cash flow
The payback period can be calculated according to the following formula:
+ The absolute value of the last

=Number of years of
negative cumulative cash flow
negative cash flow +
Cash inflow during the following
year
3,531,600
2 +
3,555,640
2 + 0.99
PBP = 2.99
5.6 Financial Study Conclusions:

 The project achieves an NPV of positive cash in the amount of EGP 10,829,799,
as per an interest rate of 10%.
 The project achieves 27% ROI.
 The estimated PBP of the project is 2.9 years.
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V. Conclusions and Recommendations

The project is economically viable in light of the following considerations:
 The project can potentially be set up due to the availability of the required raw
materials in Egypt, the easy access to packing materials and machinery, as well as
the current climate encouraging investment in Egypt.
 The project achieves a good ROI estimated at 27%.
 The PBP of the investment costs of the project is estimated at 2.9 years.
NB: The data mentioned in the technical study are estimates based on the data provided
by IDA.
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The General Authority for Investment and

GAFI Translation Department

The General Authority for Investment & Free Zones

A Preliminary Feasibility Study

I. Project Basic Information

Gharbia Governorate, al-Anbutin Village,

II. Marketing Study:

5. Marketing Study Conclusion:

III. Technical Study:

IV. Financial Study:

1 Animal feed concentrates 500 14,000 7,000,000

3. Project Investment Costs:

4.1 Raw Materials Cost per Annum:

4.3 Annual Depreciations:

Transportation Trucks 1,000,000 5 200,000

5. Project Financial Statements and Indicators, and Expected Profitability Ratios:

Item Year 1 Year 2 Year 3 Year 4 Year 5

Item Year 1 Year 2 Year 3 Year 4 Year 5

Cash Inflows 7,000,000 7,700,000 9,317,000 9,317,000 10,248,700

Total Cash Outflows 4,730,000 5,231,600 5,761,360 6,344,096 6,985,106

5.3 Net Present Value (NPV) of Cash Inflows

5.4 Calculating Average ROI

Year Annual Net Profit ROI/ annum

Year 4 2,502,904 30%

5.5 Payback Period (PBP)

The payback period can be calculated according to the following formula:

+ The absolute value of the last

5.6 Financial Study Conclusions:

V. Conclusions and Recommendations

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