Investment Office ANRS

Project Profile on the Establishment of Baby

Food Producing Plant

Development Studies Associates

(DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary..................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program...................1
3.1 Market Study.......................................................................................................1
3.1.1 Present Demand and Supply........................................................................1
3.1.2 Projected Demand........................................................................................3
3.1.3 Pricing and Distribution...............................................................................4
3.2 Plant Capacity......................................................................................................4
3.3 Production Program.............................................................................................4
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...................................................................................6
6.3 Civil Engineering Cost........................................................................................7
7. Human Resource and Training Requirement......................................8
7.1 Human Resource..................................................................................................8
7.2 Training Requirement..........................................................................................8
8. Financial Analysis...................................................................................9
8.1 Underlying Assumption.......................................................................................9
8.2 Investment..........................................................................................................10
8.3 Production Costs................................................................................................11
8.4 Financial Evaluation..........................................................................................12
9. Economic and Social Benefits and Justification.................................13
ANNEXES....................................................................................................15
 1. Executive Summary
The project envisages production of 10,000 tons of baby food per annum. The total
investment requirement of the project is estimated at about Birr 44.9 million; of which
Birr 28 million is the cost of working capital and Birr 5.6 million is planned to finance
the cost of building and civil-works while Birr 9.2 million is for machinery and
equipment. Based on the cash flow statement, the calculated internal rate of return (IRR)
and simple rate of return of the project are 22.4 % and 19.5, respectively. And the net
present value (NPV) at 18 % discounting rate is Birr 4,799 thousand. The plant is
expected to create employment opportunities for about 157 persons.

2. Product Description and Application

Infant food is a supplementary food prepared for children below the age of two. Infant
food relieves mothers from intensive breast-feeding. The main ingredients in the
preparation of infant food are pulses, soybean, milk, potato, corn and fruits. Generally,
the mixture of these ingredients is kept in such a way to fulfil the nutrition requirements
in child feeding. Carbohydrates and proteins are the major nutrient elements. Infant food
is prepared in a factory or at home. They are delivered in cans of 400/500 grams or in
plastic containers of 1kg each. Sweetness, palatability, and tenderness are the basic
requirements for infant food. Infant food is served diluted in water and boiled to form a
stew or soup. They are also served as batter for spoon feeding. The main objective of
preparing baby food is to give the necessary nutrition to infants in addition to their
mother milk so that the babies are healthy and fit both physically and mentally.

3. Market Study, Plant Capacity and Production

Program
3.1 Market Study
3.1.1 Present Demand and Supply

Currently, there are few baby food producing factories in Ethiopia. Among which, Fafa
Food Factory is the oldest one. However, the range of products they produce and the
quality is limited. In particular, Fafa baby food production is mainly geared towards

1
meeting relief requirements. It is freely distributed to children in drought affected areas
by NGOs. There is no separate data for domestic production of baby food; in the
available statistical reports, production of baby food is lumped with other locally
produced composite flours, such as Dube, Miten and Edget composite flours. Here, based
on factories’ output for few years, local production of baby food is estimated for the
period between 1988 E.C and 1998E.C (Table 3.1).
Table 3.1
DOMESTIC PRODUCTION OF BABY FOOD

Year E.C. Domestic Production of

Baby Food
(In Tons)
1988 804
1989 1176
1990 1171
1991 1546
1992 2496
1993 2923
1994 2304
1995 3845
1996 4620
1997 3207
1998 3643

Besides, there is some supply of baby food through imports. Like the domestic
production, except for the year 1999/2000 E.C, import statistics does not separately show
baby food; rather, it lumps a variety of related products together. In the year 1999 E.C,
nearly 62 tons of baby food is imported with at cost of Birr 2.1 million.

The demand for baby food is related to population growth and income growth. In mid
1999 E.C, there were 3.3 million children within the age of 0-4 years in the AN RS.

2
Babies between the ages of 4 months and 2 years, which require baby food, constitute
nearly half of this figure. These babies constitute about 8.5 percent of the population of
the region. But, there is no single plant or factory in the region which prepares baby food
even though the ingredients for making such food is available in the region.

3.1.2 Projected Demand

Feeding babies with additional food normally starts at the age of four months. However,
mothers may start earlier or later than this period to feed their babies with additional
food. Its demand depends upon income of the households and price of baby food. In this
connection to this, the urban parents relatively better provide baby food to their offspring
than the rural parents. However, due to the low standard of living of the population, it is a
very small segment of the Ethiopian urban households that can provide their babies with
baby food. By taking consumption per capita of babies for countries with the same per
capita income as that of Ethiopia, per capita baby food consumption has been estimated
at 20.8 kg/annum. This is the lowest per capita consumption of baby food in the world.
Based on the above assumption, the current demand for baby food in the ANRS alone
amounts to 34,320 tons. The demand for baby food is projected by relating future demand
to population growth- i.e. the number of babies born each year (See Table 3.2).
TABLE 3.2
PROJECTED DEMAND FOR BABY FOOD

Year E.C. At national Level At ANRS Level

(In Tons) ( In Tons)
1999 34320 8580
2000 35350 8837
2001 36410 9103
2002 37502 9376
2003 38628 9657
2004 39786 9947
2005 40980 10245
2006 42209 10552
2007 43476 10869
2008 44780 11195
2009 46123 11531

3
Table 3.2 shows that the demand for baby food grows from 34,320 tons in 1999 E.C to
40,980 tons in 2004 E.C and 46,123 tons in 2009 E.C at the national level. Similarly,
ANRS’s demand (roughly estimated proportionally by taking population size of the
relevant age bracket) will reach 9,947 tons and 11,531 tons in 2004 E.C and 2009 E.C,
respectively. These figures clearly justify the establishment of a medium scale baby food
producing plant in ANRS.

3.1.3 Pricing and Distribution

There are different types of locally made and imported baby food in the domestic market.
As compared to the local ones, the imported items are sold at very high price; and this
makes them inaccessible to low income families. The current market prices of most
popular imported baby foods (such as Cerilac and Cerifam) range from Birr 40 up to Birr
55 per can (400 mg). In contrast, the average market prices of the local products (such as
Fafa and its local substitutes) range between Birr16 and Birr 20 per Kg. This project
envisages producing baby food with a quality better than the existing local products; and
it plans to sell it at Birr 16 per Kg. The product is to be distributed through wholesale
network to all parts of the country.

3.2 Plant Capacity

According to demand projections and minimum economical plant size, a plant with an
annual production capacity of 10,000 tons is envisaged by this project. The plant will
operate 275 days a year. Sundays and national holidays, account for 65 days a year for
maintenance and repair work as well as for unexpected work interruption additional 25
days are assigned.

3.3 Production Program

The production programme is designed in such a way that the plant will start production
at 75 % of its capacity in the first year. During the second and third years, the plant will
produce 85 % and 100 % of its capacity, respectively. The capacity build-up is required
to introduce the operators and technicians with the new machines. And also, some time is
necessary to introduce the brand, and to penetrate the competitive baby food market.

4
 4. Raw Materials and Utilities
4.1 Availability and Source of Raw Materials

All the necessary raw materials to produce baby food are available in the ANRS.

4.2 Annual Requirement and Cost of Raw Materials and

Utilities

Raw materials and utilities required for the production of 15,000 tons of infant food are
indicated in Table 4.1. The principal raw materials are corn, beans, peas and soybeans.
TABLE 4.1
RAW MATERIALS AND INPUTS

Raw Materials Annual Unit Price Total Cost

Requirement In Birr In Birr‘000
( In Tons)
Corn 9000 2500 22500
Sweet Potato 7200 3000 21600
Soy bean 3000 8000 24000
Bean 3000 6000 18000
Peas 3000 6000 18000
Milk 4500 5000 22500
Fruit 300 5000 1500
Sub. Total 128,100
Contingency 12,810
Packing, cans 15000 pcs 2.5 37.5
Packing, plastics 22500 pcs 0.15 3.4
Total 140,950.9

TABLE 4.1
ANNUAL UTILITY REQUIREMENT

Utilities Annual Unit Price Total

Requirement (In Thousands)
Electricity 4,667,200 KWH Birr 0.55 / KWH 2,567
Water 16,000 m3 Birr 2.65/m3 42.4
2,609.4

5
 5. Location and Site

For its convenience to procure the necessary raw materials and to distribute the product to
different parts of the country, Debre-Markos is an appropriate place to establish a baby
food producing plant.

6. Technology and Engineering

6.1 Production Process

Raw materials from the silos are first conveyed to respective separation and cleaned from
external matter. Then they are weighed and processed in their individual machines. Beans
and peas are roasted, and milled after roasting. Others are scoured and milled. After
milling, the processed materials are stored in their individual bins. Once all ingredients
are prepared, according to the proportion of the mix they are led to the mixer; and
mixed fruit and dehydrated milk are added in the mixer. Finally, the mixture is led to the
rotary distributor where the product is ready for packing, or it is directed to finished
product silo and stored.

Alternatively, it is possible to establish a high technology baby food processing plant

with a smaller capacity and minimal, but relatively skilled, labour force. In this case, the
plant requires computerized machineries and a sophisticated laboratory. This would make
the project capital intensive and very expensive.

6.2 Machinery and Equipment

Principal production machinery for preparing infant food are the roaster, mills, grinders,
mixers, storage bins and screw conveyors and bucket elevators. A list of machinery and
equipment for the proposed plant is given in Table 6.1.The total cost of Machinery and
Equipment is Birr 9.2 million. ). Of the total cost of the raw material, Birr 8.2 million or
89.1 % is in foreign currency.

6
 TABLE 6.1
MACHINERY AND EQUIPMENT

No Item Quantity
1 Storage bin, 75 tons 5 pcs
2 Bucket elevator 12 pcs
3 Screen conveyor 7 pcs
4 Drum lieve 1 pc
5 Magnetic separator 1 pc
6 Vibro stiner 2 pcs
7 Roaster 1 pc
8 Scourer 1 pc
9 Grinding mill 1 pc
10 Hammer mill 1 pc
11 Roller mill 1 pc
12 Weighers 4 pcs
13 Dehuller 1 pc
14 Aspirator 1 pc
15 Dehydrator 1 pc
16 Mixer 1 pc
17 Rotary distributor 1 pc
18 Packing machine 1 pc
19 Plane siftes 1 pc
20 Laboratory Equipments 1 set
Estimated Total Cost including Freight and Insurance is
Birr 9.2 Million

Machinery Suppliers Address:

Labh Group of Companies Snacks Plant Division
403-405, Time Square, Near Pariseema Complex,
C.G. Road, Ahmedabad, Gujarat,380006,
India

6.3 Civil Engineering Cost

Due to technological and engineering requirements the production hall shall have a two
story building with a total floor area of 2,800m 2, and it costs Birr 5.6 million. This would
include cost of land preparation and associated civil works. The total land area of the
plant including the open space is 3000 m 2. The cost of the land lease is Birr 163,770

7
which is as per ANRS land lease rate for Debre-Markos (which is equal to Birr 54.59 per
sq meter for industrial purpose). Of the total cost of the lease 5 % is paid at the beginning
while the rest will be paid in 40 years.

7. Human Resource and Training Requirement

7.1 Human Resource

Manpower requirements for the envisaged plant and annual salary expenditure are given
in Table 7.1.
TABLE 7.1
MANPOWER REQUIREMENT

Post No Salary/Month Total

Birr/Worker (In Birr)
1. Plant Manager 1 4000 48000
2. Engineers 2 3000 72000
3. Chemists 2 1500 36000
4. Administrator 1 2500 30000
5. Accountant 2 1200 28800
6. Salesman 3 1500 54000
7. Sales Clerks 10 800 96000
8. Secretary 2 850 20400
9. Cashier 1 800 9600
10. Operators 10 800 96000
11. Labors 100 400 480000
12. Mechanics and Electricians 15 1000 180000
13. Guards 6 400 28800
14. Driver 2 800 19200
Benefits 20 %     239,760
Total 157   1,438,560

Total annual salary expenses including benefits is Birr 1,438,560.

7.2 Training Requirement

Two months on-the-job training and follow-up program is needed; and this can be
managed by procuring two experts from the technology suppliers.

8
 8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of the baby food producing 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 3% of fixed investment

B. Depreciation

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

9
 C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30 days

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

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 45
million as shown in Table 8.1 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 8.1
TOTAL INITIAL INVESTMENT

Items L.C F.C Total

Land
8,189 8,189
Building
5,600,000 5,600,000
Office Equipment
500,000 500,000
Vehicles
750,000 750,000
Machinery & Equipment
1,000,000 8,200,000 9,200,000
Total Fixed Investment
7,858,189 8,200,000 16,058,189
Pre production
802,909 802,909
Total Initial Investment
8,661,098 8,200,000 16,861,098
Working Capital
28,061,663 0 28,061,663
Total 36,722,761 8,200,000 44,922,761
*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.

10
Of the total investment outlay, working capital accounts for 62.5 % while plant and
machinery, and building and construction costs are 20.5 % and 12.5 %, respectively. The
foreign component of the project accounts for Birr 8.2 million or 18.3 % of the total
investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 149.7 millions
(See Table 8.2).Of the total production costs, raw materials and utilities account for 96 %.
TABLE 8.2
TOTAL PRODUCTION COST
IN BIRR

Raw Material Requirement Cost

1.Local Raw Material 140,950,900
2.Foreign 0

Total Production Cost at full Capacity

Items Cost
1.      Raw materials 140,950,900
2.      Utilities 2,609,400
3.      Wages and Salaries 1,438,560
4.      Spares and Maintenance 481,746
Factory costs 145,480,606
5.      Depreciation 1,560,582
6.      Financial costs
2,695,366
  Total Production Cost 149,736,553

8.4 Financial Evaluation

I. Profitability

11
According to the projected income statement (see Annex 4) the project will generate
profit beginning from the first year of operation which increases onwards. The income
statement and other profitability indicators also show that the project is viable.

II. Breakeven Analysis

The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 16.3 % of capacity utilization.

III. Payback Period

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

IV. Simple Rate of Return

The project’s simple rate of return is given by the formula:

SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.

The SRR would be 19.5 % at full capacity utilization.

Internal Rate of Return and Net Present Value

Based on cash flow statement (See Annex 2) the calculated internal rate of return ( IRR)
of the project is 22.4% and the net present value(NPV) at 18 % discount is Birr 4,799
thousands.

Sensitivity Analysis

The sensitivity test result when undertaken by increasing the cost of production by 10 %
still indicates that the project would be viable.
Economic and Social Benefits and Justification

12
Based on the foregoing presentation and analysis, we can say that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained
earlier. In general the envisaged project promotes the socio-economic goals and
objectives stated in the strategic plan of the Amhara National Regional State. These
benefits are listed as follows:

Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 6.99
million per year and Birr 69.95 million within the project life. Such result induces the
project promoters to reinvest the profit which, therefore, increases the investment
magnitude in the region.

Tax Revenue

In the project life under consideration, the region will collect about Birr 26.3 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.

Import Substitution and Foreign Exchange Saving

The commencement of this project relieves a portion of the import burden of baby food.
That is, based on the projected figure we learn that in the project life an estimated amount
of US Dollar 153 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.

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 157 professionals as well as
support staff. Consequently the project creates income of Birr 1,438 thousand per year.
This would be one of the commendable accomplishments of the project.

Pro Environment Project

The proposed production process is environment friendly.

Diversification and InterSectoral 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.

13
ANNEXES

14
15
Annex 1: Total Net Working Capital Requirements (in Birr)

 
CONSTRUCTION
PRODUCTION

Year 1
Year 2
1
2
3
4

Capacity Utilization (%)

0.00
0.00
75%
85%
100%
100%

1. Total Inventory
0.00
0.00
32247396.67
36547049.56
42996528.89
42996528.89

Raw Materials in Stock- Total

1
0.00
0.00
11532346.36
13069992.55
15376461.82
15376461.82

Raw Material-Local
0.00
0.00
11532346.36
13069992.55
15376461.82
15376461.82

Raw Material-Foreign
0.00
0.00
0.00
0.00
0.00
0.00

Factory Supplies in Stock

0.00
0.00
120306.43
136347.28
160408.57
160408.57

Spare Parts in Stock and Maintenance

0.00

2
0.00
39415.55
44670.96
52554.07
52554.07

Work in Progress
0.00
0.00
3007660.65
3408682.07
4010214.21
4010214.21

Finished Products
0.00
0.00
6015321.31
6817364.15
8020428.41
8020428.41

2. Accounts Receivable
0.00
0.00
13090909.09
14836363.64
17454545.45
17454545.45

3. Cash in Hand
0.00
0.00

3
331196.73
375356.29
441595.64
441595.64

CURRENT ASSETS
0.00
0.00
34137156.12
38688776.94
45516208.17
45516208.17

4. Current Liabilities
0.00
0.00
13090909.09
14836363.64
17454545.45
17454545.45

Accounts Payable
0.00
0.00
13090909.09
14836363.64
17454545.45
17454545.45

TOTAL NET WORKING CAPITAL REQUIREMENTS

0.00
0.00
21046247.03

4
23852413.30
28061662.71
28061662.71

INCREASE IN NET WORKING CAPITAL

0.00
0.00
21046247.03
2806166.27
4209249.41
0.00

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%

5
1. Total Inventory
42996528.89
42996528.89
42996528.89
42996528.89
42996528.89
42996528.89

Raw Materials in Stock-Total

15376461.82
15376461.82
15376461.82
15376461.82
15376461.82
15376461.82

Raw Material-Local
15376461.82
15376461.82
15376461.82
15376461.82
15376461.82
15376461.82

Raw Material-Foreign
0.00
0.00
0.00
0.00
0.00
0.00

6
 Factory Supplies in Stock
160408.57
160408.57
160408.57
160408.57
160408.57
160408.57

Spare Parts in Stock and Maintenance

52554.07
52554.07
52554.07
52554.07
52554.07
52554.07

Work in Progress
4010214.21
4010214.21
4010214.21
4010214.21
4010214.21
4010214.21

Finished Products
8020428.41
8020428.41
8020428.41
8020428.41
8020428.41
8020428.41

2. Accounts Receivable

7
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45

3. Cash in Hand
441595.64
441595.64
441595.64
441595.64
441595.64
441595.64

CURRENT ASSETS
45516208.17
45516208.17
45516208.17
45516208.17
45516208.17
45516208.17

4. Current Liabilities
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45

Accounts Payable
17454545.45

8
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45

TOTAL NET WORKING CAPITAL REQUIREMENTS

28061662.71
28061662.71
28061662.71
28061662.71
28061662.71
28061662.71

INCREASE IN NET WORKING CAPITAL

0.00
0.00
0.00
0.00
0.00
0.00

Annex 2: Cash Flow Statement (in Birr)

 
CONSTRUCTION
PRODUCTION

9
Year 1
Year 2
1
2
3
4

TOTAL CASH INFLOW

8430548.96
36492211.67
133090909.09
137745454.55
162618181.82
160000000.00

1. Inflow Funds
8430548.96
36492211.67
13090909.09
1745454.55
2618181.82
0.00

Total Equity
3372219.59
14596884.67
0.00
0.00
0.00
0.00

Total Long Term Loan

5058329.38

10
21895327.00
0.00
0.00
0.00
0.00

Total Short Term Finances

0.00
0.00
13090909.09
1745454.55
2618181.82
0.00

2. Inflow Operation
0.00
0.00
120000000.00
136000000.00
160000000.00
160000000.00

Sales Revenue
0.00
0.00
120000000.00
136000000.00
160000000.00
160000000.00

Interest on Securities
0.00
0.00

11
0.00
0.00
0.00
0.00

3. Other Income
0.00
0.00
0.00
0.00
0.00
0.00

TOTAL CASH OUTFLOW

8430548.96
8430548.96
150704386.77
136941688.16
163381908.98
156177126.56

4. Increase In Fixed Assets

8430548.96
8430548.96
0.00
0.00
0.00
0.00

Fixed Investments
8029094.25
8029094.25
0.00

12
0.00
0.00
0.00

Pre-production Expenditures
401454.71
401454.71
0.00
0.00
0.00
0.00

5. Increase in Current Assets

0.00
0.00
34137156.12
4551620.82
6827431.22
0.00

6. Operating Costs
0.00
0.00
110016425.33
124663352.52
146633743.30
146633743.30

7. Corporate Tax Paid

0.00
0.00
0.00
0.00

13
2733092.75
2894814.69

8. Interest Paid
0.00
0.00
6550805.31
3234438.77
2695365.64
2156292.51

9.Loan Repayments
0.00
0.00
0.00
4492276.06
4492276.06
4492276.06

10.Dividends Paid
0.00
0.00
0.00
0.00
0.00
0.00

Surplus(Deficit)
0.00
28061662.71
-17613477.67
803766.38
-763727.16

14
3822873.44

Cumulative Cash Balance

0.00
28061662.71
10448185.04
11251951.42
10488224.26
14311097.70

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

 
PRODUCTION

5
6
7
8
9
10

TOTAL CASH INFLOW

160000000.00
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00

15
1. Inflow Funds
0.00
0.00
0.00
0.00
0.00
0.00

Total Equity
0.00
0.00
0.00
0.00
0.00
0.00

Total Long Term Loan

0.00
0.00
0.00
0.00
0.00
0.00

Total Short Term Finances

0.00
0.00
0.00
0.00
0.00
0.00

16
2. Inflow Operation
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00

Sales Revenue
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00

Interest on Securities
0.00
0.00
0.00
0.00
0.00
0.00

3. Other Income
0.00
0.00
0.00
0.00
0.00
0.00

TOTAL CASH OUTFLOW

17
155799775.37
155515598.75
155138247.56
150268620.31
150268620.31
150268620.31

4. Increase In Fixed Assets

0.00
0.00
0.00
0.00
0.00
0.00

Fixed Investments
0.00
0.00
0.00
0.00
0.00
0.00

Pre-production Expenditures
0.00
0.00
0.00
0.00
0.00
0.00

5. Increase in Current Assets

0.00

18
0.00
0.00
0.00
0.00
0.00

6. Operating Costs
146633743.30
146633743.30
146633743.30
146633743.30
146633743.30
146633743.30

7. Corporate Tax Paid

3056536.63
3311433.13
3473155.07
3634877.01
3634877.01
3634877.01

8. Interest Paid
1617219.38
1078146.26
539073.13
0.00
0.00
0.00

9. Loan Repayments
4492276.06
4492276.06

19
4492276.06
0.00
0.00
0.00

10.Dividends Paid
0.00
0.00
0.00
0.00
0.00
0.00

Surplus(Deficit)
4200224.63
4484401.25
4861752.44
9731379.69
9731379.69
9731379.69

Cumulative Cash Balance

18511322.32
22995723.57
27857476.01
37588855.70
47320235.39
57051615.08

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

20
 
CONSTRUCTION
PRODUCTION

Year 1
Year 2
1
2
3
4

TOTAL CASH INFLOW

0.00
0.00
120000000.00
136000000.00
160000000.00
160000000.00

1. Inflow Operation
0.00
0.00
120000000.00
136000000.00
160000000.00
160000000.00

Sales Revenue
0.00
0.00
120000000.00
136000000.00

21
160000000.00
160000000.00

Interest on Securities
0.00
0.00
0.00
0.00
0.00
0.00

2. Other Income
0.00
0.00
0.00
0.00
0.00
0.00

TOTAL CASH OUTFLOW

8430548.96
8430548.96
131062672.36
127469518.79
153576085.46
149528557.99

3. Increase in Fixed Assets

8430548.96
8430548.96
0.00
0.00
0.00

22
0.00

Fixed Investments
8029094.25
8029094.25
0.00
0.00
0.00
0.00

Pre-production Expenditures
401454.71
401454.71
0.00
0.00
0.00
0.00

4. Increase in Net Working Capital

0.00
0.00
21046247.03
2806166.27
4209249.41
0.00

5. Operating Costs
0.00
0.00
110016425.33
124663352.52
146633743.30
146633743.30

23
6. Corporate Tax Paid
0.00
0.00
0.00
0.00
2733092.75
2894814.69

NET CASH FLOW

-8430548.96
-8430548.96
-11062672.36
8530481.21
6423914.54
10471442.01

CUMMULATIVE NET CASH FLOW

-8430548.96
-16861097.93
-27923770.29
-19393289.08
-12969374.53
-2497932.52

Net Present Value (at 18%)

-8430548.96
-7144533.02
-7945039.04
5191914.22
3313383.66
4577163.81

24
 Cumulative Net present Value
-8430548.96
-15575081.98
-23520121.02
-18328206.80
-15014823.14
-10437659.33

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

 
PRODUCTION

5
6
7
8
9
10

TOTAL CASH INFLOW

160000000.00
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00

1. Inflow Operation

25
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00

Sales Revenue
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00

Interest on Securities
0.00
0.00
0.00
0.00
0.00
0.00

2. Other Income
0.00
0.00
0.00
0.00
0.00
0.00

TOTAL CASH OUTFLOW

149690279.93

26
149945176.43
150106898.37
150268620.31
150268620.31
150268620.31

3. Increase in Fixed Assets

0.00
0.00
0.00
0.00
0.00
0.00

Fixed Investments
0.00
0.00
0.00
0.00
0.00
0.00

Pre-production Expenditures
0.00
0.00
0.00
0.00
0.00
0.00

4. Increase in Net Working Capital

0.00
0.00

27
0.00
0.00
0.00
0.00

5. Operating Costs
146633743.30
146633743.30
146633743.30
146633743.30
146633743.30
146633743.30

6. Corporate Tax Paid

3056536.63
3311433.13
3473155.07
3634877.01
3634877.01
3634877.01

NET CASH FLOW

10309720.07
10054823.57
9893101.63
9731379.69
9731379.69
9731379.69

CUMMULATIVE NET CASH FLOW

7811787.55
17866611.12
27759712.75

28
37491092.44
47222472.13
56953851.82

Net Present Value (at 18%)

3819045.47
3156460.82
2631942.59
2193998.63
1859320.87
1575695.66

Cumulative Net present Value

-6618613.86
-3462153.04
-830210.45
1363788.18
3223109.06
4798804.71

Net Present Value (at 18%)

4,798,804.71

Internal Rate of Return

22.4%

Annex 4: NET INCOME STATEMENT ( in Birr)

 
PRODUCTION

29
1
2
3
4
5

Capacity Utilization (%)

75%
85%
100%
100%
100%

1. Total Income
120000000.00
136000000.00
160000000.00
160000000.00
160000000.00

Sales Revenue
120000000.00
136000000.00
160000000.00
160000000.00
160000000.00

Other Income
0.00
0.00
0.00
0.00

30
0.00

2. Less Variable Cost

109420385.91
124009770.69
145893847.88
145893847.88
145893847.88

VARIABLE MARGIN
10579614.09
11990229.31
14106152.12
14106152.12
14106152.12

(In % of Total Income)

8.82
8.82
8.82
8.82
8.82

3. Less Fixed Costs

2156621.31
2214163.71
2300477.31
2300477.31
2300477.31

OPERATIONAL MARGIN
8422992.79
9776065.60

31
11805674.82
11805674.82
11805674.82

(In % of Total Income)

7
7
7
7
7

4. Less Cost of Finance

6550805.31
3234438.77
2695365.64
2156292.51
1617219.38

5. GROSS PROFIT
1872187.47
6541626.83
9110309.18
9649382.31
10188455.43

6. Income (Corporate) Tax

0.00
0.00
2733092.75
2894814.69
3056536.63

7. NET PROFIT

32
1872187.47
6541626.83
6377216.43
6754567.61
7131918.80

RATIOS (%)
 

Gross Profit/Sales
2%
5%
6%
6%
6%

Net Profit After Tax/Sales

2%
5%
4%
4%
4%

Return on Investment
22%
24%
20%
20%
19%

Return on Equity
10%
36%

33
35%
38%
40%

Annex 4: NET INCOME STATEMENT (in Birr):Continued

 
PRODUCTION

6
7
8
9
10

Capacity Utilization (%)

100%
100%
100%
100%
100%

1. Total Income
160000000.00
160000000.00
160000000.00
160000000.00
160000000.00

Sales Revenue
160000000.00

34
160000000.00
160000000.00
160000000.00
160000000.00

Other Income
0.00
0.00
0.00
0.00
0.00

2. Less Variable Cost

145893847.88
145893847.88
145893847.88
145893847.88
145893847.88

VARIABLE MARGIN
14106152.12
14106152.12
14106152.12
14106152.12
14106152.12

(In % of Total Income)

9
9
9
9
9

35
3. Less Fixed Costs
1989895.42
1989895.42
1989895.42
1989895.42
1989895.42

OPERATIONAL MARGIN
12116256.70
12116256.70
12116256.70
12116256.70
12116256.70

(In % of Total Income)

8
8
8
8
8

4. Less Cost of Finance

1078146.26
539073.13
0.00
0.00
0.00

5. GROSS PROFIT
11038110.45
11577183.57
12116256.70
12116256.70

36
12116256.70

6. Income (Corporate) Tax

3311433.13
3473155.07
3634877.01
3634877.01
3634877.01

7. NET PROFIT
7726677.31
8104028.50
8481379.69
8481379.69
8481379.69

RATIOS (%)
 

Gross Profit/Sales
7%
7%
8%
8%
8%

Net Profit After Tax/Sales

5%
5%
5%
5%
5%

37
 Return on Investment
20%
19%
19%
19%
19%

Return on Equity
43%
45%
47%
47%
47%

38
39
Annex 5: Projected Balance Sheet (in Birr)

 
CONSTRUCTION
PRODUCTION

Year 1
Year 2
1
2
3
4

TOTAL ASSETS
8430548.96
44922760.64
59885857.20
63680662.52
68183784.70
70446076.25

1. Total Current Assets

0.00
28061662.71
44585341.16
49940728.36
56004432.43
59827305.86

40
 Inventory on Materials and Supplies
0.00
0.00
11692068.34
13251010.79
15589424.46
15589424.46

Work in Progress
0.00
0.00
3007660.65
3408682.07
4010214.21
4010214.21

Finished Products in Stock

0.00
0.00
6015321.31
6817364.15
8020428.41
8020428.41

Accounts Receivable
0.00
0.00
13090909.09
14836363.64
17454545.45
17454545.45

41
 Cash in Hand
0.00
0.00
331196.73
375356.29
441595.64
441595.64

Cash Surplus, Finance Available

0.00
28061662.71
10448185.04
11251951.42
10488224.26
14311097.70

Securities
0.00
0.00
0.00
0.00
0.00
0.00

2. Total Fixed Assets, Net of Depreciation

8430548.96
16861097.93
15300516.04
13739934.16
12179352.27
10618770.39

Fixed Investment

42
0.00
8029094.25
16058188.50
16058188.50
16058188.50
16058188.50

Construction in Progress
8029094.25
8029094.25
0.00
0.00
0.00
0.00

Pre-Production Expenditure
401454.71
802909.43
802909.43
802909.43
802909.43
802909.43

Less Accumulated Depreciation

0.00
0.00
1560581.89
3121163.77
4681745.66
6242327.54

3. Accumulated Losses Brought Forward

0.00

43
0.00
0.00
0.00
0.00
0.00

4. Loss in Current Year

0.00
0.00
0.00
0.00
0.00
0.00

TOTAL LIABILITIES
8430548.96
44922760.64
59885857.20
63680662.52
68183784.70
70446076.25

5. Total Current Liabilities

0.00
0.00
13090909.09
14836363.64
17454545.45
17454545.45

Accounts Payable
0.00
0.00

44
13090909.09
14836363.64
17454545.45
17454545.45

Bank Overdraft
0.00
0.00
0.00
0.00
0.00
0.00

6. Total Long-term Debt

5058329.38
26953656.38
26953656.38
22461380.32
17969104.25
13476828.19

Loan A
5058329.38
26953656.38
26953656.38
22461380.32
17969104.25
13476828.19

Loan B
0.00
0.00
0.00

45
0.00
0.00
0.00

7. Total Equity Capital

3372219.59
17969104.25
17969104.25
17969104.25
17969104.25
17969104.25

Ordinary Capital
3372219.59
17969104.25
17969104.25
17969104.25
17969104.25
17969104.25

Preference Capital
0.00
0.00
0.00
0.00
0.00
0.00

Subsidies
0.00
0.00
0.00
0.00

46
0.00
0.00

8. Reserves, Retained Profits Brought Forward

0.00
0.00
0.00
1872187.47
8413814.31
14791030.73

9.Net Profit After Tax

0.00
0.00
1872187.47
6541626.83
6377216.43
6754567.61

Dividends Payable
0.00
0.00
0.00
0.00
0.00
0.00

Retained Profits
0.00
0.00
1872187.47
6541626.83
6377216.43

47
6754567.61

48
Annex 5: Projected Balance Sheet (in Birr): Continued

 
PRODUCTION

5
6
7
8
9
10

TOTAL ASSETS
73085718.99
76320120.24
79931872.67
88413252.37
96894632.06
105376011.75

1. Total Current Assets

64027530.49
68511931.74
73373684.17
83105063.87
92836443.56
102567823.25

Inventory on Materials and Supplies

15589424.46
15589424.46

49
15589424.46
15589424.46
15589424.46
15589424.46

Work in Progress
4010214.21
4010214.21
4010214.21
4010214.21
4010214.21
4010214.21

Finished Products in Stock

8020428.41
8020428.41
8020428.41
8020428.41
8020428.41
8020428.41

Accounts Receivable
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45

Cash in Hand
441595.64
441595.64
441595.64

50
441595.64
441595.64
441595.64

Cash Surplus, Finance Available

18511322.32
22995723.57
27857476.01
37588855.70
47320235.39
57051615.08

Securities
0.00
0.00
0.00
0.00
0.00
0.00

2. Total Fixed Assets, Net of Depreciation

9058188.50
7808188.50
6558188.50
5308188.50
4058188.50
2808188.50

Fixed Investment
16058188.50
16058188.50
16058188.50
16058188.50

51
16058188.50
16058188.50

Construction in Progress
0.00
0.00
0.00
0.00
0.00
0.00

Pre-Production Expenditure
802909.43
802909.43
802909.43
802909.43
802909.43
802909.43

Less Accumulated Depreciation

7802909.43
9052909.43
10302909.43
11552909.43
12802909.43
14052909.43

3. Accumulated Losses Brought Forward

0.00
0.00
0.00
0.00
0.00

52
0.00

4. Loss in Current Year

0.00
0.00
0.00
0.00
0.00
0.00

TOTAL LIABILITIES
73085718.99
76320120.24
79931872.67
88413252.37
96894632.06
105376011.75

5. Total Current Liabilities

17454545.45
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45

Accounts Payable
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45
17454545.45

53
 Bank Overdraft
0.00
0.00
0.00
0.00
0.00
0.00

6. Total Long-term Debt

8984552.13
4492276.06
0.00
0.00
0.00
0.00

Loan A
8984552.13
4492276.06
0.00
0.00
0.00
0.00

Loan B
0.00
0.00
0.00
0.00
0.00
0.00

54
7. Total Equity Capital
17969104.25
17969104.25
17969104.25
17969104.25
17969104.25
17969104.25

Ordinary Capital
17969104.25
17969104.25
17969104.25
17969104.25
17969104.25
17969104.25

Preference Capital
0.00
0.00
0.00
0.00
0.00
0.00

Subsidies
0.00
0.00
0.00
0.00
0.00
0.00

8. Reserves, Retained Profits Brought Forward

55
21545598.35
28677517.15
36404194.46
44508222.97
52989602.66
61470982.35

9. Net Profit After Tax

7131918.80
7726677.31
8104028.50
8481379.69
8481379.69
8481379.69

Dividends Payable
0.00
0.00
0.00
0.00
0.00
0.00

Retained Profits
7131918.80
7726677.31
8104028.50
8481379.69
8481379.69
8481379.69

56