A Project Proposal On

Soaps and Detergents

Promoter : Tekron Detergent and Soap Chemical PLC

Project Location: Adaama Town

May, 2013
Addis Ababa

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 I. Executive Summary

I. Executive Summary

1. Project Background

 Title of the Project: Soaps and Detergents

 Owner of the Project: Tekron Detergent and Soap Chemical PLC

 Project Location: Adaama Town

2. Total Investment Cost of the Project

S.N Description Total

1 Fixed Capital Cost 44,865,600.00

2 Working Capital 19,463,767.68

  Sub Total 64,329,367.68

  Preliminary and Pre-Operating Expenses 1,660,000.00

  Total 65,989,367.68
3. Financial Sources of the Project

 Owner Equity (30%) 19,796,810.30

 Bank Loan(70%) 46,192,557.37

 Total 65,989,367.68

4. Employment Opportunity for 200 Permanent and Temporary

employee

5. Land Required for this Investment 10 Hector

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 II. Introduction
On a par with the market fundamentals put in place as growth recipes of the Ethiopian economy, a range of
compatible reforms aimed at fostering private sector investment and business activities have been endorsed and
implemented. This has been in recognition of the key role the private sector has for the development of both the
industrial and export sector.

Already, the provision of such multifaceted support to the sector has created conducive environment for investment.
In response, a flourishing private investment in all areas of engagement has been witnessed, with the direction of its
movement in the share of gross domestic investment in GDP pointing upwards over the last 10 years. All the same,
the Ethiopian economy has witnessed remarkable double-digit performance records at annual average GDP growth
rate of 11.0 percent for the period 2003-2012.

The achievement has also been well within the budding of new engagements in the cleaning products such as soaps
and detergents manufacturing business at all levels of the medium, small scale and cottage industries.

III. Background
Once again, the sustained growth performances in the economy tends to have resulted in a new consumer revolution
steadily gathering momentum, due to rising incomes and behavioral changes linked to urbanization. This has in turn
been reflected in an increased spending on consumer basic household goods and private health facilities such as
toiletries, soaps, detergents and related services. In effect, such expanding demand sink coupled with favorable
investment policy environment in the manufacturing sector has attracted new investments in various related activities
all along.

What’s more, the trend in the current favorable demographics with an ever improving awareness in sanitary and
health values both in the urban and rural parts of the country has been an equally important demand sink and hence
pull factor for additional investment ventures and increased production of soaps and detergents and cleaning
products of all sorts there with. Currently, nearly 57 percent of the demand is met through imports while domestic
production covers the consumption requirement of 47 percent.

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 IV. The Project Area
IV.1.Location

The location of the project is perceived to be at Adaama City Administration. Adamaa is found in the district of
Adaamaa Woreada, East Shewa Zone of the Oromia Regional State, at about 25kms east of Addis Ababa, on the
main highway to Harar. According to a 2009 projection, its total population is estimated at a total size of 404,793.

IV.2.Topography

Topographically, Gelan town is situated at about 1500-1700 meters above sea level, characterized by a mountainous
areas and plains. Its landmass may basically be categorized as having a subtropical climate.

IV.3.Soil type

The wider portion of Adaamaa’s landmass is covered by vertisols, a soil type which muddy during rainy season and
cracks during dry season. There are also few areas of the town which bear a nitosol type of soil.

IV.4.Economic Activities

Owing to its proximity to Addis Ababa, easier market accessibility along the main road to and from Djibouti for
importing and exporting of raw materials and finished products, Adaama is one of the industrial areas in the Oromia
Regional State. Generally speaking, there are several manufacturing areas of economic activities and engagements
in Gelan such as, garment, metal welding, medicine manufacturing, food items manufacturing and quarries. There
are also other service businesses including recreational centers, hotels and restaurants which constitute significant
proportion of the economic activities in the town.

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 V. The Project
V.1. Project Description

This is an investment plan on the establishment of cleaning products manufacturing plant that produces soaps and
detergents. Soaps and Detergents are cleaning products that have become an essential part in our daily lives. They
play an essential role by safely and effectively removing dirts, germs and other contaminants, and thus promote a
hygienic lifestyle.

Soap is a cleansing and emulsifying agent that consists essentially of a mixture of water-soluble sodium or potassium
salts of fatty acids and that may contain other ingredients such as builders, abrasive material, perfume and dyes.
The major application of laundry soap is for washing or cleansing clothes. It is produced in bar form for use in hand
washing.

A detergent is a product which is used for cleaning purpose and is gradually replacing soap in the household market
because of its better performance as it can be formulated to produce a product of the desired characteristics ranging
from maximum cleaning power to maximum cleaning per unit of cost. Detergent can be used in every household for
cleaning of clothes and household utensils. Besides better performances, its solubility in hard water calls for attention
to the manufacturing of this product as its application is wider ranging from the urban to the most remote rural areas
where un-treated hard water is used for cleaning purpose.

Basically, they are formulations comprising essential constituents such as surfactant which perform the primary
cleaning and budding of the washing action, and builders, which boost the cleaning power and additives, which
enhance the effect of the constituent raw-materials.

V.2. .Objective(s)

The project perceives the viability of establishing a cleaning product manufacturing plant that produces soaps and
detergents of various types. It specifically aims at producing 6,000tons of soaps and 4,000 tons of detergents per
annum.

V.3. Technology and Engineering

V.3.1. Technology
V.3.1.1. Type and production process

A. Soaps

The production process of the technology for soaps involves slowly melting of the raw materials in a vessel. In order
to eliminate the moisture, vacuum dehydration process will be carried out at a certain temperature. Then bleaching
earth is added and the solution will be stirred vigorously. Fats and oils separated from the bleaching earth are
5
pumped to saponification kettle and caustic soda solution of a required concentration is then added in small quantity
at a time. The soap charged passes through different stage en-route to complete saponification. When the
saponification process is finished a concentrated salt solution is added to separate the lye. The liquid soap from the
tank is heated and pumped to the vacuum spray-drying unit. The soap powder from the dryer is removed by a set of
scrapers and directed to the plodder. Noodles from the plodder are cut into pieces. The pieces are given further
homogenization and together with some additives, pressed into bars. The piece of soap is finally cut to the desired
size by the cutter and are then stamped and wrapped.

B. Detergents

Among the five manufacturing techniques of detergent powder, the vast majority of household detergent
powders are manufactured by the 'ballestra' spray drying process because of its many advantages over the
other techniques. A continuous feeding system of ingredients is recommended for manufacturing of
detergent powder with a spray - drying system as its advantages outweigh the advantages of batch feeding
system. The basic steps of the manufacturing process involve:
 Solid and liquid ingredients are stored in their respective storage bins and vessels.

 Ingredients for detergent glory are proportioned by their respective load cells and volumetric
pumps and conveyed to glory mixing vessel.

 The mixed glory is transferred to the ageing vessel and agitated till it becomes ready for spraying.

 The aged glory then passes through a mechanical fitter, a homogenizing pump and is sprayed to
the drying tower with a high-pressure pump.

 Drying air generated in a hot-air generating furnace is blown to the drying tower using the two
synchronized blowers.

 The dried powder drops at the bottom of the tower and conveyed to the settling vessel with an air-
lift fan.

 The powder is then screened by a vibrating give and transferred to a storage silo from where it is
conveyed to a perfuming unit and a carton filling machine bring ready for shipping.

V.3.1.2. Source of Technology

The machinery and equipment required for the production of soaps and detergents can be acquired can be obtained
from an Indian company with the following address.
Frigmaires International
Maharashtra -400 013,India
Tel: +91-22-24944108
Fax: +91-22-22186046

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 V.3.2. Engineering
V.3.2.1. Machinery and Equipment

Most of the machinery and equipment required for the production of soaps and detergents are imported. The total
cost of the machineries and equipment for both the soaps and detergents, taken as a turnkey are estimated at a CIF
price of Br. 19,748,950.00, at Br. 3,105,000.00 for soap and Br. 16,643,950.00 for detergents.

The respective list and cost of each line is presented in Table 1 and Table 2 as follows.

A. Soaps
The total cost of machinery and equipment is estimated at CIF price of Br. 3,105,000.00.

Table 1.List of Machinery and Equipment - Soap

Sr. No Description Qty
1 Pump 5
2 Mixer with agitator & heating Coil 1
3 Boiling kettle 5
4 Filter press 2
5 Heat Exchanger 1
6 Booster Compressor 1
7 Screw Conveyor 1
8 Weight mixer 2
9 Cutting machine 3
10 Stamper 2
11 Wrapper 2

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 B. Detergents

The total cost of machinery and equipment is estimated at CIF price of Br. 16,643,950.00.
Table 2. List Machinery and equipment - Detergents

Qty
No Description
A. Processing unit

1 Sleeve filler 5
2 Powder Silos 5
3 Automatic proportioning Scales 5
Storage vessels for liquids
4 Paste Preparation tank 3
5 Paste storage tank 1
6 Volumetric pump 1
7 Premix Screw Conveyor 2
8 Glory mixer 2
9 Ageing Vessel 1
l0 Feeding filter 1
11 Homogenizing pump 2
12 Self-cleaning filter 2
13 High pressure pump 2
14 Piping 2
15 Furnace -
16 Blowers 1
17 Drying Tower 2
18 Cyclones 1
19 Separator 8
20 Fans 1
21 Vibrating Sieve 2
22 Storage Silo 1
23 Perfume dosing unit 1
1
B. Carton filling machine
1 Carton folding machine 2
2 Steam boiler & Utilities 2
3 Water treatment unit 1
4 Fuel oil system 1
5 Air compressor
6 Steam and oil piping and insulation 1
Cooling water system -
7 -
-

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 V.3.3.Materials and Inputs
A. Soaps

The total annual raw material and utility consumption requirement and cost for the soap producing line at full capacity
operation presented in Table 3 below, is estimated at Br. 32, 728,299.00. Of which, Br. 32,474,051.00 is cost of raw
material( Table 3 section I) and Br. 254,248.00 ( Table 3 section II).

Table 3 Annual Raw material, inputs and utility Requirement and Utility Consumption Requirement and Cost at full
capacity operation -SOAP PRODUCING LINE

Annual Unit
No. Item Description UOM Quantity price(Br.) Total Price(‘000 Br.)
I. Raw materials
1 Palm fatty acid Ton 10,800 1,975.50 21,335.40
2 NaOH Ton 4,450 2,310.10 10,279.945
3 Sodium chloride Ton 420 1,339.30 562.506
4 Bleaching earth Ton 240 450 100.80
5 Additives ton 360 540 194.40
Sub total 32,474.051
II. Utilities
1 Electricity kwh 341,000 0.4736 161.498
2 Water M3 25,000 3.75 93.75
Sub total 254.248
Total Cost 32,728.299

B. Detergents
The annual consumption of raw materials, auxiliary inputs and utilities for the detergent producing line at full
capacity operation, summarized in Table 4, is estimated at Br. 39,471,150.00. Packaging and gluing
materials are the auxiliaries for this product given in Table 4 section II. Also, the utilities required include:
 Electric powder
 Portable and industrial water
 Steam
 Fuel oil (Mazout)
 Compressed air

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 Table 4. Annual Raw material, inputs and utility Requirement and Utility Consumption Requirement and Cost at full
capacity operation -DETERGENTS PRODUCING LINE

Annual Cost in '000 Birr

No Description Consumption.
F.C L.C T.C
I. Direct raw materials

1.1 D.D.B.S.A 980 ton 7246.5 654.5 7901

l.2 Caustic Soda l63.3 ton - 735 735

l.3 Sodium tripody phosphate l224 ton 8372.8 757.9 9l30.7

l.4 Sodium Sulphate 670 ton l757.l3 l59.07 l9l6.2

l.5 Sodium Silicate 898.7 ton - 238l.5 238l.5

l.6 Light Soda-ash 490 ton - 637 637

l.7 Fillers l88.5 litre 87l.67 l96.69 l068.36

II. Auxiliary materials

2.1 Glue set l333 l333

2.2 Packing material set l3000 l3000

III. Utilities

3.1 Electric Energy 204 MWH - 96.6144 96.6144

3.2 Industrial and potable Water 833,300litre - 3124.875 3124.875

3.3 Fuel Oil l224 litre - l3ll.3 l3ll.3

Total l8,248.l 24,390.6494 42,638.7494

V.4. Production Capacity and Program

V.4.1. Plant Capacity

Based on demand projection indicated in the market study, the suggested plant capacity is 6,000 tons of soaps
and 4,000tons of detergents per annum. The plant is envisaged to operate in double shift of 16 hours a day for
300 days a year. This is excluding 13 holidays and 52 Sundays.

V.4.2. Production Program

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The plant is expected to operate 75% and 85% of the installed capacity in the first and second years, respectively.
The plant will reach full capacity on the third year. The rationale behind such production build-up is that the production
equipment are new, and operators usually take some time to develop the specific skills and knowhow.

VI. Market Prospect

VI.1.Past Supply and Present Demand

The supply of cleaning products soaps in Ethiopia is both from domestic production and import. The average import
of soaps and detergents is about 57% while the domestic production covers 43%. Among the imported products,
Indonesia is the main supplier of soaps to the Ethiopian market followed by South Korea. Since the total supply is
dominated by imported products, at the right quality level and packaging there is abundant demand for a new project
to capture a reasonable share of the market. In the past decade the annual average imported soaps volume was
26,748 tons with an annual average growth rate of 5%. The annual average volume of domestic production was
20,178 tons..

On the other hand, the total annual average consumption of detergents over the last five years was 3500 tons.

Soaps and detergents have wider application in households for cleaning of clothes and house hold utensils.
Specifically, detergents are preferred mostly by urban households due to its maximum cleaning powder and better
performance and solubility in hard water in areas where hard water is used for cleaning.

6.2 Demand projection

Future demand for detergent powder is projected based on the total effective consumption of soaps and detergents,
estimated at 46,926 tons and 3,500 tons respectively for the year 2013, which also is considered as the base year.
Taking a moderate annual growth rate of the industrial sector at 13 percent to be a lead variable and coefficient of
projection, the projected demand for soaps and detergents is expected to grow to 67,709.4 ton and 5,050.14 ton
respectively when the project starts to reach its full capacity operation in 2016.

6.3 Pricing and Distribution

A quick survey of the prevailing ex-factory and retail price of imported and domestically produced soaps and
detergents at Addis Ababa indicates that it is averaged at Birr 40 per kg ( 1 bar=250 gram) and Birr 54 per kg( 1 pack
= 200gram) respectively. To stand out the competition as a new entrant to the industry, the recommended price for
the new project is, therefore, Birr 30.00 per kg and 45 per kg of soaps and detergents respectively.

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The products will be distributed through the existing outlets and direct delivery to major distributors.

6.4 Market Strategy

The marketing strategy will be by sharing the existing
consumer and searching for the substitute consumer. The
promoter will have a capacity to supply a quality product and
compete at local market. In addition to this the investor will
make price reduction and product differentiation, increasing
quality and quantity of the product in order to attract more
customers.
Connection with direct buyers and are lucky to secure markets,
which normally take a longer as is well known in the cash and
industrial crops for export industry there are two major
marketing channels: the commission agent and the direct sales
to other impendent importers. This will give them big support
while having an immediate feedback from the markets and even
sum tolerate from the buyers in the first steps. The price
level for the produces that can be achieved by direct sales is
higher and the commissions paid relatively low. The main
advantage of direct sales, though, is that the price is known
and cash flow can be better managed.

A. Market Operational Dimension

The marketing tools of this product will be a marketing mix of
the 4 P’s product, promotion, price reduction and product
distribution. Maintaining the quality of the product and
maintaining warranty after sale of the product and so on. The
product promotion will be starting the supplying of few and
simple to extensive supply of product.
The investor has marketing strategy and operational dimension
for implementing the project strategy. Free sample
distribution, conducting key persons at the target region,
town and a promoter will also be used. The investor will make
price reduction for the first 2 to 3 years in order to inter
into the market and attract many costumers. The project
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promoter will have different channel of distributions at
different region both local Market and Export to Africa and
Middle East countries.
Table: Domestic and Export to Other Countries
S.N Domestic Export Total
Soap 80% 20% 100%
Detergents 80% 20% 100%
Others 80% 20% 100%

B. Marketing Information System

The phenomenal growth in information technology represents
both a challenged and opportunity of any business
organization. Therefore, marketing information system of this
project, in order to be benefited forum opportunities uses the
following sub-system for collecting analysis and utilization
of data.
1.1 Internal Accounting system

1.2 Marketing intelligence system

1.3 Marketing intelligence system

1.4 Market research

2. General Accounting Manual

This manual enables the farm to employ, as much as possible

uniform accounting terminology, effective control procedures,
efficient budgeting, recording and reporting system.
3. General Corporate policy: Includes

3.1 Analysis of strength and weakness

3.2 Important Goals and area of effectiveness

3.3 Environmental threat and opportunity matrix

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5. Plant Capacity and Production Program
5.1 Plant Capacity
The envisage project will operate based on the projected
demand and supply gap and the technology recommended. Under
this circumstance this project is planned to operate at 70
percent capacity in the first year and 80, 90 in the second
and 3rd year and rich its full capacity in the fourth year.

VII. Land Requirement and Use Plan

This plant requires a building of about 25 mts. high i.e. 3 to 4 storeys due to the nature of the process. The total land
requirement plant is estimated at 7,500 m2 . The land is to be acquired on a lease basis from Gelan City
Administration located at Gelan area. The total lease cost, for a period of 60 years at a cost of Birr 520 per m 2, is
estimated at Birr 3,900,000.00, of which 10 percent or Birr 390,000 will be paid in advance. The remaining Birr
3,510,000.00 will be paid in equal installments within 28 years at Birr 125,357.14 annually.

.The total cost of civil work and construction is estimated at Br. 5,100,000.00.
Table 5 Land use plan
Number of
OBJECT Base area Total Area
floors
1. Offices and goods delivery building 40*30 1 1,200
2. Raw material store 50*40 1 2,000
3.Production hall 30*60 1 2,000
4. General purpose 30*10 1 300
5. Others(parking lots, internal roads and 20*25 500
paths, cafeteria, guest club etc )
Total built-up area 3,500
6. Effluent treatment 3,000
7. Expansion purpose 1,000
Total area 10,000

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 VIII. Organizational Structure and Manpower Requirement
VIII.1. Organization

A sketchy presentation of the organizational structure is provided below.

Board of Directors

General Manager

Marketing & Sales Section Finance & Administration

Section
Technical Section

VIII.2. Man Power requirement With Qualifications

A total of 200 employees, are to be required. The total annual cost of man power requirement is Br. 4,470,600.00.

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 Table 6. Man power requirement
S.N Description Number Required Unit Monthly Salary(Birr) Total Annual Salary(Birr)

1 Plant Manager 1 6,880.00 82,560.00

2 Executive secretary 1 1,500.00 18,000.00
3 Quality control head 1 3,620.00 43,440.00
4 Chemist 2 2,280.00 54,720.00
5 Production & technical head 50 3,620.00 43,440.00
6 Commercial head 1 3,200.00 38,400.00
7 Finance & administration head 1 3,200.00 38,400.00
8 Personnel 1 2,200.00 26,400.00
9 Store keeper 2 850 20,400.00
10 Purchaser 1 1,200.00 14,400.00
11 Salesperson 1 1,500.00 18,000.00
12 Accountant 1 2,280.00 27,360.00
13 Cashier 1 1,100.00 13,200.00
14 Clerk 1 1,055.00 12,660.00
15 Production shift leader 3 2,900.00 104,400.00
16 Operator 10 1,990.00 238,800.00
17 Production Staff 106 670 96,480.00
18 Janitors 3 470 16,920.00
19 Mechanic 3 1,424.00 51,264.00
20 Electrician 3 950 34,200.00
21 Grease & oil man 1 670 8,040.00
22 Driver 2 1,320.00 31,680.00
23 Guard 4 510 24,480.00
  Total 200   3,057,644.00
  Benefits (25 %)     464,411.00
  Grand Total     4,470,600.00

Table Summary of Total Man Power Requirements

S.N Description Permanent Temporary Total Price Total
  Skilled 160 50 36 5000 2,136,000.00
  Semi-Skilled 20 56 71 2000 1,708,800.00
  Unskilled 20 100 249 450 1,344,424.03
  Total     356   4,470,600.00

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9. Financial Analysis
The financial analysis of the project is based on the data provided in the previous chapters and the following
assumptions. Their detailed analysis using Comfier is attached.

9.1 Assumptions
A. General –
 Project life 15 years
 Construction period 2 years
 Source of finance 30 percent equity; 70 percent loan
 Discount rate 13 percent
 Capacity utilization rate 75 % 1st year, 85 % 2nd year, and 100 % afterwards
 Tax holiday 2 years
 Spare part, repair & maintenance 3% of the cost of plant machinery & equipment

B. Depreciation –

 Machinery and equipment 10 percent

 Vehicle 20 percent
 Office furniture 10 Percent
 Buildings 5 percent
 Pre productions costs 20 percent

C. Working capital- Minimum Days of Coverage

 Accounts receivable 15
 Cash in hand 10
 Raw material

 Foreign 60
 Local 30

 Work in progress 5
 Finished products 7
 Accounts payable 15

9.1. Price and Product Determination

Taking the average existing market price of the various qualities of imported and locally produced soaps and detergents, as
suggested in section 6.3, the annual sales proceedings from the two product mixes-soaps and detergents-at full capacity
operation of the establishment is estimated at about Birr 284 million as revenue, as in the following. Table 7 . Price
of Product and Annual Revenue at Full Capacity Operation
Product UOM Quantity at full Proposed unit Total
capacity Selling Price(Birr ) Revenue(Birr)

Soaps Kg 6,000,000 24.00 144,000,000.00

Detergents Kg 4,000,000 35.00 140,000,000.00

Total Revenue 284,000,000.00

9.3 Investment Cost

The total initial investment requirement for the establishment is Birr 57.76 million. While the fixed
17
investment constitutes about Birr 26.64 million, working capital and preproduction capital expenditures
comprise Birr 20.43 million and Birr 10.87 million respectively. The preproduction expenditures include
such expenses for license fee, feasibility study, interest payment (comprises about Br. 8.97 million),
consultancy and design, etc. Computation of working capital is shown in section 9.1. above.

9.4, Summary of Investment Cost

S.N Description Total

1 Fixed Capital Cost 44,865,600.00
2 Working Capital 19,463,767.68
  Sub Total 64,329,367.68
  Preliminary and Pre-Operating Expenses 1,660,000.00
  Total 65,989,367.68

9.5 Fixed Investment Cost

S.N Description Total Cost

1 Land  

1 Building and Civil Work 33,400,000.00

2 Machinery and Equipment 11,006,900.00

3 Furniture and Fixture 433,700.00

4 Other Misalliance fixed 25,000.00

  Total 44,865,600.00

9.6 Working Capital Requirement

S.N Description Local Cost Foreign cost Total

1 Raw Materials (3 month) 9,067,656.25 - 9,067,656.25

2 Utilities (3 months) 7,650,000.00 - 7,650,000.00

3 Wage and Salaries (2 month) 745,100.00 - 745,100.00
  Others Operating Expense 231,578.00   231,578.00
(3months)
  Sub total 17,694,334.25   17,694,334.25
  Contingencies (10%) 1,769,433.43   1,769,433.43

  Net working capital 19,463,767.68 - 19,463,767.68

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 9.7 Source of Finance
The project is expected to secure its long term financial requirement both from its own and from bank
loan. These two sources, i.e., equity capital and long term bank loan, are expected to finance 30
percent and 70 percent of the total investment requirement. See Table below
S.N Sources of Finance Percentage Share Total Sources

1 Owner Equity 30% 19,796,810.30

2 Bank Loan 70% 46,192,557.37
  Total 100% 65,989,367.68

9.1.1. Production cost

The total production cost at full capacity operation is estimated at Birr 79 million, with raw material alone
constituting the major share in the cost at Br. 30 million.(see attached tables).

Table 6. Cost of production

S.N Description 1st Year 2nd Year 3rd Year 4th Year
Materials and Input s 25,389,437.50 29,016,500.00 32,643,562.50 36,270,625.00
1
Utilities 21,420,000.00 24,480,000.00 27,540,000.00 30,600,000.00
2
Wage and Salaries 3,129,420.00 3,576,480.00 4,023,540.00 4,470,600.00
3
Other Operating 648,418.40 741,049.60 833,680.80 926,312.00
4 Expenses
  Sub Total 50,587,275.90 57,814,029.60 65,040,783.30 72,267,537.00

  Contingencies (10%) 5,058,727.59 5,781,402.96 6,504,078.33 7,226,753.70

  Total Operating 55,646,003.49 63,595,432.56 71,544,861.63 79,494,290.70

Expenses

10.Finical Forecast

10.1.1. Profit and Loss

According to the results of the forecasted profit and loss statements, the project is expected to be
19
profitable over its economic life, generating annual profit, net of tax, of Birr 143.14 million in the first and
second years of its operation period and about Birr 144.52 million afterwards. The increase in its profit
towards later years of its operation is associated with the decrease in the financial commitments of
different types.
10.1.2. Cash Flow
Right from the outset, year one of the project’s operation, its cash flow shows a net positive cash
generation of Birr 131.13 million per year, showing an increasing trend to Birr 144.8 million cash flow
towards the end of the operation of the project. As a result of its positive cash flow, it will have a
cumulative cash flow of Birr 2.17 billion at the end of its last operation year, growing up to Birr 2.2 billion
as the result of the sales of the assets at their book value when the project reaches the end of its life.
10.1.3. Balance Sheet
The net worth of the project, reflecting its good financial performance is shown to become Birr 2.2
billion at the end of the project life from its low Birr 17.38 million at the first year of its operation. Other
associated balance sheet variables of financial efficiency ratios attesting the financial performance of
the project, including such positions as liquidity, also show sound results.

10.1.4. Viability Indicators

10.1.5. NPV and IRR
With a net present value amounting Birr 818.55 million at 13 percent discount rate and IRR of 165.62
percent, the discounted cash flow of the project indicates that it is viable. For the detailed presentation
of the results see the annexed financial analysis table.

10.1.6. Sensitivity Analysis

The financial performance of the project is also attested for the effect of adverse changes in sales
revenue, fixed assets and operating costs on its IRR. Based on the results of this test it is found out that
20 percent change in these parameters will have a respective effect of 133.8 percent, 147.7 percent,
and 157.81 percent in IRR of the project. The upshot is that it can stand out up to 20 percent adverse
change in any one of these parameters, except for sales revenue. Conversely, any reversed
improvement will have a positive impact on the performance of the project. Here is how.

 IRR
 Sales revenue decrease by 20% 133.8%
 Increase in fixed assets by 20% 147.7 %
 Increase in operating costs by 20% 157.81%

10.1.7. Breakeven Analysis

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As one of the important indicators, the break-even point of the project, where the project sees no loss
and no profit, is also viable. At its full production capacity, it will have break even ratios at 27 percent of
its capacity utilization rate.
10.1.8. Payback Period
The normal payback period of the project, whereby the project will pay its investment back, is computed
at a reasonable duration of 2.26 years’ time.

21
10.1 Income Statements
No Description Project Years

0 1 2 3 4 5 6 7
I Total Sales -
120,583,750.00 137,810,000.00 155,036,250.00 172,262,500.00 172,262,500.00 172,262,500.00 172,262,500.00
  Operating Expenses -
55,646,003.49 63,595,432.56 71,544,861.63 79,494,290.70 79,494,290.70 79,494,290.70 79,494,290.70

  Administrative and Sales -

Expenses 6,029,187.50 6,890,500.00 7,751,812.50 8,613,125.00 8,613,125.00 8,613,125.00 8,613,125.00

  VAT(15%)  
18,087,562.50 20,671,500.00 23,255,437.50 25,839,375.00 25,839,375.00 25,839,375.00 25,839,375.00

II Total Cost of Good Sold   79,762,753.49 91,157,432.56 102,552,111.63 113,946,790.70 113,946,790.70 113,946,790.70 113,946,790.70

  Operating profit - 40,820,996.51 46,652,567.44 52,484,138.37 58,315,709.30 58,315,709.30 58,315,709.30 58,315,709.30

  Less Depreciation -
6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00

  Interest -
3,926,367.38 3,533,730.64 3,141,093.90 2,748,457.16 2,355,820.43 1,963,183.69 1,570,546.95

  Sub Total   10,062,712.38 9,670,075.64 9,277,438.90 8,884,802.16 8,492,165.43 8,099,528.69 7,706,891.95

  Profit Before Tax - 30,758,284.13 36,982,491.80 43,206,699.47 49,430,907.14 49,823,543.87 50,216,180.61 50,608,817.35

  Less Income Tax (40%) - 12,303,313.6 14,792,996.7 17,282,679.7 19,772,362.8 19,929,417.5 20,086,472.2 20,243,526.9
5 2 9 5 5 4 4

  Net Profit - 18,454,970.48 22,189,495.08 25,924,019.68 29,658,544.28 29,894,126.32 30,129,708.37 30,365,290.41

22
10.2. Cash flow Statements
No Description Projected years    
0 1 2 3 4 5 6 7

  Cash Inflow                  
  Equity - - - - - - - -
19,796,810.30
  Bank Loan - - - - - - - -
46,192,557.37
  Net Profit -
18,454,970.48 22,189,495.08 25,924,019.68 29,658,544.28 29,894,126.32 30,129,708.37 30,365,290.41 30,365,290.41
  Depreciation -
6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00 6,136,345.00
  Total 65,989,367.68
24,591,315.48 28,325,840.08 32,060,364.68 35,794,889.28 36,030,471.32 36,266,053.37 36,501,635.41 36,501,635.41
  Cash out Flow                  
  Fixed investment - - - - - - - -
46,525,600.00
  Working Capital - - - - - - - -
19,463,767.68
  Total Cost of - - - - - - - -
Capital 65,989,367.68

  Loan Repayment -
4,619.26 4,619.26 4,619.26 4,619.26 4,619.26 4,619.26 4,619.26 4,619.26
  Total 65,989,367.68 4,619.26 4,619.26 4,619.26 4,619.26 4,619.26 4,619.26 4,619.26 4,619.2

  Net inflow - 24,586,696.22 28,321,220.82 32,055,745.43 35,790,270.03 36,025,852.07 36,261,434.11 36,497,016.15 36,497,016.

23
 IX.Socio-economic Benefits
The project can create employment for 57 persons. In addition to supply of the domestic needs, the project will
generate income in terms of tax revenue when it starts to operate at full capacity. Moreover, the Government can
collect employment, income tax and sales tax revenue. The establishment of such factory will have a foreign
exchange saving effect to the country by substituting the current imports.

24
 ANNEX
Financial Projection Results of COMFAR

25
Contents Page

I. Executive Summary 2

II. Introduction 3

III. Background 3

IV. The Project Area4

4.1. Location 4
4.2. Topography 4
4.4. Economic Activities 4

V. The Project 5
5.1. Project Description 5
5.2. .Objective(s) 5
5.3.3. Materials and Inputs 9

5.4. Production Capacity and Program10

5.4.2. Production Program 11

VI. Market Prospect 11

6.1. Past Supply and Present Demand11
6.2 Demand projection 11
6.3 Pricing and Distribution 11
6.4 Market Strategy 12

A. Market Operational Dimension 12

B. Marketing Information System 13

5. Plant Capacity and Production Program 14

5.1 Plant Capacity 14

VII. Land Requirement and Use Plan 14

26
VIII. Organizational Structure and Manpower Requirement 15
8.1. Organization 15
8.2. Man Power requirement With Qualifications 15

9. Financial Analysis 17
9.1 Assumptions 17
9.1. Price and Product Determination 17
9.3 Investment Cost 18
9.4, Summary of Investment Cost 18
9.5 Fixed Investment Cost 18
9.6 Working Capital Requirement 18
9.7 Source of Finance 19

10. Finical Forecast 19

10.1 Income Statements 22
10.2. Cash flow Statements 23

IX. Socio-economic Benefits 24

27