5.

PROFILE ON THE PRODUCTION

OF CANNED FRUIT
 5-1

TABLE OF CONTENTS
PAGE

I. SUMMARY 5-2

II. PRODUCT DESCRIPTION & APPLICATION 5-3

III. MARKET STUDY AND PLANT CAPACITY 5-3

A. MARKET STUDY 5-3
B. PLANT CAPACITY & PRODUCTION PROGRAM 5-6

IV. MATERIALS AND INPUTS 5-7

A. RAW & AUXILIARY MATERIALS 5-7
B. UTILITIES 5-8

V. TECHNOLOGY & ENGINEERING 5-9

A. TECHNOLOGY 5-9
B. ENGINEERING 5-10

VI. HUMAN RESOURCE & TRAINING REQUIREMENT 5-14

A. HUMAN RESOURCE REQUIREMENT 5-14
B. TRAINING REQUIREMENT 5-15

VII. FINANCIAL ANLYSIS 5-16

A. TOTAL INITIAL INVESTMENT COST 5-16
B. PRODUCTION COST 5-17
C. FINANCIAL EVALUATION 5-18
D. ECONOMIC & SOCIAL BENEFITS 5-20
 5-2

I. SUMMARY

This profile envisages the establishment of a plant for the production of canned fruits and
vegetables with a capacity of 1,000 tons per annum. Canned fruits and vegetables are
preserved fruit and vegetable products. Canning adds taste in addition to extending the
shelf life of the otherwise perishable food products.

The country`s requirement of canned fruits and vegetables is met through import. The
present (2012) demand for canned fruits and vegetables is estimated at 3,507 tons. The
demand for the product is projected to reach 4,065 tons and 4,711 tons by the years 2017
and 2022, respectively.

The principal raw material required are fresh fruits and vegetables, sugar and salt which
are available locally.

The total investment cost of the project including working capital is estimated at Birr
20.48 million. From the total investment cost the highest share (Birr 13.19 million or
64.39%) is accounted by fixed investment cost followed by initial working capital (Birr
5.20 million or 25.41%) and pre operation cost (Birr 2.09 million or 10.20%). From the
total investment cost Birr 7.20 million or 35.15% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 22.86% and a net
present value (NPV) of Birr 14.04 million, discounted at 10%.

The project can create employment for 27 persons. The establishment of such factory
will have a foreign exchange saving effect to the country by substituting the current
imports. The project will also create backward linkage with the horticulture farming
sector and sugar and salt producers and also generates income for the Government in
terms of tax revenue and payroll tax.
 5-3

II PRODUCT DESCRIPTION AND APPLICATION

Canned fruits and vegetables are fruit and vegetable products which are washed, steam
slated filled into tin cans, slam under vacuum and sterilized. Canning adds taste in
addition to extending the shelf life of the otherwise perishable food products. It also
makes the food available for a long time after it is harvested. Canned fruits and
vegetables can be supplied to near and far distant markets.

The consumers of canned fruits and vegetables are middle and high income households
and the service giving sector such as hotels, restaurants and institutions like schools,
hospitals, army, training centers and others.

The fruits and vegetables envisaged for canning in the present project are mainly
tomatoes, carrots, red beets, pineapple, etc.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Consumption of fruits and vegetables in Ethiopia is mostly in fresh form after harvesting.
On the other hand, fresh fruits and vegetables are available largely on seasonal basis.
During off-season periods, some fruits and vegetables are unavailable. Currently, import
of fruits and vegetables partially fill such gap. The import data on canned fruits and
vegetables is shown in Table 3.1.
 5-4

Table 3.1
IMPORT OF CANNED FRUITS AND VEGETABLES (TONS)

Year Import
2001 415
2002 519
2003 213
2004 344
2005 2,423
2006 817
2007 403
2008 1,406
2009 672
2010 4,261
2011 5,587

Source: - Ethiopian Revenue and Customs Authority.

As can be seen from Table 3.1, import which was 415 tons at beginning (2001) has
grown to about 5,600 tons by the year 2011. It is also observed that import levels show
three distinct phases. From 2001-2004 the yearly average level of import was less than
400 tons. Starting from 2005, however, import has generally shown an increasing trend
with some fluctuations. During the period 2005 to 2009 the yearly average level of
import has reached at about 1,144 tones. This is 2.86 times higher compared to the
previous three years average. A huge increase of import is registered in the years 2010
and 2011, which stood at 4,261 tones and 5,587 tones, respectively. The quantity
imported in these two years is more than four fold compared to the previous four years
average. Income rise, change in the consumption habit for canned fruits & vegetables and
growth in urbanization are believed to contribute for the substantial growth.

By looking to the historical data it was found important to consider the average of the
most recent three years covered by the data set to arrive at the 2012 effective demand.
 5-5

Accordingly, the present effective demand for canned fruits and vegetables is estimated
at 3,507 tons.

2. Demand Projection

The future demand for canned fruits and vegetables is mainly a function of income, price
and change in the consumption habit of the population. Both population (which is
usually associated with change in consumption) and per capita have risen recently.
Specifically urban population is growing by more than 4% per annum. Thus, a
significant growth in consumption of canned fruits and vegetables could be expected. For
the sake of conservatism an annual growth rate of 3% is utilized in projecting the future
demand as shown in Table 3.2.
Table 3.2

PROJECTED DEMAND FOR CANNED FRUITS AND VEGETABLES (TONS)

Year Projected
Demand
2013 3,612
2014 3,720
2015 3,832
2016 3,947
2017 4,065
2018 4,187
2019 4,312
2020 4,441
2021 4,574
2022 4,711
 5-6

3. Pricing and Distribution

Currently, average retail price of 1 kg of canned tomato is Birr 20 and 1 kg of canned

carrot sells for Birr 18 on average. Canned pineapple of 565 gm sells on average for Birr
33 and red beets of 450 gm sells for Birr 23. Taking these prices as a reference and
allowing a 30% margin for wholesalers and retailers, a factory-gate price of Birr 15.40
per kg, Birr 13.80 per kg, and Birr 25.40 per 565 gram, Birr17.70 per 450 gram for
canned tomato, canned carrot, canned pineapple and canned red beets, respectively, is
proposed for the envisaged project. For financial analyses an average of Birr 28.37 per kg
is considered.

A suitable distribution system for the products is one which relies on wholesalers, who
will in turn pass it over to hotels, restaurants, schools, hospitals, army, training centers
and supermarkets.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

Based on the forecasted demand for canned fruits and vegetables and considering the
minimum economic scale of production, the envisaged project will have a production
capacity of 1,000 tons of canned fruits and vegetables per annum. This capacity is
proposed on the basis of single shift of 8 hours per day and 250 working days per annum.
Production, as deemed necessary, can be increased by operating the plant in double or
triple shifts.

2. Production Program

Assuming that the project will require enough time during the initial operation period for
market penetration and technical skill development, it is planned that the plant would
start production at 75% of its installed capacity which will grow to 85% in the second
year. Full capacity production will be attained on the third year and onwards. Details of
annual production program are depicted in Table 3.3.
 5-7

Table 3.3

ANNUAL PRODUCTION PROGRAM

Ite Description Unit of Production Year

m Measur 1st
2nd 3rd &
No. e Onwards
1 Canned fruits and ton 750 850 1,000
vegetables
2 Capacity utilization % 75 85 100
rate

IV. RAW MATERIALS AND INPUTS

A. RAW MATERIALS

The major raw materials required for the envisaged plant are fresh fruits and vegetables,
sugar, salt, etc. Proper maturity and the degree of freshness are very important aspects
that determine the quality of the final product. It means that the fruits and vegetables to
be canned have to be fresh and clean.

Regarding the product mix, fruits constitute about 80% of the annual quantity and the rest
20% will be vegetables (tomato, carrot, etc). Various types of fruits like orange, papaya,
lemon, grapes, etc. can be processed in the current plant. The potential source of raw
materials will be the commercial farms, small farmers or out growers in the suburbs of
Addis Ababa city and/or those located along the Debre Zeit – Zeway Stretch. The annual
requirement for raw materials at full capacity production of the plant and the estimated
costs are given in Table 4.1.
 5-8

Table 4.1

ANNUAL RAW MATERIALS REQUIREMENT AT FULL CAPACITY AND COSTS

Sr. Description Unit of Required Unit Cost, ('000 Birr)

No. Measure Qty Price,
Birr/Unit F.C. L.C. Total
1 Fruits ton 840 12,000   10,080.0 10,080.0
2 Vegetables (tomato, ton 210 9,000   1,890.0 1,890.0
carrot, beet roots)
3 Sugar ton 50 14,000   700.0 700.0
4 Salt ton 10 2,500   25.0 25.0
Total   12,695.0 12,695.0

Auxiliary materials required for the production of canned fruits and vegetables are mainly
packing materials like food grade tin cans of 500 ml and 1,000 ml. Both sizes of tin cans
are to be imported since such tin cans are not manufactured in the country. For the
purpose of this study, the proportion of these cans is 50%. The annual requirement for
auxiliary materials at full capacity production and the estimated costs are indicated in
Table 4.2.
Table 4.2

ANNUAL AUXILIARY MATERIALS REQUIREMENT AND COSTS

Sr. Description Unit of Required Unit Cost, ('000 Birr)

No. Measure Qty Price, F. C. L.C. Total
Birr/Unit
1 Tin can ( 500 ml) pc 1,000,200 3.5 3,500.7 875.18 4,375.88
0
2 Tin can (1000 ml) pc 500,100 5.5 2,750.5 687.64 3,438.19
5
Total   6,251.2 1,562.81 7,814.06
5

B. UTILITIES

The utilities required for the envisaged plant include electric power, water, fuel oil, and
steam. Annual requirement of utilities at full capacity production of the plant and the
estimated costs are shown in Table 4.3.
5-9
 5-10

Table 4.3
ANNUAL UTILITIES REQUIREMENT AND COSTS

Sr. Description Unit of Required Unit Cost, ('000 Birr)

No. Measur Qty Price,
e Birr/Unit F.C. L.C. Total
1 Electric kWh 100,000 0.58   58.0 58.0
power
2 Water m3 1,000 10.00   10.0 10.0
3 Furnace oil ton 330 14.67   4.8 4.8
4 Steam ton 4,000 4.50   18.0 18.0
Total   90.8 90.8

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The process of canning fruits and vegetables comprises mainly four distinct stages of
operation. These are preparation of materials which includes: washing, steaming, salting,
filling into tin cans, seaming the tin cans, and sterilization under heat.

The seaming and sterilization operations have the effect of repressing the action of
bacteria in and out of the container. Seaming prevents air flow between the outside and
the inside of the can. This prevents entry of bacteria into the product contained in the
can. Sterilization under heat decimates any bacteria inside the can and thus enhances the
preservation of the food. Finally, the finished product packed in food grade tin cans is
dispatched for sales.

2. Environmental Impact Assessment

Provided that the envisaged plant includes the waste water treatment system, it does not
have any adverse impact on the environment. Thus, the project is environment friendly.
 5-11

B. ENGINEERING

1. Machinery and Equipment

The plant machinery and equipment required for the envisaged project comprise mainly
different tanks, conveyors, steamer, drainer, rotary filler, vacuum seamer, vacuum pump,
steam boiler, laboratory equipment, and waste water treatment system. The plant
machinery and equipment required and the estimated costs are given in Table 5.1.

Table 5.1

PLANT MACHINERY AND EQUIPMENT AND ESTIMATED COST

Sr. Description Unit of Require Cost, ('000 Birr)

Measure d Qty.
No. F.C. L.C. Total
1 Washing tank set 1 432.0 108.0 540.0
2 Salt soaking tank set 1 432.0 108.0 540.0
3 Empty tin can conveyor set 1 432.0 108.0 540.0
4 Table for balance set 1 288.0 72.0 360.0
5 Tray set 1 432.0 108.0 540.0
6 Tin can assembling set 1 360.0 90.0 450.0
table
7 Steamer pc 1 504.0 126.0 630.0
8 Drainer set 1 432.0 108.0 540.0
9 Tin can supplying table set 1 360.0 90.0 450.0
10 Rotary filler set 3 1,080.0 270.0 1350.0
11 Vacuum steamer set 1 504.0 126.0 630.0
12 Vacuum pump set 1 432.0 108.0 540.0
13 Laboratory equipment set 1 576.0 144.0 720.0
14 Steam boiler set 1 432.0 108.0 540.0
15 Waste water treatment set 1 504.0 126.0 630.0
system
Grand Total 9,000.
7,200.0 1,800.0 0

2. Land, Buildings and Civil Works

 5-12

The total area of land required for the envisaged project is 1,200 m 2, out of which 600 m2
will be built – up area. The construction cost of buildings and civil works at a rate of Birr
4,500 per square meter is estimated at Birr 2.7 million.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 721/2004) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices.
The lease period ranges from 99 years for education, cultural research health, sport,
NGO , religious and residential area to 80 years for industry and 70 years for trade while
the lease payment period ranges from 10 years to 60 years based on the towns grade and
type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.

In Addis Ababa, the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the
manufacturing sector, industrial zone preparation is one of the strategic intervention
measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.

Regarding land allocation of industrial zones if the land requirement of the project is
below 5000 m2, the land lease request is evaluated and decided upon by the Industrial
 5-13

Zone Development and Coordination Committee of the City’s Investment Authority.

However, if the land request is above 5,000 m2 the request is evaluated by the City’s
Investment Authority and passed with recommendation to the Land Development and
Administration Authority for decision, while the lease price is the same for both cases.

Moreover, the Addis Ababa City Administration has recently adopted a new land lease
floor price for plots in the city. The new prices will be used as a benchmark for plots that
are going to be auctioned by the city government or transferred under the new “Urban
Lands Lease Holding Proclamation.”

The new regulation classified the city into three zones. The first Zone is Central Market
District Zone, which is classified in five levels and the floor land lease price ranges from
Birr 1,686 to Birr 894 per m2. The rate for Central Market District Zone will be
applicable in most areas of the city that are considered to be main business areas that
entertain high level of business activities.

The second zone, Transitional Zone, will also have five levels and the floor land lease
price ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are
surrounding the city and are occupied by mainly residential units and industries.

The last and the third zone, Expansion Zone, is classified into four levels and covers
areas that are considered to be in the outskirts of the city, where the city is expected to
expand in the future. The floor land lease price in the Expansion Zone ranges from Birr
355 to Birr 191 per m2 (see Table 5.2).

Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA
 5-14

Floor
Zone Level Price/m2
1st 1686
2nd 1535
Central Market
3rd 1323
District
4th 1085
5th 894
1st 1035
2nd 935
Transitional zone 3rd 809
4th 685
5th 555
1st 355
2nd 299
Expansion zone
3rd 217
4th 191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all new manufacturing projects will be located in industrial zones located in
expansion zones. Therefore, for the profile a land lease rate of Birr 266 per m 2 which is
equivalent to the average floor price of plots located in expansion zone is adopted.

On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.3 shows incentives for lease payment.

Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment Down
Grace Completion Paymen
Scored Point Period Period t
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%
 5-15

For the purpose of this project profile, the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The land lease period for
industry is 60 years.

Accordingly, the total land lease cost at a rate of Birr 266 per m 2 is estimated at Birr
319,200 of which 10% or Birr 31,920 will be paid in advance. The remaining Birr
287,280 will be paid in equal installments with in 28 years i.e. Birr 10,260 annually.

VI. HUMAN RESOURCE AND TRAINING REQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

The envisaged plant will have an employment capacity of 27 persons. Details of human
resource requirement and l labor cost including fringe benefits are shown in Table 6.1.
 5-16

Table 6.1

HUMAN RESOURCE REQUIREMENT AND COST(BIRR)

Sr. Job Title Require Salary, Birr

No. d No. of Monthl Annua
Persons y l
1 Plant manager 1 4,500 54,000
2 Secretary 1 800 9,600
3 Personnel 1 850 10,200
4 Accountant/clerk 2 1,700 20,400
5 Cashier 1 800 9,600
6 Salesman 2 1,600 19,200
7 Purchaser 1 800 9,600
8 Production 1 2,500 30,000
supervisor/industri
al technologist
9 Quality 1 1,800 21,600
controller/chemist
10 Operator 4 2,000 24,000
11 Laborer 4 1,600 19,200
12 Cleaning worker 2 800 9,600
13 General mechanic 1 850 10,200
14 Electrician 1 850 10,200
15 Driver 1 750 9,000
16 Guard 3 1,200 14,400
Sub - total 27 23,400 280,80
0
Employees benefit, 20% of basic 4680 56,160
salary
Total 28,080 336,96
0

B. TRAINING REQUIREMENT

The industrial biologist, quality controller, 4 operators, a mechanic and an electrician

should be given two weeks on – the - job training at project site by the advanced
technician of the equipment supplier during erection and commissioning. The total
training cost is estimated at Birr 110,000.
 5-17

VII. FINANCIAL ANALYSIS

The financial analysis of the canned fruit and vegetables project is based on the data
presented in the previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 days
Raw material imported 120 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
20.48 million (see Table 7.1). From the total investment cost the highest share (Birr
13.19 million or 64.39%) is accounted by fixed investment cost followed by initial
working capital (Birr 5.20 million or 25.41%) and pre operation cost (Birr 2.09 million or
10.20%). From the total investment cost Birr 7.20 million or 35.15% is required in
foreign currency.
 5-18

Table 7.1

INITIAL INVESTMENT COST (‘000’ Birr)

Local Foreign Total %

Sr.No Cost Items Cost Cost Cost Share
1 Fixed investment        
1.1 Land Lease 287.28   287.28 1.40
1.2 Building and civil work 2,700.00   2,700.00 13.18
1.3 Machinery and equipment 1,800.00 7,200.00 9,000.00 43.94
1.4 Vehicles 900.00   900.00 4.39
1.5 Office furniture and equipment 300.00   300.00 1.46
  Sub total 5,987.28 7,200.00 13,187.28 64.39
2 Pre operating cost *        
2.1 Pre operating cost 750.00   790.00 3.86
2.2 Interest during construction 1,339.93   1,339.93 6.54
  Sub total 2,089.93   2,089.93 10.20
3 Working capital ** 5,204.54   5,204.54 25.41
  Grand Total 13,281.75 7,200.00 20,481.75 100

* N.B Pre operating cost include project implementation cost such as installation,
startup, commissioning, project engineering, project management etc and capitalized
interest during construction.

** The total working capital required at full capacity operation is Birr 6.98 million.
However, only the initial working capital of Birr 5.54 million during the first year of
production is assumed to be funded through external sources. During the remaining
years the working capital requirement will be financed by funds to be generated
internally (for detail working capital requirement see Appendix 7.A.1).

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 25.69 million
(see Table 7.2). The cost of raw material account for 79.82% of the production cost. The
other major components of the production cost are depreciation and financial cost which
account for 8.83% and 5.02% respectively. The remaining 6.33% is the share of labor,
 5-19

utility, repair and maintenance, labor overhead and administration cost. For detail
production cost see Appendix 7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE)

Items Cost
(in 000 Birr) %
Raw Material and Inputs
20,509 79.82
Utilities
91 0.35
Maintenance and repair
450 1.75
Labor direct
281 1.09
Labor overheads
56 0.22
Administration Costs
250 0.97
Land lease cost
0 0.00
Cost of marketing and distribution
500 1.95
Total Operating Costs
22,137 86.15
Depreciation
2,268 8.83
Cost of Finance
1,290 5.02
Total Production Cost
25,695 100.00

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit
throughout its operation life. Annual net profit after tax will grow from Birr 2.00 million
to Birr 4.26 million during the life of the project. Moreover, at the end of the project life
the accumulated net cash flow amounts to Birr 36.31 million. For profit and loss
statement and cash flow projection see Appendix 7.A.3 and 7.A.4, respectively.
 5-20

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets (operating income divided by assets),
return on equity (net profit divided by equity) and return on total investment (net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point for capacity utilization and sales value estimated by using income
statement projection are computed as followed.

Break -Even Sales Value = Fixed Cost + Financial Cost = Birr 11,915,400
Variable Margin ratio (%)

Break -Even Capacity utilization = Break- even Sales Value X 100 = 41.11%
Sales revenue

4. Pay-back Period

The pay- back period, also called pay – off period is defined as the period required for
recovering the original investment outlay through the accumulated net cash flows earned
by the project. Accordingly, based on the projected cash flow it is estimated that the
project’s initial investment will be fully recovered within 6 years.
 5-21

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this project is computed to be 22.86%
indicating the viability of the project.

6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series
of cash flows. NPV aggregates cash flows that occur during different periods of time
during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principle, a project is accepted if the NPV is positive.

Accordingly, the net present value of the project at 10% discount rate is found to be Birr
14.04 million; which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 27 persons. The project will generate Birr 10.34
million in terms of tax revenue. The establishment of such factory will have a foreign
exchange saving effect to the country by substituting the current imports. The project will
also create backward linkage with the horticulture farming sector and sugar and salt
producers and also generates income for the Government in terms of payroll tax.
 5-22

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
 5-22

Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Total inventory 3,845.45 4,358.18 5,127.27 5,127.27 5,127.27 5,127.27 5,127.27 5,127.27 5,127.27 5,127.27

Accounts receivable 1,393.97 1,574.27 1,844.74 1,844.74 1,845.59 1,845.59 1,845.59 1,845.59 1,845.59 1,845.59

Cash-in-hand 10.80 12.24 14.40 14.40 14.54 14.54 14.54 14.54 14.54 14.54

CURRENT ASSETS 5,250.22 5,944.69 6,986.40 6,986.40 6,987.40 6,987.40 6,987.40 6,987.40 6,987.40 6,987.40

Accounts payable 45.68 51.77 60.90 60.90 60.90 60.90 60.90 60.90 60.90 60.90
CURRENT
LIABILITIES 45.68 51.77 60.90 60.90 60.90 60.90 60.90 60.90 60.90 60.90
TOTAL WORKING
CAPITAL 5,204.54 5,892.93 6,925.50 6,925.50 6,926.50 6,926.50 6,926.50 6,926.50 6,926.50 6,926.50
 5-23

Appendix 7.A.2
PRODUCTION COST ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Raw Material and Inputs 15,382 17,433 20,509 20,509 20,509 20,509 20,509 20,509 20,509 20,509

Utilities 68 77 91 91 91 91 91 91 91 91

Maintenance and repair 338 383 450 450 450 450 450 450 450 450

Labour direct 211 239 281 281 281 281 281 281 281 281

Labour overheads 42 48 56 56 56 56 56 56 56 56

Administration Costs 188 213 250 250 250 250 250 250 250 250

Land lease cost 0 0 0 0 10 10 10 10 10 10

Cost of marketing
and distribution 500 500 500 500 500 500 500 500 500 500

Total Operating Costs 16,728 18,891 22,137 22,137 22,147 22,147 22,147 22,147 22,147 22,147

Depreciation 2,268 2,268 2,268 2,268 2,268 138 138 138 138 138

Cost of Finance 0 1,474 1,290 1,105 921 737 553 368 184 0

Total Production Cost 18,996 22,633 25,695 25,510 25,336 23,022 22,838 22,654 22,469 22,285
 5-24

Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)

Year Year Year YearYear Year Year Year

Item 2 3 4 5 6 7 8 9 Year 10 Year 11
28,37
Sales revenue 21,278 24,115 28,370 28,370 0 28,370 28,370 28,370 28,370 28,370
21,63
Less variable costs 16,228 18,391 21,637 21,637 7 21,637 21,637 21,637 21,637 21,637

VARIABLE MARGIN 5,050 5,723 6,733 6,733 6,733 6,733 6,733 6,733 6,733 6,733
in % of sales revenue 23.73 23.73 23.73 23.73 23.73 23.73 23.73 23.73 23.73 23.73
Less fixed costs 2,768 2,768 2,768 2,768 2,778 648 648 648 648 648

OPERATIONAL MARGIN 2,282 2,955 3,965 3,965 3,955 6,085 6,085 6,085 6,085 6,085
in % of sales revenue 10.72 12.25 13.98 13.98 13.94 21.45 21.45 21.45 21.45 21.45
Financial costs   1,474 1,290 1,105 921 737 553 368 184 0
GROSS PROFIT 2,282 1,481 2,675 2,860 3,034 5,348 5,532 5,716 5,901 6,085
in % of sales revenue 10.72 6.14 9.43 10.08 10.69 18.85 19.50 20.15 20.80 21.45
Income (corporate) tax 0 0 0 858 910 1,604 1,660 1,715 1,770 1,825
NET PROFIT 2,282 1,481 2,675 2,002 2,124 3,744 3,873 4,002 4,130 4,259
in % of sales revenue 10.72 6.14 9.43 7.06 7.49 13.20 13.65 14.10 14.56 15.01
 5-25

Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 13,937 27,868 24,121 28,379 28,370 28,370 28,370 28,370 28,370 28,370 28,370 10,174
Inflow funds 13,937 6,590 6 9 0 0 0 0 0 0 0 0
Inflow operation 0 21,278 24,115 28,370 28,370 28,370 28,370 28,370 28,370 28,370 28,370 0
Other income 0 0 0 0 0 0 0 0 0 0 0 10,174
TOTAL CASH
OUTFLOW 13,937 23,318 22,902 26,311 25,943 25,822 26,331 26,202 26,073 25,944 23,973 0
Increase in fixed assets 13,937 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 5,250 694 1,042 0 1 0 0 0 0 0 0
Operating costs 0 16,228 18,391 21,637 21,637 21,647 21,647 21,647 21,647 21,647 21,647 0
Marketing and
Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income tax 0 0 0 0 858 910 1,604 1,660 1,715 1,770 1,825 0
Financial costs 0 1,340 1,474 1,290 1,105 921 737 553 368 184 0 0
Loan repayment 0 0 1,842 1,842 1,842 1,842 1,842 1,842 1,842 1,842 0 0
SURPLUS (DEFICIT) 0 4,550 1,218 2,069 2,427 2,548 2,039 2,168 2,297 2,426 4,397 10,174
CUMULATIVE CASH
BALANCE 0 4,550 5,768 7,837 10,264 12,813 14,852 17,020 19,317 21,743 26,140 36,314
 5-26

Appendix 7.A.5
DISCOUNTED CACH FLOW ( in 000 Birr)

Year Year Year Year Year Scra

Item Year 1 2 Year 3 4 Year 5 6 Year 7 8 Year 9 10 Year 11 p
10,17
TOTAL CASH INFLOW 0 21,278 24,115 28,370 28,370 28,370 28,370 28,370 28,370 28,370 28,370 4
Inflow operation 0 21,278 24,115 28,370 28,370 28,370 28,370 28,370 28,370 28,370 28,370 0
10,17
Other income 0 0 0 0 0 0 0 0 0 0 0 4

TOTAL CASH OUTFLOW 19,142 17,416 19,924 22,137 22,996 23,057 23,751 23,807 23,862 23,917 23,973 0
Increase in fixed assets 13,937 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 5,205 688 1,033 0 1 0 0 0 0 0 0 0
Operating costs 0 16,228 18,391 21,637 21,637 21,647 21,647 21,647 21,647 21,647 21,647 0

Marketing and Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income (corporate) tax   0 0 0 858 910 1,604 1,660 1,715 1,770 1,825 0
10,17
NET CASH FLOW -19,142 3,862 4,191 6,233 5,374 5,313 4,619 4,563 4,508 4,453 4,397 4
- 38,54
CUMULATIVE NET CASH FLOW -19,142 15,280 -11,090 -4,857 518 5,831 10,449 15,012 19,520 23,973 28,370 4
Net present value -19,142 3,510 3,463 4,683 3,671 3,299 2,607 2,342 2,103 1,888 1,695 3,922
- 14,04
Cumulative net present value -19,142 15,631 -12,168 -7,485 -3,814 -515 2,092 4,433 6,536 8,425 10,120 2

NET PRESENT VALUE 14,042

INTERNAL RATE OF RETURN 22.86%
NORMAL PAYBACK 6 years