ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on the Establishment of Milk

production and processing 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..............................2
3.1 Market Study...................................................................................................................2
3.1.1 Present Demand and Supply....................................................................................2
3.1.2 Projected Demand....................................................................................................3
3.1.3 Pricing and Distribution...........................................................................................4
3.2 Plant Capacity..................................................................................................................4
3.3 Production Program.........................................................................................................5
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...............................................................................................7
6.3 Civil Engineering Cost....................................................................................................8
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.......................................................................................................11
9. Economic and Social Benefits and Justification...........................................12
ANNEXES..............................................................................................................14
 1. Executive Summary
This project profile deals with processed milk producing plant in Amhara National Regional
State. The following presents the main findings of the study.

Demand projection divulges that the domestic demand for processed milk is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 550,000 litters annually.
The total investment cost of the project including working capital is estimated at Birr 10.62
million and creates 28 jobs Birr 740,855 of income.

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 30.8% of capacity utilization and it will
payback fully the initial investment less working capital in 3 years and 3 months. The result
further shows that the calculated IRR of the project is 23.3% and NPV discounted at 18% of Birr
2,050,966. The envisaged project is to some extent sensitive to an increase in the cost of
production.

In addition to this, the proposed project possesses wide range of economic and social benefits
such as increasing the level of investment, tax revenue and employment creation.

Generally, the project is technically feasible, financially and commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Product Description and Application

Cow milk is a highly nutritive drink that is consumed by all age groups of the society. Nowadays
the demand for cow milk continues to increase steadily from year to year for consumption by
general households, hotels, cafes, hospitals, teaching institutions, etc. It is a marketable product
with the increase in awareness among the consumers.

1
Pasteurized milk available to end consumers, particularly ordinary milk, comes in 515 cc
containers. These containers are usually made of plastics (polyethylene). Processed (pasteurized)
milk has relatively longer shelf life (up to 72 hours) when compared to raw milk.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

Milk processing industry has shown a growing trend in the country during the last decade. Two
additional dairy plants have been established in and around Addis Ababa. Available documents
point out that there is no commercial milk processing plant that pasteurize and distribute milk in
the major towns of the Amhara National Regional State although the region has ample raw
material (raw milk). Therefore, the demand for milk by urban dwellers of the region is met either
by own home production or purchase from others.

In this major town, the largest source of milk is from intra-urban milk producers of different
sizes. Although exact data of supply is not known, it is expected to be thousands of litters of milk
daily in view of the population size of the towns. In many cases it is the producers that deliver
milk to consumers. Nonetheless, this house-to-house milk marketing system is traditional, and it
poses risks to consumers. The milk being marketed under this system is of questionable quality,
it is not pasteurized and there is a possibility of adulteration. Although, some sellers produce
good quality milk, hygienic quality and composition of most milk marketed in such production
systems is poor.

The potential demand for milk in these major towns of the region can be estimated simply by
taking the population size and expected consumers of the towns into account. That is, if we
assume that 30 percent of the major urban population consumes one liter of milk per month, the
estimated demand will be as shown in table 1 below.

2
 Table 1: Estimated Current Demand for Milk

Major Towns of the Region

Bahir Debre
  Dar Gonder Dessie D/Markos Birhan
Population Size 297,749 315,856 208,588 101,582 87,991
Targeted Population (30%) 89325 94757 62576 30475 26397
According to table 1 currently the monthly potential demand for milk is estimated to be 89.3
thousand liters in Bahir Dar, 94.7 thousand litters in Gonder, 62.6 thousand liters in Dessie, 30.5
thousand liters in Debre Markos and 26.4 thousand litters in Debre Berhan.
Thus, if a mini processing plant is installed in the major urban towns of the region with proper
marketing that creates awareness in the community, it can attract adequate consumers.

3.1.2 Projected Demand

The future demand for processed milk depends on the population growth as well as the
awareness for the product that is expected to increase with time. Taking the current estimated
demand for milk presented in table 1, it is assumed that three-fourths (75%) of the population
will be attracted to the envisaged plant. Thus with proper marketing the monthly demand that the
plant can attract would be about 89.3 thousand liters in Bahir Dar, 94.7 thousand litters in
Gonder, 62.6 thousand liters in Dessie, 30.5 thousand liters in D/Markos and 26.4 liters in Debre
Birhan. Furthermore, in forecasting the future demand, it is assumed that the current demand will
grow by 3% per annum (in line with the population growth rate). Accordingly, the projected
demand for processed milk in the major towns is presented in table 2 hereunder.

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 Table 2: Projected Demand for Processed Milk (liter per month)

Year Bahir Dar Gonder Dessie D/Markos B/Berhan

2015/16 89325 94757 62576 30475 26397
2016/17 92005 97600 64453 31389 27189
2017/18 94765 100528 66387 32331 28005
2018/19 97608 103544 68378 33301 28845
2019/20 100536 106650 70430 34300 29710
2020/21 103552 109849 72543 35329 30601
2021/22 106659 113145 74719 36389 31519
2022/23 109858 116539 76961 37480 32465
2023/24 113154 120035 79269 38605 33439
2024/25 116549 123636 81647 39763 34442

Accordingly to table 2 the monthly demand for pasteurized milk in 2020/21 will be 103.6
thousand litters in Bahir Dar, 109.8 thousand litters in Gonder, 72.5 thousand litters in Dessie,
35.3 thousand liters in D/Markos and 30.6 liters in D/ Birhan. The demand steadily increases in
all towns as time goes by. This indicates the possibility of establishing a mini milk
pasteurizingplant .

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price of a
500 cc pasteurized milk is set to be Birr 7.67 per piece. As the product is new, the plant should
implement marketing and awareness creation in its construction as well as operation periods. For
a good result the plant should develop smart milk distribution networks.

3.2 Plant Capacity

In consideration of the projected demand for pasteurized milk presented earlier, and the planned
technology, the envisaged plant is set to produce 2,060 liters of milk per day (which is 4,120
pieces in a 515 cc plastic bag).

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 3.3 Production Program
The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 70 percent capacity and then at 75 percent in the
2nd year. With proper marketing the capacity will grow to 85 percent in the 3 rd year and 95
percent in the 4th year. The plant will produce at full capacity beginning from the 5 th year of
operation. This consideration is developed based on the assumption that awareness problem,
market and logistics barriers would be reduced through time.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials
The main raw material in this plant is raw milk. As the envisaged plant is small, it can get the
required amount in the town by arranging milk collection center. In addition to this, the
production also requires plastic container. This can be arranged with firms that are engaged in
the supply of polyethylene products.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 here under:-
Table 3 Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C
Raw Milk 550,000 lit 2822600
Plastic Container (500 cc) 4,000 282260
Total Material Cost   3104860
Utility      
Electricity 89,100 kwh 49,005  
Furnace Oil 13,750 lit 96,250  
Water 750 m3 1988  
Total Utility Cost   147,243  

Thus, the annual full capacity requirement of material and input will be Birr 3,252,103

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 5. Location and Site

The appropriate locations for the envisaged project, mainly in view of the availability of
adequate market, input and infrastructure, are the major towns of the region namely Gonder,
Bahir Dar and Dessie. The level of demand forecasted in Debre Markos and Debre Birhan are
substantially lower than the capacity set by the envisaged plant and, therefore, are not selected as
possible locations.

6. Technology and Engineering

6.1 Production Process

After the fresh milk is received it is filtered and pumped into the dump tank. It is then chilled
with help of a chiller so that the growth of bacteria is minimized.On average; fresh milk contains
4.5% fats which will be reduced to 3.5% with the help of a cream separator. The milk will then
undergo the pasteurization process. This is based on heating the milk to 75ºC and holding at that
temperature for at least 15-20 seconds. This heat treatment ensures the destruction of unwanted
micro-organisms and all bacteria. During this process the temperature is reduced to 4ºC as at this
temperature ideal growth of bacteria is stopped.

After milk processing, the pasteurized milk is filled in the 0.5 liters plastic container and then are
ready for distribution in market. After the pasteurization process is completed, the tanks will be
cleansed through steam for sterilization.

The technological options available for use are related to the raw material employed and the
desired finished product. For example, when using powdered milk (instead of raw milk),
supplementary investment is necessary to reconstitute the milk before conversion. However, as
the envisaged plant is set to use milk from local herd (i.e. raw milk), it does not require
additional machinery (investment) other than what is stated in the following section.

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 6.2 Machinery and Equipment

The machineries and equipment required for producing pasteurized milk from herd is detailed in
table 4 below:-
Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Weighing tank (50 kg) 1
Receiving tank ( 150 kg) 1
Milk clarifier (750 liters/hour) 1
Milk pump ( 750 liters/hour) 1
Plate cooler (750 liters/hour) 1
Storage tank (2000 liters) 2
Milk pump (250 liters/hour) 1
Pasteurizer (250 liters/hour) 1
Surge tank (500 liters) 2
Filling and p
ackaging machine (750 pcs./hour) 1
Boiler 100 kg (evap.) 1
Chiller (10,000 Kcal/hour) 1

The total cost of machinery and equipment including freight insurance and bank cost is estimated
to be about Birr 3,952,976

The following are some of the machineries suppliers’ address for the envisaged project

Goma Engineering Private Limited

Off. L. B. S. Marg, Majiwada, Thane, Maharashtra - 400 601, India
Phone: +(91)-(22)-25340875/25346436/25340875/25341438 
 Fax: +(91)-(22)-5333634

Eskimo Refrigeration Industries

S.No. 85/1, Shree Shankar Nagar, B-Building, G Floor,
Poud Road, Kothrud, Pune, Maharashtra - 411 029, India
Phone: +(91)-(20)-25381934/32910820  
Fax: +(91)-(20)-25381934
Website: http://www.indiamart.com/eskimorefrigeration

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 6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 750m 2 of which 600m2 is allocated to
the production space and the remaining space is left for stores (50m2), office buildings and
facilities (100m2).

7. Human Resource and Training Requirement

7.1 Human Resource

The required manpower for the envisaged plant is stated in table 5 below:-

Table 5: Human Resource Requirement

Monthly Total Annual

Position No. Required Salary Salary
Plant Manager 1 8981 107772
Administrator/Accountant 1 4619 55426
Secretary 1 2181 26173
Sales Clerk 1 1540 18475
Laboratory Technician 1 2566 30792
Technician 2 2566 61584
Supervisor 1 2566 30792
Operators 10 1540 184752
Laborers 4 770 36950
Cleaners 2 770 18475
Driver 1 1540 18475
Guards 3 770 27713
Benefit (20%)   123476
Total 28 740855

The envisaged plant creates 28 jobs and about Birr 740,855 of income. The professionals and
support staff for the envisaged plant shall be recruited from Amhara region.

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focus on the production technology and machinery
maintenance and trouble shooting. Birr 102,640 will be allocated as training expense.

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 8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of milk production and processing 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 30% equity and 70% 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%

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 C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 10.62
million as shown in table 6 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 6: Total initial investment

Items L.C F.C Total

Land 45,000 45,000
Building and civil works 3849000 3849000
Office equipment 102640 102640
Vehicles 1283000 1283000
Plant machinery & equipment
617177 3335800 3952977
Total fixed investment cost 5857590 3335800 9193390
Pre production capital
expenditure* 459671 459670.7
Total initial investment 6317261 3335800 9653061
Working capital at full capacity 927106 927,106
Total 7,283,583 3,335,800 10,619,393
*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.

The foreign component accounts for 31.5% of the total investment cost.

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 8.3 Production Costs
The total production cost at full capacity operation is estimated at Birr 6.02 million as detailed in
table 7 below:-
Table 7: Production Cost

Items Cost
1. Raw materials 3,104,860
2. Utilities 147,243
3. Wages and Salaries 740,856
4. Spares and Maintenance 91,935
Factory costs 4,315,476
5. Depreciation 946,546
6. Financial costs 761,771
  Total Production Cost 6,023,793

8.4 Financial evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 2%, 2% and 17%
respectively in the first year and are gradually rising. Furthermore, the income statement and
other profitability indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 79.0 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 3 years and 3
months.

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 IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 21%.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
23.3% and the net present value at 18 % discount is Birr 2,050,966.26.

VI. Sensitivity Analysis

The envisaged plant is to some extent sensitive to an increase in cost of production. That is, the
plant incurs a loss of Birr 185,696 in the first year of operation when 10 % cost increment takes
place in the sector. The plant will be earning profit beginning from the second year of operation.
This result is accompanied with a payback period of 3 years and 3 months.

9. Economic and Social Benefits and Justification

The envisaged project possesses wide range of benefits that help promote the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It also
boosts the inter sectorial linkage between the agricultural (livestock) and industrial sector. At the
same time, therefore, it helps diversify the economic activity of the region. The other major
benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 17.7 million within the
project life. Such result induces the project promoters to reinvest the profit which, therefore,
increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 6.9 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.

12
 C. 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 28 professionals as well as support
staff. Consequently the project creates income of Birr 740,879 per year. This would be one of the
commendable accomplishments of the project.

D. Pro Environment Project

The proposed production process is environment friendly.

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ANNEXES

14
 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 70% 80% 85% 95%

1. Total Inventory 0.00 0.00 800646.6 915024.6 972213.7 1086592

Raw Materials in Stock- Total 0.00 0.00 237098.4 270969.6 287905.2 321776.4

Raw Material-Local 0.00 0.00 237098.4 270969.6 287905.2 321776.4

Raw Material-Foreign 0.00 0.00 0 0 0 0

Factory Supplies in Stock 0.00 0.00 4018.279 4592.319 4879.326 5453.366

Spare Parts in Stock and Maintenance 0.00 0.00 21061.21 24069.98 25574.35 28583.08

Work in Progress 0.00 0.00 100456.7 114807.7 121983.2 136334.2

Finished Products 0.00 0.00 200913.5 229615.4 243966.4 272668.3

2. Accounts Receivable 0.00 0.00 635854.8 726691.2 772109.4 862945.8

3. Cash in Hand 0.00 0.00 85426.55 97630.35 103732.2 115936

CURRENT ASSETS 0.00 0.00 1284830 1468377 1560150 1743697

4. Current Liabilities 0.00 0.00 635854.8 726691.2 772109.4 862945.8

Accounts Payable 0.00 0.00 635854.8 726691.2 772109.4 862945.8

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 648974.7 741685.4 788040.7 880751.4

INCREASE IN NET WORKING CAPITAL 0.00 0.00 648974.7 92710.68 18065.21 92710.68

1
 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%

1. Total Inventory 1143781 1143781 1143781 1143781 1143781 1143781

Raw Materials in Stock-Total 338712 338712 338712 338712 338712 338712

Raw Material-Local 338712 338712 338712 338712 338712 338712

Raw Material-Foreign 0 0 0 0 0 0

Factory Supplies in Stock 5740.399 5740.399 5740.399 5740.399 5740.399 5740.399

Spare Parts in Stock and Maintenance 30087.45 30087.45 30087.45 30087.45 30087.45 30087.45

Work in Progress 143509.7 143509.7 143509.7 143509.7 143509.7 143509.7

Finished Products 287019.3 287019.3 287019.3 287019.3 287019.3 287019.3

2. Accounts Receivable 908364 908364 908364 908364 908364 908364

3. Cash in Hand 122037.9 122037.9 122037.9 122037.9 122037.9 122037.9

CURRENT ASSETS 1835471 1835471 1835471 1835471 1835471 1835471

4. Current Liabilities 908364 908364 908364 908364 908364 908364

Accounts Payable 908364 908364 908364 908364 908364 908364

TOTAL NET WORKING CAPITAL REQUIRMENTS 927106.7 927106.7 927106.7 927106.7 927106.7 927106.7

INCREASE IN NET WORKING CAPITAL 1143781 1143781 1143781 1143781 1143781 1143781

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 4826530 5753637 6464524 6752172 7123088 8001173
1. Inflow Funds 4826530 5753637 635854.8 90836.4 17700 90836.4
Total Equity 1930612 2301455 0 0 0 0
Total Long Term Loan 2895918 3452182 0 0 0 0
Total Short Term Finances 0 0 635854.8 90836.4 45418.2 90836.4
2. Inflow Operation 0 0 5828669 6661336 7077670 7910337
Sales Revenue 0 0 5828669 6661336 7077670 7910337
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 4826530 4826530 6074062 5518941 6044084 6596115
4. Increase In Fixed Assets 4826530 4826530 0 0 0 0
Fixed Investments 4596695 4596695 0 0 0 0
Pre-production Expenditures 229834.8 229834.8 0 0 0 0
5. Increase in Current Assets 0 0 1284830 183547.1 91773.53 183547.1
6. Operating Costs 0 0 3087989 3515605 3729413 4157030
7. Corporate Tax Paid 0 0 0 0 530070.2 689674
8. Interest Paid 0 0 1701243 761772 634810 507848
9.Loan Repayments 0 0 0 1058017 1058017 1058017
10.Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 0 927106.7 390461.9 1233231 1079004 1405058
Cumulative Cash Balance 0 927106.7 1317569 2550800 3629804 5034862

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

3
 PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 8372088 8326670 8326670 8326670 8326670 8326670
1. Inflow Funds 45418.2 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 45418.2 0 0 0 0 0
2. Inflow Operation 8326670 8326670 8326670 8326670 8326670 8326670
Sales Revenue 8326670 8326670 8326670 8326670 8326670 8326670
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 6690034 6613947 6525074 5378184 5378184 5378184
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 91773.53 0 0 0 0 0
6. Operating Costs 4370838 4370838 4370838 4370838 4370838 4370838
7. Corporate Tax Paid 788520.3 931169 969257.6 1007346 1007346 1007346
8. Interest Paid 380886 253924 126962 0 0 0
9. Loan Repayments 1058017 1058017 1058017 0 0 0
10.Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 1682054 1712723 1801596 2948486 2948486 2948486
Cumulative Cash Balance 6716916 8429638 10231235 13179721 16128207 19076693

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

4
 CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 5828669 6661336 7077670 7910337

1. Inflow Operation 0 0 5828669 6661336 2758250 7910337

Sales Revenue 0 0 5828669 6661336 2758250 7910337

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 1880955 1880955 3736964 3608316 1471461 4939414

3. Increase in Fixed Assets 1880955 1880955 0 0 0 0

Fixed Investments 1791386 1791386 0 0 0 0

Pre-production Expenditures 89569.28 89569.28 0 0 0 0

4. Increase in Net Working Capital 0 0 648974.7 92710.68 18065.21 92710.68

5. Operating Costs 0 0 3087989 3515605 1453396 4157030

6. Corporate Tax Paid 0 0 0 0 206574.5 689674

NET CASH FLOW -1880955 -1880955 2091705 3053020 1286789 2970922

CUMMULATIVE NET CASH FLOW -1880955 -3761910 -7561355 -4508335 -470161 1764488

Net Present Value (at 18%) -1880955 -1594029 1502230 1858162 663711.5 1298618

Cumulative Net present Value -1880955 -3474984 -7414580 -5556417 -1501689 -2554716

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

5
 PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 8326670 8326670 8326670 8326670 8326670 8326670

1. Inflow Operation 8326670 8326670 8326670 8326670 8326670 8326670

Sales Revenue 8326670 8326670 8326670 8326670 8326670 8326670

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 5205713 5302007 5340095 5378184 5378184 5378183.811

3. Increase in Fixed Assets 0 0 0 0 0 0

Fixed Investments 0 0 0 0 0 0

Pre-production Expenditures 0 0 0 0 0 0

4. Increase in Net Working Capital 46355.33 0 0 0 0 0

5. Operating Costs 4370838 4370838 4370838 4370838 4370838 4370837.592

6. Corporate Tax Paid 788520.3 931169 969257.6 1007346 1007346 1007346.218

NET CASH FLOW 3120957 3024663 2986575 2948486 2948486 2948486.189

CUMMULATIVE NET CASH FLOW 4885445 7910108 10896683 13845169 16793656 19742141.9

Net Present Value (at 18%) 1156101 949517.6 794542.9 664754.1 563351 477416.0523

Cumulative Net present Value -1398615 -449098 345445.2 393686.4 1573550 2050966.259
2050966.259
Net Present Value (at 18%)

Internal Rate of Return 23.3%

Annex 4: NET INCOME STATEMENT ( in Birr)

  PRODUCTION

6
 1 2 3 4 5
Capacity Utilization (%) 70% 80% 85% 95% 100%

1. Total Income 5828669 6661336 7077670 7910337 8326670

Sales Revenue 5828669 6661336 7077670 7910337 8326670
Other Income 0 0 0 0 0
2. Less Variable Cost 2785873 3183855 3382846 3780828 3979819
VARIABLE MARGIN 3042796 3477481 3694823 4129508 4346851
(In % of Total Income) 133.9452 133.9452 133.9452 133.9452 133.9452
3. Less Fixed Costs 1248661 1278296 1293113 1322747 1337564
OPERATIONAL MARGIN 1794134 2199185 2401711 2806761 3009287
(In % of Total Income) 78.98148 84.70366 87.06438 91.04168 92.73524
4. Less Cost of Finance 1701243 761772 634810 507848 380886
5. GROSS PROFIT 92891 1437413 1766901 2298913 2628401
6. Income (Corporate) Tax 0 0 530070.2 689674 788520.3
7. NET PROFIT 92891 1437413 1236830 627139.3 1839881
RATIOS (%)  
Gross Profit/Sales 2% 22% 25% 29% 32%
Net Profit After Tax/Sales 2% 22% 17% 20% 22%
Return on Investment 17% 21% 18% 20% 21%
Return on Equity 2% 34% 29% 38% 43%

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

  PRODUCTION

7
 6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 8326670 8326670 8326670 8326670 8326670

Sales Revenue 3245000 8326670 8326670 8326670 8326670
Other Income 0 0 0 0 0
2. Less Variable Cost 1550982 3979819 3979819 3979819 3979819
VARIABLE MARGIN 1694018 4346851 4346851 4346851 4346851
(In % of Total Income) 52.2 133.9452 133.9452 133.9452 133.9452
3. Less Fixed Costs 385436.6 989030.2 989030.2 989030.2 989030.2
OPERATIONAL MARGIN 1308582 3357821 3357821 3357821 3357821
(In % of Total Income) 40.33 103.4868 103.4868 103.4868 103.4868
4. Less Cost of Finance 98957.13 126962 0 0 0
5. GROSS PROFIT 1209625 3230859 3357821 3357821 3357821
6. Income (Corporate) Tax 362887.4 969257.6 1007346 1007346 1007346
7. NET PROFIT 846737.2 2261601 2350475 916007.2 916007.2
RATIOS (%)  
Gross Profit/Sales 37% 39% 40% 40% 40%
Net Profit After Tax/Sales 26% 27% 28% 28% 28%
Return on Investment 23% 23% 22% 22% 22%
Return on Equity 51% 53% 56% 56% 56%

Annex 5: Projected Balance Sheet (in Birr)

8
 CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 4826530 10580167 11308912 11779145 12003377 12645436
1. Total Current Assets 0 927106.73 2602398.1 4019176.5 5189954 6778558.7
Inventory on Materials and Supplies 0 0 262177.89 299631.87 318358.87 355812.85
Work in Progress 0 0 100456.74 114807.72 121983.2 136334.17
Finished Products in Stock 0 0 200913.51 229615.43 243966.4 272668.34
Accounts Receivable 0 0 635854.8 726691.2 772109.4 862945.8
Cash in Hand 0 0 85426.554 97630.347 103732.24 115936.04
Cash Surplus, Finance Available 0 927106.73 1317568.6 2550799.9 3629803.9 5034861.5
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 4826530 9653059.9 8706514.3 7759968.7 6813423.1 5866877.5
Fixed Investment 0 4596695.2 9193390.4 9193390.4 9193390.4 9193390.4
Construction in Progress 4596695 4596695.2 0 0 0 0
Pre-Production Expenditure 229834.8 459669.52 459669.52 459669.52 459669.52 459669.52
Less Accumulated Depreciation 0 0 946545.59 1893091.2 2839636.8 3786182.4
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 4826530 10580167 11308912 11779145 12003377 12645436
5. Total Current Liabilities 0 0 635854.8 726691.2 772109.4 862945.8
Accounts Payable 0 0 635854.8 726691.2 772109.4 862945.8
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 2895918 6348100 6348100 5290083.3 4232066.6 3174050
Loan A 2895918 6348100 6348100 5290083.3 4232066.6 3174050
Loan B 0 0 0 0 0 0
7. Total Equity Capital 1930612 4232066.6 4232066.6 4232066.6 4232066.6 4232066.6
Ordinary Capital 1930612 4232066.6 4232066.6 4232066.6 4232066.6 4232066.6
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 92890.996 1530304.1 2767134.4
9.Net Profit After Tax 0 0 92890.996 1437413.1 1236830.4 1609239.4
Dividends Payable 0 0 0 0 0 0
Retained Profits 0.00 0 0 36200.7 560176.57 1236830.4

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

  PRODUCTION
9
 5 6 7 8 9 10
TOTAL ASSETS 13472718 14587429 15791014 18141488 20491963 22842437.39
1. Total Current Assets 8552386.4 10265109 4702535.2 15015192 7000653.8 20912163.89
Inventory on Materials and Supplies 374539.85 374539.85 145962.53 374539.85 145962.53 374539.852
Work in Progress 143509.66 143509.66 55927.38 143509.66 55927.38 143509.6571
Finished Products in Stock 287019.31 287019.31 111854.76 287019.31 111854.76 287019.3142
Accounts Receivable 908364 908364 354000 908364 354000 908364
Cash in Hand 122037.93 122037.93 47559.6 122037.93 47559.6 122037.9336
Cash Surplus, Finance Available 6716915.7 8429638.4 3987230.9 13179721 6285349.6 19076693.16
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 4920331.9 4322320.3 1451406.3 3126296.9 985302.1 1930273.5
Fixed Investment 9193390.4 9193390.4 3582771 9193390.4 3582771 9193390.386
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 459669.52 459669.52 179138.55 459669.52 179138.55 459669.5193
Less Accumulated Depreciation 4732728 5330739.7 2310503.3 6526763 2776607.5 7722786.405
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 13472718 14587429 6153941.5 18141488 7985955.9 22842437.39
5. Total Current Liabilities 908364 908364 354000 908364 354000 908364
Accounts Payable 908364 908364 354000 908364 354000 908364
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 2116033.3 1058016.7 0 0 0 0
Loan A 2116033.3 1058016.7 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 4232066.6 4232066.6 1649285.5 4232066.6 1649285.5 4232066.644
Ordinary Capital 4232066.6 4232066.6 1649285.5 4232066.6 1649285.5 4232066.644
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 4376373.8 6216254.4 3269283.8 10650583 5066663.2 15351532.25
9. Net Profit After Tax 1839880.6 2172727.7 881372.22 2350474.5 916007.21 2350474.501
Dividends Payable 0 0 0 0 0 0
Retained Profits 1839880.6 2172727.7 881372.22 2350474.5 916007.21 2350474.501

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

  287019.31 287019.31 111854.76 287019.31 111854.76 287019.3142

TOTAL ASSETS 908364 908364 354000 908364 354000 908364
10
1. Total Current Assets 122037.93 122037.93 47559.6 122037.93 47559.6 122037.9336
Inventory on Materials and Supplies 6716915.7 8429638.4 3987230.9 13179721 6285349.6 19076693.16
Work in Progress 0 0 0 0 0 0
Finished Products in Stock 4920331.9 4322320.3 1451406.3 3126296.9 985302.1 1930273.5
Accounts Receivable 9193390.4 9193390.4 3582771 9193390.4 3582771 9193390.386
Cash in Hand 0 0 0 0 0 0
Cash Surplus, Finance Available 459669.52 459669.52 179138.55 459669.52 179138.55 459669.5193
Securities 4732728 5330739.7 2310503.3 6526763 2776607.5 7722786.405
2. Total Fixed Assets, Net of Depreciation 0 0 0 0 0 0
Fixed Investment 0 0 0 0 0 0
Construction in Progress 13472718 14587429 6153941.5 18141488 7985955.9 22842437.39
Pre-Production Expenditure 908364 908364 354000 908364 354000 908364
Less Accumulated Depreciation 908364 908364 354000 908364 354000 908364
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 2116033.3 1058016.7 0 0 0 0
TOTAL LIABILITIES 2116033.3 1058016.7 0 0 0 0
5. Total Current Liabilities 0 0 0 0 0 0
Accounts Payable 4232066.6 4232066.6 1649285.5 4232066.6 1649285.5 4232066.644
Bank Overdraft 4232066.6 4232066.6 1649285.5 4232066.6 1649285.5 4232066.644
6. Total Long-term Debt 0 0 0 0 0 0
Loan A 0 0 0 0 0 0
Loan B 4376373.8 6216254.4 3269283.8 10650583 5066663.2 15351532.25
7. Total Equity Capital 1839880.6 2172727.7 881372.22 2350474.5 916007.21 2350474.501
Ordinary Capital 0 0 0 0 0 0
Preference Capital 1839880.6 2172727.7 881372.22 2350474.5 916007.21 2350474.501
Subsidies 13472718 14587429 15791014 18141488 20491963 22842437.39
8. Reserves, Retained Profits Brought Forward 8552386.4 10265109 4702535.2 15015192 7000653.8 20912163.89
9. Net Profit After Tax 374539.85 374539.85 145962.53 374539.85 145962.53 374539.852
Dividends Payable 143509.66 143509.66 55927.38 143509.66 55927.38 143509.6571
Retained Profits 287019.31 287019.31 111854.76 287019.31 111854.76 287019.3142

11