Investment Office ANRS

Project Profile on the Establishment of Toilet

Soap Producing PLANT

Development Studies Associates

(DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary.................................................................1
2. Product Description and Application.....................................1
3. Market Study, Plant Capacity and Production Program.....2
3.1 Market Study.......................................................................................................2
3.1.1 Present Demand and Supply........................................................................2
3.1.2 Projected Demand........................................................................................4
3.1.3 Pricing and Distribution...............................................................................5
3.2 Plant Capacity......................................................................................................5
3.3 Production Program.............................................................................................6
4. Raw Materials and Utilities.....................................................6
4.1 Availability and Source of Raw Materials...........................................................6
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................6
5. Location and Site......................................................................9
6. Technology and Engineering...................................................9
6.1 Production Process...............................................................................................9
6.2 Machinery and Equipment.................................................................................11
6.3 Civil Engineering Cost......................................................................................13
7. Human Resource and Training Requirement.....................13
7.1 Human Resource................................................................................................13
7.2 Training Requirement........................................................................................14
8. Financial Analysis..................................................................14
8.1 Underlying Assumption.....................................................................................14
8.2 Investment..........................................................................................................16
8.3 Production Costs................................................................................................16
8.4 Financial Evaluation..........................................................................................17
9. Economic and Social Benefit and Justification....................18
ANNEXES....................................................................................19
1. Executive Summary

This profile envisages the establishment of a plant for the production of 1,375 tons of toilet soap
per year in Amhara Regional State.

The current effective demand for toilet soap at the country is estimated at 37,912 tons.

Since the proposed plant output is assumed to be marketed in Amhara Region, demand for toilet
soap is also projected for the Region. Thus demand for the product at regional level is assumed
to grow from 18,112 tons in 2001 to 22,035 tons in 2009.

The total investment requirement is estimated at Birr 8.6 million out of which 48.6% is in foreign
currency.

The plant is expected to generate employment opportunities for 23 persons.

The project is financially viable with an internal rate of return (IRR) of 31.6% and a net present
value (NPV) of Birr 3.4 million at 18 % discount rate.

2. Product Description and Application

Soap may be broadly classified by use as follows:
- Household soap (toilet soap, laundry soap)
- Industrial soap and
-Special soap
Household soap which is the most important quantitatively, accounts for the larger part of the
consumption of soap.

It is apparent that toilet soap is an indispensable household or domestic item of daily use, that is
for medicinal and laundry purposes, for household cleansing and personal hygiene.
Until very recently its production remained a primitive art, its manufacture being essentially the
treatment of fat with alkali, a chemical process which is the same whether production is done in a

1
backyard or in a factory. The simplicity of the process has led to its worldwide practice as a
small business operation. Large factory operations are exclusively based on the modern
continuous process, which produces soap in a quarter of an hour but requires machinery that is
expensive, and demands close production control.

In Ethiopia today the toilet soap daily need appears to have grown primarily with the growing
level of urbanization and rising income, with which improvement in the way of living is
normally associated.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

Toilet soap is used mainly for cleaning body. The health of the population of the country in
general depends in consistent up-keeping of cleanness. The laundering and cleaning of cloth and
body should be maintained to fight disease coming from dirt and insects. But the consumption
of soap both in urban and rural areas is very low in Amhara Region and in the country at large.
The level of consumption is rated among the lowest in the world. So there is high need of
manufacturing of both toilet and laundry soaps in the country as well as in Amhara Region.

The demand for toilet soaps of the country and Amhara Region has been met through import
except for a small quantity produced locally by small private producers as indicated bellow.

A) Local Supply of Toilet Soap

Local production of soap, especially toilet soap, is of a very recent venture in Ethiopia.

As per the CSA statistical bulletins, the country has been producing soap to the tune of 16,836
tons between 1993 and 1998 on the average each year (table 1). Since local production of toilet
and laundry soaps appear in the CSA statistics as one category “soap”, one could not identify
exactly the volume and value of toilet soap produced in the country. Toilet soaps, like the brand

2
"LUXUS" (25 gram) and "AYU" (80 gram), are produced locally by private plants in small
quantity. In this respect, out of the total local soap produced in the country for the last six years,
about 10 % (1,684 tons) is assumed to be toilet soap.

Table -1-
1
Local Supply of soap

Year Local Production (in tons)

19,2491993

Source: CSA, Report on LMS Manufacturing and Electricity Industries Survey, Statistical Bulletin- 380 and 403

B) Import of Toilet Soap

The main source of supply of toilet soap in Ethiopia is imports. The increase in demand for toilet
soap in Ethiopia raised its import from 19941 tons in 1989 to 32,000 tons in 1999 (table -2- )
with annual average imports of 36,228 tons of toilet soap. In terms of value, for the last ten years
the country has expended about Birr 22,810 million on the average to import toilet soap.

1
Both toilet and Laundry Soap products.

3
 Table-2-
Import of Toilet Soap

and value in '000' Birr

Quantity in ton
Year Quantity Imported CIF Value
1989 19,941 10,746
1990 10,045 7,025
1991 10,045 7,025
1992 - -
1993 183,264 74,325
1994 28,428 11,038
1995 16,434 14,112
1996 14,800 12,746
1997 27,177 22,982
1998 20,148 19,101
1999 32,000 49,000
Average 36,228 22,810
Source: Statistical Abstract 2003 - 2006

In this respect, the total effective national demand for toilet soap is estimated to be about 37,912
tons (36,228 + 1,684) in 1999. The share of Amhara Region from the national effective
demand could be very substantial.

3.1.2 Projected Demand

The maintenance of personnel health care is a modern necessity of living. Each individual has
to wash his faces, hands and other parts of his body very frequently. Toilet soap is the main
product to wash our body with. It has to be available in every household.

Demand for toilet soap is enormous in Ethiopia particularly in urban areas. Currently demand in
the country is met mainly from imports and to some extent from domestic production. Demand
for the products is increasing due to growing level of urbanization, rising income, increasing use
of it and growing population and use by rural areas.

Both the imports and local production of laundry soap indicated above can not be considered
representative demand for same because imports of the product largely depend on the availability
of foreign exchange rather than to fill the demand supply gap. For this reason, the existing and
potential demand for toilet soap is estimated on the main determinant factors such as population

4
growth, urbanization and improvement of income level (GDP) that determine its per capita
consumption. Therefore, the demand for toilet soap in Amhara Region for the next ten years in is
conservatively forecasted using the following assumptions.

a) Toilet soap produced in Amhara Region could be marketed within the same Region,
b) 60% of the Population of the Amhara Region consumes toilet soap,
c) 1.5 kg toile soap is consumed per head per annum.

Accordingly, the forecasted demand for toilet soap (table 3) ranges from 17,661 tons in year
2000 to 22,035 tons in 2009 showing that toilet soap making plant to be established in Amhara
Region will enjoy the opportunity to partially satisfy the huge demand for toilet soap.
Table -3-
Projected Demand for toilet Soap in Amhara Region.
year Population( in 000) Toilet Soap (in tons
2000 11774 17661
2001 12081 18122
2002 12393 18590
2003 12709 19063
2004 13029 19543
2005 13353 20030
2006 13682 20523
2007 14014 21022
2008 14350 21525
2009 14690 22035

3.1.3 Pricing and Distribution

So as to attract customers the selling price of the proposed plant is conservatively assumed to be
Birr 10,000 per ton.

The product could be distributed through wholesale traders. The selection of a packaging format
and materials usually involves considerations of product quality, cost, shelf appeal and ease of
use. For most purposes, a toilet soap can be packed in a packet and 72 soaps in a carton.

3.2 Plant Capacity

The range of feasible capacities is wide which depends on the availability of local resources and
finishing technology as well as the potential market.

5
This plant is assumed to produce 5 tons/day, which is equivalent to 1,375 tons per year,
working 8 hours a day and 275 days per year. A bar of toilet soap weighs about 80 gm.

3.3 Production Program

The production program of the plant is assumed to start at 70% in the first year, 80 % in the
second year, 90 % in the third year and 100 % there after.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The necessary raw materials required for manufacturing toilet soap are available through imports
and domestic sources. Import materials are oil, color and perfume, while domestically available
materials are fat/tallow, sodium chloride and packing materials. Tallow, which can be found in
the region may not be sufficient and has to be imported

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The raw materials and utilities required for the production of 1,375 tons of toilet soap at capacity
utilization are presented in table 4 bellow. Of the total raw materials cost bout 54% (Birr 9.7
million) is in foreign currency.

6
 Table -4-
Quantity and Cost of Materials and Utilities
Cost
nit Quantity

on 276 - 1,

on 96
on 216 756,000

on 12 -
12 -

on 168 168,000
cs 17187500 859,000
cs 238,500 477,000
4,450,000 5,

wh 300,000 165,000
M3 7,000 18,550
307,000 183,550
4,633,550 5,

5. Location and Site

Soap can be produced anywhere, but it is best to find an area relatively free of environmental
pollutants since this is an open pan type of operation. It may be better in fact to conduct the
boiling operations indoors in a factory setting which will offer facility for better fire (heat)
control, freedom from environmental effects such as wind and relative insulation from wind-
blown bauxite plant dust and sand. Location near to a natural water source will make for
significantly reduced water consumption and expenditure. It is also best to locate where
electricity is already in place. In this respect for marketing purposes the soap making factory
location has to be in major towns like Bahr Dar, Gonder and Combolcha.

The location will need to be properly ventilated to avoid fumes from the mixing of alkali and fats
so the design of buildings should make provision for eliminating this condition.

7
 6. Technology and Engineering
6.1 Production Process

There are three types of saponification Processes. These are;

a) Full-Boiled, b) Semi-Boiled and c) Cold.

This project adopts the full- boiled process because the Full-Boiled process is the best and most
widely used. It can produce high-grade, pure neat soap plus the valuable by-product, glycerin. In
this process, fats and oils and liquid caustic soda are fed into a pan and processed in accordance
with the following stages:

1) Boiling, 2) salting out, 3) washing, and 4) setting.

At the second stage, the contents separate into an upper layer of separated soap and a lower layer
of soap-spent lye plus glycerin. After a settling period of a few days, there are three distinct
layers: a top layer of neat soap, a middle layer of nigre and a bottom layer of soap spent lye.

The neat soap thus produced contains about 33% water and, if the process is carried out under
the proper conditions, is free from such impurities as unsaponified fats and oils, alkali, glycerin,
and metallic soap.

a) Production of Finished Soap

Neat soap (liquid soap) produced in the saponification process is turned into various grades of
marketable soaps by means of different process lines. Generally they are composed of drying or
cooling, mixing, refining, extruding, cutting, stamping, and packaging.

b) Automatic Vacuum Spray Drying Line

The neat soap produced by the process outlined above is run into a feed tank by a pump. Another
pump delivers the neat soap to the heat exchanger. The neat soap temperature is raised to
reasonable degree in the heat exchanger. The heated neat soap is sprayed through a nozzle onto
the conical bottom of the drying chamber. The drying chamber is kept at vacuum in advance.
The hot neat soap is charged into the chamber and is instantaneously dried and cooled by the
evaporation of moisture. This accelerated reaction is due to the lower boiling point under

8
vacuum. Deprived of moisture, the neat soap is turned into solid soap, which sticks to the
rotating conical bottom of the chamber. A stationary scraper removes the solid soap, which falls
to the plodder. The vacuum plodder extrudes the soap to the pellet in the moderately dried form
through the rotary perforated outlet.

c) Automatic Toilet Soap Shaping Line

The solid soap obtained from the vacuum spray-drying chamber is refined in the vacuum plodder
and extruded to the pellet form. The soap pellets are dropped via a chute onto the conveyor, and
then stored in the pellet storage tank. The soap pellets are conveyed to the automatic weighing
machine. The necessary amount of soap pellets are weighed out, and fed into the mixing
machine. On the other hand, the dosing machine adds a correct amount of perfume, pigment, etc.
to the soap pellets. After mixing, the pelletizer, in turn, produce homogeneous and refined soap
pellets. These are then conveyed to the duplex vacuum plodder by a conveyor. Finally, the
plodder refines the material and extrudes it in the continuous soap to the bar form by the
automatic cutter. Then, they are loaded into the conditioning tunnel and cooled enough to accept
stamping by automatic high speed stamping machine.

If the producer requires alternative technology he can employ Semi-Boiled or Cold processes
which are economical and simple ways of making soft or potash soaps, requiring low-cost
investment in equipment and no sophisticated skills. The use of both processes, however, is
markedly decreasing due to the poor quality of the soap produced and the impossibility of
glycerin recovery. This is especially true of the production of toilet soaps where quality is always
a critical factor. In addition to the above two alternatives, continuous processes with automated
and compact equipment are widely employed to save installation space, consumption of steam
and electric power and labor.

6.2 Machinery and Equipment

The list of machinery and equipment required for the production of toilet soap is presented in
table 5 bellow.

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 Table 5. List of Machinery and Equipment

For Saponification process Unit

Fats and oils melting tank 1
Fats & oils transportation pump 1
Caustic soda dissolving tank 1
Caustic soda lye tank 1
Caustic soda lye transportation pump 1
Caustic soda measuring tank 1
Water measuring tank 1
Salt dissolving tank 1
Salt aqua tank 1
Salt aqua transportation pump 1
Salt aqua measuring tank 1
Soap boiling pan 3
Soap spent lye tank. . , . . more than 3
Intermediary liquid soap translator 1
Boiler. 1
For Automatic continuous vacuum spray-dryer
Neat soap transportation pump. 1
Feed tank 1
Filter 1
Feed pump 1
Heat exchanger 1
Vacuum spray drying chamber 1
Vacuum plodder. 1
Cyclone 2
Barometric condenser 1
Water reservoir 1
Water pump. 1
Separator 1
Vacuum pump 1
For Automatic continuous toilet soap shaping line
Conveyor 1
Pellet soap storage tank 1
Screw conveyor 1
Automatic weighing machine 1
Mixing machine 1
Dosing machine 1
Pelletizer. 2
Conveyor 1

10
 Duplex vacuum plodder 1
Automatic cutter 1
Conditioning tunnel 1
Automatic high-speed stamping machine 1 1

The total cost of machinery and equipment is estimated to be about Birr 2,500,000, of which
75% is in foreign currency. The project will requires about Birr 250,000 and Birr 30, 000 to
purchase a pick-up vehicle and office furniture & equipment.

The plant owner can contact machinery supplier through the following address.

Address: 187 Moganshan Road ( No. 1 Wulin Xiang) 12F Yisheng Bldg.
Hangzhou, Zhejiang 310012, China
Phone: +86-571-88228188(Market) 88228199(Service) 88161139(Expo)
Fax: +86-571-88228166(Market) 88228200(Service)
Alternative technology can be obtained from India, Japan and UK.

6.3 Civil Engineering Cost

The required area for the plant is about 2,000 m 2 of which about 1220m2 is for office and factory
shade as in the following
Factory . . . . . . . .................................................650m2
Office & laboratory........................................... 200m2
Warehouse . . . . . . .............................................300m2
Boiler room . . . . . ..............................................70m2
Total..............................................................1220m2
The cost of the building including civil works is estimated to be Birr 1,830,000.

7. Human Resource and Training Requirement

7.1 Human Resource

The plant will employe a total of 26 workers . Of which 15 would be involved in direct
production activities while the remaining would be administrative staff. The list of required
human resources for the toilet soap plant is presented in table 6.

11
 Table -6-
Manpower Requirements

No. Salary/Month Annual/Salary

Post
7.2 Trai
Plant manager 1 3,000 36,000
Technical manager 1 2,000 24,000 nin
Chemist 1 1000 12,000 g
Machine operators 3 800 28,800
Ass/ operators 2 600 14,400
Accountant 1 850 10,200
General service 3 700 25,200
Laborers 8 400 38,400
Guards 3 400 14,400
Cleaners 1 400 4,800
Total 23 - 208,200
20% Benefit - 41,640
Total - 249,840
Requirement

The technical head and operators should have some industrial knowledge and experience and
some vocational trainings in soap manufacturing prior their employment. On the job training in
the operation and maintenance of the machine should be given by an expert from the supplier of
the machinery and equipment during the erection and trial period with marginal expense of pre
production.

8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of the toilet soap producing plant is based on the data provided in the
preceding sections and the following assumptions.

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 A. Construction and Finance

Construction period 2 years

Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30 days

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

8.2 Investment

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The total investment cost of the project including working capital is estimated at Birr 8.5 million
as shown in table 7 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.

The foreign component of the project accounts for Birr 4.2 million or 48.6% of the total
investment cost.
Table 7: Total initial investment

LC FC Total
Land
6,000 6,000
Building
1,830,000 1,830,000
Office equipment
20,000 20,000
Vehicles
250,000 250,000
machinery & equipment
625,000 1,875,000 2,500,000
Total Fixed Investment
2,731,000 1,875,000 4,606,000
Pre production
230,300 230,300
Total Initial Investment
2,961,300 1,875,000 4,836,300
Working capital
1,434,465 2,283,578 3,718,043
Total 4,395,765 4,158,578 8,554,343
*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.

8.3 Production Costs

The summary of the production cost of the toilet soap plant is shown on table 8. The total
production cost including depreciation will amount to Birr 11.2 million indicating a
corresponding unit cost of birr 8151 per ton. Of the total production cost raw materials accounted
for about 86.4 %.

Table 8

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 Total Production Cost at full Capacity
Items Cost
1. Raw materials 9,683,200
2. Utilities 183,550
3. Wages and Salaries 249,840
4. Spares and Maintenance 138,180
Factory costs 10,254,770
5. Depreciation 439,560
6. Financial costs
513,261
Total Production Cost 11,207,591

8.4 Financial Evaluation

I. Profitability
According to the income statement of the project, the toilet soap plant will generate profit
starting from the first year of operation.

II. Breakeven Analysis

The break even point of the project is estimated by using income statement projection. The plant
breaks evens at 16.2% of capacity utilization.

III. Payback Period

The project will pay back fully the initial investment in two years.

IV. Simple Rate of Return

The simple rate of return of the project at its full capacity utilization is 25.9%.

V. Internal Rate of Return and Net Present Value

The simple rate of return of the project at its full capacity utilization is 31.6%.
VI. Sensitivity Analysis
The project will absorb shocks if prices increased by 10

15
 9. Economic and Social Benefit and Justification
Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general the envisaged project promotes the health condition and socio-economic goals and
objectives stated in the strategic plan of the Amhara National Regional State. These benefits are
listed as follows:

A. Profit Generation

The project is found to be financially viable and earns on average a profit of birr 1.9 million per
year and birr 19.0 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 7.0 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.

C. Import Substitution and Foreign Exchange Saving

The commencement of this project relieves a portion of the import burden. That is, based on the
projected figure we learn that in the project life an estimated amount of US Dollar 14.8 million
will be saved as a result of the proposed project. This will create room for the saved hard
currency to be allocated to other vital and strategic sectors

D. Employment and Income Generation

The proposed project is expected to create employment opportunity for 23 professionals as well
as support staff. Consequently the project creates income of birr 250 thousands per year. This
would be one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process needs care so as to keep the environment from pollution.

16
ANNEXES

17
 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 80% 90% 100% 100%

1. Total Inventory 0.00 0.00 5151837.45 5795817.13 6439796.81 6439796.81

Raw Materials in Stock- Total 0.00 0.00 2215226.18 2492129.45 2769032.73 2769032.73

Raw Material-Local 0.00 0.00 388363.64 436909.09 485454.55 485454.55

Raw Material-Foreign 0.00 0.00 1826862.55 2055220.36 2283578.18 2283578.18

Factory Supplies in Stock 0.00 0.00 9333.23 10499.89 11666.54 11666.54

Spare Parts in Stock and Maintenance 0.00 0.00 12059.35 13566.76 15074.18 15074.18

Work in Progress 0.00 0.00 233330.84 262497.19 291663.55 291663.55

Finished Products 0.00 0.00 466661.67 524994.38 583327.09 583327.09

2. Accounts Receivable 0.00 0.00 1200000.00 1350000.00 1500000.00 1500000.00

3. Cash in Hand 0.00 0.00 37823.13 42551.02 47278.91 47278.91

CURRENT ASSETS 0.00 0.00 4174434.40 4696238.70 5218043.00 5218043.00

4. Current Liabilities 0.00 0.00 1200000.00 1350000.00 1500000.00 1500000.00

Accounts Payable 0.00 0.00 1200000.00 1350000.00 1500000.00 1500000.00

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 2974434.40 3346238.70 3718043.00 3718043.00

INCREASE IN NET WORKING CAPITAL 0.00 0.00 2974434.40 371804.30 371804.30 0.00

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 6439796.81 6439796.81 6439796.81 6439796.81 6439796.81 6439796.81

Raw Materials in Stock-Total 2769032.73 2769032.73 2769032.73 2769032.73 2769032.73 2769032.73

Raw Material-Local 485454.55 485454.55 485454.55 485454.55 485454.55 485454.55

Raw Material-Foreign 2283578.18 2283578.18 2283578.18 2283578.18 2283578.18 2283578.18

Factory Supplies in Stock 11666.54 11666.54 11666.54 11666.54 11666.54 11666.54

Spare Parts in Stock and Maintenance 15074.18 15074.18 15074.18 15074.18 15074.18 15074.18

Work in Progress 291663.55 291663.55 291663.55 291663.55 291663.55 291663.55

Finished Products 583327.09 583327.09 583327.09 583327.09 583327.09 583327.09

2. Accounts Receivable 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00

3. Cash in Hand 47278.91 47278.91 47278.91 47278.91 47278.91 47278.91

CURRENT ASSETS 5218043.00 5218043.00 5218043.00 5218043.00 5218043.00 5218043.00

4. Current Liabilities 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00

Accounts Payable 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00

TOTAL NET WORKING CAPITAL REQUIRMENTS 3718043.00 3718043.00 3718043.00 3718043.00 3718043.00 3718043.00

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 2418150.00 6136193.00 12200000.00 12525000.00 13900000.00 13750000.00
1. Inflow Funds 2418150.00 6136193.00 1200000.00 150000.00 150000.00 0.00
Total Equity 967260.00 2454477.20 0.00 0.00 0.00 0.00
Total Long Term Loan 1450890.00 3681715.80 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 1200000.00 150000.00 150000.00 0.00
2. Inflow Operation 0.00 0.00 11000000.00 12375000.00 13750000.00 13750000.00
Sales Revenue 0.00 0.00 11000000.00 12375000.00 13750000.00 13750000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 2418150.00 2418150.00 13694915.21 11243241.27 12920363.32 12326702.53
4. Increase In Fixed Assets 2418150.00 2418150.00 0.00 0.00 0.00 0.00
Fixed Investments 2303000.00 2303000.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 115150.00 115150.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 4174434.40 521804.30 521804.30 0.00
6. Operating Costs 0.00 0.00 8227736.64 9250089.97 10272443.30 10272443.30
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 757420.84 788216.47
8. Interest Paid 0.00 0.00 1292744.17 615912.70 513260.58 410608.46
9. Loan Repayments 0.00 0.00 0.00 855434.30 855434.30 855434.30
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 3718043.00 -1494915.21 1281758.73 979636.68 1423297.47
Cumulative Cash Balance 0.00 3718043.00 2223127.79 3504886.52 4484523.21 5907820.67

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00
Sales Revenue 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 12254846.05 12211807.57 12139951.09 11212660.31 11212660.31 11212660.31
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 10272443.30 10272443.30 10272443.30 10272443.30 10272443.30 10272443.30
7. Corporate Tax Paid 819012.11 878625.74 909421.38 940217.01 940217.01 940217.01
8. Interest Paid 307956.35 205304.23 102652.12 0.00 0.00 0.00
9. Loan Repayments 855434.30 855434.30 855434.30 0.00 0.00 0.00
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 1495153.95 1538192.43 1610048.91 2537339.69 2537339.69 2537339.69
Cumulative Cash Balance 7402974.62 8941167.05 10551215.95 13088555.64 15625895.33 18163235.02

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 11000000.00 12375000.00 13750000.00 13750000.00

1. Inflow Operation 0.00 0.00 11000000.00 12375000.00 13750000.00 13750000.00

Sales Revenue 0.00 0.00 11000000.00 12375000.00 13750000.00 13750000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 2418150.00 2418150.00 11202171.04 9621894.27 11401668.44 11060659.77

3. Increase in Fixed Assets 2418150.00 2418150.00 0.00 0.00 0.00 0.00

Fixed Investments 2303000.00 2303000.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 115150.00 115150.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 2974434.40 371804.30 371804.30 0.00

5. Operating Costs 0.00 0.00 8227736.64 9250089.97 10272443.30 10272443.30

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 757420.84 788216.47

NET CASH FLOW -2418150.00 -2418150.00 -202171.04 2753105.73 2348331.56 2689340.23

CUMMULATIVE NET CASH FLOW -2418150.00 -4836300.00 -5038471.04 -2285365.31 62966.26 2752306.49

Net Present Value (at 18%) -2418150.00 -2049279.66 -145196.09 1675625.14 1211243.30 1175535.40

Cumulative Net present Value -2418150.00 -4467429.66 -4612625.75 -2937000.61 -1725757.31 -550221.91

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00

1. Inflow Operation 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00

Sales Revenue 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 11091455.41 11151069.04 11181864.68 11212660.31 11212660.31 11212660.31

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 10272443.30 10272443.30 10272443.30 10272443.30 10272443.30 10272443.30

6. Corporate Tax Paid 819012.11 878625.74 909421.38 940217.01 940217.01 940217.01

NET CASH FLOW 2658544.59 2598930.96 2568135.32 2537339.69 2537339.69 2537339.69

CUMMULATIVE NET CASH FLOW 5410851.08 8009782.04 10577917.37 13115257.06 15652596.75 18189936.44

Net Present Value (at 18%) 984808.77 815869.49 683222.01 572058.64 484795.46 410843.61

Cumulative Net present Value 434586.85 1250456.34 1933678.35 2505736.98 2990532.44 3401376.05

Net Present Value (at 18%) 3,401,376.05

Internal Rate of Return 31.5%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 80% 90% 100% 100% 100%

1. Total Income 11000000.00 12375000.00 13750000.00 13750000.00 13750000.00

Sales Revenue 11000000.00 12375000.00 13750000.00 13750000.00 13750000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 8098877.84 9111237.57 10123597.30 10123597.30 10123597.30
VARIABLE MARGIN 2901122.16 3263762.43 3626402.70 3626402.70 3626402.70
(In % of Total Income) 26.37 26.37 26.37 26.37 26.37
3. Less Fixed Costs 568418.80 578412.40 588406.00 588406.00 588406.00
OPERATIONAL MARGIN 2332703.36 2685350.03 3037996.70 3037996.70 3037996.70
(In % of Total Income) 21 22 22 22 22
4. Less Cost of Finance 1292744.17 615912.70 513260.58 410608.46 307956.35
5. GROSS PROFIT 1039959.19 2069437.33 2524736.12 2627388.24 2730040.35
6. Income (Corporate) Tax 0.00 0.00 757420.84 788216.47 819012.11
7. NET PROFIT 1039959.19 2069437.33 1767315.28 1839171.77 1911028.25
RATIOS (%)
Gross Profit/Sales 9% 17% 18% 19% 20%
Net Profit After Tax/Sales 9% 17% 13% 13% 14%
Return on Investment 30% 33% 27% 26% 26%
Return on Equity 30% 60% 52% 54% 56%
Annex 4: NET INCOME STATEMENT (in Birr):Continued

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

1. Total Income 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00

Sales Revenue 13750000.00 13750000.00 13750000.00 13750000.00 13750000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 10123597.30 10123597.30 10123597.30 10123597.30 10123597.30
VARIABLE MARGIN 3626402.70 3626402.70 3626402.70 3626402.70 3626402.70
(In % of Total Income) 26 26 26 26 26
3. Less Fixed Costs 492346.00 492346.00 492346.00 492346.00 492346.00
OPERATIONAL MARGIN 3134056.70 3134056.70 3134056.70 3134056.70 3134056.70
(In % of Total Income) 23 23 23 23 23
4. Less Cost of Finance 205304.23 102652.12 0.00 0.00 0.00
5. GROSS PROFIT 2928752.47 3031404.58 3134056.70 3134056.70 3134056.70
6. Income (Corporate) Tax 878625.74 909421.38 940217.01 940217.01 940217.01
7. NET PROFIT 2050126.73 2121983.21 2193839.69 2193839.69 2193839.69
RATIOS (%)
Gross Profit/Sales 21% 22% 23% 23% 23%
Net Profit After Tax/Sales 15% 15% 16% 16% 16%
Return on Investment 26% 26% 26% 26% 26%
Return on Equity 60% 62% 64% 64% 64%

Annex 5: Projected Balance Sheet (in Birr)

8
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 2418150.00 8554343.00 10794302.18 12158305.22 13220186.20 14203923.67
1. Total Current Assets 0.00 3718043.00 6397562.18 8201125.22 9702566.20 11125863.67
Inventory on Materials and Supplies 0.00 0.00 2236618.76 2516196.11 2795773.45 2795773.45
Work in Progress 0.00 0.00 233330.84 262497.19 291663.55 291663.55
Finished Products in Stock 0.00 0.00 466661.67 524994.38 583327.09 583327.09
Accounts Receivable 0.00 0.00 1200000.00 1350000.00 1500000.00 1500000.00
Cash in Hand 0.00 0.00 37823.13 42551.02 47278.91 47278.91
Cash Surplus, Finance Available 0.00 3718043.00 2223127.79 3504886.52 4484523.21 5907820.67
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 2418150.00 4836300.00 4396740.00 3957180.00 3517620.00 3078060.00
Fixed Investment 0.00 2303000.00 4606000.00 4606000.00 4606000.00 4606000.00
Construction in Progress 2303000.00 2303000.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 115150.00 230300.00 230300.00 230300.00 230300.00 230300.00
Less Accumulated Depreciation 0.00 0.00 439560.00 879120.00 1318680.00 1758240.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 2418150.00 8554343.00 10794302.18 12158305.22 13220186.20 14203923.67
5. Total Current Liabilities 0.00 0.00 1200000.00 1350000.00 1500000.00 1500000.00
Accounts Payable 0.00 0.00 1200000.00 1350000.00 1500000.00 1500000.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1450890.00 5132605.80 5132605.80 4277171.50 3421737.20 2566302.90
Loan A 1450890.00 5132605.80 5132605.80 4277171.50 3421737.20 2566302.90
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 967260.00 3421737.20 3421737.20 3421737.20 3421737.20 3421737.20
Ordinary Capital 967260.00 3421737.20 3421737.20 3421737.20 3421737.20 3421737.20
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 1039959.19 3109396.52 4876711.80
9.Net Profit After Tax 0.00 0.00 1039959.19 2069437.33 1767315.28 1839171.77
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 1039959.19 2069437.33 1767315.28 1839171.77
Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION

9
 5 6 7 8 9 10
TOTAL ASSETS 15259517.61 16454210.04 17720758.95 19914598.64 22108438.33 24302278.02
1. Total Current Assets 12621017.61 14159210.04 15769258.95 18306598.64 20843938.33 23381278.02
Inventory on Materials and Supplies 2795773.45 2795773.45 2795773.45 2795773.45 2795773.45 2795773.45
Work in Progress 291663.55 291663.55 291663.55 291663.55 291663.55 291663.55
Finished Products in Stock 583327.09 583327.09 583327.09 583327.09 583327.09 583327.09
Accounts Receivable 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00
Cash in Hand 47278.91 47278.91 47278.91 47278.91 47278.91 47278.91
Cash Surplus, Finance Available 7402974.62 8941167.05 10551215.95 13088555.64 15625895.33 18163235.02
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 2638500.00 2295000.00 1951500.00 1608000.00 1264500.00 921000.00
Fixed Investment 4606000.00 4606000.00 4606000.00 4606000.00 4606000.00 4606000.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 230300.00 230300.00 230300.00 230300.00 230300.00 230300.00
Less Accumulated Depreciation 2197800.00 2541300.00 2884800.00 3228300.00 3571800.00 3915300.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 15259517.61 16454210.04 17720758.95 19914598.64 22108438.33 24302278.02
5. Total Current Liabilities 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00
Accounts Payable 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00 1500000.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1710868.60 855434.30 0.00 0.00 0.00 0.00
Loan A 1710868.60 855434.30 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 3421737.20 3421737.20 3421737.20 3421737.20 3421737.20 3421737.20
Ordinary Capital 3421737.20 3421737.20 3421737.20 3421737.20 3421737.20 3421737.20
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 6715883.57 8626911.82 10677038.54 12799021.75 14992861.44 17186701.13
9. Net Profit After Tax 1911028.25 2050126.73 2121983.21 2193839.69 2193839.69 2193839.69
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 1911028.25 2050126.73 2121983.21 2193839.69 2193839.69 2193839.69

10