77.

PROFILE ON THE PRODUCTION OF

CONVEYOR AND TRANSMISSION BELT OF
RUBBER
 77-1

TABLE OF CONTENTS

PAGE

I. SUMMARY 77-2

II. PRODUCT DESCRIPTION & APPLICATION 77-2

III. MARKET STUDY AND PLANT CAPACITY 77-3

A. MARKET STUDY 77-3
B. PLANT CAPACITY & PRODUCTION PROGRAM 77-5

IV. MATERIALS AND INPUTS 77-6

A. RAW & AUXILIARY MATERIALS 77-6
B. UTILITIES 77-6

V. TECHNOLOGY & ENGINEERING 77-7

A. TECHNOLOGY 77-7
B. ENGINEERING 77-7

VI. HUMAN RESOURCE & TRAINING REQUIREMENT 77-12

A. HUMAN RESOURCE REQUIREMENT 77-12
B. TRAINING REQUIREMENT 77-13

VII. FINANCIAL ANLYSIS 77-13

A. TOTAL INITIAL INVESTMENT COST 77-13
B. PRODUCTION COST 77-14
C. FINANCIAL EVALUATION 77-15
D. ECONOMIC & SOCIAL BENEFITS 77-17
 77-2

I. SUMMARY

This profile envisages the establishment of a plant for the production of transmission belts with a
capacity of 210,000 pieces or 1010 tons per annum. Transmission belts are used for power
transmission purposes by connecting driving and driven pulleys of machinery.

The demand for transmission belts is entirely met through import. The present (2012) demand for
transmission belts is estimated at 1,325 tons. The demand for transmission belts is projected to
reach 2,133 tons and 3,435tons by the year 2017 and 2022, respectively.

The principal raw materials required are natural and synthetic rubber, carbon black, cord (both
nylon and polyester), activators, accelerator, vulcanizing agents and process aid all of which have
to be imported.

The total investment cost of the project including working capital is estimated at Birr 55.46
million. From the total investment cost, the highest share (Birr 31.30 million or 56.44%) is
accounted by initial working capital followed by fixed investment cost ( Birr 19.90 million or
35.89%) and pre operation cost (Birr 4.24 million or 7.66%). From the total investment cost, Birr
5.01 million or 9.04% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 32.02% and a net present
value (NPV) of Birr 82.14 million, discounted at 10%.

The project can create employment for 46 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 forward linkage with the manufacturing sector and also generates income for the
Government in terms of tax revenue and payroll tax.

II. PRODUCT DESCRIPTION AND APPLICATION

Transmission belts are used for power transmission purposes by connecting driving and driven
pulleys of machinery. Transmission pulleys are widely used in industrial, agricultural,
construction and other operations to transmit power. Of the various types of belts in use V- belt
is considered for this project as it is the type (according to the market study) more in demand.
 77-3

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Since there is no plant in the country that produces transmission belt of rubber, the requirement
of the country is entirely met through import. Import of transmission belt of rubber during the
past six years is shown in Table 3.1.
Table 3.1
IMPORT OF TRANSMISSION BELT (TONS)

Year Import Year

2002 425
2003 383
2004 529
2005 460
2006 834
2007 727
2008 882
2009 863
2010 1,723
2011 1,113
Source: - Ethiopian Custom and Revenues Authority.

Import of transmission belt of rubber during the past ten years has shown a general increasing
trend although it is characterized by fluctuations. The yearly average import of the product
during the years (2002-2004) and (2005-2007) was 446 tons and 674 tons respectively. This
average has become 1,145 tons during the recent four years (2008-2011). The average growth
rate of the quantity of imported transmission belt of rubber during the years 2002-2011 was
about 19% and this average growth rate was about 21% during the last four years (2008-2011).
 77-4

To determine the current (2012) demand, a 19% growth rate which is less than the average
growth rate during the last for years (2008-2011) is applied by using the imported quantity
during the year 2011 as a base. Accordingly, the current (2012) demand for transmission belt of
rubber is set at 1,325 tons.

2. Demand Projection

Transmission belts are widely used in industrial, agricultural, construction and other operations
as a source of motion, to efficiently transmit power, or to track relative movements. Hence, the
demand for the product is expected to grow parallel with the development of these sectors. The
industrial sector is expected to grow at about 20% during the Growth and Transformation (GTP)
period. However, a conservative growth estimate of 10% is applied to project the future demand
for the product (see Table 3.2).
Table 3.2
PROJECTED DEMAND FOR TRANSMISSION BELT ( TONS)

Year Project
Demand
2013 1,457
2014 1,603
2015 1,763
2016 1,939
2017 2,133
2018 2,346
2019 2,581
2020 2,839
2021 3,123
2022 3,435

Demand for transmission belt of rubber will grow from 1,457 tons in the year 2013 to 1,939 tons
and 2,581 tons by the year 2016 and year 2019, respectively. The demand will reach at 3,435
tons by the year 2022.
 77-5

3. Pricing and Distribution

The average CIF price of transmission belt of rubber including subsequent inland costs which is
Birr 172,110 per tone is recommended for sales revenue projection.

The product will find it market outlet through the existing industrial, agricultural, transport and
related materials and equipments distributing channels.

B. PLANT CAPACITY & PRODUCTION PROGRAM

1. Plant Capacity

V-belt has all sorts of cross-section and circumferential length. Because of the combination of
the two, the production tends to be small with great variety. In order to make a plant profitable,
when designing it, due consideration should be given to the kind of product to be produced and
the scale of production.

The production capacity of the envisaged plant is estimated to be 210,000 pieces (1010 tons) of
V-belts of which B type 60 inch is the main product which the yearly production run time is 300
days with 8hrs per day arrangement.

2. Production Program

At the initial stage of production, the project may require some years to penetrate the market.
Therefore, in the first and second year of production the capacity utilization rate will be 65% and
85%, respectively. In the third year and onwards, full capacity production shall be attained.
Table 4.1 indicates the production program of the project.
Table 4.1

PRODUCTION PROGRAMME

Production Year
Product 1 2 3rd --10
V-belt (pcs) 136,500 178,500 210,000
V-Belt (tons) 656 858 1,010
Capacity Utilization Rate (%) 65 85 100
 77-6

IV. MATERIALS AND INPUTS

A. RAW & AUXILIARY MATERIALS

The major raw & auxiliary materials for the production of transmission belt, which fabric is used
as reinforcement, are natural and synthetic rubber, carbon black, cord (both nylon and polyester),
activators, accelerator, vulcanizing agents and process aid. The rubber components may be
delivered as master-batch so that the investment requirement for mixers and open mill calendar
and some laboratory testing equipments will be excluded. Annual requirements of master batch,
vulcanizing and accelerators, and reinforcement and stabilizing fabric are given in Table 4.2.

Table 4.2

RAW AND AUXILIARY MATERIAL REQUIREMENT AND COST

Sr. Cost ('000 Birr)

No. FC LC Total
Description UOM Qty.
1 Master batch Ton 599 104,825 104,825
2 Reinforcement fabric Ton 416 37,440 37,440
3 Vulcanizing agent and Ton 20 1,200 1,200
accelerators
4 Others Ton 5 325 325
Grand Total 143,790

B. UTILITIES

Major utilities of the project are electricity and water, and their annual requirement and cost is
indicated in Table 4.2.
Table 4.2

UTILITIES REQUIRMENT AND COST

Utilities Unit Qty. Cost ('000 Birr)

Electrical Energy kWh 482,400 280
Water m3 1,240 12
Total 292
 77-7

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process of Production

The process starts with a thin layer of cushion rubber sheet wound by a cord of fabrics with
slight tension. The cover cloth which is a woven jacketing fabric rubberized by fractioning in a
calendar is cut into strips and laid in the V grooves of the ring mould .The groove is then filled
with the extruded strip of filler rubber compound. Trapezoidal section is formed at this stage.
The ends are then joined together. The assembly is wrapped with nylon tape and the moulds are
transferred to steam vulcanizing chamber which would result in the finished product.

Belts of larger sizes are made on adjustable belt presses where more than a single layer of cord
fabric is used. A fabric cord coated with adhesive is cut to the desired width, and the strips are
wound in layers over filler and the cover cloth is sealed. The belt is vulcanized in stages in
hydraulic presses.

2. Environmental impact Assessment:

The envisaged plant does not have wastes that affect the environment. Therefore, it is
environmentally friendly

B. ENGINEERING

1. Machinery & Equipment

The total cost of machinery is estimated at Birr 5.425 million, of which Birr 410,000 is in local
currency. The list of machinery and equipment is indicated in Table 5.1.
 77-8

Table 5.1

MACHINERY AND EQUIPMENT REQUIREMENT AND COST

Sr. Cost ('000 Birr)

No. Item Qty. FC LC Total
1 60" two roll mill 1 450 450
2 3 roll calendar(660Фx1700) 1 550 550
3 Extruder 1 480 480
4 Bias cutter 1 320 320
5 Case making machine 2 180 180
6 Skiving machine 5 100 100
7 Covering machine 5 0
8 Autoclave 5 950 950
9 Expanding drum 14 490 490
10 Long size belt making
machine 3 195 195
11 Belt press 3 600 600
12 Ring mould 60 100 100 200
13 Flat mould 6 210 210
14 Electric boiler 1 700 700
Total 5,015 410 5,425

2. Land, Building and Civil Works

The total area of the project is about 5,000 m2, out of which the built-up area will be 2,500 m2.
Therefore, the total cost of building is estimated at Birr 12.5 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
 77-9

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
5,000 m2, the land lease request is evaluated and decided upon by the Industrial 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.”
 77-10

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

Floor
Zone Level Price/m2
1st 1686
2nd 1535
Central Market
District 3rd 1323
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
 77-11

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 m2 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
Scored Point Period Period Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

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 m2 is estimated at Birr 1,330,000 of
which 10% or Birr 133,000 will be paid in advance. The remaining Birr 1,197,000 will be paid in
equal installments with in 28 years i.e. Birr 42,750 annually.
 77-12

VI. HUMAN RESOURCE AND TRAINING REQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

The plant will create job opportunities for a total of 46 persons. The overall pay roll and yearly
benefit is estimated at Birr 1.307 million per annum. The human resource requirement with
corresponding cost estimation is indicated in Table 6.1.

Table 6.1

HUMAN RESOURCE REQUIRMENT AND LABROR COST

Req. Salary Monthly Annual Salary

Sr. No. Description No. (Birr) (Birr)
1 General Manager 1 8,000 96,000
2 Secretary 2 1800 43,200
3 Commercial Manager 1 5,000 60,000
4 Finance and Admin. Manager 1 5,000 60,000
5 Production & Technical 1 6,000 72,000
Manager
6 Quality Assurance head 1 5,000 60,000
7 Accountant 2 2,500 60,000
8 Clerks 2 1,200 28,800
9 Forman 2 2,500 60,000
10 Operators-skilled 17 1,400 285,600
11 Assistant Operators 3 800 28,800
12 Laborers 2 600 14,400
13 Technical crew(mechanic and 4 2,000 96,000
electrician)
14 laboratory staffs 2 2,200 52,800
15 supporting staffs 5 1,200 72,000
Sub-total 46 45,200 1,089,600.00
Benefit (20%) 9,040.00 217,920.00
Grand Total 54,240.00 1,307,520.00
 77-13

B. TRAINING REQUIRMENT

For the effective run of the technological process an adequate training has to be provided for the
technical production manager and for skilled workers/operators. Such training can extend for two
months time and the total cost of is estimated at Birr 100,000. The training can be conducted
during the machinery erection and commissioning period via the technology provider engineers.

VII. FINANCIAL ANALYSIS

The financial analysis of the transmission belts 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%
Tax holidays 5 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 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 55.46
million (see Table 7.1). From the total investment cost, the highest share (Birr 31.30 million or
56.44%) is accounted by initial working capital followed by fixed investment cost ( Birr 19.90
 77-14

million or 35.89%) and pre operation cost (Birr 4.24 million or 7.66%). From the total
investment cost, Birr 5.01 million or 9.04% is required in foreign currency.

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 133.00 133.00 0.24
1.2 Building and civil work 12,500.00 12,500.00 22.54
1.3 Machinery and equipment 410.00 5,015.00 5,425.00 9.78
1.4 Vehicles 1,500.00 1,500.00 2.70
1.5 Office furniture and equipment 350.00 350.00 0.63
Sub- total 14,893.00 5,015.00 19,908.00 35.89
2 Pre operating cost *
2.1 Pre operating cost 621.25 621.25 1.12
2.2 Interest during construction 3,628.40 3,628.40 6.54
Sub -total 4,249.65 4,249.65 7.66
3 Working capital 31,304.98 31,304.98 56.44
Grand Total 50,447.63 5,015.00 55,462.63 100
* 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 48.12 million. However,
only the initial working capital of Birr 31.30 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 152.59 million (see
Table 7.2). The cost of raw material account for 94.23% of the production cost. The other major
components of the production cost are financial cost, depreciation and direct labor which account
for 2.29%, 1.34% and 0.71%, respectively. The remaining 1.43% is the share of utility, repair
and maintenance, labor overhead and administration cost. For detail production cost see
Appendix 7.A.2.
 77-15

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE)

Items Cost
(in 000 Birr) %
Raw Material and Inputs
143,790.00 94.23
Utilities
292.00 0.19
Maintenance and repair
271.25 0.18
Labor direct
1,089.60 0.71
Labor overheads
217.92 0.14
Administration Costs
400.00 0.26
Land lease cost
- -
Cost of marketing and distribution
1,000.00 0.66
Total Operating Costs
147,060.77 96.37
Depreciation
2,044.25 1.34
Cost of Finance
3,492.33 2.29
Total Production Cost
152,597.35 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through out its
operation life. Annual net profit after tax ranges from Birr 15 million to Birr 18.33 million during
the life of the project. Moreover, at the end of the project life the accumulated net cash flow
amounts to Birr 187.28 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.
 77-16

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 37,793,550
Variable Margin ratio (%)

Break -Even Capacity utilization = Break -even Sales Value X 100 = 22%
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 3 years.

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
 77-17

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 32.02% 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
non-negative.

Accordingly, the net present value of the project at 10% discount rate is found to be Birr 82.14
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 46 persons. The project will generate Birr 50.96 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 forward
linkage with the agro-processing sub sector and also generates other income for the Government.
 77-18

Appendix 7.A

FINANCIAL ANALYSES SUPPORTING TABLES

 77-19

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 23,365.88 30,555.38 35,947.50 35,947.50 35,947.50 35,947.50 35,947.50 35,947.50 35,947.50 35,947.50

Accounts receivable 7,994.96 10,429.30 12,255.06 12,255.06 12,258.63 12,258.63 12,258.63 12,258.63 12,258.63 12,258.63

Cash-in-hand 17.86 23.36 27.48 27.48 28.08 28.08 28.08 28.08 28.08 28.08

CURRENT ASSETS 31,378.70 41,008.04 48,230.05 48,230.05 48,234.20 48,234.20 48,234.20 48,234.20 48,234.20 48,234.20

Accounts payable 73.71 96.39 113.40 113.40 113.40 113.40 113.40 113.40 113.40 113.40

CURRENT
LIABILITIES 73.71 96.39 113.40 113.40 113.40 113.40 113.40 113.40 113.40 113.40
TOTAL WORKING
CAPITAL 31,304.98 40,911.65 48,116.64 48,116.64 48,120.80 48,120.80 48,120.80 48,120.80 48,120.80 48,120.80
 77 - 20

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 93,464 122,222 143,790 143,790 143,790 143,790 143,790 143,790 143,790 143,790

Utilities 190 248 292 292 292 292 292 292 292 292

Maintenance and repair 176 231 271 271 271 271 271 271 271 271

Labour direct 708 926 1,090 1,090 1,090 1,090 1,090 1,090 1,090 1,090

Labour overheads 142 185 218 218 218 218 218 218 218 218

Administration Costs 260 340 400 400 400 400 400 400 400 400

Land lease cost 0 0 0 0 43 43 43 43 43 43

Cost of marketing
and distribution 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

Total Operating Costs 95,940 125,152 147,061 147,061 147,104 147,104 147,104 147,104 147,104 147,104

Depreciation 2,044 2,044 2,044 2,044 2,044 535 535 535 535 535

Cost of Finance 0 3,991 3,492 2,993 2,495 1,996 1,497 998 499 0

Total Production Cost 97,984 131,187 152,597 152,098 151,642 149,634 149,135 148,636 148,137 147,639
 77 - 21

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

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

Sales revenue 112,990 147,756 173,831 173,831 173,831 173,831 173,831 173,831 173,831 173,831
Less variable costs 94,940 124,152 146,061 146,061 146,061 146,061 146,061 146,061 146,061 146,061

VARIABLE MARGIN 18,050 23,604 27,770 27,770 27,770 27,770 27,770 27,770 27,770 27,770
in % of sales revenue 15.98 15.98 15.98 15.98 15.98 15.98 15.98 15.98 15.98 15.98
Less fixed costs 3,044 3,044 3,044 3,044 3,087 1,578 1,578 1,578 1,578 1,578

OPERATIONAL MARGIN 15,006 20,560 24,726 24,726 24,683 26,192 26,192 26,192 26,192 26,192
in % of sales revenue 13.28 13.91 14.22 14.22 14.20 15.07 15.07 15.07 15.07 15.07
Financial costs 3,991 3,492 2,993 2,495 1,996 1,497 998 499 0
GROSS PROFIT 15,006 16,569 21,234 21,733 22,189 24,197 24,696 25,195 25,694 26,192
in % of sales revenue 13.28 11.21 12.22 12.50 12.76 13.92 14.21 14.49 14.78 15.07
Income (corporate) tax 0 0 0 6,520 6,657 7,259 7,409 7,558 7,708 7,858
NET PROFIT 15,006 16,569 21,234 15,213 15,532 16,938 17,287 17,636 17,986 18,335
in % of sales revenue 13.28 11.21 12.22 8.75 8.94 9.74 9.94 10.15 10.35 10.55
 77 - 22

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

Year Year Year

Item 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 10 11 Scrap
TOTAL CASH
INFLOW 20,529 147,997 147,779 173,848 173,831 173,831 173,831 173,831 173,831 173,831 173,831 59,382
Inflow funds 20,529 35,007 23 17 0 0 0 0 0 0 0 0
Inflow operation 0 112,990 147,756 173,831 173,831 173,831 173,831 173,831 173,831 173,831 173,831 0
Other income 0 0 0 0 0 0 0 0 0 0 0 59,382
TOTAL CASH
OUTFLOW 20,529 130,947 143,761 162,764 161,563 161,248 161,347 160,998 160,649 160,300 154,961 0
Increase in fixed assets 20,529 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 31,379 9,629 7,222 0 4 0 0 0 0 0 0
Operating costs 0 94,940 124,152 146,061 146,061 146,104 146,104 146,104 146,104 146,104 146,104 0
Marketing and
Distribution cost 0 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 0
Income tax 0 0 0 0 6,520 6,657 7,259 7,409 7,558 7,708 7,858 0
Financial costs 0 3,628 3,991 3,492 2,993 2,495 1,996 1,497 998 499 0 0
Loan repayment 0 0 4,989 4,989 4,989 4,989 4,989 4,989 4,989 4,989 0 0
SURPLUS (DEFICIT) 0 17,050 4,017 11,084 12,268 12,583 12,484 12,833 13,182 13,531 18,870 59,382
CUMULATIVE CASH
BALANCE 0 17,050 21,068 32,152 44,420 57,003 69,487 82,320 95,502 109,033 127,903 187,285
 77 - 23

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

Year
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 10 Year 11 Scrap
TOTAL CASH INFLOW 0 112,990 147,756 173,831 173,831 173,831 173,831 173,831 173,831 173,831 173,831 59,382

Inflow operation 0 112,990 147,756 173,831 173,831 173,831 173,831 173,831 173,831 173,831 173,831 0

Other income 0 0 0 0 0 0 0 0 0 0 0 59,382

TOTAL CASH OUTFLOW 51,834 105,546 132,357 147,061 153,585 153,760 154,363 154,512 154,662 154,812 154,961 0

Increase in fixed assets 20,529 0 0 0 0 0 0 0 0 0 0 0

Increase in net working capital 31,305 9,607 7,205 0 4 0 0 0 0 0 0 0

Operating costs 0 94,940 124,152 146,061 146,061 146,104 146,104 146,104 146,104 146,104 146,104 0

Marketing and Distribution cost 0 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 0

Income (corporate) tax 0 0 0 6,520 6,657 7,259 7,409 7,558 7,708 7,858 0

NET CASH FLOW -51,834 7,444 15,399 26,770 20,246 20,071 19,468 19,319 19,169 19,019 18,870 59,382

CUMULATIVE NET CASH FLOW -51,834 -44,390 -28,991 -2,221 18,025 38,096 57,565 76,884 96,053 115,072 133,942 193,324

Net present value -51,834 6,767 12,727 20,113 13,828 12,462 10,989 9,914 8,943 8,066 7,275 22,894

Cumulative net present value -51,834 -45,067 -32,340 -12,228 1,601 14,063 25,053 34,966 43,909 51,975 59,250 82,144

NET PRESENT VALUE 82,144

INTERNAL RATE OF RETURN 32.02%
NORMAL PAYBACK 3 years