FEASIBILITY STUDY OF TAFACH BAKERY

PROPOSED LOCATI ON:-ADDI S ABABA CI TY ADMINI STRATI ON BOLE SUB-CI TY; WOR.-13; H.N.BL_13_
644 St. B113_ 21
Table of Content  I.  

Executive Summery ………………………………………….…..  II.  

Background Information ……………………………...…………  III.  

Market Analysis..……………………………………………..….  IV.  

Production Plan &Technical Analysis……………………….. V.

Organization and Management ……………………………..... VI.  

Financial Analysis………………………………………………. VII.  

Annexes…………………………………..

Awareness of high quality baked goods is on the rise. Good bread is a rare combination of nutrition,
convenience, and luxury. Today's consumer has less time to create wholesome, handmade bread, but
increasingly appreciates the nutritional and sensory benefits it provides. Good bread provides fiber and
carbohydrates in a convenient, low fat form that is portable and delicious. Good bread never goes out of
style.

In this regard, the envisaged project is a newly established Ethiopian owned business founded by Mr .
Amdemikael Moges , who has been engaged in hotel services business for more than 5 years. The new
bakery project has intended to produce and sale bread and pastry products of high quality ingredients
using modern production techniques. In addition the company’s objective is to generate income for the
company by participating actively in the business environment with creating employment opportunities
for surrounding community. Currently, the project promoter has finalized researching the market and
has concluded that the intended business is an attractive investment. The planned production capacity
of the project is assumed initially based on two shifts with capacity utilization rate at 70%, 80%, 90%,
and 100% during 1 st , 2nd , 3rd , and 4th-5th years respectively.

Although there are many established competitors with in the vicinity where the underlying project has
planned to be located; it will possess an advantage that lies with the high quality of its products due to
specialization and artisan manufacturing. The main marketing focus will be of all community inclusive
and having an eye catching sign, the scent of fresh bread wafting out of the storefront, and periodic
printed advertisements.

After establishing the operation, the company will explore the possibility of making takeout and
delivering wholesale bread and baked goods to area restaurants and specialty retailers will also be
considered. Hence, the market for the products under consideration is projected to grow rapidly in the
coming years. The products will be supplied to high demanding domestic market and also will improve
the supply of breads to and improve the lives of local community through employment creation

The project totally needs Birr 6,805,818 , which intended to cover investment costs of working premises,
machinery, vehicles, working capital requirements, office furniture & equipment and raw material. Out
of the total estimated initial investment costs, approximately, Birr 4,646,818 will be expected from
owners’ equity contribution and Birr 2,159,818 for Purchase of Baking Machine with accessories will be
sought from external source as bank lease financing loan for which It is projected that principal and
interest on the loan will be paid over five years with annual interest rate of 11 .5%. Furthermore, the
financial analysis result, the business will generate positive net profit through entire years of operations.

IRR After Tax 32%

IRR Before Tax 49%

NPV @ 11.5% inter. rate 4,185,223

Finally, Introduction and uses of this new producing technology has reliable positive impacts on

the overall development of the country in many aspects. In this regard, the company with its

initial production capacity intended to move forward, so that;

 It creates employment opportunity for about 28 permanent employees;

 It generates income to the promoters and enhances self-employment;

 The business contributes its best role in the socio-economic development;

 It generates revenue to the government in the form of income tax;

2.1 Establishment

 Project Name: …………………….Bedilu Kassahun Bakery

 Address: …………………………...Addis Ababa City Administration

Arada Seb-City, Woreda-05, H.No. 083

 Type of Business: ………………….Food Processing and Manufacturing

 Legal form of Business: …………...Sole

 Status of Business: ………………... New Project;

 TIN Certificate No.: ……………....0005957543

 Trade Registration No: …………..AA/AR/05/1/0000708/2005; DD:22/5/2005 E.C

 TradeLicense No.: ………………...Under Process

 Required Initial Investment : ……...ETB 6,808,818

2.2 Project Ownership

The business is a newly established Ethiopian owned business founded by Mr. BEDILU KASSAHUN

ALEMU having the main focuses on bakery of breads and pastries, The business promoters is at the

middle age of life, with having a good character and well appreciated personality among the society.
Besides, he has been engaged in hotel services business for more than a decade. The new bakery

project has intended to produce and sale bread and pastry products of high quality ingredients using

modern production techniques. In addition the company’s objective is to generate income for the

company by participating actively in the business environment with creating employment

opportunities for surrounding community. He is educated and has acquired pertinent working

experiences of undertaking quality hospitality services and capable to implement proper business

management.

the business are:

.

,

To contribute in the food sector development

Producing breads and pastries using modern production techniques and technology through

creation of employment.

To generate sustainable income for the company in order to expand the operation and other

related development activities in the country.

2.4. VISION & STRATEGY

Become one of best quality food producers with sustainable profi tabili ty.

This will be through performing as a multifaceted business committed in

providing maximum customer satisfaction.

To achieve this vision, it has to be resolved upon a set of strategies and executing these strategies by

translating directly into the ability to serve the business vision and objectives. The company’s vision is to
be

realized through a team of professionals who have extensive work experience in the industry.

2.5. COMPANY VALUES AND CULTURE

The following are components of the business values and cultures.

The company communicates openly and honestly.

Unethical and dishonest practices have no place in the business

The company recognizes and rewards performance

The company believes that staff development is integral part of its success

The company strongly believes that teams, not individuals are the essential unit of the

organization for achieving high performance and accelerating growth.

The company believes in societal support and community development, hence, all its personnel

will obey to this core value.

 Macro level Successes

 Access to credit provision at lower interest rate as compared to the business’s ROI

 Attractive investment policy and other packages;

 Secured peace and stability throughout the country;

 Continuous increment in household income and associated expenditure patterns;

 Sector Level key Successes

 Firm level successes factors

;

 Long years of pertinent work experience of the owners/promoters;

 Well established business with plenty of good-will as well as social acceptances that the

promoters earned so far.

2.7

The envisaged business requires total investment of ETB 6,805,818. Out of this, the total equity

contribution is expected to ETB 990,675.94 including the initial owners’ equity. The remaining

investment cost about ETB 4,646,000, is sought to be found from external source as bank lease
financing,

which break-down is, partly for machinery import, equipment and vehicle purchase. On the other hand,

the remaining loan amount will be used to fulfill working capital requirement in connection to planned

production.

Products of the envisaged bread bakery will stand out from the competition due to their
uniqueness and outstanding quality. Most of the breads are unique in style, including Sourdough,

and traditional Ethiopian whole wheat bread, and flavored pastries. These breads are made by the

sourdough method which uses no added yeast. This method imparts a rich flavor, which can be

tangy or mild, as well as a toothsome inner crumb and a crackly crust. By using this method, a

skilled baker can create truly delicious breads without added fats or sugars, making many of

products 100% fat free. Sourdough breads also have an extended shelf life, remaining fresh for

days without the use of preservatives.

The project will also offer specialty breads, which will be made in the sourdough way with the

addition of such luxurious ingredients as pastry with fresh ground pepper and dried spices with

roasted green fruits. Spent Grain Bread, made with barley leftover from beer brewing, is another

unique product that BEDILU KASSAHUN ALEMU bakery will offer. Two varieties of product

style will be offered fresh daily, a high demand product that is available nowhere else in the area.

The bakery project will also produce White and Wheat Sandwich Breads with soft crust and a

tender crumb for traditional Ethiopian Style food. As the needs of the customer change, so will

the lineup of its products. The bakery equipment is chosen with versatility in mind.
3.1 PAST SUPPLY AND TREND ANALYSIS

3.1.1 Bread Production and supply

The bakery business in Addis Ababa comprises a large number of players that can be segmented on the

basis of their production capacity and a type of services they provide. The major partakers are those

considering the industry’s high fixed cost requirement , profitability is largely dependent on the

company’s ability to increase volumes of sales. The shortage of quality wheat bread in the domestic and

regional market is making the sector challenging and it adversely affecting the operations and
profitability

of bakeries.

According to CSA, 2013/14 report in Ethiopia there are 217 bakeries making same products of which

57% are held in sole ownership, 30% are PLC and 5% are share companies as shown in the following

figure.

FIGURE 1: Bakery Businesses

Source: CSA, 2016

During the years 2007 – 2016, the country consumed an average of 1,375,380 tons of bread

products out of which the Addis Ababa market contributed an average of 64%. The table below

presents the total supply of breads in Ethiopia for the years 2007 to 2016 and the share Addis

Ababa suppliers of production in the total supply.

TABLE 3: TOTAL SUPPLY OF Bread 2007-2016

Year Total Supply Supply in A.A

2007 97,220 62,221

2008 104,512 66,888

2009 112,350 71,904

2010 120,776 77,297

2011 129,834 83,094

2012 139,572 89,326

2013 150,040 96,026

2014 161,293 103,228

2015 173,390 110,970

2016 186,394 119,292

Total Supply 1,375,381 880,244

3.1.2 General Demand Analysis

In the process of demand analysis and estimation for the product under consideration, a thorough

analysis of the set of factors that influence the marketing forces are essentially important and

necessary. The first step in the process involves the analysis of the underlying characteristics of the

target markets and their general macroeconomic environmental aspects.

Accordingly, the demand for Flours is a derived demand, which depends directly on the

performance of its major end users and other general factors, which commonly affects the products.

The following factors are identified to be determent of the demand position of the products under

consideration.

 Performance of the national economy;

 Rate of population growth and

 Urbanization

Accordingly, a throughout assessment of current status and future prospect of these factors is

done as follows.

Among the factors that influence the demand for Flours, one of the critical factors is identified to

be economic growth leading to construction and infrastructure development. Growth in Flours

products consumption has been correlated to economic growth in the developing world.

In Ethiopia as a result of the appropriate policy adopted by the government in recent years the

country’s economy is on a higher growth trajectory. According to the Ministry of Finance and

Economic Development (MOFED), the GDP of the country has registered an average annual
growth rate of 10.9 % during the last 11 years ending in 2013/14 which places Ethiopia among

the top performing economies in Sub-Saharan Africa. The agriculture, industry and service

sectors’ annual average growth was 9.0%, 13.8 % and 12.2% respectively.

According to MOFED, in the last four (2011-2014) Growth and Transformation Plan (GTP)

implementation period, the Ethiopian economy has also registered robust growth. In this period,

the GDP annual average growth rate was 10.1%. Agriculture, Industry and Service sectors have

6.6 %, 20.0%, and 10.7% annual average growth rates respectively.

The economic growth (GDP at constant basic price) for 2014 is estimated to be 10.3 %. As per

MOFED’s estimates, annual growth r ates of the major sectors, i.e. Agriculture, industry and

service were 5.4 %, 21.2 % and 11.9%; respectively and their shares out of the total GDP were

about 40%, 14% and 46 %, respectively. The registered economic growth (10.3%) was obviously

based on the contribution of wide range of economic activities. The contribution of these

activities by major industrial classification shows that Agriculture; Industry and service

industries have contributed 2.3 %, 2.7% and 5.3 % respectively.

The following table depicts the detail value added as percentage of GDP in each sub sectors for

the years 2017/18 to 2020/21.

(Table) page 12

Positive performance of the Ethiopian economy is expected to continue in the future. According

to the government’s “Growth and Transformation Plan” during the period 2016 – 2020 the GDP

of the country is expected to grow at an average annual growth rate of 11%. As a result, demand

for the products under consideration is also reasonably expected to increase as economic

expansion continues which in turn will increase the demand for Flours.

Population is a key driver of good and service demand. According to CSA, the population of Ethiopia

grew at an average annual rate of 2.6 percent between 1994 and 2007. As shown below, the number of

population is expected to be 129 million in year 2030 from the current number of 85.3 million. From the

projection, the number of population in year 2030 will be doubled of number of population which was in
year 1995.

FIGURE 2: ETHIOPIA: POPULATION PROJECTION, 1995-2030

-

20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
1995 2000 2005 2010 2015 2020 2025 2030

If population increases then there will be high demand of goods and services. As the population
increases,

the demand for the residential houses will also increase which in turn increases the demand for the

products under consideration.

C. URBANIZATION

As urbanization indicate people’s living st andard, it is a major factor for a higher demand of goods and

services. In Ethiopia, urban population growth rate is projected to increase by 4% annually, the major

contributing factor being the rural-urban migration. By the end of the 2009/10, the total urban
population

reached to 14.4 million, amounting 17.2% from the level of 11.7 million by the end of 2004/05.

Addis Ababa, Dire Dawa, Harar, Nazareth, Gondar, Dessie, Mekele, Bahir Dar Jimma and Hawasa are

assumed to be major urban areas of the country. As Addis Ababa is a capital city of Ethiopia, the city

holds the highest number of population followed by Dire Dawa and Hawassa. The table below explains

the number of population in major urban areas of the country.

URBAN POPULATION NUMBER

Towns Number Of Population in Town

Addis Ababa 4,041,002

Dire Dawa 387,000

Hawassa 328,875
Mekele 273,601

Bahirdar 240,422

Nazareth 127,842

Gondar 112,249

Desse 97,314

Jimma 88,867

Total 4,697,172

Sources: CSA, 2007

Addis Ababa holds 65% share of the total population, 8% of the country lives in Diredewa and 7% of the

population lives in Hawassa. And Jimma holds the least number of populations of the country with 2%.

Consequently, the demand for goods and services is assumed to grow with the average growth rate of

urbanization.

3.2.1.2 Bread Demand

The markets for breads are derived from the different factors, such as

 increasing number of population,

 increase in household income & life style,

 Number of commercial and service rendering sectors, hospitality service providers, universities

and hospitals as well as establishment of other business organizations creates a demand

3.3.1 Target Market

The markets for business are

 Households

 Cafes

 Hospitality service providers,

 universities and hospitals as well as establishment of other business organization

3.3.2 Marketing Strategies

A. PRODUCTS QUALITY

Product quality is one of the basic and most important marketing mixes that affect the success of

a the business. Product quality has two dimensions, i.e., level and consistency. Level means the
producer must first choose a quality level that will be acceptable in the target market and in a

level that comply with the quality of competing products. Consistency refers to the consistent

delivering of established quality through strict quality control measures.

The products by the envisaged bakery will have;

 Good quality,

 Fulfill the standard criteria set for product commercialization,

 Brand will be developed to create independent identity and image.

 Brand positioning statements will also be developed

B. Pricing

Pricing a product is an important and critical activity since it is the major factor in determining

revenue. If a lower price is fixed, it will affect the profitability of the company, and if a higher

price is fixed, the product will not be able to stand in market competition and may be forced out

of the market.

Therefore, pricing strategy will be:

Affordable pricing.

continuously monitoring competitors’ price

Price revision is going to be performed when the need arises, and

The right price has to be fixed.

C. Channels of Distribution

The following are the main alternative distribution channels commonly used by producers to reach

consumers.

 Direct sale to consumers:

- Manufacturer Consumer

 Indirect sale through the medium of third party:

- Manufacturer Wholesale Retailer Consumer

- Manufacturer Agent Wholesaler Retailer Consumer

- Manufacturer Retailer Consumer (pqge 16)

Accordingly, for the envisaged bakery by taking the nature of its product marketing under consideration;
both direct and indirect distribution is selected as the most appropriate distribution channel. Therefore,
at

least one factory-outlet shop is required to be rented in the premises of the envisaged bakery.

D. Promotion Strategy

In a competitive market, trade promotion should be made to persuade or to make a product attractive
for

end users. Such trade promotional tools include; credit and discount with the volume of products sold
etc.

The envisaged factory is recommended to offer discounts with the volume of product bought and credit

for one to two weeks.

As the product of the envisaged project is entering a competitive market it has been assumed that

the cost of promotion will be 1% of the annual sales revenue throughout the operation life of the

project. This promotion expense has been included in the financial analysis part of this study.

4.1 LOCATION AND SITE

The location of the envisaged bakery will be strategic as it is to be situated in an area where the

basic utilities such as electricity, water and telephone lines are available at reasonable cost.

Availability of infrastructure for transporting the raw material to the factory site and finished

product to the market are another advantage that the location selection will consider. In this regard,

the project will be located in Addis Ababa city administration, Arada Sub-city; Wor.-05, H.No. 083.

4.2 PROJECT STATUS

The business is a new establishment intended to establish bakery project mainly to produce and

distribute high quality breads and pastry for domestic market.

4.3 PRODUCTION CAPACITY AND PROGRAM

The envisaged bakery project is assumed to be installed with high quality bread and pastry baking

machine having capacity of 5,000 Pcs of (250g) bread in 8 (eight) hours. With the assumption of 16

hours/day in two shifts, it expected to produce 10,000 Pcs/day as tabulated below. Furthermore, the

project has planned to start production program at 70%, 80%, 90% and 100% during 1st, 2nd, 3rd and

4th years respectively.

table-4.1: Daily Production Capacity (page 17)

PARTICULAR UOM TOTAL CAP. CAP/Hr.

Max production hrs per day Hrs 16

Max capacity Hourly

In Pcs PCS 10,000 500

In grams (250/pcs) grams 2,500,000 25,000

In Kg Kg 2,500 125

Table-4. 2- Production Capacity in (Kg)/Annum

Products in Kgs Yr-1 Yr-2 Yr-3 Yr-4

Total 420000 480000 540000 600000

Breads 70% 252000 288000 324000 360000

Pasteries 30% 168000 192000 216000 240000

Capacity utilization (%) 70% 80% 90% 100%

Table-4. 3- Production Capacity in (Tons)/Annum

Products in Kgs Yr-1 Yr-2 Yr-3 Yr-4

Total 420 480 540 600

Breads 70% 252 288 324 360

Pasteries 30% 168 192 216 240

Capacity utilization (%) 70% 80% 90% 100

The envisaged production technologies are well-developed and in standardized process. The list

of machinery for the production of 5,000 Pcs of breads per 8 hours or 10,000 Pcs/16 hours for

breads with 250g each is shown in the Table below and related total cost of machineries as per

Pro-forma invoices shows that total of US$ 82,733.00 that equivalent to ETB 2,316,524.00 at

prevailing exchange rate.

Table-4. 4- Production Process Machineries and accessories.

The basic raw material for bread baking project is different kinds of flour products. Flour for baking
bread

is produced from hard wheat or a blend of hard and soft wheat, while flour for cakes and biscuits is
milled

from soft wheat. On the other hand, Auxiliary materials required are input materials used in bakery

business. Hence, sources of both basic and auxiliary inputs are available from local/domestic market.
The

estimated annual cost of raw and auxiliary materials is given in the tables below.

Table- 4.5 : Flour consumption (Page 29

4.6 Other Investment Activities and Costs

4.6.1 Building and Civil Works

The total plot area required for the envisaged bakery project for production plant is about 150 m

, out of

which the total area on which baking plants to be installed including spaces for storage of raw materials
as

well as finished products is estimated to be 120 m

, which needs partitioned according to the need. Thus,

the total building construction/remodeling investment cost at a rate of Birr 1,900/m2 is about ETB
285,000.

The business will have standard office spaces for employees at Administrative level to meet business

requirement that listed here under with financial requirements,

Table-4.12: List of Office Furniture and Equipment (page 22)

4.6.3 VEHICLES

The company needs vehicles in connection with production process and performing marketing activities.

Table-4.13: Vehicle Type and Related cost (page 22)

4.6.4 Power Supply Generator

The project needs automatic power supply generator, which will be necessary to overcome

problems related to electric power interruption.

Table-4.13: Power Supply Generator and Related costs

5.1 ORGANIZATION

In the proposed organization structure, the G/Manager will oversee the overall performance of

the plant while the day-to-day operation of the plant is led by Operations unit supervisor. There

shall be three departments: Production & Technical, Administration & Finance, and Marketing &

Procurement Departments. All the departments shall have two divisions. Quality controllers shall

be deployed under Production and Technical Department and will report to the general manager.

Profitability and success of any business organization depends on its success in sales. Sales

performance, in turn, depends on good knowledge and experience of the market. Therefore, it is

important to establish and staffing a market research division, whose main activities focuses on

market research and promotion. Thus, the proposed bakery business Organizational structure is

indicated below

(page 23)
5.2 HUMAN RESOURCE

According to the organizational structure, the human resource by category and qualification

including monthly and annual salary is summarized in table below. It is estimated that the

employee’s benefits will be 10% of the basic salaries and wages per annum

factory/bakery project, it is important that all the senior positions proposed be run by qualified

and well versed professionals in the industry. For the smooth operation of the envisaged bakery

project a total of 28 permanent employees are required that will cost the company a total of Birr

1,113,420 per annum including benefits. Table below shows Human Resource Requirements and

Related Costs.

Table-5.1: Human Resource Requirements and Related Annual Costs

Description Title No Pos. Salary Monthly Salary/Yr.

A. General Manager's Office

General Manager 1 9,500 9,500 114,000

Executive Secretary 1 3,500 3,500 42,000

Sub Total 2 13,000 156,000

B. Production & Technical Dep't

Store Keeper 1 4,000 4,000 48,000

Production Forman 2 3,500 7,000 84,000

Mixer Operator 2 2,000 4,000 48,000

Machine Operators 2 3,000 6,000 72,000

Sub Total 7 21,000 252,000

C. Procurement & Marketing Dep't

Marketing Officer 1 4,500 4,500 54,000

Sales Staffs 4 1,500 6,000 72,000

Purchasing Officers 2 4,500 9,000 108,000

Liaison Staff 1 2,000 2,000 24,000

Sub Total 8 21,500 258,000

D. Administration & Finance Dep't

Admin & Finance Head 1 6,500 6,500 78,000

Personnel Officer 1 3,750 3,750 45,000

Standby Electrician 1 2,500 2,500 30,000

Accountant/Cashier 2 3,100 6,200 74,400

Drivers 2 2,750 5,500 66,000

Cleaner/Janitors 2 1,100 2,200 26,400

Guards 2 1,100 2,200 26,400

Sub Total 11 28,850 346,200

Total Salary 28 84,350 1,012,200

Employees Benefit 10% 8,435 101,220

Grand Total 28 92,785 1,113,420

6.1 BASIC ASSUMPTIONS FOR FINANCIAL ANALYSES

6.1.1 PROJECT LIFE

The operational life of the project, a standard assumption of 5 years is considered. Hence, the

costs and benefits of the project are computed over 5 years.

6.1.2 REPAIR & MAINTENANCE, SPARE PARTS AND INSURANCE COST

The annual repair & maintenance and Annealed parts costs of all fixed assets except vehicles as

percentage of total cost has assumed to be 1.5% while for vehicles it has been taken to 3% of total cost.

6.1.3 DEPRECIATION AND AMORTIZATION

Based on the Business Income Tax Proclamation Number 286/94, the following depreciation rates are

applied to depreciate the assets of the project:

 Buildings and associated civil works 5%

 Machinery and equipment 20%

 Vehicles 20%

 Office furniture and equipment 20%

 Pre-Operating interest 20%

6.1.4 WORKING CAPITAL

The working capital requirement of the project during operation is calculated on the basis of the
minimum

days of coverage needed for the different elements of the working capital. Hence, the minimum days
are

specified as follows:-

Table-5.1: Minimum Days for Working Capital Need

Operating Costs/Year Working Days

Raw Material Cost 90

Utility (Electricity cost + water) 90

Salary and wages 90

Administrative expenses 90

Selling Expenses 90

Fuel, Oil and Lubricants 90

Repair and Maintenance 90

Accounts Receivable 30

Accounts Payable 30

The total investment and equity capital of the project are discounted at 11.5% over the project years

6.1.6 INCOME TAX

The income tax rate taken is 35% of income before tax.

6.1.7 SOURCE OF FINANCE

The project is assumed to be financed from external source as bank loan and equity contribution. The
type

of loan is further assumed to be a constant principal bank loan, with a loan repayment period of Five (5)

years at annual interest rate considered to be 11.5 percent.

6.2 RESULT OF FINANCIAL ANALYSIS

Projections are made based on above assumptions and all complete set of financial projections

are provided in this section. These projections include profit/loss statement, statement of cash

flow and balance sheets. The projections are prepared on an annual basis. Accordingly, the

financial analysis results are as discussed below.

6.2.1 TOTAL FIXED INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 5,941,459. Out of

this, cost of fixed investment is assumed to be ETB 5,006,574 as the major breakdown of the total fixed

investment cost is shown in table below.

Table-6.2: SUMMARY OF FIXED INVESTMENT COSTS

Description Total Costs

Building Remodeling works 285,000

Machinery & Equipment 2,316,524

Vehicles 2,000,000

Power Supply Generator 450,000

Office Furniture & Equipment 140,850

Pre-Production Expenses 150,000

Total Fixed Investment 5,342,374

The envisaged bakery project needs to have sufficient finance to cover initial working capital for

smoothest flow of activities. Hence, Summary of related working capital break-down is tabulated below :

Table-6.2: WORKING CAPITAL SUMMARY

Description Total Cost

Raw Material Cost 1,041,000

Salary & Benefits 278,355

Utilities 17,795

Fuel, Oil & Lubrications 47,375

Insurance 18,212

Repair & Maintenance 60,707

Other General Expenses 120,000

GRAND TOTAL 1,463,444

6.3 FINANCIAL STRUCTURE AND SOURCES

6.3.1 Investment Cost Structure

As shown in table below, the total investment costs required for the project is estimated to be

approximately Birr 6.81 Million. Theses financial plan is based on conservative estimates and

assumptions. The company’s investment cost structure is assumed to be a combination of two

sources. These are partly based on equity contribution of the promoters, i.e, about ETB 2.16

million and partly on the basis of funds to be received from external financer expected as bank’s

term loan facility of Birr 4.65 Million.

SUMMARY OF INVESTMENT (page 27)

Description Equity Investment Bank Loan Needed Total Investment

Building Remodeling works 285,000 285,000

Machinery & Equipment 463,324 1,853,200 2,316,524

Vehicles 400,000 1,600,000 2,000,000

Power Supply Generator 90,000 360,000 450,000

Office Furniture & Equipment 140,850 140,850

Pre- production Expenditure* 150,000.00 150,000

Total Fixed Investment 1,529,174 3,813,219 5,342,374

Working Capital (Raw Material) 208,200 832,800 1,041,000

Working Capital (Admin & General) 422,444 422,444

Total Investment Cost 2,159,818 4,646,000 6,805,818

The total amount of bank loan including interest (at an interest rate of 11.5%) will be fully paid

back within five years’ time. Hence, the project expects disbursement of ETB 4,646,000 up to

end of November 2018; which is repayable in quarterly basis with equal installment amount of

ETB 308,686 at 11.5% interest per annum. The table below presents Loan repayment schedule.

Table-6.4: Bank loan Repayment Schedule

Years Principal Payment terest 11.5% T/annual Payment Remaining Balance

0 4,646,000

1 731,246 503,500 1,234,745 3,914,754

2 819,035 415,710 1,234,745 3,095,719

3 917,365 317,381 1,234,745 2,178,354

4 1,027,499 207,246 1,234,745 1,150,856

5 1,150,856 83,890 1,234,745 -

TOTAL 4,646,000 1,527,726 6,173,726

6.4 FINANCIAL VIABLITY AND STATMENTS

6.4.1 PROFITABILITY

According to projected annual net profit from sales of its products, the envisaged project will

generate a net profit after tax of Birr 179,214 during its first year of operation and raises to Birr

2,696,982 in the 2nd year and it reaches Birr 5.09 million at the 5th year of operation. Net profit to

equity and net profit to total investment or return on investment (ROI) are all attractive. The table

below presents summary of projected income statement.

6.4.2 CASH FLOW

The projected cash flow of the project shows that the project would generate positive net cash flows

throughout the operation years. The net cash flow generated by the project at the end of year-5 will

amounts to Birr 43.10 million which has been birr 4.80 million in the first year and 10.17 million during

year-2 of operation. This implies the pay-back period of the project will be expected during 3 rd period
of operations. Details are shown in annex.

The positive financial performances of the project are manifested in the balance sheet as well. As can be

seen from the projected balance sheet depicted in annex, the net worth of the project, which was about

Birr 6.80 Million at the beginning of the operation year, will rise to Birr 12.11 Million at the end of the

project life. Important financial efficiency ratios like current ratio, quick ratio, net working capital ratio,

assets to current liabilities, etc. all show that the project is highly liquid and has sound financial

performance as shown in annex.

6.4.4 FINANCIAL MEASURMENT

A. Pay Back Period

The investment cost and income statement projection are used to project the pay-back period.

The project’s initial investment will be fully recovered within 3 years.

B. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR before and after Tax as well as the net

present value (NPV) discounted at 11.5% are shown below.

IRR After Tax 32%

IRR Before Tax 49%

NPV @ 11.5% inter. rate 4,185,223

6.4.5 ECONOMIC AND SOCIAL BENEFITS

The economic impact of the project can be viewed in a number of ways. It can be viewed

through its specific impact such as employment generation and increasing government revenue.

Moreover, other benefits such as the creation of attractive environment for the development of

the country should also be taken into account.

The project creates employment opportunities for 28 persons. Moreover, during the life of the

project it will generate an approximate of Birr 7.86 million over five year period in terms of

corporate tax and also contributes in the form of payroll tax. Furthermore the project will have

foreign currency saving effect to the country by exporting value added agri-products.

WORKING CAPITAL REQUIERMENT

INITIAL RAW MATERIAL COSTS

Description of Costs Total Costs Cost 90 dys

Annual Raw Material Costs (wheat flour) 540,000 180,000

Annual Raw Material Costs (white flour) 408,000 136,000

Annual Raw Material Costs (Auxiliaries) 2,175,000 725,000

Total Costs 3,123,000 1,041,000

HUMAN RESOURCE REQUIREMENT (SALARY & BENEFITS)

Descriptions Year 1 90 dd Salary

Employees Salary 1,012,200 253,050

Employees Benefits 101,220 25,305

Total 1,113,420 278,355

OTHER GENERAL EXPENSES

Descriptions Ann.Costs Cts / 90 dys

Product Outlate (Sales) Shops 300,000 75,000

Professional Expense(Audit, consultancy etc) 75,000 18,750

Stationary & P.T.T 10,000 2,500

Miscellaneous Expense 20,000 5,000

Promotional & Selling Expense 75,000 18,750

Total Other Expenses 480,000 120,000

UTILITIES

Description Rate (Birr) Usage/Year T/CostYr. Cts / 90 dys

Telephone Cosumption 0.50 Br/Mnt 10,000 5,000 1,250

Electricity Consumption 1.25Br/Kwh 50,640 63,300 15,825

Water consumption 4.8 Br/Cb.Lr 600 2,880 720

Total 71,180 17,795

FUEL, OIL AND LUBRICANTS

Description Cost/Litter Cons'n(Ltrs) Total Cost Cts / 90 dys

Vehicles/Generator 18.95 10,000 189,500 47,375

INSURANCE

Description T/Asset Cost/year Cts / 90 dys

Fixed Assets 4,856,574 72,849 18,212

Total 4,856,574 72,849 18,212

REPAIR & MAINTAINACE

Description Total cost Cost/year Cts / 90 dys

Building Remodeling works 285,000 14,250 3,563

Machinery & Equipment 2,316,524 115,826 28,957

Vehicles 2,000,000 100,000 25,000

Power Supply Generator 114,200 5,710 1,428

Office Furniture & Equipment 140,850 7,043 1,761

Total 4,856,574 242,829 60,707

WORKING CAPITAL SUMMARY

Description Total Cost

Raw Material Cost 1,041,000

Salary & Benefits 278,355

Utilities 17,795

Fuel, Oil & Lubrications 47,375

Insurance 18,212

Repair & Maintenance 60,707

Other General Expenses 120,000

GRAND TOTAL 1,463,444

DEPRECIATION & AMORTIZATION

DESCRIPTION T/Asset Depn. Rate Depn cost

Building Remodeling works 285,000 5% 14,250

Machinery & Equipment 2,316,524 20% 92,661

Vehicles 2,000,000 20% 80,000

Power Supply Generator 114,200 20% 4,568

Office Furniture & Equipment 140,850 20% 5,634

Total 4,856,574 197,113

SUMMARY OF INVESTMENT

Description Equity Investment Bank Loan Needed Total Investment

Building Remodeling works 285,000 285,000

Machinery & Equipment 463,305 1,853,219 2,316,524

Vehicles 400,000 1,600,000 2,000,000

Power Supply Generator 90,000 360,000 450,000

Office Furniture & Equipment 140,850 140,850

Pre- production Expenditure 150,000.00 150,000

 Total Fixed Investment 1,529,155 3,813,219 5,342,374

Working Capital (Raw Material) 208,200 832,800 1,041,000

Working Capital (Admin & General) 422,444 422,444

Total Investment Cost 2,159,799 4,646,019 6,805,818

I NVESTMENT STRUCTURE

Capital Contribution 2,159,799

Bank Financing 4,646,019

TOTAL INITIAL INVESTMENT 6,805,818

Projected Profit/ Loss Statement

Description Revenues year 1 year 2 year 3 year 4 year 5

Capacity Rate 70% 80% 90% 100% 100%

Sales of Bread 2,817,010 4,200,000 4,725,000 5,250,000 8,092,810

Sales of Pasteries and others 1,811,340 3,675,000 4,134,375 4,593,750 4,593,750

Total Revenue 4,628,350 7,875,000 8,859,375 9,843,750 12,686,560

Less: Direct Costs of Good Sold 1,873,800 1,068,017 1,201,251 1,334,486 1,467,934

Gross Profit 2,754,550 6,806,983 7,658,124 8,509,265 11,218,626

Expenses

Salary & Benefits 1,113,420 1,280,433 1,472,498 1,693,373 1,947,379

Utilities 71,180 81,857 94,136 108,256 124,494

Fuel, Oil & Lubrications 132,650 152,548 175,430 201,744 232,006

Insurance 50,994 58,643 67,440 77,556 89,189

Repair & Maintenance 169,980 195,477 224,799 258,518 297,296

Other General Expenses 240,000 276,000 317,400 365,010 419,762

Dep'n Working Premises

Remodeling works 14,250 14,250 14,250 14,250

14,250

Dep'n Machinery & Equipment 92,661 92,661 92,661 92,661 92,661

Dep'n Vehicles 80,000 80,000 80,000 80,000 80,000

Dep'n Power Supply Generator 4,568 4,568 4,568 4,568 4,568

Dep'n Furniture & Equipment 5,634 5,634 5,634 5,634 5,634

Interest Expenses 503,500 415,710 317,381 207,246 83,890

Total Expense 2,478,837 2,657,781 2,866,195 3,108,816 3,391,128

Profit before Tax 275,713 4,149,203 4,791,929 5,400,449 7,827,498

Tax (35%) 96,500 1,452,221 1,677,175 1,890,157 2,739,624

Net profit 179,214 2,696,982 3,114,754 3,510,292 5,087,874

Projected Cash Flow Statement

Description Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Equity Capital 2,159,818

Loan principal 4,646,000

Net Increment 179,214 2,696,982 3,114,754 3,510,292 5,087,874

Total Cash in flow 6,805,818 6,985,032 9,682,014 12,796,767 16,307,059 21,394,933

Cash payment

Capital Investment 5,192,374

Direct Material Purchase 1,041,000

Pre-Operating Expenses 150,000

Salary & Benefits 1,113,420 1,280,433 1,472,498 1,693,373 1,947,379

Utilities 71,180 81,857 94,136 108,256 124,494

Fuel, Oil & Lubrication 132,650 152,548 175,430 201,744 232,006

Insurance Expenses 50,994 58,643 67,440 77,556 89,189

Repair and Maintenance 169,980 195,477 224,799 258,518 297,296

Other General Expenses 240,000 276,000 317,400 365,010 419,762

Loan repayment 731,246 819,035 917,365 1,027,499 1,150,856

Tax payment 96,500 1,452,221 1,677,175 1,890,157 2,739,624

Total payment 6,383,374 2,605,969 4,316,214 4,946,241 5,622,113 7,000,605

Cash surplus/ deficit 422,444 4,379,063 5,365,800 7,850,526 10,684,946 14,394,328

Cumulative cash in flow 422,444.33 4,801,507 10,167,307 18,017,833 28,702,779 43,097,107

Projected Cash Flow Statement

Description Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Equity Capital 2,159,818

Loan principal 4,646,000

Net Increment 179,214 2,696,982 3,114,754 3,510,292 5,087,874

Total Cash in flow 6,805,818 6,985,032 9,682,014 12,796,767 16,307,059 21,394,933

Cash payment

Capital Investment 5,192,374

Direct Material Purchase 1,041,000

Pre-Operating Expenses 150,000

Salary & Benefits 1,113,420 1,280,433 1,472,498 1,693,373 1,947,379

Utilities 71,180 81,857 94,136 108,256 124,494

Fuel, Oil & Lubrication 132,650 152,548 175,430 201,744 232,006

Insurance Expenses 50,994 58,643 67,440 77,556 89,189

Repair and Maintenance 169,980 195,477 224,799 258,518 297,296

Other General Expenses 240,000 276,000 317,400 365,010 419,762

Loan repayment 731,246 819,035 917,365 1,027,499 1,150,856

Tax payment 96,500 1,452,221 1,677,175 1,890,157 2,739,624

Total payment 6,383,374 2,605,969 4,316,214 4,946,241 5,622,113 7,000,605

Cash surplus/ deficit 422,444 4,379,063 5,365,800 7,850,526 10,684,946 14,394,328

Cumulative cash in flow 422,444.33 4,801,507 10,167,307 18,017,833 28,702,779 43,097,107

Projected Balance Sheet

Description Inv't Year (1) Year (2) Year (3) Year (4) Year (5)

Assets

Current Assets

working capital 1,463,444 1,609,789 1,770,768 1,947,844 2,142,629 2,356,892

Cumulative Increase 179,214 2,696,982 3,114,754 3,510,292 5,087,874

Other Current Assets 150,000 187,500 234,375 292,969 366,211 457,764

Total Current Assets 1,613,444 1,976,502 4,702,124 5,355,567 6,019,131 7,902,529

Fixed Assets

Working Premises 285,000 285,000 285,000 285,000 285,000 285,000

Machinery & Equipment 2,316,524 2,316,524 2,316,524 2,316,524 2,316,524 2,316,524

Vehicles 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

Power Supply Generator 450,000 450,000 450,000 450,000 450,000 450,000

Office Furniture & Equipment 140,850 140,850 140,850 140,850 140,850 140,850

T/Fixed Assets Befor Depn 5,192,374 5,192,374 5,192,374 5,192,374 5,192,374 5,192,374

Accumulated Depn. (197,113) (197,113) (197,113) (197,113) (197,113)

Net Fixed Assets 5,192,374 4,995,261 4,798,148 4,601,035 4,403,922 4,206,809

TOTAL Assets 6,805,818 6,971,763 9,500,272 9,956,602 10,423,054 12,109,338

Liabilities and Equity

Current Liabilities

Deduction Payable 392,970 1,043,925 1,799,095 2,671,922 3,677,742

Tax payable 522,120 700,941 901,693 1,127,279 1,381,017

Total Current Liabilities 915,090 1,744,866 2,700,788 3,799,201 5,058,759

Long-term Debt

Bank loan Principal payable 4,646,000 3,914,754 3,095,719 2,178,354 1,150,856

Total Long-term Debt 4,646,000 3,914,754 3,095,719 2,178,354 1,150,856

Total Liabilities 4,646,000 4,829,844 4,840,585 4,879,142 4,950,057 5,058,759

Owners' Equity

Investment Capital 2,159,818 2,159,818 2,159,818 2,159,818 2,159,818 2,159,818

Retained earning 170,253 2,562,133 2,959,016 3,334,777 4,833,480

Capital Description (197,113) (197,113) (197,113) (197,113) (197,113)

Legal Reserve (5%) 8,961 134,849 155,738 175,515 254,394

Total Owners' Equity 2,159,818 2,141,919 4,659,687 5,077,459 5,472,997 7,050,579

Total Liabil. & Equity 6,805,818 6,971,763 9,500,272 9,956,602 10,423,053 12,109,338