ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on the Establishment of

H.D.p.e woven sacks making plant

Development Studies Associates

(DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary..................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program...................2
3.1 Market Study.......................................................................................................2
3.1.1 Present Demand and Supply........................................................................2
3.1.2 Projected Demand........................................................................................3
3.1.3 Pricing and Distribution...............................................................................4
3.2 Plant Capacity......................................................................................................4
3.3 Production Program.............................................................................................5
4. Raw Materials and Utilities....................................................................5
4.1 Availability and Source of Raw materials...........................................................5
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................5
5. Location and Site.....................................................................................6
6. Technology and Engineering.................................................................6
6.1 Production Process...............................................................................................6
6.2 Machinery and Equipment...................................................................................7
6.3 Civil Engineering cost.........................................................................................8
7. Human Resource and Training Requirement......................................8
7.1 Human Resource..................................................................................................8
7.2 Training Requirement..........................................................................................9
8. Financial Analysis.................................................................................10
8.1 Underlying Assumption.....................................................................................10
8.2 Investment..........................................................................................................11
8.3 Production Costs................................................................................................11
8.4 Financial evaluation...........................................................................................12
9. Economic and Social Benefit and Justification..................................13
ANNEXES....................................................................................................15
 1. Executive Summary
This project profile deals with establishment of HDPE woven sacks producing plant in Amhara
National Regional State. The following presents the main findings of the study

Demand projection divulges that the domestic demand for woven sacks is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 1 million pieces of HDPE
woven sack annually. The total investment cost of the project including working capital is
estimated at birr 14.71 million and creates 31 job opportunity and 637,404 birr of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 28.8% of capacity utilization and it will
payback fully the initial investment less working capital in 3 years. The result further show that
the calculated IRR of the project is 23.5%; and NPV discounted at 18% of birr 2,827,528.59. The
analysis further shows that the proposed plant is slightly sensitive to an increase in cost of
production.

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

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

2. Product Description and Application

Older packaging methods like paper sacks, jute bags, etc had been used to carry agricultural
produce and industrial products. The inadequacy of these packaging methods to withstand
various atmospheric conditions is highly likely to spoil much of the produce that in turn affects
the farmers, producers and the economy through the non-utilization of the available products. On
the other hand, high density polyethylene (HDPE) woven sack is strong and is suitable for

1
packing and carrying heavy goods. It will not tear or break easily by rough handling and bad
transporting.

Therefore, these sacks are suitable for almost all the products that have used other forms of sacks
(paper sacks, cotton bags, jute bags) for packaging. These sacks are better suited for storage due
to their strength, durability and ability to withstand water and pests.

In Amhara region, the use of HDPE sacks is steadily increasing with increasing agricultural
yields and related industries. Thus, the scope of the industry is increasing as a result.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The market for plastic materials is growing rapidly due to varied and rising use of plastic goods
over recent years, substituting other forms of bags in packing most agricultural and industrial
goods. In Ethiopia there are few firms that manufacture woven sacks made of polyethylene and
polypropylene materials. In producing HDPE, the main raw material is polyethylene and it is
mainly imported as raw material in granular form, which is then converted into liners (tape).

Nonetheless, exact data of local products is not available since official documents aggregate
related types of products in their reporting. That is, the report of CSA regarding to local
production aggregates under “polyethylene products” with no classification to its various types.
Such information cannot provide the actual figure of the woven sacks under investigation. As a
result, this study mainly relies on the import information compiled by Customs Authority. The
import data merges polyethylene and polypropylene sacks as the two types of sacks are very
much related and close substitute to each other. Accordingly, table 1 presents imported sacks
made from polyethylene and polypropylene materials.

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 Table 1: Import of Sacks

Year Import (in ton)

1998/99 1,166
1999/00 5,350
2000/01 6,521
2001/02 3,196
2002/03 3,157
2003/04 3,138
2004/05 1,277
Average 3,401

The table presented above show that in 2004/05 alone 1,277 tons of polyethylene and
polypropylene sacks had been imported. This figure is substantial when the ton is converted to
pieces of bags. That is, a piece of sack that can carry 100 kg of cereal weighs 100 gm, and hence
the 2004/05 import volume is equivalent to 12.8 million pieces of woven sacks. This by itself is a
good indication for the presence of ample demand for the product.

3.1.2 Projected Demand

Table 1 show that the import had shown a declining trend and in 2004/05 it stood at 1,277 tons.
At the same time, however, local production as well as import and exports of grain and industrial
goods that make use of these types of sacks is expected to increase substantially in the future.
For example, according to FAO, Ethiopia has produced 83.8 quintals of cereals and it has
exported about 2.3 million quintals of agricultural products (excluding cereals) in
2006/07(EFPRI, 2008). Such performance indicates the presence of growing demand for the
woven sacks. If we assume that in addition to the export volume indicated earlier, 30% of local
production will be handled by woven sacks; annual demand for the sack will be about 70.56
million.

In projecting the future demand for imported woven sacks it is assumed that import amount will
decrease marginally by on average 5% per annum. This small reduction is considered because
the expected growing production and trade in the agricultural and industrial sector will continue

3
to demand more and more of woven sacks that cannot be satisfied by local production alone.
Accordingly, the level of import demand would be projected as shown in table 2 below.

Table2: Projected Demand for Imported Woven Sack

Year Projected Demand (in ton)

2015/16 726
2016/17 690
2017/18 656
2018/19 623
2019/20 592
2020/21 562
2021/22 534
2022/23 504
2023/24 479
2024/25 455
2025/26 432
2015/16 726

Table 2 points that even though import figure is assumed to continuously drop with time (in the
middle of expected substantial increase in domestic production of goods the make use of woven
sack); the import figure would remain substantial. For instance, by 2018/19 about 15.9 million
pieces of woven sacks will be imported from abroad. Such projected huge dependency for import
points out the presence of attractive opportunity to invest in the sector.

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the plant, the selling price of HDPE
woven sack is set at birr 10 for a size capable of holding 100 kg of grain. Moreover, the available
wholesale network shall be used by the envisaged plant.

3.2 Plant Capacity

Based on the expected demand for woven sack only from import as presented earlier, and the
planned technology, the envisaged plant is set to produce 1,000,000 pieces of HDPE woven
sacks annually with a size capable of holding 100 kg of grain. The total production by the
envisaged plant is about 16% of the import projected to take place by 2018/19 in table 2 above.

4
 3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 70 percent capacity and then it grows to 85
percent in the 2nd year. The capacity will grow to 100% starting from the 3 rd year. This
consideration is developed based on the assumption that there is huge demand for the product
and hence the barriers (market and logistics) would take place for the first two years of
operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw materials

The raw materials required in producing HYDP woven sacks are:

 The polyethylene granules that are made into the tape yarn and then woven into the
sacks
 Colors or dyes for giving the HDPE sacks the required colors
These materials are imported from abroad.

On the other hand the major utility required is electricity as the machinery is run on electric
motors. Water is also required in a few stages of the production process but in small quantities.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 here under

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 Table 3 Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
HD Polyethylene granules 156 ton 3602664
Ink 3 ton 77903.76
Total Material Cost   3680567.76
Utility    
Electricity 275,000 kwh 151,250  
Water 3000m3 7,950  
Total Utility Cost   159,200  

In view of the table above, the full capacity requirement of material and utility is estimated at
birr 3,839,768

5. Location and Site

The appropriate locations for the envisaged project in view of the availability infrastructure as
well as market for the output are Bahir Dar and Combolcha. This is because; there are a number
of manufacturing firms and trading units in this two towns that make use of woven sacks in their
activities.

6. Technology and Engineering

6.1 Production Process

The process of producing HDPE sacks starts with the making of polyethylene tape (yarn) and
ends in weaving process as detailed hereunder.

The polyethylene Tape Making Process: The polyethylene tapes are manufactured by slitting
films of HDPE which are produced by blown extrusion technique. In this process, the granules of
plastic are fed to the extruder through the hopper. Molten plastics are extruded through circular
die and the tube is inflated by blowing with air to a desired diameter, and pulling it away with a
pair of nip rolls. The extruded polyethylene film is then coded and the bubble is collapsed. The
film thus formed is then slit to desired width. These tapes are stretched in orientation water bath

6
which is at its boiling point. Alternatively orientation can be carried out by using hot plate. The
HDPE tape, after orientation, is stabilized and then wound on bobbins.

The polyethylene Fabric Weaving Process: From bobbins carrying polyethylene yarn, fabric is
made using warping and yarn winding machine. The fabric is then woven on looms and finally
cut to size and stitched to sacks of required dimensions. Whenever required, the sacks are screen-
printed using specially prepared ink. In some cases, laminated sacks are required and as such
before stitching and printing the fabric has to be laminated by extrusion coating of LDPE.
Lamination should be done from outside.

The alternative technology available requires the formation of fabric by slitting one side of the
woven fabric which is in the form of a tube. This fabric is used for packing purposes in the
textile industry and especially for export products. In view of the envisaged plant, such
alternative production technology is not suitable.

6.2 Machinery and Equipment

The machineries and equipment required for producing HDPE woven sacks is detailed in table 4
below.

Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Tape making machine 1
Circular Loom Machine 9
Auto Conversion Line 1
Two colors printing machine 1
Baling Press 1

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about birr 7,166,535

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Machinery suppliers are numerous and are located in Austria, US, Taiwan, China, India etc. The
machinery that is considered in this profile is supplied by the following firm:

FUNG CHANG INDUSTRIAL CO., LTD.

9, Shih Chi Tau, Kaoping Village
Lungtan Hsian, Taoyuan Hsien, Taiwan
Tel: 886-3-4717824, 4717825, 4717453
Fax: 886-3-4717702, 4580170,
E-mail: [email protected]
Web Site: www.tami.org/fungchang

For Dah Industry Co. Ltd,

Ming Hsiung Ind. Area, Chai Yih Hsien, Taiwan.
Tel: 886-5-2215139, 2215149, and 2204839
Fax: 886-3-2219839
E-mail: [email protected]

6.3 Civil Engineering cost

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

7. Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 5 below

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Table 5: Human Resource Requirement

Position No. Required Monthly Salary Total Annual Salary

General Manager 1 10264 123168
Production Manager 1 7698 92376
Accountant 1 3079 36948
Secretary 1 2181 26172
Fitter 1 2309 27708
Extruder 1 1924 23088
Winder Operators 2 1539 18468
Weavers 3 1540 18480
Cutting Machine Operator 2 1668 20016
Printing Supervisor 1 2053 24636
Stitcher 1 2053 24636
Baling press worker 1 1540 18480
Technician 1 2566 30792
Laborers 8 770 9240
Cleaners 2 770 9240
Driver 1 1540 18480
Guards 3 770 9240
Benefit (20%)   106,234
 Total 31 637,404

According to the above table, the envisaged plant creates 31 job opportunity and about 637,404
birr thousand of income. The professionals and support staffs for the envisaged plant shall be
recruited from Amhara region

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. For this birr 192,450 will be allocated as training expense.

8. Financial Analysis
8.1 Underlying Assumption

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The financial analysis of HDPE woven sack producing plant is based on the data provided in the
preceding chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

Source of finance 30% equity and 70% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment

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The total investment cost of the project including working capital is estimated at Birr 14.7
million as shown in table 6 below. The Owner shall contribute 30% of the finance in the form of
equity while the remaining 70% is to be financed by bank loan.

Table 6: Total initial investment

Items L.C F.C Total

Land 45,000   45,000
Building and civil works 3,849,000 0 3,849,000
Office equipment 128,300 0 128,300
Vehicles 641,500 0 641,500
Plant machinery & equipment 0 7,166,535 7,166,535
Total fixed investment cost 4,663,800 7,166,535 11,830,335
Pre production capital
expenditure* 589,556 0 589,556
Total initial investment 5,253,356 7,166,535 12,419,892
Working capital at full capacity 687,716 1,606,067 2,293,783
Total 5,941,073 8,772,602 14,713,675
*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.

The foreign component of the project accounts for 59.8% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 6.88 million as detailed in
table 7 below.

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 Table 7: Production Cost

Items Cost
1. Raw materials 3680567.76
2. Utilities 159,200
3. Wages and Salaries 637,404
4. Spares and Maintenance 354,910.00
Factory costs 4,832,081.76
5. Depreciation 1168145.84
6. Financial costs 880466.448
  Total Production Cost 6,880,694.05

8.4 Financial evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 1%, 1% and 17% in
the first year and rises substantially in the subsequent periods. Furthermore, the income
statement and other profitability indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 28.8% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in 3 years.

12
 IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 20.1%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
23.5% and the net present value at 18 % discount is Birr 2,827,529.59

VI. Sensitivity Analysis

The envisaged plant is to some extent sensitive to an increase in cost of production. That is, the
plant incurs loss of birr 245,979 in the first year of operation when 10 % cost increment takes
place in the sector. The envisaged plant enjoys profit beginning from the second year. This result
is accompanied with payback period of 3 years and 4 months.

9. Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that help promote the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It plays
positive role in diversifying the economic activity by enhancing the industrial sector of the
region. The other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns a profit of birr 23.61 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 9.16 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

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 C. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of US Dollar
9.80 million will be saved as a result of the proposed project. This will create room for the saved
hard currency to be allocated on other vital and strategic sectors

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 31professionals as well as support
stuffs. Consequently the project creates income of birr 637.40 thousands per year. This would be
one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

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ANNEXES

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 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0 0 70% 85% 100% 100%

1. Total Inventory 0.00 0.00 2635493.746 3200242.428 3764991.085 3764991.085

Raw Materials in Stock- Total 0.00 0.00 1124246.147 1365156.033 1606065.943 1606065.943

Raw Material-Local 0.00 0.00 0 0 0 0

Raw Material-Foreign 0.00 0.00 1124246.147 1365156.033 1606065.943 1606065.943

Factory Supplies in Stock 0.00 0.00 4736.7077 5751.71466 6766.72162 6766.72162

Spare Parts in Stock and Maintenance 0.00 0.00 27012.35898 32800.71612 38589.07326 38589.07326

Work in Progress 0.00 0.00 118417.4616 143792.6356 169167.8096 169167.8096

Finished Products 0.00 0.00 236834.9231 287585.2711 338335.6191 338335.6191

2. Accounts Receivable 0.00 0.00 783796.3753 951752.7249 1119709.1 1119709.1

3. Cash in Hand 0.00 0.00 94400.4457 114629.0961 134857.7722 134857.7722

CURRENT ASSETS 0.00 0.00 2389444.394 2901468.191 3413492.014 3413492.014

4. Current Liabilities 0.00 0.00 783796.3753 951752.7249 1119709.1 1119709.1

Accounts Payable 0.00 0.00 783796.3753 951752.7249 1119709.1 1119709.1

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 1605648.045 1949715.466 2293782.913 2293782.913

INCREASE IN NET WORKING CAPITAL 0.00 0.00 1605648.045 344067.4473 344067.4473 0

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 3764991.085 3764991.085 3764991.085 3764991.085 3764991.085 3764991.085

Raw Materials in Stock-Total 1606065.943 1606065.943 1606065.943 1606065.943 1606065.943 1606065.943

Raw Material-Local 0 0 0 0 0 0

Raw Material-Foreign 1606065.943 1606065.943 1606065.943 1606065.943 1606065.943 1606065.943

Factory Supplies in Stock 6766.72162 6766.72162 6766.72162 6766.72162 6766.72162 6766.72162

Spare Parts in Stock and Maintenance 38589.07326 38589.07326 38589.07326 38589.07326 38589.07326 38589.07326

Work in Progress 169167.8096 169167.8096 169167.8096 169167.8096 169167.8096 169167.8096

Finished Products 338335.6191 338335.6191 338335.6191 338335.6191 338335.6191 338335.6191

2. Accounts Receivable 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1

3. Cash in Hand 134857.7722 134857.7722 134857.7722 134857.7722 134857.7722 134857.7722

CURRENT ASSETS 3413492.014 3413492.014 3413492.014 3413492.014 3413492.014 3413492.014

4. Current Liabilities 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1

Accounts Payable 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1

TOTAL NET WORKING CAPITAL REQUIRMENTS 2293782.913 2293782.913 2293782.913 2293782.913 2293782.913 2293782.913

INCREASE IN NET WORKING CAPITAL 0 0 0 0 0 0

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 6190332.074 8484114.987 7968596.375 8892356.375 10431956.38 10264000
1. Inflow Funds 6190332.074 8484114.987 783796.3753 167956.3753 167956.3753 0
Total Equity 2476132.83 3393646.005 0 0 0 0
Total Long Term Loan 3714199.244 5090468.982 0 0 0 0
Total Short Term Finances 0 0 783796.3753 167956.3753 167956.3753 0
2. Inflow Operation 0 0 7184800 8724400 10264000 10264000
Sales Revenue 0 0 7184800 8724400 10264000 10264000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 6190332.074 6190332.074 8326738.641 7388655.485 8894163.84 8258874.663
4. Increase In Fixed Assets 6190332.074 6190332.074 0 0 0 0
Fixed Investments 5895554.356 5895554.356 0 0 0 0
Pre-production
Expenditures 294777.7178 294777.7178 0 0 0 0
5. Increase in Current Assets 0 0 2389444.394 512023.7969 512023.7969 0
6. Operating Costs 0 0 3605807.992 4352626.793 5099445.62 5099445.62
7. Corporate Tax Paid 0 0 0 0 934782.8945 987610.907
8. Interest Paid 0 0 2331486.255 1056560.199 880466.8329 704373.4663
9.Loan Repayments 0 0 0 1467444.696 1467444.696 1467444.696
10.Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 0 2293782.913 -358142.2909 1503700.865 1537792.535 2005125.337
Cumulative Cash Balance 0 2293782.913 1935640.623 3439341.513 4977134.022 6982259.359

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 10264000 10264000 10264000 10264000 10264000 10264000
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 10264000 10264000 10264000 10264000 10264000 10264000
Sales Revenue 10264000 10264000 10264000 10264000 10264000 10264000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 8135609.309 8086207.292 7962941.938 6372231.862 6372231.862 6372231.862
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production
Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 5099445.62 5099445.62 5099445.62 5099445.62 5099445.62 5099445.62
7. Corporate Tax Paid 1040438.894 1167130.243 1219958.255 1272786.268 1272786.268 1272786.268
8. Interest Paid 528280.0997 352186.7332 176093.3666 0 0 0
9. Loan Repayments 1467444.696 1467444.696 1467444.696 0 0 0
10.Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 2128390.691 2177792.708 2301058.062 3891768.138 3891768.138 3891768.138
Cumulative Cash Balance 9110650.05 11288442.76 13589500.82 17481268.93 21373037.07 25264805.18

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

4
 CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 7184800 8724400 10264000 10264000

1. Inflow Operation 0 0 7184800 8724400 10264000 10264000

Sales Revenue 0 0 7184800 8724400 10264000 10264000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 6190332.074 6190332.074 5211456.01 4696694.24 5443513.042 6087056.501

3. Increase in Fixed Assets 6190332.074 6190332.074 0 0 0 0

Fixed Investments 5895554.356 5895554.356 0 0 0 0

Pre-production Expenditures 294777.7178 294777.7178 0 0 0 0

4. Increase in Net Working Capital 0 0 1605648.045 344067.4473 344067.4473 0

5. Operating Costs 0 0 3605807.992 4352626.793 5099445.62 5099445.62

6. Corporate Tax Paid 0 0 0 0 934782.8945 987610.907

NET CASH FLOW -6190332.074 -6190332.074 1973343.99 4027705.76 4820486.959 4176943.499

-
CUMMULATIVE NET CASH FLOW -6190332.074 -12380664.15 -10407320.16 6379614.398 -1559127.47 2617816.033

Net Present Value (at 18%) -6190332.074 -5246044.125 1417224.92 2451386.069 2486353.541 1825780.489

Cumulative Net present Value -6190332.074 -11436376.2 -10019151.28 -7567765.21 -5081411.67 -3255631.18

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

5
 PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 10264000 10264000 10264000 10264000 10264000 10264000

1. Inflow Operation 10264000 10264000 10264000 10264000 10264000 10264000

Sales Revenue 10264000 10264000 10264000 10264000 10264000 10264000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 6139884.514 6266575.863 6319403.875 6372231.862 6372231.862 6372231.862

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

Fixed Investments 0 0 0 0 0 0

Pre-production Expenditures 0 0 0 0 0 0

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

5. Operating Costs 5099445.62 5099445.62 5099445.62 5099445.62 5099445.62 5099445.62

6. Corporate Tax Paid 1040438.894 1167130.243 1219958.255 1272786.268 1272786.268 1272786.268

NET CASH FLOW 4124115.486 3997424.137 3944596.125 3891768.138 3891768.138 3891768.138

CUMMULATIVE NET CASH FLOW 6741931.52 10739355.66 14683951.78 18575719.92 22467488.03 26359256.17

Net Present Value (at 18%) 1527702.433 1254891.497 1049413.12 877422.7614 743578.6105 630151.3518

Cumulative Net present Value -1727928.722 -473037.2246 576375.8951 1453798.631 2197377.241 2827528.593

Net Present Value (at 18%) 2827528.593

Internal Rate of Return 23.5%

Annex 4: NET INCOME STATEMENT ( in Birr)

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

1. Total Income 7184800 8724400 10264000 10264000 10264000

Sales Revenue 7184800 8724400 10264000 10264000 10264000
Other Income 0 0 0 0 0
2. Less Variable Cost 3253401.583 3950559.047 4647716.536 4647716.536 4647716.536
VARIABLE MARGIN 3931398.417 4773840.953 5616283.464 5616283.464 5616283.464
(In % of Total Income) 140.41152 140.41152 140.41152 140.41152 140.41152
3. Less Fixed Costs 1520551.017 1570212.354 1619873.692 1619873.692 1619873.692
OPERATIONAL MARGIN 2410847.4 3203628.599 3996409.772 3996409.772 3996409.772
(In % of Total Income) 86.0893 94.22352 99.92004 99.92004 99.92004
4. Less Cost of Finance 2331486.255 1056560.199 880466.8329 704373.4663 528280.0997
5. GROSS PROFIT 79361.14536 2147068.399 3115942.965 3292036.305 3468129.672
6. Income (Corporate) Tax 0 0 934782.8945 987610.907 1040438.894
7. NET PROFIT 79361.14536 2147068.399 2181160.07 2304425.424 2427690.778
RATIOS (%)  
Gross Profit/Sales 1% 25% 30% 32% 34%
Net Profit After Tax/Sales 1% 25% 21% 22% 24%
Return on Investment 17% 22% 21% 21% 20%
Return on Equity 1% 37% 37% 39% 41%

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 10264000 10264000 10264000 10264000 10264000

Sales Revenue 10264000 10264000 10264000 10264000 10264000
Other Income 0 0 0 0 0
2. Less Variable Cost 4647716.536 4647716.536 4647716.536 4647716.536 4647716.536
VARIABLE MARGIN 5616283.464 5616283.464 5616283.464 5616283.464 5616283.464
(In % of Total Income) 140.41152 140.41152 140.41152 140.41152 140.41152
3. Less Fixed Costs 1373662.605 1373662.605 1373662.605 1373662.605 1373662.605
OPERATIONAL MARGIN 4242620.859 4242620.859 4242620.859 4242620.859 4242620.859
(In % of Total Income) 106.05278 106.05278 106.05278 106.05278 106.05278
4. Less Cost of Finance 352186.7332 176093.3666 0 0 0
5. GROSS PROFIT 3890434.126 4066527.492 4242620.859 4242620.859 4242620.859
6. Income (Corporate) Tax 1167130.243 1219958.255 1272786.268 1272786.268 1272786.268
7. NET PROFIT 2723303.883 2846569.237 2969834.617 2969834.617 2969834.617
RATIOS (%)  
Gross Profit/Sales 38% 40% 41% 41% 41%
Net Profit After Tax/Sales 27% 28% 29% 29% 29%
Return on Investment 21% 21% 20% 20% 20%
Return on Equity 46% 48% 51% 51% 51%

8
 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 6190332.074 14674447.06 15537604.58 16385184.63 17266856.36 18103837.09
1. Total Current Assets 0 2293782.913 4325085.042 6340809.704 8390626.036 10395751.37
Inventory on Materials and Supplies 0 0 1155995.214 1403708.463 1651421.738 1651421.738
Work in Progress 0 0 118417.4616 143792.6356 169167.8096 169167.8096
Finished Products in Stock 0 0 236834.9231 287585.2711 338335.6191 338335.6191
Accounts Receivable 0 0 783796.3753 951752.7249 1119709.1 1119709.1
Cash in Hand 0 0 94400.4457 114629.0961 134857.7722 134857.7722
Cash Surplus, Finance Available 0 2293782.913 1935640.623 3439341.513 4977134.022 6982259.359
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 6190332.074 12380664.15 11212519.54 10044374.93 8876230.323 7708085.714
Fixed Investment 0 5895554.356 11791108.71 11791108.71 11791108.71 11791108.71
Construction in Progress 5895554.356 5895554.356 0 0 0 0
Pre-Production Expenditure 294777.7178 589555.4356 589555.4356 589555.4356 589555.4356 589555.4356
Less Accumulated Depreciation 0 0 1168144.608 2336289.217 3504433.825 4672578.433
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 6190332.074 14674447.06 15537604.58 16385184.63 17266856.36 18103837.09
5. Total Current Liabilities 0 0 783796.3753 951752.7249 1119709.1 1119709.1
Accounts Payable 0 0 783796.3753 951752.7249 1119709.1 1119709.1
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 3714199.244 8804668.226 8804668.226 7337223.531 5869778.835 4402334.113
Loan A 3714199.244 8804668.226 8804668.226 7337223.531 5869778.835 4402334.113
Loan B 0 0 0 0 0 0
7. Total Equity Capital 2476132.83 5869778.835 5869778.835 5869778.835 5869778.835 5869778.835
Ordinary Capital 2476132.83 5869778.835 5869778.835 5869778.835 5869778.835 5869778.835
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 79361.14536 2226429.545 4407589.615
9.Net Profit After Tax 0 0 79361.14536 2147068.399 2181160.07 2304425.424
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 79361.14536 2147068.399 2181160.07 2304425.424
Annex 5: Projected Balance Sheet (in Birr): Continued

9
 PRODUCTION
  5 6 7 8 9 10
19,064,083.1
TOTAL ASSETS 4 20319942.33 21699066.87 24668901.49 27638736.08 30608570.7
1. Total Current Assets 12524142.04 14701934.75 17002992.81 20894760.95 24786529.06 28678297.2
Inventory on Materials and Supplies 1651421.738 1651421.738 1651421.738 1651421.738 1651421.738 1651421.738
Work in Progress 169167.8096 169167.8096 169167.8096 169167.8096 169167.8096 169167.8096
Finished Products in Stock 338335.6191 338335.6191 338335.6191 338335.6191 338335.6191 338335.6191
Accounts Receivable 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1
Cash in Hand 134857.7722 134857.7722 134857.7722 134857.7722 134857.7722 134857.7722
Cash Surplus, Finance Available 9110650.05 11288442.76 13589500.82 17481268.93 21373037.07 25264805.18
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 6539941.106 5618007.585 4696074.064 3774140.542 2852207.021 1930273.5
Fixed Investment 11791108.71 11791108.71 11791108.71 11791108.71 11791108.71 11791108.71
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 589555.4356 589555.4356 589555.4356 589555.4356 589555.4356 589555.4356
Less Accumulated Depreciation 5840723.042 6762656.563 7684590.084 8606523.605 9528457.126 10450390.65
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 19064083.14 20319942.33 21699066.87 24668901.49 27638736.08 30608570.7
5. Total Current Liabilities 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1
Accounts Payable 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1 1119709.1
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 2934889.417 1467444.696 0 0 0 0
Loan A 2934889.417 1467444.696 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 5869778.835 5869778.835 5869778.835 5869778.835 5869778.835 5869778.835
Ordinary Capital 5869778.835 5869778.835 5869778.835 5869778.835 5869778.835 5869778.835
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 6712015.039 9139705.817 11863009.73 14709578.96 17679413.58 20649248.17
9. Net Profit After Tax 2427690.778 2723303.883 2846569.237 2969834.617 2969834.617 2969834.617
Dividends Payable 0 0 0 0 0 0
Retained Profits 2427690.778 2723303.883 2846569.237 2969834.617 2969834.617 2969834.617

10