1

A

L

E

M

G

E

N

A

LOCATED AT ALEMGENA TOWN

Table of Contents

1. PROJECT DESCRIPTION.................................................................5

1.1 PROJECT LOCATION....................................................................5

1.2 PROJECT RATIONALE...................................................................6

1.3 PROJECT STATUS......................................................................6

1.4 PROJECT IMPLEMENTATION SCHEDULE.....................................................7

1.5 BENEFITS OF THE PROJECT.............................................................7

2. PROMOTER’S BACKGROUND...............................................................8

3. PRODUCT DEFINITION..................................................................8

2

4. PROJECT MANAGEMENT AND HUMAN RESOURCE..............................................10

4.1 PROJECT MANAGEMENT.................................................................10

4.2 HUMAN RESOURCE REQUIREMENT.........................................................10

4.3 TRAINING REQUIREMENT...............................................................11

5 MARKET ANALYSIS....................................................................12

5.1 WHY AGRO-PROCESSING IS CRITICAL TO THE ETHIOPIAN ECONOMY?..........................12

5.2 SUPPLY.............................................................................12

5.3 DEMAND.............................................................................15

5.4 DEMAND AND SUPPLY GAP..............................................................16

5.5 MARKETING STRATEGY.................................................................16

5.6 PRICE..............................................................................16

6 TECHNICAL STUDIES..................................................................19

6.1 RAW MATERIAL AND INPUTS............................................................19

6.2 PRODUCTION PROCESS.................................................................21

6.3 CIVIL WORKS........................................................................23

6.4 PRODUCTION MACHINERY...............................................................23

6.5 VEHICLES...........................................................................24

6.6 OFFICE EQUIPMENT AND FURNITURE....................................................24

6.7 UTILITY SUPPLY.....................................................................25

6.8 ENVIRONMENTAL IMPACT ASSESSMENT....................................................26

7 FINANCIAL APPRAISAL................................................................27

7.1 INITIAL INVESTMENT COST............................................................27

3

7.2 FINANCING STRUCTURE................................................................27

7.3 APPLIED FINANCIAL ASSUMPTIONS:.....................................................28

7.4 WORKING CAPITAL....................................................................28

7.5 OPERATING COST, VOLUME AND REVENUE................................................29

7.5.1 OPERATING COST................................................................29

7.5.2 PRODUCTION VOLUME AND REVENUE.................................................30

7.6 PROJECT PROFITABILITY..............................................................31

7.7 PROJECT LIQUIDITY AND PAYBACK PERIOD...............................................32

7.8 NPV & IRR..........................................................................33

7.9 SENSITIVITY TO COST AND REVENUE VARIATIONS.........................................34

7.10 DEBT SERVICING SCHEDULE............................................................35

Executive SummaryThe prevailing project is food complex that produces wheat flour

and biscuit in an integrated way. Food processing is among the

oldest of Ethiopia’s manufacturing industries. Currently, the food

complex processing industry employed about 26% of all employees in

the manufacturing sector. The food processing industry can be

broken into eight major subsectors: one of these categories is the

wheat-based products manufacturing which is the subject matter of

this feasibility study.

The project promoter, with trade name of ‘Rodis Enriched Food

processing and flour mill’ is a sole proprietorship business owned

4

by Ato Sintayehu Tesfaye. The project is located in Oromia regional

state Alemgena-Sebeta town administration on 5,000 square meters of

lease land acquired for 80 years. The promoter has executed 40% of

the construction works required for the factory.

The project is designed to produce wheat flour and biscuit. The

market for all of the envisaged products in the domestic market

shows a consistent increment. The short of supply as compared to

demand forced the country to import each of the products this

project has planned to produce. Therefore, establishment of the

food complex not only helps to contribute to narrow the demand gap

but also to lessen the hard currency required to import the

products. The desire to create vertical integration to add more

value to the flour products and the perception of demand gap

coupled with the government’s incentive helped the promoter to

enter into the Biscuit manufacturing business.

The total investment cost required for the project is Birr 87.9

million. It is planned that 40% or Birr 35.00 million is

contributed by the promoter and the remaining 60% or Birr 52.92

million would be financed by bank. The investor has already

contributed Birr 5.86 million from equity, in the form of factory

construction work, lease down payment and pre-operating

expenditure. The Bank financing of Birr 52.92 million is scheduled

to be repaid within 8 years excluding the two years grace period

at 9.5% interest rate with quarter repayment.

Starting with initial capacity of 60% and increment by 5% per

year, up to attainable capacity of 90%, the project would make

attractive profit throughout its operational years and generate

5

positive net cash inflows. Within its assumed 10 years life it

would return more than 53% of IRR and more than Birr 241 million

net present value.

Establishment of the food complex factory is a contribution to the

country’s real GDP as it has positive impact in fixed asset

generation and output quantity increments. Apart from creating

employment opportunity for the domestic labor, the project would

reduce hard currency outlay.

The realization of the project as ascertained in the financial

appraisal result enables the promoter to generate higher net

benefits, employment benefit to domestic labor, indirect

employment for input suppliers, tax revenue benefit and import

substitution effect on saving hard currency. These parameters are

basic indications of the projects social desirability and economic

feasibility. Therefore, it is advisable to finance it either with

equity or with debt or in a combination of both.

1. PROJECT DESCRIPTIONThe envisaged project is an integrated manufacturing of food

complex. The factory produces Wheat Flour and Biscuit by processing

raw wheat. The installed plant capacity of wheat flour is 30,000

and Biscuit 3,600 tons per year, respectively. 89% of the wheat

flour manufactured in the factory shall be sold in the local

market, while the remaining 11% will be used for the production of

biscuit. The percentage proportion is determined based on the

production capacity of the biscuit production machinery.

1.1 Project Location

6

The food complex plant is located in Alemgena town. Alemgena is

located about 20 Kilometer South West of Addis Ababa on the Main

Road from Addis Ababa to Djima. While selecting location for such

food complex factory; availability of raw material, adequate

storage and operation space, water and power supply, market outlet

for finished products and availability of labor are among the major

factors to be considered. The town is the host of other labor-

intensive factories due to its preferable attribute and proximity

to the capital Addis Ababa.

1.2 Project Rationale

Food item is a commodity; its demand exists whenever human being

exists. The demand increases as population increases disregarding

preference of consumers over the type of feeds and their catering

culture. Wheat flour based products such as biscuit are among the

well-known and commonly available products in the Ethiopian Market.

Food self-sufficiency is one of the prime objectives of the

country. Labor intensive agro processing industries play

significant role in absorbing the large labor force and thus

contribute their share to the food self sufficiency move. The

Agricultural products like wheat and the semi processed flour shall

be traded in a vertically integrated marketing methodology in order

to ensure better wage to the farmer and more value adding produces

that preferably involve many labor to deploy the cheap labor force

of the country in productive sectors. The industry is a distinct

sector of the economy, which makes its direct contributions to the

enhancement of social well being of productive citizens.7

Apart from its attractive return, existence of stable demand and

employment generation as well as tax revenue to the government,

establishment of such agro processing industry is a good

opportunity to the grain market stimulation and thus to the

framers. It is rationale, therefore, to involve into an activity

that helps to tap the well-known business opportunity.

1.3 Project Status

The existing investment is begun after signing of the lease

contract with Oromiya Regional Government in the year 2003 E.C

aiming to establish Food complex factory. So far the project owner

has invested about Birr 5.8 million on the existing project. Among

others, the following are the major investments made within the

project compound.

Civil Works 40% of the civil works for the factory have been accomplished

Machinery All required production machinery is being selected.

Vehicles, Equipment and Furniture

Vehicles, equipments and furniture are not purchased.

Raw Materials

The major raw materials are wheat and packaging materials.Communication with suppliers is underway.

1.4 Project Implementation ScheduleThe following chart shows major activities to be done during the

implementation period.8

Activity   Ma

rc

h

Apr

il

May Jun

e

July Aug Sept Oc

t

Nov De

c

Ja

n

Feb

2013 2014

Land acquisition Don

e

                       

Document

Preparation

Don

e

                       

Construction of

Factory Buildings

Debt Financing

Import of

Machinery

Purchase of

Vehicles & Equip

Recruitment,

Installation and

Commissioning

Operation

Grace Period One year construction and one year for pre-marketing period total two years

As indicated above and everything will go per our plan, the factory

will be operational in the month of January, 2014. One of the

remaining activities is processing debt financing from bank to

supplement the implementation of the project. Two years grace

includes pre-implementation and pre-marketing period to

popularizing the factory’s product to the public so that higher

sales would be achieved.

1.5 Benefits of the ProjectThe major benefits include net returns on investment, supply of

quality products to the local market and income tax to the

government. Establishment of the project is creating opportunity

for productive and unemployed portion of the labor force. Indirect

benefits accrue to the country as a whole in the form of generating

potential investment capital and saving of foreign currency.

9

Experience of this project may be extended to the grain market by

creating market the agricultural produce.

2. PROMOTER’s BACKGROUND

Ato Sintayehu is very experienced business man who has been in

business for the last 16 years starting from salesman position at

B.S.T Plastic Industry to his current position general manager and

co-owner of sintu trading PLC and Bekalus General Trading PLC.

Sintu Trading PLC has been engaged in importing and distributing

plastic raw materials since 1999EC and Bekalus General Trading PLC

has been engaged in manufacturing of house hold plastic goods since

2001EC. Ato Sintayehu run his business in Merkato and expanded the

size and volume of it to reach the current Sintu Trading PLC and

Bekalus General Trading PLC and also to the captioned Project,

RODIS ENRICHED FOOD PROCESSING AND FLOUR MILL. He is young

business man who thoroughly studied all the end to end production

and marketing process and already started implementation of the

project and also has accomplished more than 40% of the building.

3. PRODUCT DEFINITION

Wheat flourIt is a powder made from the grinding of wheat used for human

consumption. More wheat flour is produced than any other flour. In terms

of the parts of the grain (the grass fruit) used in flour—the endosperm

or protein/starchy part, the germ or protein/fat/vitamin-rich part, and

the bran or fibre part—there are three general types of flours. White

flour is made from the endosperm only. Whole grain or whole meal flour is

10

made from the entire grain, including bran, endosperm and germ. Germ

flour is made from the endosperm and germ, excluding the bran. The

project planned to produce germ flour type.

Biscuits

A small, flat cake that is dry and usually sweet. Biscuit is a

family of candy group, which is largely, consumed by children and

teenagers. Biscuits can be savory, sweet, plain-baked, filled, or

coated (or a mixture of several of these options). Some biscuits

supply special dietary needs such as those for high fiber protein

or external vitamins. Biscuit also contain fat and often sugar and

are cut or molded into layers and baked rapidly thoroughly. When

they packed with moisture proof material, they can have long shelf

life.

4. GTP plan

The agro-processing industry sector is one of the emphases areas of

the GTP plan aiming to increase the capacity utilization of the

industries to 90% at the end of the GTP plan 2014/15 from 60% in

the year 2009/10.

In achieving this target the government has also set a plan to

increase the productivity of in industrial crop which are the main

inputs like wheat to 1,174.70 metric tons in the year 2014/15 from

629.7 metric ton in the year 2009/10 used as a base period. This

simply shows that the project is one of the government emphasis

areas to meet the ultimate goal of food sufficiency; otherwise the

11

GTP plan has left only one and half year period which may be short

as we compared with the project life of 10 years. The following two

tables of extract from the GTP plan portray the above facts.

5. PROJECT MANAGEMENT AND HUMAN RESOURCE

5.1. Project Management

The technical aspect of Wheat flour and biscuit production is a

well-known profession in the Ethiopian food-processing sector. As a

result, qualified professionals are available in the market hence;

all the technical, marketing, finance & Administration and

Production functions are supervised and managed by Ethiopians. The12

owner is also member of the top management group of the factory and

other qualified professionals assume the Production, Marketing &

Procurement as well as Finance & Administration functions.

The would be organizational structure of the factory is as shownbelow:-

5.2. Human Resource RequirementA total number of 300 permanent local employees are projected for

the managerial, professional, technical, and non-professional posts

of the project. The 20% staff benefit includes, 8% pension,

transportation and other benefits. Monthly and annual salary

expense is Birr 650,400 and Birr 7,804,800, respectively. The

detail including the salary expense is shown in the following

table.

Position No. of posts Monthly Pay Monthly Salary Expense Annual PayGeneral Manager 1 10,000 10,000 120,000

13

Executive Secretary 1 3,000 3,000 36,000Legal Advisor 1 4,000 4,000 48,000sub-total 3 17,000 17,000 204,000Head Finance and Admin. Department 1 8,000 8,000 96,000Secretary 1 2,500 2,500 30,000Administration Division 1 5,000 5,000 60,000Personnel officer 1 3,000 3,000 36,000Office girl 1 1,000 1,000 12,000Personnel Clerk 1 1,500 1,500 18,000General Service Clerk 1 1,500 1,500 18,000Telephone Operator 1 1,500 1,500 18,000Drivers 2 2,000 4,000 48,000Assistant Drivers 2 1,000 2,000 24,000Guards 6 800 4,800 57,600Janitors 2 800 1,600 19,200Gardeners 1 800 800 9,600Finance Division 1 5,000 5,000 60,000Senior accountant 1 4,000 4,000 48,000Accountant 3 3,000 9,000 108,000Data Entry Clerk 1 1,500 1,500 18,000Casher 2 2,000 4,000 48,000sub-total 29 44,900 60,700 728,400Head Marketing and Procurement 1 8,000 8,000 96,000Procurement & store division 1 5,000 5,000 60,000Purchaser 1 3,000 3,000 36,000Store keeper 2 2,000 4,000 48,000Head Sales division 1 5,000 5,000 60,000Sales Officers 2 3,000 6,000 72,000Sales Clerk 2 1,500 3,000 36,000Invoice clerk 1 1,500 1,500 18,000sub-total 11 29,000 35,500 426,000Production and Technique Depar. Head 1 8,000 8,000 96,000Production Division Head 1 5,000 5,000 60,000Shift leader 3 4,000 12,000 144,000Different machines operators 20 2,000 40,000 480,000Different machines assistant operators 20 1,500 30,000 360,000Packing supervisors 3 2,500 7,500 90,000Packing workers 200

1,500 300,0003,600,00

0Quality Controller-chemist 2 3,000 6,000 72,000Sub-total 250 27,500 408,500 4,902,000Technical Division Head 1 5,000 5,000 60,000Mechanical Forman 1 3,500 3,500 42,000Senior mechanic 1 3,000 3,000 36,000Mechanic 1 2,500 2,500 30,000Senior electrician 1 3,000 3,000 36,000Electrician 1 2,500 2,500 30,000Tool Keeper 1 800 800 9,600sub-total 7 20,300 20,300 243,600

Total 300 138,700 542,000 6,504,00020% benefit 108,400 1,300,800Grand total 650,400 7,804,800

14

Training RequirementTraining shall be carried out during plant erection and

commissioning by machinery supplier. The training and erecting

period is scheduled to be for 90 days. The cost of installation and

training cost is included in the cost of production machinery.

6. MARKET ANALYSIS

6.1. Why agro-processing is critical to the Ethiopian

Economy?It is obvious that Ethiopia, which depends on agriculture of nearly

half of its GDP should give top priority to the development of its

agricultural sector. To this effect, the government has adopted an

Agricultural-Development Led Industrialization (ADLI) strategy to

ensure sustainable agricultural production for food self reliance

and promote industrialization. The rigorous implementation of the

ADLI strategy is recognized to result in surplus production of

agricultural products. Rather than exporting surplus primary

products such as cereals, pulses, oilseeds and fresh produce,

Ethiopia will increasingly realize the benefits of exporting

processed foods that add value to primary agricultural products.

Therefore, the prospects for expansion of the food processing sub-

sector are considerable. Food processing factories of cereals,

oilseeds, pulses, sugarcane, vegetables, fruits, meat, dairy

products and spices are expected to be established in large

numbers. In all, agro-industry in general and food processing in

particular will play an increasingly important role in the

Ethiopian economy.

15

In order to be competitive in the market, the Ethiopian food

processing industry should increase the degree of transformation of

primary agricultural products and improve upon the quality of food

packaging. Therefore, use of modern technology will be very

critical element in food processing and packaging. In this

connection, market access, management knows how and transfer of

technology would take up most.

Given the large agricultural resources potential of the country and

relatively under developed status of the manufacturing sector, the

Ethiopian Government should as part of its ADLI strategy, initially

focus on the development of the country’s agro-industry, especially

the food processing industry, both for the export and the domestic

markets. The domestic market is important because growth in income

of the general population, combined with increased urbanization,

will in time translate into increased domestic demand for processed

foods.

6.2. Supply

The food processing industry in Ethiopia consists of three scale-

based classes; the dominant core, which consists of large-scale

manufacturers producing well-known brands account for a significant

share of the market when it comes to packaged foods such as

biscuits and pasta/macaroni. The second & third class is the

competitive fringe consisting of medium and small scale enterprises

that collectively account for a larger share of the market for

unbranded, staple (commodity) food items such as flour & bread. The

2012 CSA Manufacturing Business Survey reports the total production

16

value of the food processing sector to be 2,688,620,795 in 2011-

which is about 11.93% of the manufacturing industry as a whole.

Ethiopian Food Processing Industry

Number of Establishments by Size

2007/2008 2008/2009 2009/2010

Sml Med Lg Sml Med Lg Sml Med Lg

Vegetables/ Fruits processing 1 2 9 1 3 9 - 2 8

Vegetable & animal oils/fats 21 5 7 23 8 8 25 3 8

Dairy products - - 4 1 1 3 3 7 25

Mills 24 62 38 30 77 41 34 88 52

Animal Feed 1 2 40 1 1 12 2 2 3

Bakery 114 66 6 119 70 52 92 49 58

Sugar & Confectionery 11 4 6 6 9 6 5 9 7

Pasta & Macaroni 2 2 7 3 1 8 1 3 12

unclassified 5 4 5 4 3 12 3 1 9

Total 179 147 122 188 173 151 165 164 182

Source: CSA Manufacturing Industry Report 2011

The wheat flour and Biscuit is mainly supplied by the local

manufacturers. There are also some traders that import theses

products irregularly from European & Gulf countries. In the last

five years, however, most of the consumption had been supplied by

local producers. On top of that we need not consider or disregard

import figures from our supply projection as our main intention is

import substitution. Otherwise it may pose a question shouldn’t we

establish our factory, had the import figures are significantly

large? (we think the answer is no.)

Regarding Investment licenses issued to the Food processing sector,

it is observed that although investment licenses issued to the food

processing sector-including beverages accounted in thousand every17

year, the proportion of projects that turned out to operation each

year is between 1% and 7%, average 4% during the past 5 years

(2007-2010). According to the CSA’s database the food processing

sector constitutes 4% of the total food and beverages processing.

The flour, biscuit, Macaroni and pasta firms constitute 40% of the

food processing firms.

Applying the percentage proportion distribution of firms to the

investment licenses issued (historical trend) results that the

number of new projects that would be converted to operational

status is nearly 1 in 2010.Year and No of Project Compositions 2006 2007 2008 2009 2010

No of Projects in Pre Implementation…………. (1)

1,275 2,094 1,427 1,420

No of Projects In Implementation……… ….(2) 57 72 60 37

Projects converted to operational……...……….(3)

96 90 72 16

Total………………………...4 1,521 1,428 2,256 1,559 1,473

Food Licenses (4%)……………………………5 60.84 57.12 90.24 62.36 58.92

Share of flour, biscuit, Macaroni, Pasta Licenses (40%)..6

24 23 36 25 24

Percentage of Conversion to operation.. ¾………7

7% 4% 5% 1%

Share of flour, biscuit Macaroni, Pasta(No.) …...7 x 6

1.54 1.44 1.15 0.26

Hence, more than the supply increment contributed by new entrants,

the capacity increment of the already established firms is

significant. The historical production volume trends in ton and the

supply forecast based on the past trend is shown in the following two

tables:-

18

NB. The trend analysis above incorporates estimated no. of firms

joining the sector or new entrants.

Production Volume of the Past ten years Trend:

YearFlour production in

TonGrowth rate Biscuit production in

ton Growth rate2000 185,437 - 11,781 -2001 165,345 -11% 16,607 41%2002 142,541 -14% 5,378 -68%2003 136,669 -4% 5,639 5%2004 155,669 14% 7,361 31%2005 148,786 -4% 10,115 37%2006 173,787 17% 10,429 3%2007 177,263 2% 10,794 3%2008 180,808 2% 11,172 4%2009 184,424 2% 11,563 3%2010 188,113 2% 11,968 4%

Average growth 1% 6%

year flour supply Biscuit supply2011 191,875 12,8062012 195,713 13,7022013 199,627 14,6612014 203,620 15,6882015 207,692 16,7862016 211,846 17,9612017 216,083 19,2182018 220,404 20,5632019 224,812 22,0032020 229,309 23,5432021 233,895 25,1912022 238,573 26,9542023 243,344 28,841

In order to forecast the demand for the next ten years, per capita

consumption rate is applied. Other things being constant, apparent

consumption/demand is the amount purchased and consumed. This

equals Production + Import-Export. The third variable is almost

zero in Ethiopian case as there is no data on significant exports

so far. Therefore, Demand equals Local Production plus Import.

According to the business development service, Ethiopia’s per

capita consumption for Wheat Flour is 3.8 K.g and Biscuit 0.2 K.g.

These rates are considered for the forecast. Population growth of

2.4% plus 6% annual increase due to the increment of expending

19

power of the population is applied to forecast the demand as shown

below: The population projection figures in this issue are based

on the results of the May 2007, National population and Housing

Census of Ethiopia. Therefore, the projected figures for the year

2012 become 84,320,987.Year Population per capita flour consumption

in ton per capita biscuit consumption in ton

2,012 84,320,987 320,420 16,8642,013 91,403,950 347,335 18,2802,014 99,081,882 376,511 19,8162,015 107,404,760 408,138 21,4802,016 116,426,760 442,422 23,2852,017 126,206,607 479,585 25,2412,018 136,807,962 519,870 27,3612,019 148,299,831 563,539 29,6592,020 160,757,017 610,877 32,1512,021 174,260,607 662,190 34,8522,022 188,898,497 717,814 37,7792,023 204,765,971 778,111 40,953

As shown above, the demand volume is expected to grow due to

population increment and per capita income improvement. According

to the forecast, within the years from 2013 up to 2023: Demand of

wheat flour increases from 347,335- 778,111 tons and biscuit from

18,280-40,953 tons.

6.4Demand and Supply Gap

The demand-supply variance shows positive demand gap indicating

that even after capacity increment of existing factories, demand

for the products would fully be met with additional imported

portion.

Demand Gapyear Flour in ton Biscuit in ton2,0122,013 147,708 3,6192,014 172,892 4,1292,015 200,446 4,6952,016 230,576 5,3252,017 263,502 6,0232,018 299,466 6,7982,019 338,727 7,6572,020 381,568 8,609

20

2,021 428,295 9,6612,022 479,242 10,8252,023 534,766 12,112

In aggregate all the products have adequate demand gap that can be

supplied by a number of new entrants including this project.

6.5 Marketing Strategy, segmentation and distribution

The major customers of our products are Wholesalers, Retailers &

service-based end-users. We plan to sell products in bulk primarily

to the first segment, wholesalers who in-turn sells it to retailers

in smaller quantities. The second segment comprises of large retail

outlets such as supermarkets who buy bulk quantities directly from

the manufacturer and resell to the consumer.

The third customer segment, service-based end users comprises of

institutions & organizations that source products directly from the

manufacturers either as raw materials or supplies for their

businesses/organizations.

The market & distribution system in Ethiopia consists of major

wholesalers, regional wholesale distributors, retailers, middlemen,

traders and collectors in a long and complex value chain. Major

Wholesalers in particular have an excessively significant role to

play with the function of bulking; picking up large quantities for

smaller wholesalers in regional cities who in turn distribute it to

retailers within the city. Intermediaries such as regional

distributors and middlemen are involved in logistics by covering the

difference between the location of the product and the marketplace

where consumers purchase products. Other traders & entrepreneurs

have multiple roles in getting goods to various customer groups.

12

Major Wholesalers are concentrated in Merkato, the wholesale center

of the country. Smaller wholesalers are scattered throughout

regional cities and work in specific territories. The regional

wholesalers seldom buy directly from the manufacturers as they often

distribute a number of goods and merkato is a one-stop destination

for all goods distributed in the Country.

The smaller wholesalers are highly sensitive to price and local

competition so they may or may not carry the same type of products

for a significant period. Thus, Merkato becomes an ideal destination

for the smaller wholesalers as it provides them with variety and

information on price comparisons as well as market intelligence in

terms of the volume of a particular product that has been sold to

their competitors. Using this information, the smaller wholesalers

choose the brands and/or product mix they are willing to take back

to their respective markets. This causes consistent fluctuations in

sales and production schedule for a manufacturer if regular market

intelligence is not conducted. Large-scale food processors have an

advantage to determine price points if they have penetrated the

market well. For this purpose we will use penetration price

strategy.

The development of the retail sector in terms of the emergence

organized businesses with high volume sales and high-traffic

locations etc has fostered a growing direct-to-retailer sales trend

amongst manufacturers. Large-scale manufacturers are now

distributing their products to supermarkets and mini-marts through

door-to-door sales/delivery route system. This system allows the

manufacturer and retailer to earn a higher margin by cutting out the

22

middlemen. Despite the benefits its offers, manufacturers generate

low volume from the route sales system since the addressable

customer size is very small. The majority of the Country’s retailers

are inaccessible neighborhood kiosks with low-volume sales. Thus,

the Merkato-wholesale distribution system, although very costly to

local manufacturers is assumed to be the most efficient way to

deliver products making the intermediary group ‘the primary

distribution channel’.

The promoter will use aggressive promotion and product

popularization through use of electronic media especially via TV as

visualizing the product will be more convincing. For the purpose

0.5% of sales are allotted.

6.6.Price Presently there are different types of flours and biscuits in the

market both imported and locally manufactured. Per our market survey

currently, the factory gate price of flour ranges from birr 900-

1,000 and for locally manufactured biscuit it ranges from birr

4,500-5,000 per quintal or 100 kg, respectively. As a penetration

price the average lowest price of birr 900 and birr 4,500 for flour

and biscuit is considered in the analysis. The minimum market price

for the by-product bran is birr 300 per quintal.

6.7Future Prospects

The project has an excellent and promising future since the lifestyle of the consumer base is changing in its favor. The followingfactors are expected to contribute positively to the sustainablegrowth of the food sector in general.

Urbanization:-Increased urbanization results in increased consumer demand for processed food products like wheat flour,

23

bread, pasta &biscuits. Increased number of catering companies, hotels, universities, and Army consumption is also expected to increase.

Urban consumer trends:

Decrease in consumption of home-produced Injera due to the rising prices of Teff.

Wheat bread replace traditional bread More food & drinks consumed outside from home Real income growth due to declining inflation rates Increased employment rates due to robust economic activity.

Other Forces:- Population growth results in overall demand increase

7. TECHNICAL STUDIES

The most important technical considerations for this project is raw

materials type and selection, technology and capacity of plant,

power source, water source, production process and production

support facilities like land and factory buildings. Each of them

is discussed in the subsequent parts.

7.1 Raw material and inputsThe major raw material is wheat. Ethiopia is the largest wheat

producer in sub-Sahara Africa. Wheat production is the fourth

largest production in Ethiopia with 3,075,640 ton in area of 1.5

million hectare in the year 2010.

24

Rank CommodityProduction (Int

$1000) Production (MT)

1 Roots and Tubers, nes 930197 5439400

2 Maize 528815 3897160

3 Cereals, nes 821423 3207300

4 Wheat 466,686 3,075,640

5 Sorghum 452014 29712705

Source: FAOSTAT (2010)

The production is planned to increase through area expansion and

yield improvement. Ethiopia’s wheat production increase in

recent years appears to be a combination of both.

Wheat is the major raw material that accounts for approximately 74%

of manufacturing cost. It is made available locally, primarily

through small-holder farms & government owned farming enterprises.

A cluster of privately held, large-scale agricultural enterprises

have been emerging in the past two years bringing the prospect of

enhanced quality & dependable supply into the horizon.

25

It is not legal for the private sector to import wheat. However,

the government supplies wheat for food manufacturers.

Packing materials, flavors & food chemicals such as preservatives,

improvers, colors etc. are not available locally making imports the

only option.

Manufacturers can import any raw materials except for wheat and

sugar. A discounted import duty of 10% is afforded to local

manufacturers to boost the competitiveness of local products as

opposed to the 30-35%% duty imposed on importers in other sectors

such as traders, service-based enterprises & distributors.

Some raw materials and packaging such as sugar and cartons are

normally sourced locally although frequent shortages and price

fluctuations cause a significant instability within the supply

chain.

The other raw material is water. Usually for biscuit about 30% of

the dough weight is constituted by water. However, the water

content removed back after the required shape is formed/Extruded/.

The following annual raw material requirement at full capacity is

computed based on the following input output relationship.Wheat flour

Raw Material

Intake Capacity/year

Extraction Rate

Flour Yield Bran

Raw Wheat 300,000 0.76 226500 39,000 For 500kg biscuit we use the following amount of raw materials.

flour- 335kg v. fat- 67kg sugar- 67kg ammonium bicarbonate- 4.5kg sodium bicarbonate - 4.5kg

26

milk powder- 11kg flavors- 0.5kg glucose- 11kg

 

Input requirement for Biscuit line at full capacityinputs Qty in kgs prices Total costSugar 482,400 14.5 6,994,800Fat 482,400 29 13,989,600Milk powder 79,200 24 1,900,800Sodium Bicarbonate 32,400 5.76 186,624Ammonium Bicarbonate 32,400 5.24 169,776Flavors 3,600 244 878,400liquid glucose 79,200 12.64 1,001,088total 25,121,088

PackagingQuantity pcs

 Cost at full capacity

Wheat Flour Sacks 25 kg (50% of production)

404,760

2,023,800

Wheat Flour Sacks (50kg 50% of production0

202,380

1,011,900

sub-total 60

7,140 3,035,70

0

PP Bag for Byproduct

39,000 195,0

00

Poly Film -Biscuit-in rolls

15,000 150,000.00

Cartoon for Biscuit 1,500

,000 15,000,000 sub-total  15,345,000 Total  18,380,700

7.2 Production Process

7.2.1Cleaning

Whet received for milling contains field contamination, which

includes plant parts, weed seeds, stones, and lumps of soil. It may

also have extraneous materials like metal fragments and other

grains. Raw wheat stored in bulk store requires regular recycling

27

and dosing of fumigation tablets. The wheat from the dumping pit,

via bucket elevator is fed to the vibro separator. Materials to be

separated fall freely through the inlet onto the coarse screen of

the vibiro separator, which removes coarse impurities as string,

straws, and stones. Fine sieves further remove broken kernels,

sands and other fine impurities. Tailing from sieve layer cleaned

water is used at the outlet to separate light particles by an

aspiration channel.

7.2.2 Conditioning

Prior to milling water is added in process known as “tempering”.

Hard wheat is normally brought to 15-16% moisture, soft wheat 13-

14% moisture. Tempered wheat is held 18-24 hourse at ambient

temperature in conditioning bins. The process toughness the seed

coat /bran/ and softens the starchy endosperm so that an efficient

separation of bran and endosperm can take place.

7.2.3 Milling/Grinding/

The process of wheat milling is a complex procedure of repetitive

grinding and sieving. The grinding process is divided into the

break, scratch and reduction operations.

The tempered wheat is grounded on a serious of corrugated break

rolls, the objective being to open up and scrap the wheat kernel to

release endosperm from the bran. Each grinding operation is

followed by sifting operation, in which the coarse branny stock

from the sifter is fed on successive break rolls. Each grinding and

bolting operation results in stream of flour of various breaks

(1st, 2nd, etc) that are collected from finest sieves as

intermediate granular particles. The final products of wheat flour

are ready to go for the biscuit line and to store.82

An average well-matured grain of wheat has 55% endosperm, 13% bran,

and 2% germ. It is the endosperm of the wheat grain that is

converted to flour in milling. In theory, it should be possible to

remove or extract approximately 85% of the grains flour, however

other structural features makes it an impossible task in actual

fact, the amount of flour produced may have some amount of bran,

while some flour is lost with the bran. Therefore, the commercial

flour may have extraction rate in the ranges of 73%-80%.

Biscuit

Biscuit manufacturing involves mixing of flour and other

ingredients into homogenous dough, forming the dough into a pre-

established shape, backing the dough pieces into biscuit. Cooling

the biscuit and packaging it. These processes are performed on

artisanal or industrial scale. The biscuit manufacturing to be

employed is fully automatic. Flour from the silos is pneumatically

transported to the mixing unit; the dough from the mixer is then

automatically transferred to the forming unit, from the forming

unit to the oven then the final product through the cooling tunnel

to the packing unit. The following chart shows the major process

flow of the products. Wheat Flour and Biscuit processing flow Chart

29

7.3 Civil Works Land

The land at which the food complex plant is located is acquired on

lease base from Sebeta town Administration Office. The lease

agreement for 5,000 m2 was concluded in the 2003 E.C and valid

until the year 2083 E.C. i.e. for 80 years. The promoter has to pay

Birr 6.5 per meter square or Birr 2,600,000 in total within 40

years payment period. So far he has paid Birr 319,215 Including 10%

down payment.

The project is located at the industrial zone of Sebeta-Alemgena

town which is being selected by the government considering

infrastructure, proximity to the market, availability of manpower,

etc. In this case it seems that the decision for site selection is

being made by the government instead of the promoter.

Building

The factory requires bigger production, raw material and finished

products hall. Such store and other construction works are already

started and 40% completed. Among others, the factory building

consists of the following parts.

30

CLEANING -RAW WHEATCONDITIONING RAW WHEATGRINDING/MILLINGBISCUT LINE

Raw material store , Finished goods store, Offices, Two

separate dressing rooms

The factory building is estimated to cost total of birr13,534,233.41, so far the promoter has made 40% or about birr5,541,379.

7.4 Production Machinery and lay out

Both the flour and Biscuit processing machinery are already been

selected from different China suppliers; namely HEBEI AFRICA

MACHINERY CO.LTD and SHUNDE LIGHT INDUSTRIAL PRODUCTS COM.LTD,

respectively. Among others, the following points are our selection

criteria.

Lower price

They supply the complete plant while the others don’t supply

the complete plant

The main parts of the plant are from very popular and reliable

suppliers like Siemens

The type of material from which the machineries made are the

best quality

They have been in the business for the long time and have good

reputation. Moreover they have supplied to many countries

including Ethiopia and we have learnt from their customers

that they provide good quality machineries.

They provide reliable spare parts

The machineries run by latest technology.

The flour making machine has a designed production capacity of

30,000 ton per year while the Biscuit machine can produce 3600 ton

per year assuming 300 working days in a year.

13

The under shown table portrays the machinery and its associated

costs per the proforma invoice plus transaction costs computed

based on Ethiopian investment agency, factor cost publication of

the year 2012 & access capital price data base.production machinery cost break down

Wheat Flour Machinery Biscuit machinery Total flour & BiscuitProduction Machinery 551,570 587,700 1,139,270Sea freight 29,200 28,175 57,375Port clearing & Delivery charge 8,640 7,560 16,200Installation cost 26,400 18,000 44,400Total in USD 615,810 641,435 1,257,245Exchange rate 18.5 18.5 18.5Sub-total in Birr 11,392,485 11,866,548 23,259,033Insurance 17,089 17,800 34,889Inland freight 40,000 35,000 75,000Bank charge 171,744 178,790 350,534Ticket and accommodation 370,000 185,000 555,000Grand Total 11,991,317 12,283,138 24,274,455 For flour machine-Two expatriate engineers and 2 technicians with monthly salary of

USD 2,000 and USD 2,400 per month shall stay in Addis for three months forinstallation.

For Biscuit Machine-2 expatriate engineers from Supplier Company with daily rate ofUSD 100 will stay for 90 days for installation.

Round trip air ticket costs birr 25,000 each expatriate. Accommodation and foodcharge is estimated to be birr 750 per day.

NB. The production machinery lay out is annexed.

7.5 Vehicles

The total output (flour, biscuit and the by product) at 60%

capacity is more than 53 ton per day. An Isuzu NPR truck can load

3.5 ton at a time. Assuming a single truck can make two trips per

day, the project demands at least 7 trucks. However, with the

assumption that most of the sales will be made at factory gate and

the promoter will use some vehicles on rental basis, it is planned

to purchase only two ISUZU trucks. Own vehicles will be used to

reach far areas and address urgent deliveries. The detail type and

price of the vehicles is shown in the table below.

Vehicles

32

Type quantity Unit/price TotalISUZU NPR truck model

2012/3.5ton 2 725,000 1,450,0002% registration fee 29,000

Total 1,479,000

7.6 Office Equipment and Furniture

The factory has to be equipped with the necessary office equipment,

furniture for the administrative, and finance staffs as well as for

market integration of input supply and finished product quality

control. The details with related costs are shown in the table

below. Furniture, Generator and Transformer

Description Unit cost/unit TotalGenerator, transformer and electric work one each 6,771,119 6,771,119Dell computers with LCD monitor &Speaker 25 14347.83 358,696HP laser Jet printer 15 6086.96 91,304Canon IR 2420 photo copy machine 1 27826.09 27,826Managerial table-one side arch 5 3302.61 16,513managerial table-bean type 180x90x75 8 3144.35 25,155Single Pedestal table 140x80 21 2151.3 45,177Executive Book shelf 4 4538.26 18,153Gust chair 12 499.13 5,990managerial swivel chair 5 2049.57 10,248managerial swivel chair 8 1763.48 14,108managerial swivel chair 21 1669.57 35,061Dixon shelf 3 1466.09 4,398sub-total 6,839,964 7,423,74815% VAT 1,113,562Total 8,537,310

As indicated from the table the project requires total investment

of birr 8,537,310 for furniture, transformer and generator

acquisition.

7.7 Utility Supply

Power Supply

33

The factory requires total 840KW (for flour mill 290+biscut line

550) power. The electric installation cost including power

transformer is indicated in the table above under part 6.6

supported by valid proforma invoice. The following table shows the

computation of annual power cost to the factory.

POWER KWAnnual Consumption at 24 hrs/day, @100%

capacity

Rate Per

Unit Birr

Flour Mill

Line 290 2,088,000 0.58

1,211,0

40

Biscuit Line 550 3,960,000 0.58

2,296,8

00Total 840 6,048,000 3,507,840

Water

Water line is not availed to the project as a result estimated cost

of birr 3,000 is allotted in the pre-operating expenditure. For

Flour and Biscuit production, water is an essential input.

Including the requirement for human use, the factory’s annual water

consumption reaches 3,000-m3 at birr 3.25/m3 consumption per day.

The detail is shown below.

Water m3/DAY Annual Consumption Rate/ m33 total

Flour Mill and biscuit

line 10 3,000 3.25 9,750

Fuel Consumption Fuel Consumption

KM/daykm. distance

/litter price Total200 6 20 400,000

5% oil & Lubricant 20,000Estimated hours power

offfuel consumption

liter/hr price Total2 5 20 60,000

34

Total 480,000

As indicated above on average each vehicle is assumed to travel 200

km per day and will travel 6 kilometers per liter of fuel. Price of

fuel is birr 20/litter. The annual fuel consumption for the two

trucks will, thus, be birr 400,000. Oil and lubricant expense is

estimated to be 5 % of fuel. Likewise, a stand by generator on

average will work for 2 hours per day with 5 litter consumption per

hour at birr 20/litter, the annual fuel cost will be birr 60,000.

Communication and Stationery

Telecommunication, Internet and fax service in today’s business

world have great importance in exchanging information between raw

material suppliers, intermediaries, consumers and producers. The

area is equipped with mobile network, landline, and internet

service. Total cost for communication and stationery is considered

3% of salary expense.

7.8 Environmental Impact Assessment

The project will not have an adverse impact on the environment as

it is not associated with process that emits hazardous effluents

that can potentially endanger the working or surrounding

environment.

35

8. FINANCIAL APPRAISAL

8.1 Initial Investment Cost

The total initial investment cost required for the project is 87.92

million. The items and cost breakdown is shown in the following

table.

Investment Cost Schedule Description Unit Total Investment cost

Land use tax Advance Payment Birr

319,215

Factory Building Birr

13,853,449

Production Machinery Birr

24,274,455

Vehicles Birr

1,479,000

Generator, transformer and office Equipment

Birr

8,537,310

Sub-total Birr 48,463,429

Pre-operating Expenditure(water 3,000) Birr

14,660

Pre operating Interest Birr

10,055,145

Initial Working Capital Birr

29,437,446

Sub Total Birr 39,507,252 Total Birr 87,970,680

NB. Different legal expenses paid plus birr 3,000 water line installation cost to be

paid) (10,180.48+200+105+10+25+360+780+3000).

8.2 Financing Structure

Item

Total Initial InvestmentCost Equity Contribution Debt Finance

Unit Amount % Amount %

Amount

Land - Payment Birr 319,215 100% 319,215 0% -

Factory Building Birr13,853,449 40%

5,541,379 60% 8,312,069

Production Birr 24,274,4 30% 7,282,33 70% 16,992,118

36

Machinery 55 6

Vehicles Birr1,479,000 30% 443,700 70% 1,035,300

Generator, transformer and office Equipment Birr

8,537,310 30%

2,561,193 70% 5,976,117

Sub-total Birr48,463,429 33%

16,147,824 67% 32,315,604

Pre-operating Expenditure Birr 14,660 100% 14,660 0% -

Pre operating Interest Birr

10,055,145 100%

10,012,679 0% -

Initial Working Capital Birr

29,437,446 30%

8,831,234 70% 20,606,212

Sub Total Birr39,464,786 48%

18,858,573 52% 20,606,212

Total Birr

87,970,680 40%

35,006,397 60% 52,921,817

As indicated in the above table, it is planned that the promoter

would contribute 40% of the total investment cost and the remaining

60% would be financed by debt. Out of the equity requirement of

Birr 35 million, the promoter has so far committed more than birr

5.86 million for construction of building, lease payment and pre-

operating expenditures. The 60% bank financing, which is birr 52.92

million would be payable within 8 years exclusive of 2 years grace

period at quarterly repayments with 9.5% interest rate.

8.3 Applied Financial Assumptions:1. Project life: Ten operational years excluding implementation

period2. Capacity Utilization Rate: Starts at 60% and increases by 5%

every additional year up to attainable capacity of 90%.3. Working days per year: 300 4. Number of shifts: at full capacity = 3, 5. Working hours per shift : 8, total working hours per day, 24,6. Tax holiday period: Nil, 7. Profit tax: 35% of IBIT and 15% VAT on sales.

37

8. Salvage value: Buildings 50%, Vehicles, Machinery, and MajorEquipment, 20%.

9. Recovery rate: Full amount of the ending working capitalamount,

10. Cost of Capital for discounting: 9.5%11. Grace period: 2 years.12. Financial Expense on debt finance: Fixed 9.5%,13. Loan Repayment: Principal plus interest is paid per quarter

within 8. years, however, interest alone would be paid duringgrace period of 2 years,

14. Water average Rate Birr 3.25 Per M3

15. Power: average rate Birr 0.58 per KWH,16. Stationery and Communication: 3% of salary expense,17. Marketing and Promotion: 0.5% of sales revenue,18. Uniform and miscellaneous : Birr 400 per employee/year,19. Miscellaneous expense birr 20,000 per annum.20. Salary Expense: Per the schedule shown in item 4.2,21. Wage: Birr 50 per ton,22. Depreciation: Buildings 5%, Machinery, Vehicle, Equipment and

furniture 20%, land lease 1% based lease life.23. Amortization: Pre-operating expense : 20%,

83

24. Property Insurance premium: would be 1.75 % for the buildingscost and 2.5% for Machinery and Vehicles,

25. Repair including tier, spare parts, etc: 0.10% of the cost ofbuilding, Machinery, vehicle and equipment for the first 5

years, then will increase by 10% then after.

26. Lease Fee: Birr 58,500 per year per lease agreement.

8.4 Working Capital

The major costs selected to be financed with debt are only cost of

wheat, packaging, sugar, flavors. Salary, wage, fuel, as well as

power and light costs.

As indicated in the table below, the minimum days coverage

considered for one turnover is 30-90 days. The working capital

amount is determined to be Birr 29.43 million for year one. The

incremental working capital after year 1 due to increase in

production capacity will be financed from the internally generated

cash.

WORKING CAPITAL ScheduleCost Items/Year MDOC Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year-8

Cost of Wheat 60 21,600,000 23,400,000 25,200,000 27,000,000 28,800,000 30,600,000 32,400,000 32,400,000

Packaging 602,205,68

4 2,389,4912,573,29

82,757,10

52,940,91

23,124,71

93,308,52

63,308,52

6Sugar and other flavors 90*

4,521,796 4,898,612

5,275,428

5,652,245

6,029,061

6,405,877

6,782,694

6,782,694

Power and Light 30 210,470 228,010 245,549 263,088 280,627 298,166 315,706 315,706Salary and Wage 30 870,696 878,214 885,732 893,250 900,768 908,286 915,804 915,804

Fuel 30 28,800 31,200 33,600 36,000 38,400 40,800 43,200 43,200

Total 29,437,446 31,825,527 34,213,607 36,601,688 38,989,768 41,377,849 43,765,929 43,765,929Incremental WC 2,388,081

2,388,081

2,388,081

2,388,081

2,388,081

2,388,081 0

*MDOC-minimum days of coverage

** Import of one L/C takes 90 days

8.5 Operating Cost, Volume and Revenue

39

8.5.1 Operating Cost

The table below shows the factory operating cost before

depreciation and interest expenses under different production

capacity. The assumptions for each cost and expense are indicated

in the aforementioned discussion under part 7.3 above.Operating cost schedule

Capacity Utilization 100.0 60% 65% 70% 75% 80%Description/Year - Year 1 Year 2 Year 3 Year 4 Year 5

Cost of Wheat Flour 180,000,000 108,000,000 117,000,000 126,000,000 135,000,000 144,000,000

Power and Light 3,507,840 2,104,704 2,280,096 2,455,488 2,630,880 2,806,272Sugar and Other Flavors 25,121,088 15,072,653 16,328,707 17,584,762 18,840,816 20,096,870

Water 9,750 5,850 6,338 6,825 7,313 7,800

Fuel Cost 480,000 288,000 312,000 336,000 360,000 384,000

Packaging 18,380,700 11,028,420 11,947,455 12,866,490 13,785,525 14,704,560

Salary expense 7,804,800 7,804,800 7,804,800 7,804,800 7,804,800 7,804,800

Wage (Birr 50/tone 1,503,600 902,160 977,340 1,052,520 1,127,700 1,202,880

Property Insurance 328,162 328,162 328,162 328,162 328,162 328,162

Land Lease 58,500 58,500 58,500 58,500 58,500 58,500

Repair & Maintenance 481,442 481,442 481,442 481,442 481,442 481,442Stationery& Communication 234,144 140,486 152,194 163,901 175,608 187,315Marketing and Promotion 2,046,092 1,227,655 1,329,959 1,432,264 1,534,569 1,636,873

Auditing fee 20,000 20,000 22,000 24,200 26,620 29,282

Uniform 120,000 120,000 132,000 145,200 159,720 175,692

miscellaneous expense 20,000 12,000 13,000 14,000 15,000 16,000Operating Cost Before Dep. 240,096,118 147,582,832 159,160,993 170,740,554 182,321,655 193,904,449Depreciation 9,560,283 9,560,283 9,560,283 9,560,283 9,560,283Operating Cost Before Interest 240,096,118 157,143,116 168,721,277 180,300,837 191,881,938 203,464,733Interest Expense 4,865,016 4,406,882 3,903,651 3,350,883 2,743,701Total Operating Cost 240,096,118 162,008,132 173,128,159 184,204,488 195,232,821 206,208,433

Cont.

Capacity Utilization 85% 90% 90% 90% 90%

Description/Year Year 6 Year 7 Year-8 Year-9 Year-10

Cost of Wheat Flour 153,000,000162,000,00

0162,000,00

0162,000,00

0 162,000,000

Power and Light 2,981,664 3,157,056 3,157,056 3,157,056 3,157,056

Sugar and Other Flavours 21,352,925 22,608,979 22,608,979 22,608,979 22,608,979

Water 8,288 8,775 8,775 8,775 8,775

Fuel Cost 408,000 432,000 432,000 432,000 432,000

Packaging 15,623,595 16,542,630 16,542,630 16,542,630 16,542,630

Salary expense 7,804,800 7,804,800 7,804,800 7,804,800 7,804,800

Wage (Birr 50/tone 1,278,060 1,353,240 1,353,240 1,353,240 1,353,240

40

Property Insurance 328,162 328,162 328,162 328,162 328,162

Land Lease 58,500 58,500 58,500 58,500 58,500

Repair & Maintenance 529,586 529,586 529,586 529,586 529,586

Stationery& Communication 199,022 210,730 210,730 210,730 210,730

Marketing and Promotion 1,739,178 1,841,482 1,841,482 1,841,482 1,841,482

Auditing fee 32,210 35,431 38,974 42,872 47,159

Uniform 193,261 212,587 233,846 257,231 282,954

miscellaneous expense 17,000 18,000 18,000 18,000 18,000

Operating Cost Before Dep. 205,537,251217,123,95

9217,148,76

1217,176,04

3 217,206,053

Depreciation 696,663 696,663 696,663 696,663 696,663Operating Cost Before Interest 206,233,914

217,820,622

217,845,424

217,872,706 217,902,716

Interest Expense 2,076,749 1,344,143 539,421 - -

Total Operating Cost 208,310,663219,164,76

5218,384,84

5217,872,70

6 217,902,716

Per the above successive tables, the total annual factory cost isestimated to be Birr 162 million in the initial year and increases

to birr 219 million when it operates at attainable capacity of 90%.

8.5.2 Production Volume and Revenue

Production Volume: the two-line machinery has an aggregateinstalled production capacity of 30,000 tons and 3,600 tons

per annum of wheat and biscuit, respectively.

Per the table below the flour line will produce two types of

flours of (grade 1 & 2 with equal proportion). At full

capacity with extraction rate of 76% the annual production of

flour will reach total 226,500 quintals and 39,000 quintal of

bran.

From the total flour production the biscuit line will use 11%

or about 24,120 quintals while the remaining 89% or about

202,380 quintal will be sold to local market. The flowing

table shows the production volume in detail for each of the

production capacity.

14

Production Schedule In Quintal/100-kg

Product

 At Full Capacity

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

60% 65% 70% 75% 80% 85% 90%

Production of Wheat Flour Grade 1

113,250

67,950

73,613

79,275

84,938

90,600

96,263

101,925

Production of Wheat Flour Grade 2

113,250

67,950

73,613

79,275

84,938

90,600

96,263

101,925

Total-Flour

226,500

135,900

147,225

158,550

169,875

181,200

192,525

203,850

Flour to the Market (89%)

202,380

121,428

131,547

141,666

151,785

161,904

172,023

182,142

Bran

39,000

23,400

25,350

27,300

29,250

31,200

33,150

35,100

Flour consumed by biscuit use (11%)

24,120

14,472

15,678

16,884

18,090

19,296

20,502

21,708

Production of Biscuits in qtl

36,000

21,600

23,400

25,200

27,000

28,800

30,600

32,400

Sales Revenue:The net revenue of the project’s products starts with Birr 245

million and increases to Birr 368 million when it operates at

attainable capacity. The under shown table depicts the revenue for

each year under different capacity.

Revenue Schedule

Description/Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7-10

Capacity Utilization 60% 65% 70% 75% 80% 85% 90%

Flour Sale 109,285,200

118,392,300

127,499,400

136,606,500

145,713,600

154,820,700

163,927,800

Biscuit Sale 97,200,000

105,300,000

113,400,000

121,500,000

129,600,000

137,700,000

145,800,000

Bran Sale 7,020,000

7,605,000

8,190,000

8,775,000

9,360,000

9,945,000

10,530,000

Total Revenue 213,505,200

231,297,300

249,089,400

266,881,500

284,673,600

302,465,700

320,257,800

with VAT 245,530,980 265,991,895 286,452,810 306,913,725 327,374,640 347,835,555 368,296,470

8.6 Project Profitability

The project would be profitable throughout the considered life

years. It is expected to generate from Birr 33 million up to 6642

million net profits. The following table shows the forecasted

income statement of the project within its ten operational years.

Projected Income/Loss Statement

Description/Year Year 1 Year 2 Year 3 Year 4 Year 5

Revenue

213,505,200

231,297,30

0

249,089,400

266,881,50

0

284,673,60

0

Total Expense Before Interest

157,143,116

168,721,27

7

180,300,837

191,881,93

8

203,464,73

3

Gross profit

56,362,084

62,576,023

68,788,563

74,999,562

81,208,867

Interest Expenses

4,865,016

4,406,882

3,903,651

3,350,883

2,743,701

Net Income

51,497,068

58,169,141

64,884,912

71,648,679

78,465,167

Profit Tax

18,016,024

20,351,249

22,701,769

25,069,088

27,454,858

Net Income After Tax

33,481,044

37,817,892

42,183,143

46,579,592

51,010,308

Projected Income/Loss Statement –connt.

Description/Year Year 6 Year 7 Year-8 Year-9 Year-10

Revenue

302,465,700

320,257,800

320,257,800

320,257,800

320,257,800

Total Expense Before Interest

206,233,914

217,820,622

217,845,424

217,872,706

217,902,716

Gross profit 96,231,786

102,437,178

102,412,376

102,385,094

102,355,084

Interest Expenses 2,076,749

1,344,143

539,421  

-

Net Income 94,155,037

101,093,035

101,872,955

102,385,094

102,355,084

Profit Tax 32,946,313

35,374,612

35,647,584

35,826,833

35,816,329

Net Income After Tax 61,208,724

65,718,423

66,225,371

66,558,261

66,538,755

8.7 Project Liquidity and Payback period43

The project would produce positive net cash inflow starting from

the first year and throughout its life. The cumulative net cash

inflow for year one and at the end of 10th year would be Birr 38

million and 578 million, respectively. The initial investment costs

would be paid back with the gross value of net-cash inflows at the

end of 3rd operational year.

Cash Flow Statement For Financial Planning purposeDescription/Year - Year 1 Year 2 Year 3 Year 4 Year 5

Net Income33,481,04

437,817,89

242,183,14

346,579,59

251,010,30

8Depreciation and Amortization 9,560,283 9,560,283 9,560,283 9,560,283 9,560,283

Equity35,006,39

7 - - - - -

Bank Loan52,921,81

7 - - - - -Working Capital RecoverySalvage Value

Total cash Inflow87,928,21

443,041,32

847,378,17

551,743,42

656,139,87

560,570,59

2Initial Investment Cost

87,928,214

Principal Repayment 4,654,017 5,112,150 5,615,382 6,168,150 6,775,332Incremental working capital - 2,388,081 2,388,081 2,388,081 2,388,081

Total cash outflow87,928,21

4 4,654,017 7,500,231 8,003,462 8,556,231 9,163,413

Net cash 038,387,31

139,877,94

443,739,96

447,583,64

451,407,17

9Cumulative cash inflow

38,387,311

78,265,255

122,005,219

169,588,864

220,996,043

Cont.Description/Year Year 6 Year 7 Year-8 Year-9 Year-10Net Income 61,208,724 65,718,423 66,225,371 66,558,261 66,538,755Depreciation and Amortization 696,663 696,663 696,663 696,663 696,663Equity - - - - -Bank Loan - - - - -Working Capital Recovery 43,765,929Salvage Value 13,784,877

Total cash Inflow 61,905,387 66,415,086 66,922,034 67,254,924124,786,22

4Initial Investment CostPrincipal Repayment 7,442,284 8,174,890 8,979,612 - -

44

Incremental working capital 2,388,081 2,388,081 - - -Total cash outflow 9,830,365 10,562,970 8,979,612 0 0

Net cash 52,075,022 55,852,115 57,942,422 67,254,924124,786,22

4

Cumulative cash inflow 273,071,065328,923,18

0386,865,60

2454,120,52

6578,906,75

0

8.8 NPV & IRRThe harmonizing up of the discounted cash inflows at the rate of

9.5% less the original outlay cost resulted in (NPV) of Birr 241

million. The internal rate of return (IRR) is 53%, which is a good

deal on top of the considered cost of capital.

Cash Flow statement for DiscountingDescription/Year y-0 Year 1 Year 2 Year 3 Year 4 Year 5

Net Income 033,475,52

437,812,37

142,177,62

246,574,07

151,004,78

8Dep. and Amortization 9,568,777 9,568,777 9,568,777 9,568,777 9,568,777Interest expense 4,865,016 4,406,882 3,903,651 3,350,883 2,743,701W/Capital RecoverySalvage Value

Total Cash Inflow 047,909,31

651,788,03

055,650,05

059,493,73

063,317,26

5Initial Investment Cost 87,970,680Principal Repayment 0 4,654,017 5,112,150 5,615,382 6,168,150 6,775,332Incremental working capital - 2,388,081 2,388,081 2,388,081 2,388,081Total cash outflow 87,970,680 4,654,017 7,500,231 8,003,462 8,556,231 9,163,413

Net cash flow -87,970,68043,255,29

944,287,79

947,646,58

850,937,50

054,153,85

2

NPV @ RRR 9.5% 241,707,728

IRR 53%

Cash Flow statement for Discounting, cnt.

Description/Year Year 6 Year 7 Year-8 Year-9 Year-10

Net Income

61,208,72

4

65,718,423

66,225,37

1

66,558,26

1

66,538,755

Depreciation and Amortization

696,663

696,663

696,663

696,663

696,663

Interest expense

2,076,749

1,344,143

539,421 -

-

Working Capital Recovery   -

-

-

43,765,929

Salvage Value   -

-

13,784,877

Total Cash Inflow 63,982,13 67,759,228 67,461,45 67,254,92 124,786,22

45

5 4 4 4

Initial Investment Cost          

Principal Repayment 7,442,284 8,174,890 8,979,612 0 0

Incremental working capital

2,388,081

2,388,081 -

-

-

Total cash outflow 9,830,365 10,562,970 8,979,612 0 0

Net cash flow54,151,77

1 57,196,25858,481,84

367,254,92

4124,786,22

4

8.9 Sensitivity to Cost and Revenue Variations Four scenarios are tested to assess how the net benefits of the

project behave towards adverse changes each by 10%. That is.

Revenue decline

fixed cost increment

Operating cost increment, and

Simultaneous increase in investment and operating cost

No. Scenario NPV inmillions of

Birr

IRR in%

Base 241 53

Decrease in revenue 140 36

Increase in Operating cost 172 42

Increase in fixed investment cost 233 49

Simultaneous increase in investment andoperating cost

164 38

Relatively, the project is not sensitive to increments in fixed

investment cost but it is sensitive to revenue and cost,

suggesting a parallel decrease in operating cost and increase

in revenue, respectively. In all cases the however, NPV is

positive with minimum IRR 36% which is far from the discount

rate of 9.5%.

46

8.10 Debt Servicing Schedule

The anticipated bank loan would be paid within 8 years

excluding 2 years grace period, at quarterly repayments and

9.5% nominal interest rate per annum. The two years grace

period includes one year construction period per implementation

plan indicated in part_1.4 above and one year pre-marketing

period. The schedule is shown in the following table.

Loan Amortization, Equal Quarterly RepaymentPrincipal Payments Balance

Principal InterestYear 0, 24 Months Grace

period. 52,921,817 - 10,055,145 52,921,817

52,921,8171,122,86

5 1,256,893 51,798,952

51,798,9521,149,53

3 1,230,225 50,649,419

50,649,4191,176,83

4 1,202,924 49,472,584

49,472,5841,204,78

4 1,174,974 48,267,800Year 1,Sub Total 4,654,017 4,865,016

48,267,8001,233,39

8 1,146,360 47,034,402

47,034,4021,262,69

1 1,117,067 45,771,711

45,771,7111,292,68

0 1,087,078 44,479,031

44,479,0311,323,38

1 1,056,377 43,155,650Year 2,Sub Total 5,112,150 4,406,882

43,155,6501,354,81

1 1,024,947 41,800,838

41,800,8381,386,98

8 992,770 40,413,850

40,413,8501,419,92

9 959,829 38,993,921

38,993,9211,453,65

3 926,106 37,540,268Year 3,Sub Total 5,615,382 3,903,651

37,540,2681,488,17

7 891,581 36,052,091

36,052,0911,523,52

1 856,237 34,528,570

34,528,5701,559,70

5 820,054 32,968,866

32,968,8661,596,74

8 783,011 31,372,118Year 4,Sub Total 6,168,150 3,350,883

31,372,1181,634,67

0 745,088 29,737,448

29,737,4481,673,49

4 706,264 28,063,954

28,063,9541,713,23

9 666,519 26,350,715

47

26,350,7151,753,92

9 625,829 24,596,786Year 5 Sub Total 6,775,332 2,743,701

24,596,786 1,795,585 584,174 22,801,201

22,801,2011,838,23

0 541,529 20,962,972

20,962,9721,881,88

8 497,871 19,081,084

19,081,0841,926,58

2 453,176 17,154,502Year 6 Sub Total 7,442,284 2,076,749

17,154,5021,972,33

9 407,419 15,182,163

15,182,1632,019,18

2 360,576 13,162,981

13,162,9812,067,13

7 312,621 11,095,844

11,095,8442,116,23

2 263,526 8,979,612Year 7 Sub Total 8,174,890 1,344,143

8,979,6122,166,49

2 213,266 6,813,120

6,813,1202,217,94

7 161,812 4,595,173

4,595,1732,270,62

3 109,135 2,324,550

2,324,5502,324,55

0 55,208 (0)Year 8 Sub Total 8,979,612 539,421

52,921,817 23,230,445 76,152,262

Depreciation and Amortization Cost Item Original Cost Rates Applied Year 1-5 Year 6-10

Building

13,853,449 5%

692,672

692,672 Machinery, Equipment, Furniture & Vehicles

34,290,765 20%

6,858,153  

Land Lease-over lease period of 80 years

319,215 1%

3,990

3,990

Pre-operating Expenditure

10,069,805 20%

2,013,961  

Total

58,533,234  

9,568,777

696,663

84