90.

PROFILE ON THE PRODUCTION RUBBER

THREADS AND CHORDS
 90-ii

TABLE OF CONTENTS

PAGE

I. SUMMARY 90-2

II. PRODUCT DESCRIPTION & APPLICATION 90-3

III. MARKET STUDY AND PLANT CAPACITY 90-3

A. MARKET STUDY 90-3
B. PLANT CAPACITY & PRODUCTION PROGRAM 90-5

IV. MATERIALS AND INPUTS 90-6

A. RAW & AUXILIARY MATERIALS 90-6
B. UTILITIES 90-6

V. TECHNOLOGY & ENGINEERING 90-7

A. TECHNOLOGY 90-7
B. ENGINEERING 90-8

VI. HUMAN RESOURCE & TRAINING REQUIREMENT 90-12

A. HUMAN RESOURCE REQUIREMENT 90-12
B. TRAINING REQUIREMENT 90-14

VII. FINANCIAL ANLYSIS 90-14

A. TOTAL INITIAL INVESTMENT COST 90-14
B. PRODUCTION COST 90-16
C. FINANCIAL EVALUATION 90-16
D. ECONOMIC & SOCIAL BENEFITS 90-18
 90-iii

I. SUMMARY

This profile envisages the establishment of a plant for the production of rubber threads and
chords with a capacity of 150 tons per annum. Rubber threads and chords are primarily used to
manufacture various types of elastic tapes mainly for foundation garments like briefs, trunks and
panties.

The demand for Rubber threads and chords is entirely met through import. The present (2012)
demand for Rubber threads and chords is estimated at 169,877 kg. The demand for Rubber
threads and chords is projected to reach 273,588 kg and 440,617 kg by the year 2017 and 2022,
respectively.

The principal raw materials required are natural rubber latex, potassium oleate, soap solution,
sulphur dispersion, zinc oxide dispersion, potassium hydroxide solution, vulcator ZDC dispersion,
Nonax dispersion SP, and coloring matter and coagulate (acetic acid which have) to be imported.

The total investment cost of the project including working capital is estimated at Birr 48.16
million. From the total investment cost, the highest share (Birr 40.63 million or 84.37%) is
accounted by fixed investment cost followed by pre operation cost ( Birr 4.45 million or 9.26%)
and initial working capital (Birr 3.07 million or 6.38%). From the total investment cost Birr
27.75 million or 57.62% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 27.45% and a net present
value (NPV) of Birr 40.59 million discounted at 10%.

The project can create employment for 40 persons. The establishment of such factory will have
a foreign exchange saving effect to the country by substituting the current imports. The project
will create forward linkage with the textile sub sector and also generates income for the
Government in terms of tax revenue and payroll tax.
 90-iv

II. PRODUCT DESCRIPTION AND APPLICATION

Rubber threads and chords are primarily used to manufacture various types of elastic tapes
mainly for foundation garments like briefs, trunks and panties. They are also used in elastic types
for shorts, skirts, sportswear, sock tops, shoe uppers, head bands and wrist bands for sportsmen
and travel goods.

Rubber threads and cords products come in different types, sizes and colors with high quality
assurance so as to satisfy the various demands of customers. Rubber threads are suitable product
line ranges from rubber threads for the production of socks, stockings, trouser bands, lingerie to
all kinds of the rubber bands, used for the textile industry and all related industries and are ideal
for textile industry that requires softness and swiftness

III. MARKET STUDY AND PLANT CAPCITY

A. MARKET STUDY
1. Past Supply and Present Demand

The local demand for rubber threads and chords is met through import. The amount of the
product imported during the period 2002 – 2011 is shown in Table 3.1.

Table 3.1
IMPORTED RUBBER THREAD AND CORDS (KG)

Year Import
2002 28,289
2003 53,441
2004 60,791
2005 41,392
2006 53,131
2007 87,328
2008 77,929
2009 61,549
2010 168,315
2011 129,677
Source:- Ethiopian Revenues & Customs Authority.

As can be seen from Table 3.1, the total import or apparent consumption of rubber threads and
cords during the period 2002--2011 has ranged from 28,289 kg to 168,315 kg. On average during
 90-v

the period under consideration 76,184 tons of rubber threads and cords were annually imported.
During the period of 2002--2011the total import of rubber threads and cords has registered an
average annual growth rate of 31%.

For estimating the present effective demand for the products under consideration, it is assumed
that the average annual growth rate registered in the apparent consumption of the product during
2002--2011 will continue in the near future. Accordingly, taking the 2011 level of apparent
consumption as a base and applying a growth rate of 31%, the present (2012) demand for rubber
threads and cords is estimated at 169,877 kg.

2. Demand Projection

According to the GTP, during the period 2010/11--2014/15 the real GDP of the country (at a
base case scenario) is expected to grow at an average annual growth rate of 11.2%. Moreover,
during the same period the annual average planned targets of growth for the industrial sector is
20%. Accordingly, by considering the above factors the demand for rubber threads and cords is
conservatively assumed to grow at a rate of 10%. Projected demand is presented in Table 3.2.

Table 3.2

PROJECTED DEMAND FOR RUBBER THREAD AND CHORDS (KG)

Year Projected Demand

2013 186,865
2014 205,551
2015 226,106
2016 248,717
2017 273,588
2018 300,947
2019 331,042
2020 364,146
2021 400,561
2022 440,617
2023 484,679
2024 533,146
2025 586,461
3. Pricing and Distribution
 90-vi

The retail price of common rubber thread used for notes is Birr 18 per 50 gm. The recommended
price for the new project under study is Birr 12 per 50 gm.

Distribution of rubber threads and cords would be handled through the existing wholesale
channel as well as own retail shops. After commencing of full operation the distribution channel
will expand by dealing with new sales agents.

B. PLANT CAPACITY AND PRODUCION PROGRAM

1. Plant Capacity

Considering the economic and manageable scale of manufacturing process the production
capacity of the rubber thread and cord plant is set to be 150 tons per annum .The envisaged plant
will operate in two shifts sixteen hours per day for three hundred days within a year considering
13 holidays and 52 Sundays per year and assuming that maintenance activities will be performed
during off hours and Sundays.

2. Production Program

The plant will operate at 65 % of its installed capacity in the first year of operation. During the
second, third and fourth year and then after it will operate at 75%, 85% and 100%, respectively.
The low capacity utilization during the early years of operation is due the time required for skill
development and market penetration. For details see Table 3.3.

Table 3.3

ANNUAL PRODUCTION PROGRAM

Production Year
Description
1 2 3 4
Capacity utilization rate (%) 65 75 85 100

Rubber thread and cord (ton) 97.5 112.5 127.5 150

))
 90-vii

IV. MATERIALS AND INPUTS

A. MATERIALS

The raw and auxiliary materials of the project are natural rubber latex, potassium oleate, soap
solution, sulphur dispersion, zinc oxide dispersion, potassium hydroxide solution, vulcator ZDC
dispersion, Nonax dispersion SP, and coloring matter and coagulate (acetic acid). All the raw
materials have to be imported. The annual requirement and related cost of the raw materials at
full capacity operation is shown in Table 4.

Table 4.1

ANNUAL RAW MATERIAL REQUIREMENT&COST

Annual Unit Cost Cost ( "000 ) Birr

Sr. Consumptio ( Birr Total
No. Description n UOM /Ton) LC FC ( Birr)
1 Natural rubber latex 110 ton 45,000 4,961.25 4,961.25
2 Potassium oleate 8 ton 27,000 202.50 202.50
3 Sulphur dispersion 60 ton 54,000 3,240.00 3,240.00
4 Soap solution 8 ton 25,000 200.00 200.00
5 potassium hydroxide 15 ton 27,000 405.00 405.00
6 Zinc oxide 60 ton 28,800 1,728.00 1,728.00
7 coloring pigments 8 ton 22,500 168.75 168.75
8 Coagulate (acetic 8 ton 14,400 108.00 108.00
9 acid).
Volcafor zdc 8 ton 45,000 337.50 337.50
dispersion Total FOB 11,351.0 11,351.0
10 CIF (15%) 1,702.6 0 1,702.650
5
1,702.6 11,351.0 13,053.6
Total Annual Cost 5 0 5

B. UTILITES

The main utility of the envisaged plant are electricity and water. Annual cost of utilities is Birr
2.664 million. Annual consumption of utilities and related cost at full capacity operation is
shown in Table 4.2.
 90-viii

Table 4.2

ANNUAL UTILITIES REQUIREMENT & COST

Unit
Sr. Annual Cost Total Cost
No. Description Consumption UOM ( Birr) ( `000 Birr)
1 Electricity 3,960,000 kWh 0.58 2,296.80
2 water 45,000 m³ 10 450.00
Total Cost 2,746.80

V. TECHNOLOGY AND ENGINNERING

A. TECHNOLOGY

1. Production Process

The natural rubber latex is deammonized with moist and warm air just below the surface of
latex while it is agitated with paddle type agitator machine. This mixture is used in the
manufacture of compounding latex. Then its maturation is done at a temperature between 30 to
40oC, by slow agitation (10-20 r.p.m).

After the process of maturation has been completed, the mixture is cooled to below 20oC and
strained through a nylon gauge or fine silk. The air bubbles are removed from the mixture by
applying vacuum to storage tank. The phenomenon is an important step in the process, because
only air free mixture can successfully be used for the manufacture of threads. After removal of
air from the mix, it passes through filter into a small feed tank, charged into a manifold reading
to capillaries for extrusion into the acid bath.

In the extrusion, the maintenance of constant pressure is necessary. Variation in pressure

inevitably results in a thread of a non-uniform dimension. In this process, the rate of extrusion
must be fast. Great care must be exercised to control not only pressure, mixture, viscosity,
concentration of coagulant, immersion on depth, the angle capillaries and tension under which
the threads are transformed for washing and cleaning. If these factors are not controlled, then
 90-ix

the quality of the threads may be changed. Finally, the threads are sent for acid bath and then
vulcanized by using hot air after washing with warm water.

2. Environmental Impact

The envisaged plant is a manufacturing plant with no chemical or any hazardous waste to the
surrounding environment and process scrapes and wastes will be recycled or sold to the
surrounding market for different application to be further processed. So, there will not be
additional investment for environmental protection.

B. ENGINNERING

1. Machinery and Equipment

Total cost of machinery and equipment is Birr 31,920.15. The list of machinery and equipments
required for the envisaged plant together with their associated cost is shown in Table 5.1.

Table 5.1

LIST OF MACHINERY & EQUIPMENT AND COST

Cost ( `000 Birr)

Sr. Unit Cost
Description Qty. UOM Total
No. ( Birr) LC FC
( Birr)
Rubber mixing
1 machine 1.00 pcs 5,400,000 5,400.00 5,400.00
Rubber latex
2 extrusion machine 2.00 pcs 2,700,000 5,400.00 5,400.00
Rubber cord
3 extrusion machine 1.00 pcs 1,800,000 1,800.00 1,800.00
Vulcanizing
4 chamber 2.00 pcs 540,000 1,080.00 1,080.00
Deamonization
5 equipment 2.00 pcs 180,000 360.00 360.00
Rubber thread
6 machine 1.00 pcs 3,600,000 3,600.00 3,600.00
Rubber thread
7 wrapping machine 1.00 pcs 2,880,000 2,880.00 2,880.00
8 Tools and equipment 1.00 set 720,000 720.00 720.00
9 Moulds and dies 1.00 set 2,700,000 2,700.00 2,700.00
 90-x

Cost ( `000 Birr)

Sr. Unit Cost
Description Qty. UOM Total
No. ( Birr) LC FC
( Birr)
10 Lathe 1.00 pcs 1,080,000 1,080.00 1,080.00
11 Milling machine 1.00 pcs 720,000 720.00 720.00
12 drilling machine 1.00 pcs 450,000 450.00 450.00
Hydraulic press
13 machine 1.00 pcs 360,000 360.00 360.00
14 Welding 1.00 pcs 27,000 27.00 27.00
15 Bench grinder 1.00 pcs 5,400 5.40 5.40
16 Compressor 1.00 pcs 630,000 630.00 630.00
17 Spare parts ( 2%) 544.25 544.25
Total Fob Price 27,756.65 27,756.65
18 CIF( 15%) 4,163.50 4,163.50

Grand Total 4,163.50 27,756.65 31,920.15

2. Land, Building and Civil Works

The total estimated area of land requirement for the plant is 2,500 m², out of which the factory
build -up area is 1500 m². At a rate of Birr 5,000 per m 2 the total cost of building and civil work
is estimated at Birr 7.5 million.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No.
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
 90-xi

installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.

In Addis Ababa, the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
City Administration for the promotion of the sector and all manufacturing projects are assumed
to be located in the developed industrial zones.

Regarding land allocation of industrial zones if the land requirement of the project is below
5,000 m2, the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the City’s Investment Authority. However, if the
land request is above 5,000 m2, the request is evaluated by the City’s Investment Authority and
passed with recommendation to the Land Development and Administration Authority for
decision, while the lease price is the same for both cases.

Moreover, the Addis Ababa City Administration has recently adopted a new land lease floor
price for plots in the city. The new prices will be used as a benchmark for plots that are going to
be auctioned by the city government or transferred under the new “Urban Lands Lease Holding
Proclamation.”

The new regulation classified the city into three zones. The first Zone is Central Market District
Zone, which is classified in five levels and the floor land lease price ranges from Birr 1,686 to
Birr 894 per m2. The rate for Central Market District Zone will be applicable in most areas of the
city that are considered to be main business areas that entertain high level of business activities.

The second zone, Transitional Zone, will also have five levels and the floor land lease price
ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are surrounding the city
and are occupied by mainly residential units and industries.
 90-xii

The last and the third zone, Expansion Zone, is classified into four levels and covers areas that
are considered to be in the outskirts of the city, where the city is expected to expand in the future.
The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191 per m 2 (see
Table 5.2).

Table 5.2

NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA

Floor
Zone Level
Price/m2
1st 1686
2nd 1535
Central Market
District 3rd 1323
4th 1085
5th 894
1st 1035
2nd 935
Transitional zone 3rd 809
4th 685
5th 555
1st 355
2nd 299
Expansion zone
3rd 217
4th 191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all
new manufacturing projects will be located in industrial zones located in expansion zones.
Therefore, for the profile a land lease rate of Birr 266 per m 2 which is equivalent to the average
floor price of plots located in expansion zone is adopted.
 90-xiii

On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.

Table 5.3

INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point Grace Payment Down

Above 75% pppperio
5 Years Completion
30 Years Paymen
10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile, the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The land lease period for industry is 60
years.

Accordingly, the total land lease cost at a rate of Birr 266 per m 2 is estimated at Birr 665,000 of
which 10% or Birr 66,500 will be paid in advance. The remaining Birr 598,500 will be paid in
equal installments with in 28 years i.e. Birr 21,375 annually.

VI. HUMAN RESOURCE AND TRAINING REQUIREMENTS

A. HUMANRESOURCE REQUREMENT

The total direct and indirect labor requirement of the project is 40 persons. Annual cost of labor
is estimated at Birr 1.205,300. For details of the human resource requirement by type of job and
monthly and annual cost see Table 6.1.
 90-xiv

Table 6.1

HUMANRESOURCE REQUIREMENT & LABOR COST

Monthly
Sr.No No. of Annual salary
Description Salary
. Persons ( "000 ) Birr
( Birr)
1 Plant manager 1 10,000.00 120.0
2 Secretary 1 2,500.00 30.0
3 operators 15 1,400.00 252.0
4 Administration and finance 1 4,500.00 54.0
5 production manager 1 6,000.00 72.0
6 production engineer 2 3,500.00 84.0
7 quality super visor 2 3,000.00 72.0
9 Accountant 1 3,000.00 36.0
10 sales man 2 3,500.00 84.0
11 Clerk 1 800.00 9.6
12 Cashier 1 1,800.00 21.6
13 Mechanic 2 2,200.00 52.8
14 Electricians 2 2,200.00 52.8
15 Assistant operators 5 700.00 42.0
16 Guards 3 600.00 21.6
Total 40 45,700.00 1,004.4
Employment benefits and
17 allowances 20% 9,140.00 200.9

Total Annual Labor Cost (Direct +Indirect) 1,205.3

 90-xv

B. TRAINING REQUIREMENT

For cost effectiveness and good transfer of knowledge on- job training can be arranged by
hiring maintenance workers and operators before machinery commissioning and involve them
both at installation and commissioning stage of the plant machineries and equipments with an
estimated training cost of Birr 120,000

VII. FINANCIAL ANALYSIS

The financial analysis of the Rubber threads and chords project is based on the data presented in
the previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material imported 120 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 48.16
million (see Table 7.1). From the total investment cost, the highest share (Birr 40.63 million or
84.37%) is accounted by fixed investment cost followed by pre operation cost ( Birr 4.45 million
or 9.26%) and initial working capital (Birr 3.07 million or 6.38%). From the total investment
cost Birr 27.75 million or 57.62% is required in foreign currency.
 90-xvi

Table 7.1

INITIAL INVESTMENT COST (‘000 Birr)

Sr. Local Foreign Total %

No. Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 66.50 66.50 0.14
1.2 Building and civil work 7,500.00 7,500.00 15.57
1.3 Machinery and equipment 4,163.50 27,756.65 31,920.15 66.27
1.4 Vehicles 900.00 900.00 1.87
1.5 Office furniture and equipment 250.00 250.00 0.52
Sub -total 12,880.00 27,756.65 40,636.65 84.37
2 Pre operating cost *
2.1 Pre operating cost 1,307.60 1,307.60 2.71
2.2 Interest during construction 3,151.05 3,151.05 6.54
Sub -total 4,458.65 4,458.65 9.26
3 Working capital 3,070.71 3,070.71 6.38
Grand Total 20,409.36 27,756.65 48,166.01 100

* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest during
construction.
** The total working capital required at full capacity operation is Birr 4.70 million. However,
only the initial working capital of Birr 3.07 million during the first year of production is
assumed to be funded through external sources. During the remaining years the working
capital requirement will be financed by funds to be generated internally (for detail working
capital requirement see Appendix 7.A.1).
 90-xvii

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 29.10 million (see Table
7.2). The cost of raw material account for 44.85% of the production cost. The other major
components of the production cost are depreciation, utility and financial cost, which account for
24.57%, 9.44% and 8.93%, respectively. The remaining 12.20% is the share of utility, labor,
marketing and distribution, repair and maintenance, labor overhead and administration cost. For
detail production cost see Appendix 7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR FOUR)

Items Cost
(in 000 Birr) %
Raw Material and Inputs 13,053.65 44.85
Utilities 2,746.80 9.44
Maintenance and repair 1,596.01 5.48
Labor direct 1,004.40 3.45
Labor overheads 200.90 0.69
Administration Costs 250.00 0.86
Land lease cost - -
Cost of marketing and distribution 500.00 1.72
Total Operating Costs 19,351.76 66.50
Depreciation 7,150.55 24.57
Cost of Finance 2,599.61 8.93
Total Production Cost 29,101.92 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through out its
operation life. Annual net profit after tax will grow from Birr 3.54 million to Birr 11.41 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 91.97 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.
 90-xviii

2. Ratios

In financial analysis, financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point for capacity utilization and sales value estimated by using income statement projection are
computed as followed.

Break -Even Sales Value = Fixed Cost + Financial Cost = Birr 16,061,112
Variable Margin ratio (%)

Break -Even Capacity utilization = Break -even Sales Value X 100 = 45%
Sales revenue

4. Pay-back Period

The pay- back period, also called pay – off period is defined as the period required for recovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 4 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
 90-xix

of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 27.45%% indicating the viability of the
project.
6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In principle, a project is accepted if the NPV is
non-negative. Accordingly, the net present value of the project at 10% discount rate is found to
be Birr 40.59 million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 40 persons. The project will generate Birr 27.41 million
in terms of tax revenue. The establishment of such factory will have a foreign exchange saving
effect to the country by substituting the current imports. The project will also create forward
linkage with the textile sub sector and also generates income for the Government in terms of
payroll tax.
 90-xx

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
 90-21

Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
2,121.22 2,447.56 2,773.90 3,263.41 3,263.41 3,263.41 3,263.41 3,263.41 3,263.41 3,263.41
Total inventory
1,062.80 1,219.90 1,377.00 1,612.65 1,614.43 1,614.43 1,614.43 1,614.43 1,614.43 1,614.43
Accounts receivable
27.55 31.78 36.02 42.38 42.68 42.68 42.68 42.68 42.68 42.68
Cash-in-hand
3,211.57 3,699.25 4,186.92 4,918.44 4,920.52 4,920.52 4,920.52 4,920.52 4,920.52 4,920.52
CURRENT ASSETS
140.86 162.53 184.20 216.70 216.70 216.70 216.70 216.70 216.70 216.70
Accounts payable
CURRENT 140.86 162.53 184.20 216.70 216.70 216.70 216.70 216.70 216.70 216.70
LIABILITIES
TOTAL WORKING 3,070.71 3,536.72 4,002.73 4,701.74 4,703.82 4,703.82 4,703.82 4,703.82 4,703.82 4,703.82
CAPITAL
 90-22

Appendix 7.A.2
PRODUCTION COST ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
8,485 9,790 11,096 13,054 13,054 13,054 13,054 13,054 13,054 13,054
Raw Material and Inputs
1,785 2,060 2,335 2,747 2,747 2,747 2,747 2,747 2,747 2,747
Utilities
1,037 1,197 1,357 1,596 1,596 1,596 1,596 1,596 1,596 1,596
Maintenance and repair
653 753 854 1,004 1,004 1,004 1,004 1,004 1,004 1,004
Labour direct
131 151 171 201 201 201 201 201 201 201
Labour overheads
163 188 213 250 250 250 250 250 250 250
Administration Costs
0 0 0 0 21 21 21 21 21 21
Land lease cost
Cost of marketing 500 500 500 500 500 500 500 500 500 500
and distribution
12,754 14,639 16,524 19,352 19,373 19,373 19,373 19,373 19,373 19,373
Total Operating Costs
7,151 7,151 7,151 7,151 7,151 325 325 325 325 325
Depreciation
0 3,466 3,033 2,600 2,166 1,733 1,300 867 433 0
Cost of Finance
19,904 25,256 26,707 29,102 28,690 21,431 20,998 20,565 20,131 19,698
Total Production Cost
 90-23

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

Year Year Year Year Year Year Year Year Year Year
Item 2 3 4 5 6 7 8 9 10 11
32,40 36,00 36,00
25,200 28,800 0 36,000 0 36,000 0 36,000 36,000 36,000
Sales revenue
16,02 18,85 18,85
12,254 14,139 4 18,852 2 18,852 2 18,852 18,852 18,852
Less variable costs
16,37 17,14 17,14
12,946 14,661 6 17,148 8 17,148 8 17,148 17,148 17,148
VARIABLE MARGIN
51.37 50.91 50.54 47.63 47.63 47.63 47.63 47.63 47.63 47.63
in % of sales revenue
7,651 7,651 7,651 7,651 7,672 846 846 846 846 846
Less fixed costs
16,30
5,296 7,011 8,725 9,498 9,476 16,302 2 16,302 16,302 16,302
OPERATIONAL MARGIN
21.02 24.34 26.93 26.38 26.32 45.28 45.28 45.28 45.28 45.28
in % of sales revenue
3,466 3,033 2,600 2,166 1,733 1,300 867 433 0
Financial costs
15,00
5,296 3,544 5,693 6,898 7,310 14,569 2 15,435 15,869 16,302
GROSS PROFIT
21.02 12.31 17.57 19.16 20.31 40.47 41.67 42.88 44.08 45.28
in % of sales revenue
0 0 0 2,069 2,193 4,371 4,501 4,631 4,761 4,891
Income (corporate) tax
 90-24

10,50
5,296 3,544 5,693 4,829 5,117 10,198 1 10,805 11,108 11,411
NET PROFIT
21.02 12.31 17.57 13.41 14.21 28.33 29.17 30.01 30.86 31.70
in % of sales revenue

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

Year Year Year Year Year Year Year Year Year Year Year
Item 1 2 3 4 5 6 7 8 9 10 11 Scrap
TOTAL CASH
INFLOW 41,944 31,563 28,822 32,422 36,000 36,000 36,000 36,000 36,000 36,000 36,000 12,421
Inflow funds 41,944 6,363 22 22 0 0 0 0 0 0 0 0

Inflow operation 0 25,200 28,800 32,400 36,000 36,000 36,000 36,000 36,000 36,000 36,000 0
Other income 0 0 0 0 0 0 0 0 0 0 0 12,421
TOTAL CASH
OUTFLOW 41,944 19,116 22,925 24,377 29,085 28,067 29,810 29,506 29,203 28,900 24,264 0
Increase in fixed assets 41,944 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 3,212 488 488 732 2 0 0 0 0 0 0
Operating costs 0 12,254 14,139 16,024 18,852 18,873 18,873 18,873 18,873 18,873 18,873 0
Marketing and
Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income tax 0 0 0 0 2,069 2,193 4,371 4,501 4,631 4,761 4,891 0
Financial costs 0 3,151 3,466 3,033 2,600 2,166 1,733 1,300 867 433 0 0
Loan repayment 0 0 4,333 4,333 4,333 4,333 4,333 4,333 4,333 4,333 0 0

SURPLUS (DEFICIT) 0 12,446 5,896 8,044 6,915 7,933 6,190 6,494 6,797 7,100 11,736 12,421
 90-25

CUMULATIVE CASH
BALANCE 0 12,446 18,343 26,387 33,302 41,235 47,425 53,919 60,716 67,816 79,553 91,974

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

Year Year Year Year Year Year Year Year Year Year Year
Item 1 2 3 4 5 6 7 8 9 10 11 Scrap
32,40 36,00 36,00
TOTAL CASH INFLOW 0 25,200 28,800 0 36,000 0 36,000 0 36,000 36,000 36,000 12,421
32,40 36,00 36,00
Inflow operation 0 25,200 28,800 0 36,000 0 36,000 0 36,000 36,000 36,000 0
Other income 0 0 0 0 0 0 0 0 0 0 0 12,421
17,22 21,56 23,87
TOTAL CASH OUTFLOW 45,015 13,220 15,105 3 21,423 6 23,744 4 24,004 24,134 24,264 0
Increase in fixed assets 41,944 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 3,071 466 466 699 2 0 0 0 0 0 0 0
16,02 18,87 18,87
Operating costs 0 12,254 14,139 4 18,852 3 18,873 3 18,873 18,873 18,873 0
Marketing and Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income (corporate) tax 0 0 0 2,069 2,193 4,371 4,501 4,631 4,761 4,891 0
15,17 14,43 12,12
NET CASH FLOW -45,015 11,980 13,695 7 14,577 4 12,256 6 11,996 11,866 11,736 12,421
CUMULATIVE NET CASH -45,015 - - -4,162 10,414 24,84 37,104 49,23 61,227 73,093 84,830 97,251
FLOW
 90-26

33,035 19,339 8 1
11,40
Net present value -45,015 10,891 11,318 3 9,956 8,962 6,918 6,223 5,596 5,032 4,525 4,789
-
- - 11,40 20,65
Cumulative net present value -45,015 34,124 22,805 3 -1,447 7,516 14,434 7 26,253 31,285 35,810 40,599

NET PRESENT VALUE 40,599

INTERNAL RATE OF
RETURN 27.45%
NORMAL PAYBACK 4 years