Investment Office ANRS

Project Profile on the Establishment

Of Oral Re-hydration Salt Producing
Plant

Development Studies
Associates (DSA)

October 2008
Addis Ababa
 Table of Contents

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

Demand projection divulges that the domestic demand for ORS is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 6 million cases of
ORS annually. The total investment cost of the project including working capital is
estimated at Birr 6.33 million and creates 77 jobs Birr 510,000 annual household income
from employment.

The financial result indicates that the project will generate profit beginning from the first
year of operation. Moreover, the project breaks even at 24.52% of capacity utilization and
payback fully the initial investment less working capital in second year. The result further
show that the calculated IRR of the project is 29.3%

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

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

2. Product Description and Application

Oral Re-hydration salt (ORS) is an orally taken medicine and it is made of glucose,
sodium, chloride, sodium bicarbonate and potassium chloride.

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ORS is used for the treatment of dehydration due to diarrhea of any etiology in all age
groups. ORS is widely used in Ethiopia because of the prevalence of diarrhea/episode;
especially during periods of wide spread food shortages.

With a population of about 75 million, Ethiopia produces only 3 million packets of ORS
annually, but it also imports a large quantity of the same products through UNICEF, the
Red Cross and some NGOs. For example import of ORS between 2001/01 and 2006/07
was 5,328,105 packets on yearly average basis. This indicates that, in the past, the
demand for the product was greater than the domestic production showing an opportunity
for investment to exploit the domestic supply deficit of ORS. As the population of the
country grows by about 2.9 percent year, the demand for ORS will, at the minimum,
grow by the same percentage. Since practically all the raw materials of ORS can be
obtained from domestic sources, there is no reason why the total demand of ORS can not
be produced at home provided that the demand gap justifies the establishment of a viable
ORS producing plant.

3. Market Study, Plant Capacity and Production

Program

3.1 Market Study

3.1.1 Present Demand and Supply

In the year 2005 the demand for ORS was 29 million packets. With 3 million packets of
existing capacity, demand gap for 2006/7 was estimated to be about 26 million packets.
The current year (2008) demand gap is estimated to be 30.71 million packets.

This demand gap can absorb the production of at least four ORS making plants.

3.1.2 Projected Demand

The projected demand for ORS in the coming ten years is depicted in Table 1 below.

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 Table 1: Projected Demand for ORS

Projected
Year Demand for ORS
(in packets)
2008/09 31,596,874
2009/10 32,513,184
2010/11 33,456,066
2011/12 34,426,292
2012/13 35,424,654
2013/14 36,451,969
2014/15 37,509,076
2015/16 38,596,840
2016/17 39,716,148
2017/18 40,867,916
2018/19 42,053,086

3.1.3 Pricing and Distribution

Market survey indicates that the average retail price for ORS in major public and private
pharmacy on average is Birr 2 per package. Deducting 20% margin for retailer and 10%
for wholesaler and by taking the capacity of the envisaged plant in to account, the selling
price of Birr 1.40 per case of ORS has been estimated for the projection of the revenue of
the plant. The available retail and wholesale network shall be used by the envisaged plant
to reach its customers.

3.2 Plant Capacity

Given the expected demand for ORS presented earlier, the market price and the planned
technology, the envisaged plant is set to produce 6 million packets of ORS annually.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work
275 days in a year where the remaining days will be holidays and for maintenance.
During the first year of operation the plant will operate at 75 percent capacity and then it
grows to 85 percent in the 2nd year. The capacity will grow to 100 percent starting from

3
the 3rd year. This consideration is developed based on the assumption that market and
logistics barriers would take place for the first two years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw materials
The major raw material for ORS is glucose (anhydrous). Sodium chloride, sodium
bicarbonate and potassium chloride are also necessary raw materials. Currently most of
these raw materials are produced locally in good quality. Although the sodium chloride
(edible salt) being produced in Ethiopia does not meet the necessary quality to be used as
an input for ORS preparation, the plan to introduce high tech in salt manufacturer is
assumed to materialize soon. Hence, it is assumed that the raw materials will mainly be
procured from the local market.

4.2 Annual Requirement and Cost of Raw

Materials and Utilities
The annual raw material and utility requirement and the associated cost for the envisaged
plant is listed in Table 2 hereunder.

Table 2: Material and Utility requirement of ORS

Total Cost
Quantity (in Birr)
Material and Input (gm/case) L.C. F.C.
Anhydrous Glucose 13.5 3,286,956
Sodium Chloride 2.6 633,043
Trisodium Chloride 2.9 706,087
Potassium Chloride 1.5 365,217
Lemon Extract 0.2 48,696
Total Material Cost 20.7 175,3043 3,286,957
Utility
Electricity 60000KWh 33,000
Water 1000m3 2,650
Total Utility Cost 35,650

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5 Location and Site

The appropriate locations for the envisaged project in view of the availability of input,
infrastructures as well as market for the output are Bahir Dar, Combolcha, or another
location preferred by the investor.

6 Technology and Engineering

6.1 Production Process

The production process starts with the formulation of the ingredients. Thus the first
operation is preparation of ingredients that is drying of glucose and sifting of the other
three inputs. The materials are then weighed and are mixed according to proportions. The
mixture is then transferred to the filling machine. Packets are also formed in the some
machine from foil coils or rolls. At this stage the machine forms packets, fills them with
the product and seals them. Finally, packets are packed in boxes (first) and in cartons
(later) and become ready for dispatch.

Alternative technology
ORS can be prepared at home as well. There are` many recipes. One is the following.
To making a 1 (one) litre solution using Salt, Sugar and Water
Ingredients:
 one level teaspoon of salt
 eight level teaspoons of sugar
 one litre of clean drinking or boiled water and then cooled cupfuls (each cup
about 200 ml.)

Preparation Method:
Stir the mixture till the salt and sugar dissolve.
However, this technology is not appropriate for large scale commercial production.

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 6.2 Machinery and Equipment

The main machinery needed to produce ORS include; tray dryer, sifter, weighing
balances, mixers, containers, packet forming, filling and sealing machine. The detail
machineries and equipment required for producing ORS is detailed in Table 3 below

Table 3: Machinery and Equipment

Machinery and Equipment Quantity

Tray dryer 2
Sifter, weighing balances 1
Mixers 2
Containers 3
Packet forming 2
Filling and sealing machine 3
Total 13

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 2.3 million.

Suppliers Addresses
Savino Barbera SNC
Via Torino 12
Brandizzo (TO), 10032
Italy
hone: 39 011 913.90.63
Fax: 39 011 913.73.13

Buss-SMS-Canzler GmbH
Kaiserstrasse 13-15
Butzbach, 35510
Germany
Phone: 49 6033-85(0)

6.3 Civil Engineering Cost

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The total site area for the envisaged plant is estimated to be 1,000m 2 where 600m2 is
allocated to the building place. The costs are estimated at Birr 60,000 and Birr 1.2
million, respectively.

7 Human Resource and Training Requirement

7.1 Human Resource

The list of required human resource for the foreseeable plant is stated in Table 4 below.

Table 4: Human resource Requirement

Total
Monthly Annual
Position Required Salary Salary
No. (Birr) (Birr)
1 General Manager 1 3,500 42,000
2 Marketing head 1 2,500 30,000
3 Administration 1 2,000 24,000
4 Accountant 2 1,200 28,800
5 Mechanical Engineer 1 2,500 30,000
6 Secretary 1 850 10,200
7 Sales Clerk 3 700 25,200
8 Casher 2 700 16,800
9 Store Keeper 4 700 33,600
10 Electrician 3 750 27,000
11 Supervisor 4 1,500 72,000
12 Operators 10 1,000 120,000
13 Daily Laborers 10 400 48,000
14 Cleaners 3 350 12,600
15 Messengers 2 250 6,000
16 Driver 1 700 8,400
17 Guards 3 400 14,400
Total 549,000
Benefit (20%) 109,800
Grand Total 77 658,800

7.2 Training Requirement

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Training of key personnel shall be conducted during the first year of operation. This can
be arranged with the suppliers of the plant machineries. The training should primarily
focuses on the production technology and machinery maintenance and trouble shooting.
Birr 65,000 is allocated as training expense.

8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of ORS Producing plant is based on the data provided in the
preceding chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

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

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 C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 6.3
million as shown in Table 5 below. The Owner shall contribute 40% of the finance in the
form of equity while the remaining 60% is to be financed by bank loan.

Table 5: Total Initial Investment

Total Initial Investment

Item Cost
Land 3,000.00
Building and civil works 1,200,000.00
Office equipment 100,000.00
Vehicles 300,000.00
Plant machinery & equipment 2,300,000.00
Total Fixed Investment 3,903,000.00
Pre production capital expenditure 195,150.00
Total Initial Investment 4,098,150.00
Working capital at full capacity 2,232,310.12
Total 6,330,460.12
*Pre-production capital expenditure includes - all expenses for pre-
investment studies, consultancy fee during construction and expenses for
company‘s establishment, project administration expenses, commission
expenses, preproduction marketing and interest expenses during
construction.

9
 8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 6.7 million as
detailed in Table 6 below.

Table 6: Production Cost

Total Production Cost at Full Capacity

Items Cost
1. Raw materials 5,040,000.00
2. Utilities 35,650.00
3. Wages and Salaries 658,800.00
4. Spares and Maintenance 117,090.00
Factory costs 5,851,540.00
5. Depreciation 399,030.00
6. Financial costs
455,793.13
Total Production Cost 6,706,363.13

8.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part the project will
generate profit beginning from the first year of operation. Ratios such as the percentage
of net profit to total sales, return on equity and return on total investment are 8.6%,
26.21% and 21.39% in the first year and are gradually rising. Furthermore, the income
statement and other profitability indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 24.52% of capacity utilization.

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 III. Payback Period

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

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 25%.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the
project is 29.3% and the net present value at 18 % discount is Birr 2.25 million

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes
place in the sector. This result is accompanied by IRR value of 30.92% with payback
period of third year.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits where it promotes the socio-
economic goals and objectives stated in the strategic plan of the Amhara National
Regional State. These benefits are listed as follows

A. Profit Generation

The project is found to be financially viable and earns Birr 13.52 million within the
project life. Such result induces the project promoters to reinvest the profit which,
therefore, increases the investment magnitude in the region.

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 B. Tax Revenue

In the project life under consideration, the region will collect about Birr 3.67 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result
create additional fund for the regional government that will be used in expanding social
and other basic services in the region

C. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of US
Dollar 8 million will be saved as a result of the proposed project. This will create room
for the saved hard currency to be allocated on other vital and strategic sectors

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of

the region. That is, it will provide permanent employment to 77 professionals as well as
support staffs. Consequently, the project creates household income of Birr 510,000 per
year. This would be one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

F. Diversification and InterSectoral Linkage.

The proposed project helps to diversify ANRS’ and Ethiopian economy. It contributes to
industrialization of the ANRS as well as the country as a whole. It also has a potential to
strengthen the linkage between the manufacturing and the trade sub-sectors.

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ANNEXES

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

Capacity Utilization (%) 0 0 75% 85% 100% 100%

1. Total Inventory 0 0 2,836,576 3,214,786 3,782,101 3,782,101

Raw Materials in Stock- Total 0 0 1,219,162 1,381,717 1,625,549 1,625,549

Raw Material-Local 0 0 143,431 162,555 191,241 191,241

Raw Material-Foreign 0 0 1,075,731 1,219,162 1,434,308 1,434,308

Factory Supplies in Stock 0 0 5,114 5,796 6,819 6,819

Spare Parts in Stock and Maintenance 0 0 9,580 10,857 12,773 12,773

Work in Progress 0 0 127,853 144,900 170,470 170,470

Finished Products 0 0 255,705 289,799 340,940 340,940

2. Accounts Receivable 0 0 687,273 778,909 916,364 916,364

3. Cash in Hand 0 0 56,819 64,394 75,758 75,758

CURRENT ASSETS 0 0 2,361,505 2,676,373 3,148,674 3,148,674

4. Current Liabilities 0 0 687,273 778,909 916,364 916,364

Accounts Payable 0 0 687,273 778,909 916,364 916,364

TOTAL NET WORKING CAPITAL REQUIREMENTS 0 0 1,674,233 1,897,464 2,232,310 2,232,310

INCREASE IN NET WORKING CAPITAL 0 0 1,674,233 223,231 334,847 0

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 3,782,101 3,782,101 3,782,101 3,782,101 3,782,101 3,782,101

Raw Materials in Stock-Total 1,625,549 1,625,549 1,625,549 1,625,549 1,625,549 1,625,549

Raw Material-Local 191,241 191,241 191,241 191,241 191,241 191,241

Raw Material-Foreign 1,434,308 1,434,308 1,434,308 1,434,308 1,434,308 1,434,308

Factory Supplies in Stock 6,819 6,819 6,819 6,819 6,819 6,819

Spare Parts in Stock and Maintenance 12,773 12,773 12,773 12,773 12,773 12,773

Work in Progress 170,470 170,470 170,470 170,470 170,470 170,470

Finished Products 340,940 340,940 340,940 340,940 340,940 340,940

2. Accounts Receivable 916,364 916,364 916,364 916,364 916,364 916,364

3. Cash in Hand 75,758 75,758 75,758 75,758 75,758 75,758

CURRENT ASSETS 3,148,674 3,148,674 3,148,674 3,148,674 3,148,674 3,148,674

4. Current Liabilities 916,364 916,364 916,364 916,364 916,364 916,364

Accounts Payable 916,364 916,364 916,364 916,364 916,364 916,364

TOTAL NET WORKING CAPITAL REQUIREMENTS 2,232,310 2,232,310 2,232,310 2,232,310 2,232,310 2,232,310

INCREASE IN NET WORKING CAPITAL 0 0 0 0 0 0

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 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 2,049,075 4,281,385 6,987,273 7,231,636 8,537,455 8,400,000
1. Inflow Funds 2,049,075 4,281,385 687,273 91,636 137,455 0
Total Equity 819,630 1,712,554 0 0 0 0
Total Long Term Loan 1,229,445 2,568,831 0 0 0 0
Total Short Term Finances 0 0 687,273 91,636 137,455 0
2. Inflow Operation 0 0 6,300,000 7,140,000 8,400,000 8,400,000
Sales Revenue 0 0 6,300,000 7,140,000 8,400,000 8,400,000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 2,049,075 2,049,075 7,720,818 6,371,574 7,857,705 7,332,228
4. Increase In Fixed Assets 2,049,075 2,049,075 0 0 0 0
Fixed Investments 1,951,500 1,951,500 0 0 0 0
Pre-production Expenditures 97,575 97,575 0 0 0 0
5. Increase in Current Assets 0 0 2,361,505 314,867 472,301 0
6. Operating Costs 0 0 4,388,172 4,967,867 5,837,411 5,837,411
7. Corporate Tax Paid 0 0 0 0 535,120 557,909
8. Interest Paid 0 0 971,141 455,793 379,828 303,862
9.Loan Repayments 0 0 0 633,046 633,046 633,046
10.Dividends Paid 0 0 0 0 0 0
Surplus (Deficit) 0 2,232,310 -733,545 860,063 679,750 1,067,772
Cumulative Cash Balance 0 2,232,310 1,498,765 2,358,827 3,038,577 4,106,349

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 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000
Sales Revenue 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 7,279,052 7,255,585 7,202,409 6,516,187 6,516,187 6,516,187
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 5,837,411 5,837,411 5,837,411 5,837,411 5,837,411 5,837,411
7. Corporate Tax Paid 580,699 633,197 655,987 678,777 678,777 678,777
8. Interest Paid 227,897 151,931 75,966 0 0 0
9. Loan Repayments 633,046 633,046 633,046 0 0 0
10.Dividends Paid 0 0 0 0 0 0
Surplus (Deficit) 1,120,948 1,144,415 1,197,591 1,883,813 1,883,813 1,883,813
Cumulative Cash Balance 5,227,297 6,371,712 7,569,302 9,453,115 11,336,927 13,220,740

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

4
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 6,300,000 7,140,000 8,400,000 8,400,000

1. Inflow Operation 0 0 6,300,000 7,140,000 8,400,000 8,400,000

Sales Revenue 0 0 6,300,000 7,140,000 8,400,000 8,400,000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 2,049,075 2,049,075 6,062,404 5,191,098 6,707,377 6,395,320

3. Increase in Fixed Assets 2,049,075 2,049,075 0 0 0 0

Fixed Investments 1,951,500 1,951,500 0 0 0 0

Pre-production Expenditures 97,575 97,575 0 0 0 0

4. Increase in Net Working Capital 0 0 1,674,233 223,231 334,847 0

5. Operating Costs 0 0 4,388,172 4,967,867 5,837,411 5,837,411

6. Corporate Tax Paid 0 0 0 0 535,120 557,909

NET CASH FLOW -2,049,075 -2,049,075 237,596 1,948,902 1,692,623 2,004,680

CUMULATIVE NET CASH FLOW -2,049,075 -4,098,150 -3,860,554 -1,911,653 -219,029 1,785,651

Net Present Value (at 18%) -2,049,075 -1,736,504 170,637 1,186,162 873,036 876,264

Cumulative Net present Value -2,049,075 -3,785,579 -3,614,942 -2,428,780 -1,555,744 -679,480

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 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000

1. Inflow Operation 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000

Sales Revenue 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 6,418,110 6,470,608 6,493,398 6,516,187 6,516,187 6,516,187

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

Fixed Investments 0 0 0 0 0 0

Pre-production Expenditures 0 0 0 0 0 0

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

5. Operating Costs 5,837,411 5,837,411 5,837,411 5,837,411 5,837,411 5,837,411

6. Corporate Tax Paid 580,699 633,197 655,987 678,777 678,777 678,777

NET CASH FLOW 1,981,890 1,929,392 1,906,602 1,883,813 1,883,813 1,883,813

CUMULATIVE NET CASH FLOW 3,767,541 5,696,933 7,603,535 9,487,348 11,371,160 13,254,973

Net Present Value (at 18%) 734,155 605,684 507,229 424,717 359,930 305,025

Cumulative Net present Value 54,675 660,360 1,167,588 1,592,305 1,952,235 2,257,260

Net Present Value (at 18%) 2,257,260.16

Internal Rate of Return 29.3%

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 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 75% 85% 100% 100% 100%

1. Total Income 6,300,000 7,140,000 8,400,000 8,400,000 8,400,000

Sales Revenue 6,300,000 7,140,000 8,400,000 8,400,000 8,400,000
Other Income 0 0 0 0 0
2. Less Variable Cost 4,150,077 4,703,420 5,533,436 5,533,436 5,533,436
VARIABLE MARGIN 2,149,923 2,436,580 2,866,564 2,866,564 2,866,564
(In % of Total Income) 34.13 34.13 34.13 34.13 34.13
3. Less Fixed Costs 637,125 663,477 703,005 703,005 703,005
OPERATIONAL MARGIN 1,512,798 1,773,103 2,163,559 2,163,559 2,163,559
(In % of Total Income) 24.01 24.83 25.76 25.76 25.76
4. Less Cost of Finance 971,140.95 455,793.13 379,827.61 303,862.09 227,896.56
5. GROSS PROFIT 541,657.28 1,317,309.53 1,783,731.69 1,859,697.21 1,935,662.74
6. Income (Corporate) Tax 0.00 0.00 535,119.51 557,909.16 580,698.82
7. NET PROFIT 541,657.28 1,317,309.53 1,248,612.18 1,301,788.05 1,354,963.91
RATIOS (%)
Gross Profit/Sales 8.60% 18.45% 21.23% 22.14% 23.04%
Net Profit After Tax/Sales 8.60% 18.45% 14.86% 15.50% 16.13%
Return on Investment 26.21% 29.57% 25.72% 25.36% 25.00%
Return on Equity 21.39% 52.02% 49.31% 51.41% 53.51%

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 Annex 4: NET INCOME STATEMENT (in Birr): Continued
PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000

Sales Revenue 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000
Other Income 0 0 0 0 0
2. Less Variable Cost 5,533,436 5,533,436 5,533,436 5,533,436 5,533,436
VARIABLE MARGIN 2,866,564 2,866,564 2,866,564 2,866,564 2,866,564
(In % of Total Income) 34.13 34.13 34.13 34.13 34.13
3. Less Fixed Costs 603,975 603,975 603,975 603,975 603,975
OPERATIONAL MARGIN 2,262,589 2,262,589 2,262,589 2,262,589 2,262,589
(In % of Total Income) 26.94 26.94 26.94 26.94 26.94
4. Less Cost of Finance 151,931 75,966 0 0 0
5. GROSS PROFIT 2,110,658 2,186,624 2,262,589 2,262,589 2,262,589
6. Income (Corporate) Tax 633,197 655,987 678,777 678,777 678,777
7. NET PROFIT 1,477,461 1,530,637 1,583,813 1,583,813 1,583,813
RATIOS (%)
Gross Profit/Sales 25.13% 26.03% 26.94% 26.94% 26.94%
Net Profit After Tax/Sales 17.59% 18.22% 18.85% 18.85% 18.85%
Return on Investment 25.74% 25.38% 25.02% 25.02% 25.02%
Return on Equity 58.35% 60.45% 62.55% 62.55% 62.55%

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 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 2,049,075 6,330,460 7,559,390 8,335,290 9,088,311 9,757,053
1. Total Current Assets 0 2,232,310 3,860,270 5,035,200 6,187,251 7,255,023
Inventory on Materials and Supplies 0 0 1,233,856 1,398,370 1,645,142 1,645,142
Work in Progress 0 0 127,853 144,900 170,470 170,470
Finished Products in Stock 0 0 255,705 289,799 340,940 340,940
Accounts Receivable 0 0 687,273 778,909 916,364 916,364
Cash in Hand 0 0 56,819 64,394 75,758 75,758
Cash Surplus, Finance Available 0 2,232,310 1,498,765 2,358,827 3,038,577 4,106,349
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 2,049,075 4,098,150 3,699,120 3,300,090 2,901,060 2,502,030
Fixed Investment 0 1,951,500 3,903,000 3,903,000 3,903,000 3,903,000
Construction in Progress 1,951,500 1,951,500 0 0 0 0
Pre-Production Expenditure 97,575 195,150 195,150 195,150 195,150 195,150
Less Accumulated Depreciation 0 0 399,030 798,060 1,197,090 1,596,120
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 2,049,075 6,330,460 7,559,390 8,335,290 9,088,311 9,757,053
5. Total Current Liabilities 0 0 687,273 778,909 916,364 916,364
Accounts Payable 0 0 687,273 778,909 916,364 916,364
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1,229,445 3,798,276 3,798,276 3,165,230 2,532,184 1,899,138
Loan A 1,229,445 3,798,276 3,798,276 3,165,230 2,532,184 1,899,138
Loan B 0 0 0 0 0 0
7. Total Equity Capital 819,630 2,532,184 2,532,184 2,532,184 2,532,184 2,532,184
Ordinary Capital 819,630 2,532,184 2,532,184 2,532,184 2,532,184 2,532,184
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 541,657 1,858,967 3,107,579
9.Net Profit After Tax 0 0 541,657 1,317,310 1,248,612 1,301,788
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 541,657 1,317,310 1,248,612 1,301,788

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 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 10,478,971 11,323,385 12,220,976 13,804,789 15,388,601 16,972,414
1. Total Current Assets 8,375,971 9,520,385 10,717,976 12,601,789 14,485,601 16,369,414
Inventory on Materials and Supplies 1,645,142 1,645,142 1,645,142 1,645,142 1,645,142 1,645,142
Work in Progress 170,470 170,470 170,470 170,470 170,470 170,470
Finished Products in Stock 340,940 340,940 340,940 340,940 340,940 340,940
Accounts Receivable 916,364 916,364 916,364 916,364 916,364 916,364
Cash in Hand 75,758 75,758 75,758 75,758 75,758 75,758
Cash Surplus, Finance Available 5,227,297 6,371,712 7,569,302 9,453,115 11,336,927 13,220,740
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 2,103,000 1,803,000 1,503,000 1,203,000 903,000 603,000
Fixed Investment 3,903,000 3,903,000 3,903,000 3,903,000 3,903,000 3,903,000
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 195,150 195,150 195,150 195,150 195,150 195,150
Less Accumulated Depreciation 1,995,150 2,295,150 2,595,150 2,895,150 3,195,150 3,495,150
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 10,478,971 11,323,385 12,220,976 13,804,789 15,388,601 16,972,414
5. Total Current Liabilities 916,364 916,364 916,364 916,364 916,364 916,364
Accounts Payable 916,364 916,364 916,364 916,364 916,364 916,364
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1,266,092 633,046 0 0 0 0
Loan A 1,266,092 633,046 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 2,532,184 2,532,184 2,532,184 2,532,184 2,532,184 2,532,184
Ordinary Capital 2,532,184 2,532,184 2,532,184 2,532,184 2,532,184 2,532,184
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 4,409,367 5,764,331 7,241,792 8,772,428 10,356,241 11,940,053
9. Net Profit After Tax 1,354,964 1,477,461 1,530,637 1,583,813 1,583,813 1,583,813
Dividends Payable 0 0 0 0 0 0
Retained Profits 1,354,964 1,477,461 1,530,637 1,583,813 1,583,813 1,583,813

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