Business

Plan
/Feasibility
study for

flour,pasta,
bread and
sweets
Factory

By: Hussen Surur Dilsebo

:
PRESENTED TO INDUSTRY PARKS
DEVELOPMET CORPORATION (IPDC)

March 2024

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 EXCUTIVE SUMMARY

This Business plan envisages the establishment of a plant for the production of wheat flour and
food processing factory (pasta, sweets…..)with a capacity of 100 kg per hour to 500 kg per hour
per annum working 16 hours per day and 300 days a year. The project will start by producing
50% of its capacity at the first year and then increase to 75%, 85% and 100% in the second third
and fourth year respectively. All the capital goods needed for this flour mill factory project will
be obtained from mainly self-investment and Banks.

The demand for wheat met through both domestically produced and import. The present
(2016) demand for wheat flour is expected to reach 6.7 million tones.

The principal raw materials required is wheat which will be obtained from sounding highland
areas like Debrebrhan (90km far away from project site), depressing, menza and other dega
owreda’s of kewot and tarmaber. Therefore, the required raw material need of the project is
completely satisfied by domestic suppliers. The total investment cost of the project including
working capital is estimated at 500 million. From the total investment cost, the highest share or
80% is accounted by fixed investment cost followed by Initial working capital 20%).

The project can create employment for 500 persons. 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 backward and forward linkage with other sectors of the economy and also
generates income for the Government in terms of tax revenue and payroll tax.

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1 General company description
1.1 Name of Business and its legal form

The business will be known as Hussen Surur Dilsebo food processing and flour mill
manufacturing factory. The type of business ownership of this enterprise is privately owned
business. Thought the project was registered as an investor and obtained the investment land of
the project in the fiscal year of 2003 E.C, the flour mill factory plant has not established yet.
The purpose of the business is establishment of flour mill plant that will produce standard 1,
standard 2 and standard 3 wheat flour four customers come from the town and its surrounding
woreda’s and other woredas of the city.

1.2 Mission Statement

 To provide quality Wheat flour to the ever expanding residential area
Surrounding area of the city zone, any town of Addis Ababa which are geographically
nearest to the city. The company focuses on providing
Quality wheat flour with an emphasis on customers satisfaction, as well as, based on research
environmental friend ship orientation production process.

PROJECT OBJECTIVES

The deriving objectives of the project are to produce 7200 tons of wheat in to flour per annum and to
make 25% of profit out of the annual operation of the factory. To achieve these objectives the
factory will produce products and distribute flour with two quality grade. Grade one flour will be
produced to meet the demand of cake shops and cafeterias to make different versions of cakes and
the second grade of the flour will meet the demand of operating in the town and in the surrounding
areas of the project site.
In addition the project also has the following additional derivative objectives to be realized
during the process:-
A. By engaging in the production of above mentioned of standard quality flour, the
factory will play important role in reducing the volume import of these goods from
abroad.
B. To provide employment opportunity to the growing labor force of the project area by
employing permanent employees and by creating job opportunities for uncountable
people who will engage in the construction phase of the project and permanent
employment opportunities.

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 C. To contribute to the government revenue earning by the way of taxation; and
D. To contribute to the promotion of establishing similar factory in the town.
1.3 Location of the project.

The proposed business will be established at Lemi industrial park around Addis Ababa.
Approximate to Lemi Kura sub city it has been in operations since park projects.

PRODUCT DESCRIPTION AND APPLICATION

Flour is a food item, which is finely ground meal of cereals such as foods, wheat, maize,
sorghum, rice, etc. obtained by milling and blending various streams of different quality. It
mainly contains endosperm and certain quantity of beam. Wheat flour on average contains from
14% to 16.5% moisture. Based on its baking quality and other quality indices such as gluten
quality and content, color, moisture content, granular size of particles and others, flour is divided
into different grades.

The basic application of flour is for bread making, cakes and biscuits, and porridge at household
level. Semolina, a product obtained by milling extra hard (durum) wheat, is also used in pasta
and macaroni making.

The basic application of the byproduct of flour production is for animal feed. This animal feed is
highly demand by commercial animal farms in the town which are operating in the town in
sizable numbers. It is used for animal fattening and dairy farms as one of basic animal feeds.

2. MARKET STUDY
3.1 Past Supply and Present Demand

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In Ethiopia, the rural population used to consume flour made from cereals by traditional means
at home. Grain mills, however, are expanding deep into rural areas reducing labor and time for
women, replacing home-made flour consumption by industrially processed flour; however, it is
still insignificant in rural Ethiopia.
Urban dwellers, on the other hand, consume more and more flour produced by flour mills and
thus shifting to manufactured flour. Urban households also consume food items like bread,
biscuits and cakes prepared at home or in bakeries and pastiness made from industrially
processed flour.

The demand for wheat flour is met through both local production and imports. To understand
better as how domestic supply of flour was growing and import of flour was doing it worthwhile
to analyze consumption wheat flour trend for the past ten years (Table 1). From this trend one
can easily understand that though the domestic supply was erratic, it was keeping growing from
2001 to 2010 while the import supply was not declining but rather increasing in volume from
2004 to 2010. This may indicate that the domestic demand for flour always surpass the supply
of domestic products and hence the importers were used to supply the excessive demand through
import for those period of times. As it is shown on Table 1, the peak level of local production,
318354 tons, was registered in year 2015 and imports, 247,567 tons, in 2015.
Table 1: APPARENT CONSUMPTION OF WHEAT FLOUR 2000-2010 (TONNES)

Year Domestic Production Import Total

2000 195,437 23,059 218,496

2001 165,345 60,995 226,340
2002 142,541 13,757 156,298
2003 136,669 122,365 259,034
2004 155,692 19,662 175,354
2005 163,477 20,645 184,122
2006 171,650 21,677 193,328
2007 166,501 21,027 187,528
2008 161,506 20,396 181,902
2009 169,581 21,416 190,997
2010 176,364 22,273 198,637
2011 216,915
252720
2012 226,676
272937

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 2013 236,877
294772 531,649
2014 247,536
318354 565,890
2015 247,567 565,921
318354
Source: 1. CSA, Report of survey of the Manufacturing & Electricity Industries, annual issues
2015.
2. Customs Authority, External Trade Statistics, Annual Issues 2015.

Given the nature of the historical apparent consumption, it is reasonable to assume the average of
the last three years consumption, i.e., about 1,663,460 tons, as the current effective demand for
flour. The per capita flour consumption computed (1,663,460 tons/80million people) 20 kilos
which is too small and then assuming a per capita consumption of 30 kilograms and with the
estimated current population size of the country (80 million), the present effective demand for
2016 would amount to 234,000 tons and supply would be 207575, and implying a supply short
fall of about 26,425 tons which a new plant could aspire to exploit at national level. .

3.2 Projected Demand and Supply

The demand for wheat flour is mainly determined by the growth rate of population and the per
capita consumption of flour. Increased application of wheat flour for industrial processing of
food products such as pasta and macaroni would also have great bearing of future flour demand.
In view of the likely change in these determining variables, 8% annual growth in demand is
considered to be reasonable rate to project future demand.
Regarding the supply of spare part and auto service at the project site the demand is greater than
supply. Therefore, there will be big gap between projected demand and supply.

Table 2: PROJECTED DEMAND AND SUPPLY FOR WHEAT FLOUR (TONNES) (2016-2021)

Year Projected Projected Supply Un satisfied

Demand Demand

2016 258,675
343821 85146
2017 270,316
371326 101010
2018 282,480
401032 118552
2019 433114 295,191 137923

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 2020 308,475
467763 159288
2021 505184 322,356 182828

The projection of the future demand made based on the forecasted national demand of flour as
the flour demand is not only limited to some parts of the country. However, the demand of the
flour from the context of the Eastern Ethiopia may give additional insight to note the availability
of room or demand for additional flour product.
According to Addis Ababa Trade Industry and transport Bureau Core Process there are some 15
flour mill plant in the region but only some of 12 of them are operating and computing in the
markets in the city and there is only 1 flour mill plant in town. In addition to this, due to their
inability of supplying the market with enough flour, from the city Flour produced being supplied
to market in town and its surrounding areas. Flour plants actively operating in the city. Although
it is difficult to get time series data to analyze their actual performance and market supply,
according city Trade Industry and transport Bureau Core Process it estimated that they are
annually supplying 18000 to 20000tons of flour to the north to the city.

On the other hand, by making similar assumption as of the demand of flour at national one, the
demand for the flour in the region is determined by the population size, level of urbanization in
the rural areas, rate of monetization of the economy, price food stuffs used to make traditional
food and volume of flour illegally imported by contrabandists. Although, it is difficult for this
study to analyze the contribution of these demand inducing factors, it is possible to estimate the
demand for flour by taking the population size of people of the city.

3.3 Pricing and Distribution

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The current average market prices of flour is Birr 1800 per quintal for standard I flour and Birr
1600 for standard II flour. For this project, factory gate price will be determined per quintal for
standard I flour and Birr also will be determined for standard II flour is proposed. The bran
factory get price will be Birr per quintal. (Depends on operation time)

As it is already stated, the factory will employ marketing strategies like reducing factory gate
prices, supplying market with quality flour and opening up distribution centers at the proximity
of the potential consumers. To implement these strategies and to woo more customers, there will
be distribution centers in town . The factory will recruit main and sub-agents from the local
people in these are and supply them constantly with flour without coming to the factory and
design sales collection mechanism on weekly base.

In other towns located in cash crop producing area, the factory will arrange special business
relationship with bakers like arranging short-term credit mechanism, for example, installing a
credit system of taking some quintals of flour in advance and paying back on weekly bases and
taking and paying again and again. Parallel with the credit sachem, strict controlling mechanism
will be designed and implemented to avoid any loophole for credit defaulters.

4 PLANT CAPACITY AND PRODUCTION PROGRAMME

4.1 Plant Capacity

According to the market study, the demand of wheat flour in the year 2016 will 258,675be
tons, whereas this demand will grow to 505184 tons by the year 2021. Taking only about 1% of
the demand for the year 2016, the envisaged plan can get market share of 2729 tons of flour for
the first year of operation. To achieve this goal, the project promoter has proposed to purchase a
flour mill plant which has ideal capacity is 36tons per 24hours. Therefore, the plant will operate
using one shift for 8 hours a day, for 300 days a year during the first year of the operation and

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Will increase its production by extending working hours to 16 hours a day using two shifts. With
this gradual upgraded capacity, the plant will convert 7200 tons wheat (the maximum target to be
achieved by working 16hours and using two shift workers) in to 5616 tons of wheat flour
during two shifts (operating for 16hours/ day).

4.2 Production Programmed

The plant will start operation at 50% of its maximum target during the first year, and will
increase production to 85% in the second year, and then to 100% of its maximum target in the
third year and then after. With an average extraction rate of 78% for wheat, the plant will
produce two types of flour depending up on the quality of the flour to be produced. Standard I
flour will be produced at the proportion of 30% which is used for special purposes like baking
biscuits, cakes etc. while standard II flour will be produced at 70% of the total products and will
be mainly used for baking bread. The proposed production program me is given on Table 3.

Table 3: PRODUCTION PROGRAMME

Years 1 2 3-10
50 85 100
Standard I Flour 843 1432 1685
Standard II Flour 1965 3341 3931
Production
(tons) Bran 792 1346 1584
foods 750 1200 1300

5. MATERIALS AND INPUTS

5. 1 Raw and Auxiliary Materials

The principal raw material for foods and flour production is wheat grain. Flour for baking bread
is produced from hard wheat or a blend of hard and soft wheat, while flour for cakes and biscuits
is milled from soft wheat. The impurity rate for local wheat should not exceed 8%.

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Based on the practical market situation prevailing in our country, wheat is widely grown and
produced for marketing purpose in Arsi area, Bali, East and West hararghie, Welaga area Shewa
and some part of Amhara region. Although it is difficult to estimate annual market supply from
these areas, it is possible to get continuous supply of wheat from the market in these areas.
Some times when there is a shortfall of supply of wheat in domestic markets; it is hard fact that
wheat is imported from aboard. Therefore, unless and otherwise there is agricultural failures
across the country, of course it remotely happens once in many years, wheat as row material for
plant easily collected throughout the year from these markets. Yes, of course, as wheat
agricultural commodity, its supply would fluctuate throughout the year but it can be managed by
designing sound market strategies to collect it at time of the harvest and when the supply is good
and keep reasonable wheat stockpile for reasonable time.

Auxiliary materials required are sack or plastic bags for packing flour and bran. These can be
easily obtained from local markets. To calculate the annual cost of the raw and auxiliary
materials for wheat 1300Birr per quintal is taken as annual average price at different markets
located in Amhara region and for a plastic bag and labeling 5.50 Birr taken as unit price while
a plastic bag for barn 4 Birr taken as unit price. The estimated annual cost of raw and auxiliary
materials at full capacity is given in Table 4 below.
Table 4: RAW & AUXILIARY MATERIALS REQUIREMENT & COST (please take market
price for your purpose)
S.N Description Qty. Cost (‘000 Birr)
1 Wheat standard I (ton) 2160 15120.00
2 Wheat standard II (ton) 5040 35280.00
3 PP bag (100kg, pcs) 72000 396.00
4 PP bag (50kg, pcs) for Bran 31680 126.72
Total - 50922.72

5 .2 Utilities

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The major utilities required by the plant are electricity, water and lubricants. The estimated
annual requirement at full production capacity of the plant and the corresponding cost are given
in Table 5:

Table 5: ANNUAL UTILITIES REQUIREMENT& ESTIMATED COST (update the data, if

there is change)
S.N. Description Unit Qty. Unit price Cost
(Birr) ('000 Birr)
1 Electricity kWh 478800 0.55 263.34
2 Water m3 900 2.43 2.250
3 Oil and Kg 100 40 4.00
lubricants
Total 269.59

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 6. TECHNOLOGY AND ENGINEERING

6.1 Production Process

The production process of wheat flour consists of four major operations:

 Wheat Intake and Pre-Cleaning

 Wheat Cleaning and preparation
 Milling
 Packing and Dispatching

Wheat Intake and Pre-cleaning: The major unit operations are dumping, conveying, weighing,
pre-cleaning and conveying to storage silos or transferring to the working bins of the cleaning
room.

Wheat Cleaning and Preparation: The main unit involved operations are weighing, screening,
destining, impurity separation, ferromagnetic separation, scouring, aspiration, dampening,
tempering and etiolating.

Milling: Major operations involved are weighing, breaking open, scalping, scratching, detaching,
sifting, purifying, milling (grounding), resifting and etiolating.

Packing and Dispatching: The major operations involved are collection of flour streams and
bran, mixing and aerating, resifting, etiolating, packing, sewing, loading and dispatching. The
process does not release any pollutant to the environment.

6.2 Machinery and Equipment

As it was described in the objective part of the project, it is the plan of the owner to establish
modern flour mill Factory in the city. In addition to long and frequent down time, production
costs with traditional production of flour mill process are so high that it is formidable challenge
to sell goods at competitive

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prices and to win marketing battle as most of the competitors with identical products are with
latest technologies and benefiting from more production and less production cost per unit of
output market strategies.

It is a foolproof fact that it is possible but improbable to survive and prevail by using outdated
old flour plant in such harsh and merciless market competition let not mention globalization. Due
to all these reasons, in the expansion project replacement of old flour plant by new and high-tech
one is vital to put the project in frontline with its business rivals to become stiff competitors.
Thus, the project promoter has made his choice regarding machine capacity, country of origin
and type of the machine considering all internal and external factors. To this effect, the plant
going to be purchased will have a capacity of 36tons per 24 hours, Chanees Hebi pingle flour
machinery group co. ltd company, and 1 set of 6FTFS-36A flour mill plant with two years spare
parts and spare roller. (See the detail list of the spare parts on annex 1). Generally, detail of the
plant and other complementary equipment are exhibited
on Table 6.
Table 6: MACHINERY AND EQUIPMENT REQUIREMENT & COST (check the current
price of all)
S.N Description Model Unit Qty. Total Cost
(No.) (‘000 Birr)
1 Roller miller 6F2240 PC 3
2 Roller miller 6F2235 PC 5
3 Double bin Plan sifter FSFS83*12 PC 2
*
2
4 Supporter Set 1
5 High pressure fan 6-23No.6.5 PC 1
6 Floor extractor PC 4
7 Bran brush PC 1
8 Bucket elevator for wheat DTG140 PC 1
9 Screw conveyor LSS160 PC 1
10 Flour receiver PC 1
11 Magnetic separator TCXT120 PC 1
12 Bag filter Set 1
13 Air lock 200 PC 14
14 Air lock reducer PC 2
WHEAT CLEANING SYSTEM
15 Bucket elevator DTG140K PC 4
16 High speed vibrating sieve GSS80A PC 1

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17 Magnetic separator TCXT120 PC 1
18 Grinding-beating machine CDJ PC 1
19 Plant rotating sieve TQLM63 PC 1
20 Dry stoner QSX45 PC 1
21 Washing machine XMS70 PC 1
22 Screw conveyor LSS160 PC 1
23 Wheat scourer 59DMJ PC 1
24 High pressure fan 6-30No5 PC 1
25 Low pressure fan 7-72No5 PC 1
26 Cyclone D=800 PC 3
27 Air lock assembly PC 3
28 Cleaning machine housing Set 1
29 Bucket elevator DTG200K PC 1
Others equipment
30 Prefabricated pipe Set 1
31 Switch board and cable Set 1
32 Accessory Set 1
33 equipment set 2
FOB Price - 1680.00
- 395.204
Freight, Insurance, Bank charges and Inland transport
CIF Total - 2075.234

(N.B ALL CAPITAL GOODS ARE PURECHESED FROM

ABROADE)

As it was already mentioned before, the project owner has a plan to secured some 10000m2
Of shed for the operating flour plan, for grading mills, for warehouse and for other related
complementary uses under parks policy system. In addition to the existing shed use, there is.
Hence, no additional land demand will be filed to the concerned government authority for the
expansion project.

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 7. MANPOWER AND TRAINING REQUIREMENT

7.1 Manpower Requirement

The flour production plant requires both production and administrative manpower. The total
manpower required is 500 persons. However, the positions specified and number of manpower
for each position will be gradually specialized and filled with manpower according to the
intensity, volume and duration of the work. A detail of manpower requirement and estimated
annual salary expenditure including fringe benefits is given on Table 8.
Table 8 MANPOWER REQUIREMENT, ANNUAL SALARY AND TRAINING EXPENDITURE (modify it
if there is a change in salary and wage rate)

S.N Description No. Qualification Experience Salary (Birr)

n e Monthly Annual
I Administrative staffs
1 Manager 1 Economist 3years 3000 36000
2 Executive secretary 1 Secretary 2years 1000 12000
3 Finance & administration 1 Accounting 2years 2000 24000
head
4 Accountant 1 Accounting 2years 1500 18000
5 Cashier 1 High school 2years 800 9600
Graduate
6 Clerk 1 High 0 years 700 8400
school

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 Graduate
7 Guard 2 - 0 year 500 12000
8 Janitors 10 - 0years 700 8400
128400
II Direct labor(overhead cost) 50
9 Quality control head 1 Food 2years 1500 18000
science
10 Chemist 1 chemistry 2years 2000 24000
11 Production & technical head 1 Plant 2years 2500 30000
science
12 Commercial head 1 Marketing 3years 1800 21600
13 Personnel of direct labor 1 Manageme 2years 1500 18000
nt
14 Store keeper 10 12 2years 850 20400
graduate
15 Purchaser 1 Procureme 2years 800 9600
nt
16 Salesperson 1 High 2years 800 9600
school
Graduate
17 Production shift leader 1 High 2years 950 11400
school
Graduate
18 Operator 1 TVT 2years 800 9600
Graduate
19 Laborer 300 - 0years 600 43200
20 Janitors 10 - 0years 700 16800
21 Mechanic 20 TVT 2years 1000 12000
Graduate
22 Electrician 1 TVT 2years 1000 12000
Graduate
23 Grease & oil man 1 TVT 2years 500 6000
Graduate
24 Drivers 10 TVT 0 year 1000 12000
Graduate
25 Guard 2 - 0 year 500 12000
Sub-total 500 286200
Grand Total 414600
Employees benefit (25% - 103650
BS)
Grand Total 518250

7.2 Training Requirement

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The production supervisor, operators and quality controllers (chemists) should be given three
weeks on--job training by machinery supplier personnel on the technological process, machine
operation and quality management. The cost of training is estimated to be Birr 40,000.

7.4 SWOT analysis

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 7.3 FINANCIAL ANALYSIS

7.3.1 Fixed Investment and Depreciation Costs (modify it based on your corrective
measures that will be taken)
The total fixed investment cost of the project including cost building and civil works is estimated to
be Birr 4.93 million.
TABLE 9: FIXED INVESTMENT COST

S.N Cost Items Total Cost (‘000

. Birr)
1 Building, Civil Work and Installation of Power Line 1558.433
2 Plant Machinery and Equipment 2075.234
3 Office Furniture and Equipment 100.00
4 Vehicle ( ISUZU- FSR) 1200.00
Total Investment cost 4933.667

TABLE 10: DEPRECIATION

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N Description Expected Original value Annual Dep.
O life (‘000 Birr) (‘000 Birr)
1 Building & Construction 30 1558.433 51.95
2 Machineries & equipment 25 2075.234 83.009
3 Office Furniture and Equipment 15 100.00 0.67
4 Vehicle 10 1200.00 120.00
Total 255.629

11.1 Production Cost

The annual production cost at maximum production target is estimated at Birr 52.8 million (see
Table 11). The material and utility cost accounts for 97 percent of the production cost.

Table 11 ANNUAL PRODUCTION COST AT MAXIMUM PRODUCTION TARGET (7200tons) ('000

BIRR)(correct it by your newly data used)

S.N Description Cost %

1 Raw Materials and Inputs 50922.72 96.5
2 Utilities 269.59 0.5
3 Maintenance and Repair 100.00 0.1
4 Manpower Expenditures( Direct labor) 286.20 0.7
5 Administration Costs* 128.40 0.2
Total Operating Costs 51850.56 98
6 Depreciation 255.629 0.56
7 Financial Cost (9.5%) 689.79 1.44
Total Production Cost 52795.98 100

* Administrative cost includes salaries and wages, insurance, social costs, materials and
services used by administrative staff etc.

11.2 Initial Investment Costs(modify it based on the changed data) Initial investment
cost components of the expansion project are the cost required for buildings, purchase of
flourmill, vehicle, office furniture, preproduction expenses and working capital to purchase the
required raw materials. Out of these major cost components building and civil work will
take 47% and working capital 50% and purchase of machinery will make up 20% of the total
initial investment. The

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Following chart and Table highlight the projected total investment cost

The total investment cost including working capital is estimated at 7.89million. The major
breakdown of the total initial investment cost is shown on Table 12 and cash flow of the
investment is presented on table 13.
Table 12: INITIAL INVESTMENT COSTS (000)

No Description Cost in birr

1` Total Fixed cost 4933.667
1.1 Building and Civil Work 1558.433
1.2 Plant Machinery and Equipment 2075.234
1.3 Office Furniture and Equipment 100
1.4 Vehicle( one ISUZU- FSR) 1200.00
2 Preproduction Cost* 262.45
3 Working capital** 5185.06
TOTAL INVESTMENT COST( 1+2+3)
N.B* Pre-operation expenditure includes bank inters (172.45) ( the interest computed only for three
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months)during construction, training (Birr 40000) and (Birr 50000) costs of registration, licensing
and formation of the company including legal fees, commissioning expenses, etc.

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**Working capital determined based on the target set for the first year of operation
(36000qunital of wheat) and thus wheat stock for two moths
6548quintal*700Birr=4,583810securing one month salary 518250, 6548plastic
bags*5.5=36000, and miscellaneous expenses 47,000Birr.

TABLE 13: INITIAL INVESTMENT CASH FLOW SCHEDULE IN 000BIRR

Se Items Periodical Investment every three months during

preoperational period
No 1st 2nd Quarter 3rd Quarter 4th Quarter
Quarter
1 Plant Machinery & - - 1680.00 395.204
Equipment
2 Furniture - 100.00
3 Vehicle( one ISUZU- FSR) - - 1200.00
4 Pre-production Expenditure* - - - 262.45
5 Working Capital - - - 5185.06
Total 467.53 467.53 1680.00 7757.678

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 TABLE 14: PHYSICAL WORK SECHEDUL (please revised it the current status of the
project)
Activities Project Execution Period from October2011 to September 2012
Oct N Dec Jan Feb Marc April M Jun July Augu Se
o
em u u h ay st pt
v
1.Construction and civil
work
-Warehouses
-Office
-Reservoir and
compound
-Installation of power
line
2.Purchase of flour plant
3. Installation of the
plant
4. Testing the plant(trial
period)
5. Purchase of vehicle
and furniture
6. Recruiting additional
manpower
7. Purchase of raw
materials
8. Market outlet
arrangement
9. Starting operation

Regarding the physical work of the project, it is planned to complete the overall project within
one year and start operation at end of the project year. With this goal that the King flour
expansion project started to undertake construction part of the project some five months ago and
still in the process of construction of warehouses and plant house. However, for smooth
implementation of the project within the intended time the project promoter is seeking financial
partner like Commercial Bank of Ethiopia to work together and make possible the envisaged
expansion project by successfully accomplishing project activities as scheduled above (see
Table 14). Therefore, according the work plan the project will get through project cycle and
complete its project phase by the end of August and start operation in the early week of
September 2012.

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11.3 Production Projection
When the project gets operational after the completion of construction and installation flour
plant, it is difficult to run it at the ideal plant’s capacity of 36tons/ 24 hours at least in short
period of time. Off course, there are open possibilities to operate the plant at its ideal capacity by
using two or three shift in long run, but for practical reasons, it is assumed that the plant will
operate for 8 hours every day for 300 days for the first year and then it converts 3600tons of
wheat in to2808 tons of flour at 50% of its capacity and it converts 85 and 100% of 7200 tons of
wheat into flour during 2nd and 3rd year operation respectively. That means during third year of
operation, the plant will use two shifts and prolong its working hour to 16 hours in a day.
According the above assumption, the detail of plant’s annual production forecast is provided on
the following Table.

TABLE 15: PROJECT ANNUAL OUTPUT ESTIMATES(correct it if the is a change in

current price)
NO Description Unit Project Years
1 2 3 4 5-10
1 Wheat 2808 4773 5616 5616 5616
1.1.Standard I Ton 843 1432 1685 1685 1685
1.2.Standard II >> 1965 3341 3931 3931 3931
2 Bran >> 792 1346 1584 1584 1584

11.4 Revenue Forecast (put your own based on the appropriate data set)
By assuming that the project will operate and achieve the planned targets of outputs for the
forecasted periods, sales and revenue are extrapolated based on the same assumptions as that of
production projection. With these assumptions, all products type I flour, type II flour and the
byproducts the bran will be sold out during the production month and the first week of the next
month, there is continuous supply of raw materials specially wheat, the maximum achievable
production capacity is converting 7200tons wheat in to flour using two shifts and 16 working
hours and these capacity realized by producing 50%,85% and 100 % of its maximum
achievable capacity during 1st, 2nd, 3rd year of production respectively. Therefore, based on
these assumptions the sales and revenue are forecasted for the

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coming 10 years are presented as
follow.

TABLE 16: SALES FORECAST (000)

NO Description Unit Project Years

1 2 3 4 5-10
1 Wheat Flour
1.1.Standard I Birr 8430.00 14320.00 16850.00 16850.00 16850.00
1.2.Standard II >> 17292.00 29400.80 34592.80 34592.80 34592.80
2 Bran >> 1980.00 3365.00 3960.00 3960.00 3960.00
Total 27702.00 47085.80 55402.80 55402.80 55402.80

12. FINANCIAL EVALUATION (based on your own data evaluate it)

12.1 Profitability

According to the projected income statement, the project will start generating profit on the first
year of operation. Important ratios such as profit to total sales, net profit to equity (Return on
equity) the average will be 33% and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.

The projected income statement, balance sheet of the factory and other indicators of profitability
show that the project is financially and technically viable. Projected

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Income generated (cash inflow) and expenses (cash out flow) for seven consecutive years, and
balance sheet of the project at end of each operational years and balance sheet on zero year
(property status of the project right moment before the staring operation) are presented on Table
17 and 18.

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 Regarding the source of finance, the project owner will cover 30% of the total investment cost
and 70% of the remaining part of the investment to be solicited from the financial institutions in
term of midterm loan. The amount of estimated loan from lending institution and loan
repayment schedule are exhibited on Table
19. However, it is expected that the first six months of the operation will be full of daunting tasks
till the marketing of raw materials, flour production process, distribution of the product at
competitive price and getting foothold in the new markets must be well-linked and fitted in one
another without break. Considering all these challenges, the project owner requires grace
period of one year during operation to start paying back main table 17:
SEVEN YEARS PROJECTED BALANCE SHEET OF BAKING AND FLOURMILL
FACTORY (000BIRR)
(Modify it based on your valid data obtained from you project site )

1 Assets Year 0 Year 1 Year 2 Year 3 Year 4 Year5 Year6

1.1.Current asset 5185.06 4545.4 4929.8 5600.4 6369.5 7237.1 8203.3

1.2.Accou - - 0 0 0 0 0
nt
receivable
1.3.Fixed asset* 5187.71 4932.1 4676.5 4420.87 4165.24 3909.6 3653.98
1
Total 10372.77 9477.5 9606.3 10021.27 10534. 11146. 11857.2
7 7 8
2 Liabilities
2.1.Short -
term liability
2.3 Long term 7260.94 6223.66 5186.42 4149.14 3111.9 2074.6 1037.3
liability(70%Ban
k loan)
Total 7260.94 6223.66 5186.42 4149.14 3111.9 2074.6 1037.3
3 Capital
3.1 Owner 3111.83 3111.83 4419.9 5872.13 7422.8 9072.1 10819.9
equity (30%) 8 3 8
*Fixed asset is including preproduction cost.

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 TABLE 18: PROJECTED PROFIT LOSS ESTIMATES OF THE PROJECT (000BIRR) (CASH
INFLOW AND OUTFLOW PROJECTION) (modify it based on your own data)
Description Project Years
1 2 3 4 5-10
Total revenue 27702.00 47085.80 55402.80 55402.80 55402.80

Operational 26434.93 45072.98 52368.81 52368.81 52368.81

expense
Gross Profit 1267.07 2012.82 3033.99 3033.99 3033.99
Less Depreciation 255.63 255.63 255.63 255.63 255.63

Profit before tax 1011.44 1757.19 2778.36 2778.36 2778.36

Profit tax (30%) 0 0 833.5 833.5 833.5

Net profit 1011.44 1757.19 1944.86 1944.86 1944.86

TABLE 19 PROJECCTED CASHFLOW (000)

Disco
Disco PV of Gross unto PV of
Capital Operationa Income Gross unt gross cost Benefi Facto gross
Year items l l expense Tax cost Factor @ 11 tt r benefit @ NPV IRR
%DF 11 %DF
4,930.0 31,364.9 24956.756 -
1 0 26434.93 0 3 0.90 28256.69369 27702 0.90 76 3299.94
45,072.9 47085 38215.891
2 0 45072.98 0 8 0.81 36582.2417 .8 0.81 57 1633.65
3 28 | 0P a g52368.81
e 833.5 53,202.3 0.73 38901.07054 55402 0.73 40510.049 1608.97
 1 .8 86 9
53,202.3 55402 36495.540 1449.53
4 0 52368.81 833.5 1 0.66 35046.00949 .8 0.66 41 1
53,202.3 55402 32878.865 1305.88
5 0 52368.81 833.5 1 0.59 31572.98153 .8 0.59 24 4
53,202.3 55402 29620.599 1176.47
6 0 52368.81 833.5 1 0.53 28444.1275 .8 0.53 31 2
53,202.3 55402 26685.224 1059.88
7 0 52368.81 833.5 1 0.48 25625.34009 .8 0.48 61 5
4,930.0 4,167.5 342,449. 351,8 4,934.4
Total 0 333,351.96 0 46 4.71 224,428.46 01.80 4.71 229,362.93 6

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TABLE 20: LOAN REPAYMENT SCHEDULE IN (000BIRR) (modify it according to
lease policy and based on the data that will be changed)

Year
Grace
Period 1 2 3 4 5 6 7

Loan
receipt at 7260.94 6223.7 5186.4 4149.14 3111.86 2074.58 1037.3
7260.94
beginning 2
of the
year
Interest
at the 862.24* 689.79 591.251 492.709 394.168 295.626 197.085 98.5435
end of 5 9 3 7 1
the year

Pre
operation
Bank
172.45* 0 0 0 0 0 0
interest
*
(during
constructi
o n)
0

Repaymen
t of
1037.28 1037.28 1037.28 1037.28 1037.28 1037.28 1037.28
principal
at the end
of the year
Total
repaymen
1727.07 1628.53 1529.98 1431.44 1332.90 1234.36 1135.82
t (interest 862.24*
15 99 83 67 51 35
plus
principal)

Outstandi
ng 6223.66 5186.4 4149.1 3111.8 2074.5 1037.3 0.02
balance at 7260.94
2 4 6 8
the end of
the year
NB: *Bank interest for grace period includes interest during the construction time or preoperational period

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 ** Interest during the construction period which is computed only for three months.

12.2 Break-Even Analysis (insert your data for your

Calculation)

The break-even point of the project including cost of finance when it starts to operate at full
capacity (year 3) is estimated by using income statement projection.

BEP = Fixed Cost X 100 = 41%

Sales - Variable cost

12.3 Pay-Back Period

The investment cost and income statement projection are used to project the pay- back period.
The project's initial investment will be fully recovered within 5years and 5months .

12.4 Net Present Value and IRR

Based on the cash flow statement, the calculated the net present value at 11% discount rate is
computed to be 4.9 Birr million. The internal rate of return is equal to zero at discount rate of
38%. Therefore, the project is financially viable so long as the computed NPV is positive.

13 SOCIO-ECONOMIC BENEFITS

At the realization of baking and Flour Mill Expansion Project a number of macro benefits will be
created. The local government will get revenue starting from the third year of the operation of
the factory. Without mentioning the income tax that to be deducted from the salary of the
employees, the government will get 0.83milion Birr/year in the forms of profit tax. Creation of
employment opportunity also other important benefit. With this regard, the project will create
temporary job opportunity for sound number of daily labors during the construction phase of the
project. In addition to temporary employment opportunity the project can create employment for
32 persons. In addition to supply of the domestic needs, the project will generate other
investments as multiplier effect of this investment. The establishment of such factory will have a
foreign exchange saving effect to the country by substituting the current imports of flour from
abroad to meet the demands of local markets.

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 14. ANNEX

OFFICE FURNITURE

Items Unit of Quantity Unit Total Cost In (Birr)

Measurement
Cost/Price In

(Birr)
Table No 8 2500 20000
Manager Chair No 8 2200 17600

Gust Chair No 8 1200 9600

Shelf No 4 3000 12000

Secretarial table No 1 4800 4800

Filing cabinet 3 12000 36000

100000

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