Business Plan

for

Flour Mill
Manufacturing

By: Abraham W/Gebriel, Shewa robit town

Adminstration

PRESENTED TO: DEVELOPMENT BANK OF

ETHIOPIA

June 2016
SHWA ROBIT

1 | Page
 EXCUTIVE SUMMARY

This Business plan envisages the establishment of a plant for the production of wheat flour
with a capacity of -----------tones 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 manufacturing poject will be obtained from Development Bank of
Ethiopia ,Shewa robit branch, through hire purchase agreement .

The demand for wheat met through both domestically produced and import. The present
(2016) demand for wheat flour is -----------tones. The demand is projected to reach
------------by the year 2020 and 2021, respectively.

The principal raw materials required is wheat which will be obtained from sournding
highland areas like debrebrhan(90km far away from project site),debresina ,menza and
other dega owreda’s of kewot and tarmaber. Therfore, the requierd 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 -----------------. From the total investment
cost, the highest share (Birr---------or 80% is accounted by fixed investment cost followed by
initial working capital (Birr ------- or 20%).

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 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. .

2 | Page
1 General company description
1.1 Name of Business and its legal form
The business will be known as Abraham W/ gebriel flour mill manufacturing enterprise.
the tyep 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 manufacturing 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 shewraobt town and its
sourounding woreda’s and other woredas of north shewa zone(around 28).

1.2 Mission Statement

 To provide quality Wheat flour to the ever expanding residential area
surrounding area of nourth shewa zone, Anytown of amara region which are geographycally
nearest to shewarobit. The company focuses on providing
quality wheat flour with an emphasis on customers satisfaction, as well as, based on research
environmental friend ship orentation production process.

1.3 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 bakery 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.

3 | Page
 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.

1.4 location of the project.

The proposed business will be established at shewa robit town,amhara region and north
shewa zone,which is 225 km away from addis ababa. Shewa robit town was established in
1948 e.c . the town is located at the main road of from addis abab to dessie way. It has 35-
37 average temperature and -------ml annual rain fall(please add other profiles of the town in
details).

2. PRODUCT DESCRIPTION AND APPLICATION

Flour is a food item, which is finely ground meal of cereals such as 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.

3. MARKET STUDY
3.1 Past Supply and Present Demand

4 | Page
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

5 | Page
 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 killo 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 2016would
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 Un satisfied
Demand Supply Demand

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

6 | Page
 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 Amhara region 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 Bahre Dare,Dessie and Debre Birhn and
there is only 1 flour mill plant in shewa rbit town. In addition to this, due to their
inability of supplying the market with enough flour ,from dessie and debre berhan
Flour produced being supplied to market in shewa robit town and its sourounding
areas. Flour plants actively operating in north shewa zone and south wollo zone are
arround 5. Although it is difficult to get time series data to analyze their actual
performance and market supply, according Amhara region Trade Industry and
transport Bureau Core Process it estimated that they are annually supplying
18000 to 20000tons of flour to the north shewa zone and south wollo zone .

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 North shewa
zone----------- ,South Wollo zone ---------- ,shewa robit town
adminstration----------,Kewot woreda------ and totally estimated to be ---------------
(please collecte the current data of it).

3.3 Pricing and Distribution

7 | Page
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
Birr --------------- per quintal for standard I flour and Birr ------------------ for standard II
flour is proposed. The bran factory get price will be --------------- Birr per quintal.
(please received data from owner)

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 D/sina ,Ataye ,Rasa,Yelen and Shewa robit 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 urban area, like Dedre Sina,Ataye,Yelen , Shewa robit and 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

8 | Page
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

Production Standard II Flour 1965 3341 3931

(tons)
Bran 792 1346 1584

5. MATERIALS AND INPUTS

5. 1 Raw and Auxiliary Materials
The principal raw material for 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%.

9 | Page
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

10 | P a g e
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

11 | P a g e
 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, destoning, 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 enterprise at shewa robit town.. 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

12 | P a g e
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 Plansifter 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

13 | P a g e
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
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)

6.3 land, Building and Civil Works(insert data )

As it was already mentioned before, the project owner has secured some --------m2
of land for the operating flour plan, for grading mills, for warehouse and for other
related complementary uses under private land tenure system. In addition to the
existing land use, there is excess open space leftover land in the compound that
can be used for the proposed expansion project. Hence, no additional land demand
will be filed to the concerned government authority for the expansion project. For
the proposed expansion project additional buildings are under construction in the
compound of operating flour factory. At present the project owner is constructing
additional two buildings for the purpose of installing machine and for the purpose of
keeping raw materials and finished goods. Other buildings for office, product
display, and shower rooms will be started in soon future after completion of the
mentioned two buildings. Regarding the status of buildings under construction their
super structures are about to be completed and so far the project owner has

14 | P a g e
financed the project from his own resource to make these constructions are 70%
possible. Upgrading the existing power line to 101.85KW power supply line is
other crucial task of the project. Without which all could be equivalent to nothing.
Therefore, the existing 64KW power line will be replaced by the power line required
by the new plant.
The cost of building, civil works and power line installation is estimated to be Birr
1,558,433.

15 | P a g e
Table 7: COSTS OF BUILDINGS AND CIVIL WORKS(take the real data,since the building
already bult)
NO Description Unit Qty Unit cost Total Cost
( inBirr) (‘000 Birr)
1 Office, shops, guard houses, water 502.367
reservoir and compound
construction

2 Store( for plant and finished M2 250 2275 568.254

goods store)
3 Store( for washing and raw M2 112 3016 337.812
materials)
4 Installation electric line 150,000
compatible with the new plant
TOTAL 1558.433

7 . MANPOWER AND TRAINING REQUIREMENT

7.1 Manpower Requirement

The flour production plant requires both production and administrative manpower.
The total manpower required is 34 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. Qualificatio Experienc 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 2years 800 9600

school
Graduate
6 Clerk 1 High 0 years 700 8400
school

16 | P a g e
 Graduate
7 Guard 2 - 0 year 500 12000

8 Janitors 1 - 0years 700 8400

128400

II Direct labor(overhead cost)

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 2 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 6 - 0years 600 43200

20 Janitors 2 - 0years 700 16800

21 Mechanic 1 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 1 TVT 0 year 1000 12000
Graduate
25 Guard 2 - 0 year 500 12000

Sub-total 34 286200
Grand Total 414600
Employees benefit (25% BS) - 103650
Grand Total 518250

7.2 Training Requirement

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.

17 | P a g e
 7.3 FINANCIAL ANALYSIS

The financial analysis of the wheat flour project is based on the data presented in
the previous chapters and the following assumptions:-
Construction period 1 year
Source of finance 20 % equity and 80 % loan from DBE
Tax holidays 2 years
Bank interest 9%
Discount cash flow 11%
Accounts receivable 30 days
Raw material local 60 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

11.1 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(put your correct data and calculate it )

18 | P a g e
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

11.2 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.

11.3 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

19 | P a g e
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
months)during construction, training (Birr 40000) and (Birr 50000) costs of registration, licensing and
formation of the company including legal fees, commissioning expenses, etc.

20 | P a g e
**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
No preoperational period
1st 2nd Quarter 3rd Quarter 4th Quarter
Quarter
1 Building and Civil Work 467.53 467.53 - 623.37
2 Plant Machinery & Equipment - - 1680.00 395.204
3 Furniture - 100.00
4 Vehicle( one ISUZU- FSR) - - 1200.00
5 Pre-production Expenditure* - - - 262.45
6 Working Capital - - - 5185.06
Total 467.53 467.53 1680.00 7757.678

21 | P a g e
 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 Ma Jun July Augu Se
o em u u h y 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.

22 | P a g e
11.4 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

11.5 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 1 st, 2nd, 3rd year of production respectively.
Therefore, based on these assumptions the sales and revenue are forecasted for the

23 | P a g e
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

24 | P a g e
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 .

25 | P a g e
 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 l TABLE 17: SEVEN YEARS PROJECTED BALANCE
SHEET OF KING 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.Account - - 0 0 0 0 0
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%Bank
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.

26 | P a g e
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 Gross unt PV of gross
Capital Operationa Income Gross unt cost @ 11 Benefi Facto benefit @
Year items l expense Tax cost Factor %DF t r 11 %DF NPV IRR
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 0 52368.81 833.5 53,202.3 0.73 38901.07054 55402 0.73 40510.049 1608.97

27 | P a g e
 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

28 | P a g e
 (modify it accordindg to
TABLE 20: LOAN REPAYMENT SCHEDULE IN( 000BIRR)
lease policy and based on the data that will be changed)

Year
Grace
1 2 3 4 5 6 7
Period

Loan
receipt at 5186.4
7260.94 7260.94 6223.7 4149.14 3111.86 2074.58 1037.3
beginning 2
of the year

Interest at
862.24* 591.251 492.709 394.168 295.626 197.085
the end of 689.79 98.5435
5 9 3 7 1
the year

Pre
operation
Bank
interest 172.45* 0 0 0 0 0 0
(during *
constructio
n)

Repayment
of principal
1037.28 1037.28 1037.28 1037.28 1037.28 1037.28 1037.28
at the end
of the year

Total
repayment
1628.53 1529.98 1431.44 1332.90 1234.36 1135.82
(interest 862.24* 1727.07
15 99 83 67 51 35
plus
principal)

Outstandin
g balance 5186.4 4149.1 3111.8 2074.5
7260.94 6223.66 1037.3 0.02
at the end 2 4 6 8
of the year

NB: *Bank interest for grace period includes interest during the construction time or preoperational period

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

29 | P a g e
 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 ECONOMIC BENEFITS

At the realization of King 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 local 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.

30 | P a g e
 14. ANNEX
OFFICE FURNITURE

Items Unit of Quantity Unit Cost/Price Total Cost In (Birr)

Measurement
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

31 | P a g e
32 | P a g e