VIV BEVERAGES MANUFACTURING S.C.

BUSINESS PLAN ON THE ESTABLISHMENT

OF BREEZER BEVERAGE PLANT

Final Report

December 2021

SENYO Business PLC

(Management Consultancy Service)
Lideta Sub City, Wereda 08, House No. New
On the way to Geja Sefer, Abdella Building, Room No. 501
Phone: +251 91 160 0631
E-mail: senyo.business@gmail.com

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 TABLE OF CONTENTS
EXCUTIVE SUMMARY......................................................................................................................... 1
1. INTRODUCTION........................................................................................................................... 3
1.1 Background of the Owner...................................................................................................... 3
1.2 Business Model and the Business Objective.........................................................................4
1.3 Vision and Mission................................................................................................................. 4
1.3.1 Vision............................................................................................................................. 4
1.3.2 Mission........................................................................................................................... 5
1.4 Products and Services of the Envisaged Business................................................................5
1.5 SWOT Analysis...................................................................................................................... 5
1.5.1 Strengths........................................................................................................................ 6
1.5.2 Weakness...................................................................................................................... 6
1.5.3 Opportunity..................................................................................................................... 6
1.5.4 Threats........................................................................................................................... 6
1.5.5 Actions in line with the SWOT analysis results...............................................................7
2. MARKETING ENVIRONMENT ANALYSIS....................................................................................8
2.1 PESTL Analysis..................................................................................................................... 8
2.1.1 Political factors............................................................................................................... 8
2.1.2 Economic environment................................................................................................... 8
2.1.3 Social factors................................................................................................................ 10
2.1.4 Technological factors................................................................................................... 10
2.1.5 Legal factors................................................................................................................. 11
2.2 Market Structure and Analysis............................................................................................. 11
2.2.1 Supply analysis............................................................................................................ 11
2.2.2 Demand analysis.......................................................................................................... 12
2.3 Target Market and Customer Base......................................................................................15
2.4 Market Size and Potential.................................................................................................... 15
2.5 Competitors Analysis........................................................................................................... 15
2.5.1 Major competitors......................................................................................................... 15
2.5.2 The five – forces model of competition.........................................................................16
2.6 Key Success Factors........................................................................................................... 18
3. MARKETING STRATEGIES (4PS).............................................................................................. 19
3.1 Products............................................................................................................................... 19
3.2 Promotions........................................................................................................................... 19
3.3 Distribution /Places.............................................................................................................. 21
3.4 Pricing Strategies................................................................................................................. 22
4. OPERATIONAL PLAN................................................................................................................. 23
4.1 Civil Work and the Physical Layouts....................................................................................23
4.1.1 Location and site.......................................................................................................... 23
4.1.2 Building and civil work.................................................................................................. 24
 4.2 Technology and Engineering............................................................................................... 24
4.2.1 Plant capacity............................................................................................................... 24
4.2.2 Technology................................................................................................................... 24
4.2.3 Engineering.................................................................................................................. 31
4.3 Commencement Plan........................................................................................................... 32
4.3.1 Project management.................................................................................................... 32
4.3.2 Project implementation schedule.................................................................................32
4.3.3 Project implementation cost.........................................................................................33
5. ORGANIZATION AND HUMAN RESOURCES PLAN.................................................................34
5.1 Governance Structure.......................................................................................................... 34
5.2 Manning / Staffing................................................................................................................ 34
5.3 Organizational Systems....................................................................................................... 34
6. FINANCIAL FEASIBILITY............................................................................................................ 35
6.1 Financial Assumptions......................................................................................................... 35
6.1.1 Project life.................................................................................................................... 35
6.1.2 Repair and maintenance cost.......................................................................................35
6.1.3 Depreciation and amortization......................................................................................35
6.1.4 Working capital............................................................................................................. 36
6.1.5 Discounting.................................................................................................................. 36
6.1.6 Income Tax.................................................................................................................. 37
6.1.7 Investment.................................................................................................................... 37
6.1.8 Source of finance......................................................................................................... 37
6.1.9 Production cost............................................................................................................ 38
6.2 Projected Financial Statements........................................................................................... 38
6.2.1 Projected profit and loss statement..............................................................................38
6.2.2 Projected balance sheets............................................................................................. 38
6.2.3 Cash flows for planning................................................................................................ 39
6.2.4 Breakeven analysis...................................................................................................... 39
6.3 Investment Decision Ratings................................................................................................ 39
6.3.1 Net present value......................................................................................................... 39
6.3.2 Internal rate of return.................................................................................................... 39
6.3.3 Payback period............................................................................................................ 40
6.4 Economic Benefits............................................................................................................... 40
FINANCIAL SCHEDULES................................................................................................................... 41
ANNEXES............................................................................................................................................ 50

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EXCUTIVE SUMMARY

The promoter of the present project, VIV BEVERAGES MANUFACTURING SHARE

COMPANY intends to establish Breezer Production Line to supply mainly for local
markets.

Breezers are ready-to-serve beverages, quite popular among the light drinkers. They
are pre-mixed flavoured drinks containing fruit extracts and carbonated water, ready
to be mixed with rum and vodka.

The country’s requirement of alcoholic liquors is met through both local production
and imports. The project uses total supply as a proxy method for effective demand
as it avoid the potential errors associated with the end use method since it is based
on actual supply data or apparent consumption of the product. Accordingly, the
demand for alcoholic liquors is forecasted to grow from 2,143,467 HL in 2021 to
9,216,992 HL in 2035.

Based on the unsatisfied demand projection for alcoholic liquors in the market study
and the minimum economic scale, the capacity of the plant is selected to be 8,000
bottles per hour (330 ml/bottle). This capacity is proposed on the basis of a one shift
of 8 hours per day and 20 working days per month.

The direct raw materials used for the Breezer production comprises extra neutral
alcohol, soft water, essence, sugar and other additives. Electric power and water are
the major utilities required for the plant.

Technically, the promoter believes the use of automated machines would be

instrumental in terms of efficiency and effectiveness of the manufacturing sectors.
The project bases itself on the use of high technology production lines to better meet
the current needs in the domestic market.

The proposed project will be installed in the compound of the promoter’s existing
plant i.e. VIV BEVERAGES MANUFACTURING S.C. The site is located in the
Amhara National Regional State, North Shewa Zone, within the Angolala and Tera
Wereda, Gulba Kebele. .

The existing organizational set-up shall include the unit for Breezer production and

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be staffed with optimum manpower in a way that it shall enable the factory to
operate efficiently and effectively. About 15 employees will be required when the
plant operates in full capacity. The annual salary and fringe benefit of these
employees are 675,000.

It is estimated that about six months would be required for the implementation of the
project including the preparation time, assuming project activities will be undertaken
as planned. The activities on the critical path of the implementation are applying and
approval of loan; detailed project planning; delivery and erection of machinery and
equipment; and plant commissioning.

The project is estimated to cost Birr 44.9 million including fixed investment, pre-
operation expenditures and working capital. The investment requirement of the
project is assumed to be financed both from bank loan and equity capital. It is
assumed that machinery and equipment are financed by lease financing. At full
capacity, the factory will generate gross sales revenue of Birr 307 million, and a net
profit after tax of Birr 60 million (5 th year). The internal rate of return (IRR) of the
project is calculated to be 158% on total investment. When discounted at a rate of
24%, the project generates a net present value (NPV) of above Birr 151 million on
total investment. The simple payback period of the project is less than a year.

The financial analyses show that the project is highly profitable and viable. The
entire components of the project are designed to be socially and economically
friendly that benefit the promoter and the country.

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1. INTRODUCTION

1.1 Background of the Owner

The promoter of the present project, VIV BEVERAGES MANUFACTURING SHARE

COMPANY is established on June 2018 with an initial capital of birr 1,000,000 (one
million birr). It is a manufacturing company with diverse business purposes. Its main
area of business is establishing a manufacturing plant for alcohol and alcoholic
liquors having peculiar flavors and selling its products. Accordingly, it is planning to
increase its capital and establish a manufacturing plant which uses un-rectified spirit
(Technical Alcohol) to produce a pure neutral (potable) alcohol and alcoholic liquors.
In order to fulfill its purpose, it has been formed by well trained professional
shareholders and local shareholders with the required financial capacity.

Among the shareholders Mr. Solomon Bogale Kassa has graduated from Addis
Ababa University (Ethiopia), Faculty of Technology, B.Sc in Chemical Engineering
with Distinction on July 1992. In October 1998 he has received his M.Sc in Food
Science and Technology with Great Distinction from the University of Ghent
(Belgium), Faculty of Agricultural and Applied Biological Sciences. Mr. Solomon is a
PhD candidate at the University of Wageningen (The Netherlands). Since June 1999
to date he has been Lecturer at Addis Ababa University at the Department of
Chemical Engineering, Faculty of Technology. Mr Solomon has undertaken various
researches and conducted various courses at different Universities. He has also
supervised different research works and has wide range of experience in the
business purpose VIV is engaged in.

The other shareholder, W/ro Meaza Getachew Endashaw has years of proven
experience in the Hotel management and establishment in particular and also has
wide scope of business management in general that the envisage project is well
thought and properly planned. In addition W/ro Meaza Getachew is founder and
President of the Board of Directors of the company.

Mr. Mulugeta Ayalew Tesema, whom among the company’s shareholder, is also a
well-established business person engaged in different areas of business.

The other shareholder Mr. Mengesha Assefa has graduated from Addis Ababa

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University with B.Sc. in Mechanical Engineering in December 1991. Since then he
has been engaged in different areas of work relating to his profession. Some of his
professional experience include Managing the installation & commissioning of
refrigeration plant at Dire Dawa Plant; Managing syrup room expansion project at
Dire Dawa Plant; Managing compound upgrade at Addis Ababa Plant; Managing
Country Management Team office complex construction; Supervising complete
liquor bottling line installation & commissioning at Balezaf Alcohol & Liquors
Factory; Supervising the construction of complete bottling hall both local civil work
and & steel structure supply, boiler room, generator room; Supervising complete
bottling line installation and commissioning at Addis Ababa Plant; Supervising the
installation and commissioning of service rendering machineries like water treatment
plant, steam boiler, air compressor, cooling towers, refrigeration plant, cold room.

Mr. Shimels Kenaw Fantaye, whom among the company’s shareholder, has
graduated from Addis Ababa University with B.Sc. in Chemical Engineering. He has
also received his M.Sc in Food Science and Technology from Addis Ababa
University. He has tangible leading, supervising and managerial experience in vast
types of business and entrepreneurial ventures.

Lastly, Mr. Zerihun Ayalew Tesema is an experienced business leader with over 28
years of experience in the fields of manufacturing especially in the alcohol industry.
He had leading a number of business organizations before he embarked on the
current project. In general he has broad background in the overall management of
business organization.

1.2 Business Model and the Business Objective

The business is established as part of VIV BEVERAGES MANUFACTURING

SHARE COMPANY but intends to extra neutral alcohol to produce Breezers having
peculiar flavors both for local and the export market.. The whole purpose of this
project is to have separate line for the production of Breezer targeting mainly local
market and start exporting in the near future.

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1.3 Vision and Mission

1.3.1 Vision

 Become one of the top five Breezer manufacturers in Ethiopia by 2026.

1.3.2 Mission

 To exceed our customers’ expectations in quality, delivery, and cost

through continuous improvement and customer interaction

1.4 Products and Services of the Envisaged Business

The product and service of the envisaged business is production and supply of
Breezer.

Breezers are ready-to-serve beverages, quite popular among the light drinkers. They
are pre-mixed flavoured drinks containing fruit extracts and carbonated water, ready
to be mixed with rum and vodka.

Breezer is fruit-based with 2.4% alcohol in Australia, 5.0% in Canada, 4.0% in

Denmark and 4.8% in India. It comes in a variety of fruit flavours: lemon, peach,
pineapple, apple, ruby grapefruit, lime, orange, blackberry, watermelon, cranberry,
coconut, raspberry, blueberry, pomegranate, strawberry, and mango, and it is also
available in chocolate flavour.

The drink is particularly popular in India, Europe, Israel, Canada and Australia, and is
also available in China. In India, Breezer was the first entrant in the ready to drink
category and is currently the market leader in its segment. In Thailand Breezers are
actually wine coolers but still give the appearance that they contain fruits.

A new fruit wine-based variant has been released, called Breezer Spritzed. The new
variant has been accepted very well in the market.

1.5 SWOT Analysis

The SWOT analysis explores both the internal and external environment for the
owners’ and their current business and applies in relation to both existing and
potential competitors towards meeting the goals of the envisaged project. The
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SWOT analysis outlines the identified strengths, weakness, opportunities and threats
in light of executing the Breezers manufacturing project.

1.5.1 Strengths

 The project has been initiated by an experienced management engaged in

different activities. The promoter can capitalize its experience for the
successful implementation and management of the envisaged project.

 The promoter has strong presence on the project site

 The promoter network will be valuable for the anticipated marketing of the
product.

1.5.2 Weakness

 Being new entrant to market

1.5.3 Opportunity

 Conducive and encouraging economic environment.

 The Breezer business has been promising.

 Priority sector: Increased attention and focus given by the government for
manufacturing and value additions.

 Unsatisfactory demand for Breezers: there exists unmet demand for

Breezers in local market.

 A number of investment incentives available.

1.5.4 Threats

 Volatility in the price of raw material may impact on the pricing structure of
the products.
 Generally undeveloped working culture of the society

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  Foreign Exchange Shortage: not getting the foreign currency on time to
opening of LC for procurement of machine and inputs may delay the
project implementation timing and affect the profitability of the project.

1.5.5 Actions in line with the SWOT analysis results

The project will plan to address its weaknesses, and minimize the potential threats
through devising appropriate mitigation strategies. It will have aggressive marketing
initiative to reach more potential customers.

The following are actions to be taken as part of the project implementation process
to minimize the effect of weaknesses and threats identified in the SWOT analysis.

 Developing a customer oriented marketing strategy to win the competition

“Fair price with best quality”.

 Designing the appropriate sales strategy in which the objective of ensuring

dependable customer relationship.

 Adopt modern, waste avoiding and technology enabled operations

 Strengthen the networking and communication with the concerned

governmental administration bureaus (woreda, district and zonal) to assure
the importance of the project and other planned strategic moves of the
organization.

 Working in advance with Banks and other concerned governmental

organization to get loan on time.

 Strengthening linkage with all value chain actors in the industry and create
favourable environment for the production.

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2. MARKETING ENVIRONMENT ANALYSIS

2.1 PESTL Analysis

The PESTL analysis offers an insight of the various macro environmental factors that
the business needs for the successful implementation of the business plan.

2.1.1 Political factors

Commitment of the federal and local governments towards achieving the vision of
the country, rural capacity building strategic plan, power decentralization, security
and stability of the country, etc. have desirable effect on business environments. The
private sector is given recognition as allay in the government’s economic
development program playing key role particularly in small, medium and huge
industries.

The Ethiopian government new prosperity plan re-emphasizes the importance of

agriculture in country overall growth and industrial development. Hence, the
government strongly promotes agro- processing industries. A number of international
donors are providing support to strengthen the sector.

There are also incentives including providing of land with lease free provision for the
organization involving agro-processing sector and building industry zone in different
part of the country for giant projects with fair rent.

In general, the political environment is conducive to operate lucrative business and

the influence of the government is very minimal in trading and pricing.

2.1.2 Economic environment

In Ethiopia as a result of the appropriate policy adopted by the government in recent

years the country’s economy is on a higher growth trajectory. According to the
National Bank of Ethiopia the Ethiopian economy continued to register a notable
growth even when the world faces challenging macroeconomic and social conditions
owing to the outbreak of COVID-19 pandemic. In 2019/20 fiscal year, real GDP grew
by 6.1 percent compared to 3.5 percent average growth estimated for Sub - Saharan
Africa (World Economic Outlook Update, June 2019).
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This growth in real GDP was attributed to 9.6 percent growth in industry, 5.3 percent
in service and 4.3 percent in agriculture sectors. Thus, nominal GDP per capita rose
to USD 1,080, showing a 9.6 percent year-on-year growth.

Generally, the Ethiopian economy recorded 8.2 percent average growth rate per
annum during the GTP II period (2015/16-2019/20) which was 2.8 percentage point
lower than the average growth target set for the plan period.

The structure of the Ethiopian economy is divided into three major sectors; namely,
the agriculture, industry and service sectors. In 2019/20, the share of agriculture in
GDP went down to 32.7 percent from 33.3 percent last year and 33.5 percent GTP
target for the year. The contribution of agriculture to GDP growth was 22.9 percent of
which crop production accounted for 65 percent, followed by animal farming &
hunting (25.9 percent) and forestry (8.8 percent). In terms of growth, crop production
expanded by 4.7 percent, animal farming & hunting by 3.3 and forestry 3.9 percent.

Industry showed 9.6 percent annual growth and constituted 29 percent of the total
GDP. The sector contributed 42.6 percent to the overall economic growth during the
fiscal year and its performance was far below the 18.4 percent target set in the GTP
II though its share was higher than the 22.3 percent target.

Manufacturing sector increased by 7.5 percent and constituted 23.9 percent of the
industrial output. Construction industry, on the other hand, contributed more than half
(72.6 percent) to industrial sector and it expanded by 9.9 percent signifying its
leading role in roads, railways, dams and residential houses construction. The
mining and quarrying sector has reversed its downward trend of the past few years
and registered 91.4 percent growth over the previous year. Policy improvements,
especially in boarder areas as well as the closure of borders due to COVID-19, can
be cited as the main reasons for the robust growth although its contribution to
industry production was still minimal (0.9 percent). Electricity & water had 2.6
percent contribution to industrial production.

Service sector continued to dominate the economy as its share in GDP was about
39.5 percent and its contribution to GDP growth stood 34.4 percent. The 5.3 percent
annual growth in service sector was largely attributed to the increase in real estate,
renting and business activities (9.5 percent), others (7.5 percent), whole sale and
retail trade (6.4 percent) and public administration and defense (2.3 percent).
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2.1.3 Social factors

Ethiopia, with a population of nearly 110 million is the second most populous country
in Africa next to Nigeria. Almost 25% of Ethiopia’s population is under the age of 18
and 83% resides in the country side. A look in to some human development
indicators reveals that primary school enrolments have quadrupled, child mortality
has been cut in half, and the number of people with access to clean water has more
than doubled.

Ethiopia’s agriculture contributes to less than 33% of the national GDP whereas
provides 80-85 percent of employment for the population plays a central role in the
economic and social life of the nation. In recent years, the role played by services
and manufacturing sector is also showing improvement from time to time. Along with
this dynamics, population growth, growth of urbanization, improved income of
farmers, and growing urbanization have contributed to the expansion of consumer
market as well as sourcing the human resource requirement needs of the project.

2.1.4 Technological factors

With the massive public expenditure going on in the country especially in roads, train
air and port facilities and improvements in utilities such as electricity, the import and
export activities in the country is showing improvements. The project area, where
movements of commercial and industrial products take place, is benefiting from
construction and road networks.

With regards to communication services, there are technological developments in

the area of ICT mainly in the mobile network. This has greatly contributed to
enhance access to information. Most organizations have now mobile access that
would enable them to access market information and active network with their fellow
trading partners, information to and from production areas up to export outlets. The
introduction of electronic payments, including mobile payments will also facilitate
payment transactions.

The choice technologies specific to Breezer production depends on the requirements

of capacity, level of sophistication, cost, efficiency and quality. As a result, there is
more preference to imported technology mainly from Asian countries. European
machineries are known for better efficiency and durability than machineries imported
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from Asian countries but with regard to cost, the Asian brand is cheaper than the
European ones.

2.1.5 Legal factors

The new commercial code of Ethiopia Proclamation No.979/2008 is incorporates

modern business legal frameworks. The Ethiopian Government has a package of
incentives under Regulation No.270/2012 for domestic and foreign investors which
are a priority sector for the country. Among the incentives are tax holidays, export
guarantee schemes, duty free privileges for importation of machinery. Export is zero
tax rates where exporters can claim for rebate for value added tax paid for their
inputs. Moreover, exemptions from customs duties or other taxes levied on imports
are granted for raw materials and packing materials necessary for the production of
export goods. All other goods and services destined for export are exempted
from any export and other taxes levied on exports.

The other regulation conducive to the export is the Income Tax Exemption and Loss
Carry Forward privileges. Accordingly, any income derived from an approved new
manufacturing, agro-industrial or agricultural investment is exempted from the
payment of income tax ranging from 2-8 years depending on the area of investment,
export volume and the location in which the investment is undertaken. On the other
hand, business enterprises that suffer losses during the tax holiday period can carry
forward such losses for half of the income tax exemption period, after the expiry of
such a period. There are also other export incentive packages (which help to boost
the export activities) following various agreements that the country has made with
bilateral and multilateral organizations, in the form of duty exemption for inputs of
exports, export credit guarantee schemes and bonded warehouse.

2.2 Market Structure and Analysis

2.2.1 Supply analysis

The country’s requirement of alcoholic liquors is met through both local production and
imports. Table 2.1 summarizes the structure of supply and apparent consumption of
alcoholic liquors and the share of local production and import during the period 2011 –
2020.

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 TABLE 2.1: APPARENT CONSUMPTION OF ALCOHOLIC LIQUORS (IN HL)

Local Production Import Total Growth

Year
Quantity % Share Quantity % Share Supply Rate
2011 301,253 99.49% 1,545 0.51% 302,798 -2.76%
2012 316,365 99.52% 1,515 0.48% 317,880 4.98%
2013 363,963 99.62% 1,383 0.38% 365,346 14.93%
2014 352,581 99.62% 1,348 0.38% 353,929 -3.12%
2015 448,254 99.58% 1,872 0.42% 450,126 27.18%
2016 669,339 99.84% 1,083 0.16% 670,422 48.94%
2017 1,053,409 99.82% 1,939 0.18% 1,055,349 57.42%
2018 1,390,500 99.84% 2,172 0.16% 1,392,672 31.96%
2019 1,640,790 99.84% 2,563 0.16% 1,643,353 18.00%
2020 2,346,330 99.88% 2,717 0.12% 2,349,047 42.94%
Averag 888,279 99.71% 1,814 0.29% 890,092 24.32%
e
Source- “Survey of Manufacturing & Electricity Industries” CSA, and Compiled From “Ethiopian
Revenues and Customs Authority” ERCA,

During the period 2011 – 2020, the maximum total supply (apparent consumption) of
alcoholic liquors to the local market was 2,349,047 hectoliter (year 2020), while the
minimum 302,798 hectoliter was registered in year 2011. In the remaining years,
apparent consumption was fluctuating between these two extremes, around a mean
figure of 890,092 hectoliter.

During the period under consideration (2011 – 2020) apparent consumption of

alcoholic liquors though characterized by a noticeable growth trend exhibits fluctuations
from year to year. In 2013, total supply has increased by about 14.93% as compared
to 2012. However, in 2014 total supply has decreased by 3.12% while in 2015 supply
has increased by 27.18% compared to the previous year. During the period 2015 –
2020 supply has exhibited constant growth registering a growth rate that ranges from
27.18% to 42.94% annually.

2.2.2 Demand analysis

Demand is defined as the quantity of a good or service consumers are willing and
able to buy at a given price in a given time period. Only when the consumers' desire
to buy something is backed up by willingness and an ability to pay for it than we
speak of demand.

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2.2.2.1 Factors that influence the demand for alcoholic liquors

There are many factors affect the demand for alcoholic liquors. The most important
ones are sustainability of supply, price and overall economic development level.

Quality: - Product quality is the basic and most important marketing mixes that affect
the success of a product. Product quality has two dimensions, i.e., level and
consistency. Level means the producer must first choose a quality level that will be
acceptable in the target market and in a level that comply with the quality of
competing products. Consistency refers to the consistent delivering of ones
established quality through strict quality control measures.

The envisaged project would thus install modern machineries and safe guarded
production process with a system of optimally combined machine operations and
control of them by qualified and trained technicians and quality control will be given
top priority.

Product price: - price is the other major factor that influences the demand for
alcoholic liquors. If the price of a product is cheaper and its quality is inferior, lower
income groups are often used it. If it has good quality and high price, it is only
affordable to high income groups. The project has taken this information as good
insight to develop best pricing strategy affordable to all income groups.

Performance of the Ethiopian Economy – The demand for alcoholic liquors is

strongly related to Economic development. Therefore, the demands for soap may
also be expected to increase as economic expansion accentuates the demand for
the product.

In Ethiopia as a result of the appropriate policy adopted by the government in recent

years the country’s economy is on a higher growth trajectory. According to the
National Bank of Ethiopia the Ethiopian economy continued to register a notable
growth even when the world faces challenging macroeconomic and social conditions
owing to the outbreak of COVID-19 pandemic. In 2019/20 fiscal year, real GDP grew
by 6.1 percent compared to 3.5 percent average growth estimated for Sub - Saharan
Africa (World Economic Outlook Update, June 2019).

13
 This growth in real GDP was attributed to 9.6 percent growth in industry, 5.3 percent
in service and 4.3 percent in agriculture sectors. Thus, nominal GDP per capita rose
to USD 1,080, showing a 9.6 percent year-on-year growth.

Generally, the Ethiopian economy recorded 8.2 percent average growth rate per
annum during the GTP II period (2015/16-2019/20) which was 2.8 percentage point
lower than the average growth target set for the plan period.

2.2.2.2 Projected demand and supply for alcoholic liquors

As we noted above, there is huge demand by domestic production. On top of this

positive performance of the economic development will obviously bring huge
demand for alcoholic liquors. The supply for alcoholic liquors has been increasing
since 2011 with an average rate of 24%. Demand is expected to be higher than the
actual supply.

In this case, the demand and the market share projection are computed based on
the results of SWOT analysis. As per the SWOT analysis, it is assumed that the
opportunities will be counter balanced by the threats so that with conservative
estimate the project will capture a market share of 2% of the country’s total demand
of alcoholic liquors. Accordingly, the market size for alcoholic liquors by the project
is as shown in Table 2.2.

TABLE 2.2: PROJECTED DEMAND AND MARKET SHARE OF THE PROJECT (IN HL)

Projected Demand Market Share of

Year
for Alcoholic Liquors The Project
2021 2,143,467 42,869
2022 2,441,841 48,837
2023 2,761,108 55,222
2024 3,103,283 62,066
2025 3,470,590 69,412
2026 3,865,484 77,310
2027 4,290,674 85,813
2028 4,749,151 94,983
2029 5,244,220 104,884
2030 5,779,533 115,591
2031 6,359,127 127,183
2032 6,987,465 139,749
2033 7,669,484 153,390
2034 8,410,645 168,213
2035 9,216,992 184,340

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As can be seen from the above Table, the total market share of the project is
forecasted to grow from 42,869 HL in 2021 to 184,340 HL in 2035.

2.3 Target Market and Customer Base

The targets for the project are local and export market. However, in the early project
period, the project will more focus on local market. In latter year of the project period
it will try to reach some neighboring countries with affordable price.

Therefore, strong marketing initiatives, enhancing of contract management skill,

ability of providing quality supplies and overall customer handling matters to increase
market share in any part of the country. The project will actively work towards
achieving the utmost market share.

2.4 Market Size and Potential

The different types of market segments for alcoholic liquors can be classified as:-

1) Wholesaler and Retailers

2) Household consumers

Wholesaler and retailers buy the product from producers to get the product with
reasonable price. These customers are often professional buyers. The main factors
of interest to these buyers are that they require the product to be delivered in bulk, at
a low price, and with a proven ability to meet delivery requirements. The project
should therefore take these factors into account when deciding if this is a market
sector that they can successfully target.

2.5 Competitors Analysis

2.5.1 Major competitors

The demand for alcoholic liquors is met both through import and local production.
The latter source constitutes of the lion's share, on average accounting for more than
99 percent of the country's total alcoholic liquors consumption during the period 2011
– 2020.

At present Komari Beverages Manufacturing Company (Komari) is the only

Breezer producer in the country. Komari was established and legally registered in

15
Ethiopia in 2019, in Debre Berhan as a private company. The company has a
production capacity of bottling and packaging 27,000 bottles an hour. Currently it has
created 135 permanent jobs with some 175 temporary employees.

Komari launched three flavors of new drinks with 5 percent alcohol concentration
branded Arada. The current selling prices of Arada product is Birr 22.00.

Partly financed by Dashen Bank Share Company, Komari is currently distributing its
products in Addis Ababa, Bishoftu, Adama and Debre Birhan.

The company finds its main input (Pure alcohol) from the VIV Beverages
Manufacturing S.C.

2.5.2 The five – forces model of competition

1. Threat from Substitutes

A substitute for Breezer does not exist. However, there are generic products and
complementary products such as alcoholic liquors, and Beers which can be used
instead of Breezers. Furthermore, the buyer propensity to switch brands is low; since
consumers on the market are brand loyal to the alcoholic liquors brands they are
currently using and the fact that alcoholic liquors often have complementary
products.

2. Rivalry from Existing Competitors

• Concentration, Diversity of Competitors – There is only one Breezer

manufacturer in Ethiopia. It sources its main input (pure alcohol) from the
prompter of this project i.e. VIV Beverage Manufacturing S.C. and it is similar
in its cost structure and strategies thus no price competition as it is difficult for
prices coordination

• Product Differentiation - There is no product differentiation other than

differences in product offerings

• Cost Conditions - The price competition from excess capacity is not

aggressive as fixed costs are low relative to variable costs

16
3. Threat from New Entrants

• Capital requirements – The cost of setting up Breezer production plant is high,

• Economies of scale – Entry into the industry has to be on a large scale in

order to make a meaningful profit. There is currently excess capacity as the
market penetration rate is very low.

• Absolute cost advantages – No absolute cost advantage unless the new

entrant has its own input source.

• Access to distribution channels – Key distribution channels is by appointing

sufficient number of agent.

• Regulatory and legal barriers – There is no legal barriers

• Retaliation by established competitors – There can be no retaliation by

competitors as there are no many competitive manufactures.

4. Bargaining Power of Customer

• Market Type - The industry is combination of inputs and outputs; with inputs
being the dominant market. The main input is pure alcohol. Output is Breezer
products.

• Price Sensitivity - There is little price sensitivity and there is no product

switching due to price changes; hence largely dictates prices.

• Relative Bargaining Power - There are a number of buyers, who make large
purchases. There is awareness on manufacturer’s costing methods.
Appointing sufficient number of agent which are manageable in size for
supervision and control, feedback exchange purposes and facilitating the
selling process of the project would be attractive for Breezer producers.

5. Bargaining Power of Suppliers

 The suppliers of inputs are usually small number Potable Alcohol Distilleries.
Hence these suppliers may be said to have high bargaining power.

17
  It is difficult for manufacturer’s to integrate backward to produce inputs by
themselves to reduce their dependence on the suppliers.

Combined Impact of the Forces

The five forces model competitors’ analysis indicates an industry marked high
bargaining power of supplier, high barriers to entry, high customer power and no
price rivalry between competitors as no product differentiation.

2.6 Key Success Factors

The commercial viability of the envisaged plant depends on the following factors:

 Production processes need to be monitored very carefully.

 Advance sale orders can ensure the success of the business.

 Quality maintenance will play an important role as it is evident from the

behavior of consumers that they are more specific towards quality issues.

 Cost accounting system should be strengthened so as to monitor the entire

process and determine the reasons for major variances in the process such
as Material, Labor and Factory Overhead Variances.

 Selection of technical / skilled staff would be very crucial decision to be made

by the management.

 Continuous efforts should be made for up-gradation of the technology.

18
3. MARKETING STRATEGIES (4PS)

Based on the detailed analysis presented in this business plan, the project has
designed marketing strategies to ensure its competitiveness and return on investment. It
is also the objective of the project to ensure the highest level of customer satisfaction in
the targeted market segment. Strategic relationship with major buyers is one of the key
success factors in each selected market segments (institutional buyers and consumers).
The marketing strategy explains the sub strategies with the four marketing components
(4Ps) and additional customer oriented strategy.

3.1 Products

The project plan is to produce standard quality Breezer products i.e. a product which
has good quality parameters such as organoleptic and grade (alcohol concentration). In
addition to this, the Breezer products will available in required amounts and qualifies
acceptable national and international quality standards.

3.2 Promotions

The project will use different promotional strategies, which are essential to support
attainment of its marketing and profit objectives. Its main promotion strategies,
therefore, include personal selling, product dedicated marketing personnel, maintaining
healthy and strong networking brochure and flyers, web presence, organizing annual
events, attending at national and international trade fairs, most of which are discussed
here below.

 Inauguration: the project will have inauguration ceremony soon after the
completion of the commission phase. Relevant governmental officials, sector
representatives and the media will be invited. The event will enable the project to
get publicity.

 Personal selling: The project will deploy personal selling approach to potential
buyers through door to door visit. Popular trade shows will be used as an
opportunity to create opportunities for networking and personal communication
with buyers.

 Assigning product oriented marketing personnel: A marketing representative

19
 or management staff will be recruited and assigned to handle product specific
marketing activities.

 Networking activities: The management has to promote the hugeness and

positive impact of the project on overall alcoholic liquors market of the country to
appropriate government bodies. The management will watch closely national
level events in the sector and involve whenever applicable to tap opportunities to
follow from such events.

 Web presence: The project will develop a website, which will contribute towards
the visibility of the project and its products in the alcoholic liquors market. The
website allows potential customers and collaborators to get to know the project
and reach it through contact information to be provided on the site. In addition to
website, it is planned to intensively use different information systems to promptly
communicate and closely work with potential customers, collaborators and other
interested parties.

 Brochure and flyers: The project plans to develop an informative brochure to be

distributed to various stakeholders and buyers. The brochures and flyers will be
distributed national association, chamber of commerce and during networking
events.

 Annual events: The project will have annual events where corporate customers
and stakeholders will be invited. The session will be used as a promotional event
to acknowledge employees, partners and corporate customers who did excellent
jobs during the year.

 Trade fairs: the project will attend national and international trade fairs to
promote its products. International trade fairs are excellent opportunities to reach
as many customers as possible and also to understand the competition
environment and the customers’ requirements.

 Sample: As part of the promotional strategy, the project will prepare

representative Breezer products and send to potential buyers and distributers.

The types of promotion that are selected are different for each market segment. Posters
or signboards in villages and special leaflet promotions in village shops are likely to

20
reach more people. In urban markets the project will use personal contacts with buyers
and provide free samples.

3.3 Distribution /Places

The envisaged project adopted two-tier system with the distribution channel as
follow:

The Factory Agents Consumers

The system is working by appointing sufficient number of agent which are

manageable in size for supervision and control, feedback exchange purposes and
facilitating the selling process of the project and by assign to each agent a well-
defined market segments.

In this case the agents receipt the product from the Promoter at factory gate with
their own truck and then supply to consumers in their market segment.

According to the distribution experience of convenient goods manufacturers such as

beverage and water manufacturers, the market should have to be segmented by
broad market territory if the factory chooses two-tier system. The following six market
territories are proposed for the implementation of a distribution system for the
products of the factory:

 Central Territory consisting of Addis Ababa, North Shewa, West Shewa,

East Shewa, Arssi Region and Gurage and Hadiya Zones in SNNP.

 North Western Territory comprising North Gondar, South Gondar, East

Gojjam, West Gojam and its surrounding.

 Western Territory consisting of West Wellega, East Wellega, Illubabor,

Jimma, Gambella and Benishangul-Gumuz.

 Northern Territory covering SNNP Region, Bale, and Borena.

 Eastern Territory containing West Harerge, East Harerge, Harar Region,

Dire Dawa, Somali Region and Afar Region.

21
  Northern Territory covering South Wello and surroundings, North Wello,
and Tigray Region.

3.4 Pricing Strategies

The price of Breezer products will be set based on the cost of production and the price
of competing products supplied in the Ethiopian market. Breezer products produced by
the project is expected to attract better price than other types of Breezer due to
standard quality acceptable by all type of customers. However, the project has a plan to
install a price well below the current market price of high standard price to reach all type
of customers. Unless there is a significant cost variation during the purchase of inputs,
the project will try to maintain a uniform and stable selling price.

22
4. OPERATIONAL PLAN

4.1 Civil Work and the Physical Layouts

4.1.1 Location and site

The proposed project will be installed in the compound of the promoter’s existing
plant i.e. VIV BEVERAGES MANUFACTURING S.C.

The site is located in the Amhara National Regional State, North Shewa Zone, within
the Angolala and Tera Wereda, Gulba Kebele. The selection of project area is made
with due consideration of the availability of electricity, telephone and water as well as
proximity to raw materials and It is near to the major customers.

North Shewa is one of 10 Zones in the Amhara Region. The population is now
estimated to reach 3,500,000; along with the entire population of Ethiopia it has more
than doubled since 1994, but based on the 2007 Census conducted by the Central
Statistical Agency of Ethiopia (CSA), this Zone has a total population of 1,837,490,
an increase of 17.72% over the 1994 census, of whom 928,694 are men and
908,796 women; with an area of 15,936.13 square kilometers, North Shewa has a
population density of 115.30. While 214,227 or 11.66% are urban inhabitants, a
further 112 or 0.01% are pastoralists. A total of 429,423 households were counted in
this Zone, which results in an average of 4.28 persons to a household, and 413,235
housing units. The three largest ethnic groups reported in North Shewa were the
Amhara (95.73%), the Oromo (2.14%), and the Argobba (1.71%); all other ethnic
groups made up 0.42% of the population. Amharic is spoken as a first language by
96.97%, and 2.32% spoke Oromiffa; the remaining 0.71% spoke all other primary
languages reported. 94.71% of the population said they practiced Ethiopian
Orthodox Christianity, and 4.91% were Muslim.

According to a May 24, 2004 World Bank memorandum, 4% of the inhabitants of

North Shewa have access to electricity, this zone has a road density of 41.4
kilometers per 1000 square kilometers (compared to the national average of 30
kilometers), the average rural household has 1.2 hectares of land (compared to the
national average of 1.01 hectare of land and an average of 0.75 for the Amhara
Region) and the equivalent of 0.9 heads of livestock. 15.7% of the population is in
23
non-farm related jobs, compared to the national average of 25% and a Regional
average of 21%. 48% of all eligible children are enrolled in primary school, and 12%
in secondary schools. 39% of the zone is exposed to malaria, and 14% to Tsetse fly.

4.1.2 Building and civil work

The envisaged plant requires building for production and packing, ware houses, and
management buildings. The space requirement of the plant is determined by the total
area each production equipment occupy, adequate space required in between the
equipment/ machineries, space required for the workers and that needed to handle
work in progress. Finished product store will also have enough building space to
store a minimum of one month finished products.

The Breezer line will be housed in the existing production hall, thus no need of
constructing the building for production and packing.

4.2 Technology and Engineering

4.2.1 Plant capacity

Having considered the investment cost, management and administration complexity

as well as the business, the capacity of the plant is selected to be 8,000 bottles per
hour (330 ml/bottle). This capacity is proposed on the basis of a one shift of 8 hours
per day and 20 working days per month.

4.2.2 Technology

4.2.2.1 Process description

The production of Breezers of different types involves the following process steps:
raw material preparation, mixing of ingredients, filtration, filling and capping, and
labeling. The brief description of these process steps is presented hereunder.

1) Raw Material Preparation

Syrup preparation: - syrup is prepared from sugar and water for imparting taste to
Breezers. Weighed amount of sugar is mixed with measured amount of water in the
steam jacketed syrup preparation kettle. The kettle is steam heated in a controlled
manner (temperature) and equipped with mixer. Boiling and mixing of the syrup
24
continues till the required Brix level is reached. The prepared syrup is cooled and
filtered to remove suspended impurities by using water cooled heat exchanger and
filter press respectively.

Caramel preparation: Caramel is prepared by first carbonizing and melting

measured amount of sugar using electrical resistors to a temperature of 120ºC.
Water is then added to the carbonized and melted sugar and boiled for about 3
1/2hrs to 4hrs at a temperature of 120 ºC till the desired color is achieved. The color
is checked by colorimeter.

Water treatment: - water from ground /municipality sources pass through different
treatment stages to make it safe for liquor production. The water is first filtered by
sand filter to make it free from suspended solid impurities and pass through Zeolite
type cation exchanger to make it free from Ca++ and Mg++ ions. Then the soft water
passes through UV light treatment.

2) Mixing

Measured amount of different ingredients for the batch of Breezer to be produced

are dosed to agitated liquor preparation tank in the following order:

 Transfer measured amount of pure alcohol into the preparation tank

 Add up some amount of water and mix it for about 1hr (mixing depending on
the quality of the alcohol)

 Add in essence and mix it for 45 minutes

 Transfer the remaining measured amount of water and mix it for 15 min

 Add up sugar syrup and mix it for 30min

 Add caramel and mix it for 4 hrs

The produced Breezer will undergo a laboratory test and pass to the next process
step i.e. filtration.

3) Filtration

The prepared Breezer will pass through a filter press packed by one time use paper
filters by pump in order to remove the suspended impurities. When the filter paper is
blocked by dirt, the inlet pressure will rise and the outlet pressure will drop. By

25
observing this condition on the pressure gauges, filter leafs will be changed by new
one and the cycle continues.

Holding Tank (service tank):- the filtered Breezer is stored temporarily in the
holding/service tank till it is filled to bottles.

4) Bottling line

The bottling line comprise conveyor which transports crates with empty bottle to the
bottling room, out packer, bottle washer, washed empty bottle inspection (EBI),
washed empty bottle counter, filling and capping machine, full bottle inspection (FBI),
full bottle counter, labeling machine, batch marking machine, crate washer, in packer
and conveyor to the finished product store.

Out-packing: which lifts the bottles from the crates by 15 gripper heads and place
on to a large conveyor where they are transported to the bottle washer. During this
movement un-washable and foreign bottles are sorted manually. The empty crate is
transported to the crate washer through a conveyor.

Bottle washing: - Returnable bottles comeback from customers dirty and still
labeled. Moreover many bottles still have remains of metal closures on the bottle
neck. For reuse, the bottle labels and remaining part of the metal closures must be
removed, and the bottles are to be thoroughly cleaned. The aim of bottles cleaning is
not only to remove all visible dirt from the inside and outside of the bottles but also to
ensure that the bottles have been sterilized. To obtain this cleaning process efficient,
the effective use of the following factors has to be considered:

 Effect of soaking

Removal of dirt requires a dissolving and soaking time which is affected by

various factors. This also applies to removal of labels. The soaking time is 10-
30min.

 Mechanical effect of jetting

Cleaning is reinforced by the mechanical effect of rinsing the flasks in the

upper part of the bottle washer.

 Washing temperature

Higher temperature always speeds up the removal of dirt. Temperatures of

60-85ºc are used to obtain a good biological cleaning.

26
  Cleaning agent

Cleaning agents are alkaline and also kill micro-organisms, particularly at

higher temperature. They release and dissolve dirt. The caustic used for
cleaning should have a concentration of 1% sodium hydroxide to which
additives are added in order to achieve better cleaning.

Bottle Control/ Empty Bottle Inspection unit (EBI): cleaned bottles are inspected
for damage or residual dirt by using automatic controller which reject the bottle if any
of the under listed set condition is not fulfilled. Basically, all bottles should be clean
and fit to use after cleaning. For this to apply, the bottles which are not fit to use, for
various reasons, must be separated and removed before filling. These include

 Bottles containing foreign bodies, pigments or adhesive residues or other

contaminants,

 Bottles with defects in the mouth region, such as notches, cracks or other
defects

 Monitoring for foreign bottles (another shape, color, height etc.)

Empty Bottle Counter: - the amount of clean bottle used for filling is counted by
electronic counting machine installed on the side of the conveyor while the clean
bottle passes by the counter.

Bottle filling unit: at this stage prepared liquor is filled in washed bottle. Filling the
cleaned bottles with the produced liquor is the most important task. During this

 Loss of the product must be avoided

 The nominal fill of every bottle must be ensured

 The quality of the product must be maintained by avoidance of contaminants

Capping: The bottles are closed up immediately after the filling operation. The
closing machine is built into the same bloc as the filler and they are equipped with a
common drive to ensure synchronous operation. This is called a mono-bloc-filling
and capping machine.

Full Bottle Counter: The filled bottles are counted by electronic machine while
passing on conveyor to the labeling machine to know the daily, monthly and annual
amount of liquor production.

27
Full bottle inspection (FBI): After filling, the bottles are inspected to make sure they
are correctly filled to the filling height, properly closed and the liquor filled is with no
impurity by passing through automatic controller which rejects if any of the above
stated situations happens. Unsatisfactory bottles are separated out.

Labeling unit: the filled bottles are conveyed to the labeler. Labels are one or
several which include body label, back labels, chest labels and neck labels used to
make the customers more aware of the product. The appearance of the bottle is
extremely dependent on the quality of the labeling. The labels carry the important
and effective imprints used to decorate the bottle. Glues are used as adhesive so
that the labels come off easily when the returnable bottles are cleaned. The label
should be stuck firmly and completely straight at the predetermined position of the
bottle.

Marking the batch number and date: - It is the production of the reference
information with the complete batch number and date for manufacture and use
before either on the bottle or the label for the purpose of identification and
traceability.

Crate Washer: - many customers consider the appearance of the crates too as
important as the contents of the bottles. The crates used by the liquor plants are
reused after collected from distribution centers. These crates are washed in a crate
washing machine before redistributed to customers.

In-packing: which lifts the bottles from the conveyor by 15 gripper heads and place
on to a washed crate where they are transported to the finished product store.

The process flow diagram of liquor production is given in Figure 4.1.

28
 FIGURE 4.1: PROCESS FLOW DIAGRAM OF BREEZERS PRODUCTION

Sugar

Treated Pure Essence

water Alcohol

Syrup preparation Caramel preparation

Heat (steam)

Water NaOH Recycled

Mixing
bottle
Cap

Bottle washing
Filtration

Bottle inspection
Filling
Fuel

Full bottle inspection

Labeling
Finished product
to store

4.2.2.2 Production program

Considering the experience of similar plant, it is assumed that owing to probable

technological, production and commercial difficulties, the envisaged project will
initially experience problems that can take the form of only a gradual growth of sales
and market penetration, on the one hand and a wide range of production problems
such as acquaintance of technical manpower with the selected technology and
equipment on the other hand.

Accordingly, the plant starts production at 70% of its installed capacity which will
grow to 80% in the second year, and 90% in the third year. Full capacity production
will be attained in the fourth year and onwards.
29
Thus the annual production programme for the project has been formulated based
on the proposed plant capacity. The production program for the life of the project is
shown in the Table 4.1 below.

TABLE 4.1: PRODUCTION PROGRAMME

Production Year
N Unit of
Description 4th and
o Measure 1 st
2nd 3rd
onwards
1 Capacity utilization % 70 80 90 100
2 Breezer Bottle 10,752,000 12,288,000 13,824,000 15,360,000

4.2.2.3 Materials and inputs

A. Direct Materials

The direct raw materials used for the Breezer production comprises extra neutral
alcohol, soft water, essence, sugar and other additives. Sugar is used for the
preparation of syrup for all type of Breezers; caramel as colorant and imparting taste
for different type of Breezers. Essences are used for imparting aroma and taste to
the Breezer. There are different types of essences for different types of Breezers.
The source of extra neutral alcohol is from existing distillery of the promoter, sugar
from local sugar factories and essence from abroad.

B. Auxiliary Materials

Auxiliary raw materials required for the production of Breezers are glass bottles,
plastic crates, cap, labels, glue, filter sheets, and caustic soda. Bottles, plastic
crates, cap, labels and glue are used for packing of the product, filter sheet are used
for removing suspended solids from the liquors, and caustic soda for washing
recycled bottles, sanitizing the preparation machinery and equipment. All these
auxiliary raw materials are locally available except filter sheet and cap which are to
be imported.

C. Utilities

Electricity, fuel oil, light oil and water are utilities required for the production of
Breezer. Electricity is used for running machinery and equipment and lighting
purpose; fuel oil is used to generate steam which in turn is used for the preparation
of syrup and sanitization of process machinery and equipment and process lines.
Light oil is used for heating water for bottle and crate washer.
30
 The estimated annual requirement for raw materials and packing materials at 100%
capacity of production are given in table 4.2 below.

TABLE 4.2: LIST OF RAW MATERIALS AND COST AT FULL CAPACITY

Unit Cost Total Cost (000 Birr)

No. Description UoM Quantity
(Birr) L.C FC Total
A. Direct Raw Materials
1 Sugar kg 760,320 36.00 27,371.52 - 27,371.52
2 Extra Neutral Alcohol Liter 288,922 18.00 5,200.59 - 5,200.59
3 Essences kg 2,534 1485.00 - 3,763.58 3,763.58
4 Citric Acid " 2,534 150.00 3,763.58 - 3,763.58
5 CO2 " 30,413 22.00 669.08 - 669.08
Sub Total 1 37,004.78 3,763.58 40,768.36
B. Auxiliary Material
1 Glass Bottle 330ml Pcs 19,200 8.00 153.60 - 153.60
(Breakage)
2 Cap " 15,513,600 0.93 - 14,427.65 14,427.65
3 Label - back " 15,513,600 0.04 605.03 - 605.03
4 Label - front " 15,513,600 0.86 13,264.13 - 13,264.13
5 Glue kg 1,318 131.31 173.05 - 173.05
6 Create (Breakage) Pcs 800 301.30 241.04 - 241.04
7 Filter Sheet Pcs 10,138 121.51 - 1,231.82 1,231.82
8 Caustic Soda kg 15,206 21.97 334.08 - 334.08
Sub Total 2 14,770.93 15,659.47 30,430.40
C. Utilities
Process Water m3 4,744 11.60 55.04 - 55.04
Fuel Oil Liter 40,550 21.53 873.05 - 873.05
Electricity kwh 268,646 1.76 472.82 - 472.82
Sub Total 3 1,400.90 - 1,400.90
G/Total 53,176.61 19,423.05 72,599.66

4.2.3 Engineering

The detail of recommended machinery and equipment along with their costs is given
in the Table 4.3.

TABLE 4.3: DETAILS OF MACHNERY AND EQUIPMENT REQUIREMENTS OF

THE PROJECT AND THEIR RESPECTIVE COSTS

No. Item Description Unit Total Cost (Birr)

1 Beverage preparation (blending) section 1 set 14,590,050.00

2 Glass bottle filling and packaging section 1 set 20,426,070.00

Grand Total 35,016,120.00

31
4.3 Commencement Plan

4.3.1 Project management

The implementation of the proposed plant constitutes medium scale project. A large
number of activities will have to be carried out in order to bring the project into
successful operation. Like all other management functions, the management of the
project involves planning, organizing, staffing leading and controlling activities. Time
and cost control will be the most important aspect of the project management since
the implementation of the project will involve several parties including the owner,
consultant, suppliers, contractor and governmental authorities, adequate
mechanisms should be in place for coordinating the various project sectors.

Project engineering involves the definition of the project scope; the preparation of
designs, specification and bill of quantities; assistance in tendering and contracting;
and incorporating, as necessary change and modifications in the process of the
project implementation.

Procurement is at the center of the implementation of the project as all other

activities are meant to facilitate it. The installation of plant will involve procurement of
equipment and materials both from local and foreign sources. The implementation
aspect will involve installation of plant and machinery; and lying of infrastructure.

In order to ensure the project will ultimately fulfill the intended purpose, it is important
to exercise adequate quality control throughout the implementation of the project.
Quality control involves inspection, supervision, commissioning and taking over
completion of various components of the project

4.3.2 Project implementation schedule

The implementation schedule covers the activities starting from the project
evaluation and approval up to and including the trial-run and commissioning. It is
envisaged that the complete implementation program requires a total of 6 months
from the approval and financial arrangement is carried out.

Negotiation and contracting for plant machinery and equipment will start after project
is approved and finance is arranged and will take 1 month period. Design,

32
engineering and manufacture of plant machinery and equipment will start after the
contract agreement is signed and be completed within 2 months.

Equipment delivery, that requires 3 months for completion, will start after the design
and manufacture of machinery and equipment is completed. Erection of machinery
and equipment will start as their delivery is completed and will take 1.5 months.

Recruitment and training of manpower will start 1month before the erection of
machinery and equipment starts and will continue up to the completion of erection
and commissioning. Commissioning startup will commence immediately after
completion of erection of machinery and equipment and continues for 0.5 month.
The plant operation will start immediately after commissioning at the end of the 6 th
month from approval of the study. Details of the implementation schedule are shown
in Figure 4.2.

4.3.3 Project implementation cost

It is assumed some costs will be incurred such as for project engineering; project
management, production know-how transfer (training of workers); and start-up cost.
These costs are estimated as 1% of fixed investment cost which is equivalent to Birr
600,000.00.

All these costs are amortized over the project years. Consequently, the annual
amortization amount would be Birr 60,000.

FIGURE 4.2: IMPLEMENTATION SCHEDULE

Months
No Activity
1 2 3 4 5 6
1 Preparatory period
1.1 Approval of the study

1.2 Financial arrangement

2 Machinery procurement and errection

2.1 Negotiation and contracting of plant machinery and
equipment
2.2 Delivery of machinery and equipment to factory site

2.3 Erection of machinery and equipment

3 Manpower recruitment and training

4 Trial - run and commissioning
5 Start of operation

33
5. ORGANIZATION AND HUMAN RESOURCES PLAN

5.1 Governance Structure

The organizational structure of the company that is currently in use, comprise the
following divisions and services:

- Production and technical division,

- Administration division,

- Finance division,

- Sales division,

- Purchasing and property administration division, and

- Quality control service.

There is no any major shortcoming observed in the existing organizational set-up of

the factory that may call for such adjustments or modifications except that the need
for additional unit and manpower for the production and technical department in line
with the envisaged new production line for Breezer. Hence, the existing
organizational set-up shall include the unit for Breezer production and be staffed with
optimum manpower in a way that it shall enable the factory to operate efficiently and
effectively.

5.2 Manning / Staffing

As a result of establishing a new production line for Breezer, the additional

manpower required is estimated to be 15 persons which are production workers who
are directly associated with the activity for new production line with the
corresponding additional annual salary and fringe benefit of Birr 675,000.00.

5.3 Organizational Systems

The project will develop organization system procedures and operational manuals to
enhance the efficient and effective use of resources and to ensure the appropriate
level of internal control and for the overall achievement of its objectives. These
include development of HR, financial management, marketing, procurement, and
production and operation manuals.
34
6. FINANCIAL FEASIBILITY

6.1 Financial Assumptions

6.1.1 Project life

According to the implementation plan of the project, the construction period allotted
for the entire project from the start of applying for loan to the final commissioning is
six months. With regard to operational life of the project, a standard assumption of
10 years is considered. Hence, the costs and benefits of the project are computed
over 11 years.

6.1.2 Repair and maintenance cost

The annual cost of spare parts, repair and maintenance usually increases with the
increase in the service life of machinery and equipment and other facilities. In the
present study, considering the heavy wear and tear of some of the machines a value
equivalent to 3% and 5% of the cost of machinery and equipment is assumed for the
annual cost of spare parts during the first three years and the remaining years of the
project life, respectively. The same assumption is also used for the annual cost of
repair and maintenance of the production plant. The annual cost of repair and
maintenance of other facilities is taken to be 2% of the cost of fixed assets other than
land, machinery and equipment during the first three years, and 3% of the same
thereafter.

6.1.3 Depreciation and amortization

Based on the Federal Income Tax Proclamation No. 979/2016 and Council of Ministers
Regulations 2017, the following depreciation rates are applied to depreciate the assets
of the project under the straight-line method:

 Buildings and associated civil works 5%, linear to scrap value

 Machinery and equipment 15%, linear to scrap value

 Computer and software products 20%, linear to scrap value

 Pre-production expenditure 10%, linear to scrap value

35
6.1.4 Working capital

The working capital requirement of the project during operation is calculated on the
basis of the minimum days of coverage needed for the different elements of the
working capital. Hence, the minimum days are specified as follows:-

TABLE 6.1: MINIMUM DAYS OF COVERAGE

No Item Minimum Days of Coverage

1 Raw Materials
- Local 15 days
- Foreign 90 days
2 Work in progress 1 day
3 Finished product 10 days
4 Cash in hand 30 days
5 Accounts receivables 10 days
6 Accounts payable 0 days

6.1.5 Discounting

The cash flows expected to be generated by a business are discounted to their

present value equivalent using a rate of return that reflects the relative risk of the
investment, as well as the time value of money. Our approach is to use the weighted
average cost of capital (WACC) as the appropriate rate at which to discount future
free cash flows. The WACC is calculated by weighting the required returns on
interest-bearing debt and common equity capital in proportion to their estimated
percentages of total invested capital.

We have used the Capital Assets Pricing Model to estimate the cost of equity. The
CAPM gives an estimate of an equity investor's required rate of return for a given risk
level associated with an investment. The model estimates an equity investor's
expected return by adding the country’s risk free rate and estimated equity market
premium.

The estimated nominal long-term risk free rate of return for Ethiopia is derived by
adding the Ethiopia inflation and the country risk premium. The country risk premium
has been estimated by using credit ratings of countries prepared by Moody’s, S&P,
EIU and Euromoney. The risk free rate of Ethiopia has been estimated to be 11 –
12%.

Although Ethiopia does not have developed capital markets from which to estimate
an empirical equity risk premium, we estimate that its equity risk premium by using
36
the credit ratings of countries prepared by Moody’s. The equity risk premium for
Ethiopia markets has been estimated to be between 12-13%.

Therefore the total investment and equity capital of the project are discounted with
the average cost of capital at 24 percent over the life of the project.

6.1.6 Income Tax

According to the Investment Incentives and Investment Areas Reserved for

Domestic Investors Council of Ministers Regulations No.270/2012, the project is
entitled to the following incentives:

• Income tax exemption for 1 year

• Losses carry forward for 1 year, and

• Exemptions from payment of custom duty on machineries and equipment

For the rest of project’s life, a 30% tax rate is applied on the taxable income.

6.1.7 Investment

The total investment cost of the project is estimated at Birr 44.9 million (See Table
6.2). From the total investment cost the highest share (Birr 35 million or 78%) is
accounted by fixed investment cost followed by initial working capital (Birr 9.3 million
or 21%) and pre operation cost (Birr 0.6 million or 1%).

TABLE 6.2: TOTAL INVESTMENT COSTS IN 000 BIRR

Cost ( in
Item % Share
000 BIRR)
Fixed investment 35,016 77.98%
Pre operating cost 600 1.34%
Working capital 9,291 20.69%
Grand Total 44,907 100.00%

6.1.8 Source of finance

The investment requirement of the project is assumed to be financed both from bank
loan and equity capital. It is assumed that machinery and equipment are financed by
lease financing. The type of lease financing is further assumed to be a constant

37
principal bank loan, with a loan repayment period of 5 years. The annual interest rate
including the various fees is taken to be 11.5 percent.

6.1.9 Production cost

The total cost of production at 100% capacity utilization is estimated at Birr 83.5
million. Table 6.3 shows the total costs of production for a selected year. The costs
of production for the other years of operation are shown in Annex 1.

TABLE 6.3: COSTS OF PRODUCTION (YEAR FIVE IN 000’ BIRR)

Items Cost (in 000 Birr) % share

Raw material 71,199 85.19%
Utilities 1,589 1.90%
Repair and maintenance 2,451 2.93%
Labour 540 0.65%
Labour overhead costs 135 0.16%
Marketing cost 1,536 1.84%
Administrative costs 11 0.01%
Depreciation 5,312 6.36%
Financial costs 805 0.96%
Total 83,579 100.00%

6.2 Projected Financial Statements

6.2.1 Projected profit and loss statement

Based on the projected profit and loss statement shown in Schedule 4, the project
will generate a profit throughout its operation life. Annual net profit after tax increases
from BIRR 56 million to BIRR 65 million. Net profit as percent of sales revenue lies
between 19 to 26 %. Net profit to equity and net profit to total investment or return on
investment (ROI) are also attractive.

6.2.2 Projected balance sheets

The positive financial performances are manifested in the balance sheet. As can be
seen from the projected Balance sheet depicted in Schedule 8, the net worth of the
project at the start, which is about BIRR 35 million, will rise to BIRR 607 million at the
end of the project life.

38
6.2.3 Cash flows for planning

The projected cash flow of the envisaged project shows that the project would
generate positive net cash flows throughout the operation years. Cumulative cash
flow generated by the project towards the end of the first operation year will amount
to BIRR 54 million. At the end of the project life, this amount will rise to BIRR 607
million. Details are shown in Schedule 5.

6.2.4 Breakeven analysis

The break-even analysis establishes a relationship between production costs and

revenues. It indicates the level of production at which costs and revenue are in
equilibrium. To this end, using full capacity operation costs of year five, the break-
even point for capacity utilization and sales value is computed as followed.

Brake Even Sales Value = Fixed Cost + Financial Cost = Birr 10,160,668
Variable Margin ratio (%)

Brake Even Capacity utilization = Brake even Sales Value X 100 = 3.31%
Sales Revenue

6.3 Investment Decision Ratings

6.3.1 Net present value

Net present value (NPV) is defined as the total present (discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested.
In principle a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 24% discount rate is found to be Birr
151 million which is acceptable. (See Schedule 7)

6.3.2 Internal rate of return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another
way, the internal rate of return for an investment is the discount rate that makes the net

39
present value of the investment's income stream total to zero. It is an indicator of the
efficiency or quality of an investment. A project is a good investment proposition if its
IRR is greater than the rate of return that could be earned by alternate investments or
putting the money in a bank account. Accordingly, the IRR of this project is computed
on capital invested to be 158% indicating the viability of the project. (See Schedule 7)

6.3.3 Payback period

The payback period, also called pay – off period is defined as the period required
recovering the original investment outlay through the accumulated net cash flows
earned by the project. Accordingly, based on the projected cash flow it is estimated that
the project’s initial investment will be fully recovered within a year, which is a short
period of time.

6.4 Economic Benefits

As a result of the envisaged project employment opportunities will create for 15

persons. Moreover, during the life of the project Birr 232 million will generate in terms
of corporate tax.

40
FINANCIAL SCHEDULES

41
 Schedule 1& 2: Initial Investment Costs
000’ BIRR
Year 0 Year 1 Total Grand Own Bank
Items
Loc. C. For. C. Loc. C. For. C. Loc. C. For. C. Total Financing Financing
Machinery and equipment - 35,016 - - - 35,016 35,016 - 35,016
Pre-Production expenditures 600 - - - 600 - 600 600 -
Working capital, initial - - 5,679 3,611 5,679 3,611 9,291 9,291 -
600 35,016 5,679 3,611 6,279 38,628 44,907 9,891 35,016
Total
35,616 9,291 44,907 100.00% 22.02% 77.98%

42
 Schedule 3: Production Programme and Sales Revenue
000’ BIRR
Selling Production Years
No. Description Price/unit 1 2 3 4 5 6 7 8 9 10
Capacity utilization 70% 80% 90% 100% 100% 100% 100% 100% 100% 100%
1 Production
Programme
Breezer 330 RB Bottle 10,752,000 12,288,000 13,824,00 15,360,000 15,360,000 15,360,000 15,360,00 15,360,000 15,360,000 15,360,000
0 0
2 Total Sales 215,040 245,760 276,480 307,200 307,200 307,200 307,200 307,200 307,200 307,200
Revenue
Breezer 330 RB 20.00 215,040 245,760 276,480 307,200 307,200 307,200 307,200 307,200 307,200 307,200

43
 Schedule 4: Proforma Profit & Loss Statement

000’ BIRR
Production Years
Description
1 2 3 4 5 6 7 8 9 10
Total Sales Revenue 215,040 245,760 276,480 307,200 307,200 307,200 307,200 307,200 307,200 307,200
Less Cost of Goods Sold 58,194 65,521 72,849 81,227 81,227 81,227 79,476 75,974 75,974 75,974
Less Excise Tax 95,573 109,227 122,880 136,533 136,533 136,533 136,533 136,533 136,533 136,533
Gross Profit 61,273 71,012 80,751 89,440 89,440 89,440 91,191 94,692 94,692 94,692
Gross Profit Margin 28% 29% 29% 29% 29% 29% 30% 31% 31% 31%
Less Adminstrative and Marketing Expenses 1,086 1,239 1,393 1,547 1,547 1,547 1,547 1,547 1,547 1,547
Profit (loss) before Interest and Tax 60,187 69,773 79,358 87,893 87,893 87,893 89,644 93,146 93,146 93,146
Less Interest (Financial Costs) 4,027 3,221 2,416 1,611 805 (0) (0) (0) (0) (0)
Profit (loss) before Tax 56,160 66,551 76,942 86,283 87,088 87,893 89,644 93,146 93,146 93,146
Less Income Tax (30%) * 19,965 23,083 25,885 26,126 26,368 26,893 27,944 27,944 27,944
Net Profit (Loss) 56,160 46,586 53,859 60,398 60,962 61,525 62,751 65,202 65,202 65,202
Cumulative Net Profit (Loss) 56,160 102,746 156,605 217,003 277,965 339,490 402,241 467,443 532,645 597,847
Profit (loss) before Tax (w.o. ex. financing) 60,187 69,773 79,358 87,893 87,893 87,893 89,644 93,146 93,146 93,146
Less Income Tax, w.o. ex. financing (30%) * 20,932 23,807 26,368 26,368 26,368 26,893 27,944 27,944 27,944
Net Profit (Loss), w.o. External Financing 60,187 48,841 55,551 61,525 61,525 61,525 62,751 65,202 65,202 65,202
Cumulative Net Profit (Loss) 60,187 109,028 164,578 226,104 287,629 349,154 411,905 477,107 542,309 607,511
* Tax holiday period

Ratios (%)
Return on sales (net income by revenue) 26% 19% 19% 20% 20% 20% 20% 21% 21% 21%
Return on equity (net profit divided by equity) 568% 471% 545% 611% 616% 622% 634% 659% 659% 659%
Return on assets (operating income divided by assets) 65% 53% 45% 38% 31% 26% 22% 20% 17% 16%
Return on total investment (Net profit + interest to 169% 298% 446% 614% 783% 953% 1129% 1312% 1496% 1679%
investment)

Schedule 5: Cash Flow for Financial Planning (Source and Application of Funds)
44
 000’ BIRR
Book
Description Impl. Yr. Production Years Value
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow 35,616 70,763 51,898 59,172 65,710 66,274 66,838 66,312 65,262 65,262 65,262 13,118
1. Inflow of funds 35,616 9,291 - - - - - - - - - -
Total equity 600 9,291 - - - - - - - - - -
Borrowing (term loan) 35,016 - - - - - - - - - - -
Borrowing (medium term) - - - - - - - - - - - -
Borrowing (working cap.) - - - - - - - - - -
Increase in overdraft - - - - -
2. Inflow from operation - 61,473 51,898 59,172 65,710 66,274 66,838 66,312 65,262 65,262 65,262 -
Profit after tax - 56,160 46,586 53,859 60,398 60,962 61,525 62,751 65,202 65,202 65,202 -
Depreciation - 5,312 5,312 5,312 5,312 5,312 5,312 3,562 60 60 60 -
3. Other income - - - - - - - - - - - 13,118
Salvage value of assets - - - - - - - - - - - -
Recoverable assets - - - - - - - - - - - 13,118
Total Cash Outflow 35,616 16,294 8,264 8,264 8,468 7,003 - (53) (106) - - -
4. Investment
Fixed investment 35,016 - - - - - - - - - - -
Pre-Production 600 - - - - - - - - - - -
expenditures
Incremental working capital - 9,291 1,260 1,260 1,465 - - (53) (106) - - -
5. Loan repayment
Term loan (Principal) - 7,003 7,003 7,003 7,003 7,003 - - - - - -
Overdraft (Principal) - - - - - - - - - - - -
Net cash flow - 54,469 43,634 50,908 57,242 59,271 66,838 66,365 65,368 65,262 65,262 13,118
Cumulative Net cash flow - 54,469 98,104 149,012 206,254 265,525 332,363 398,728 464,095 529,357 594,619 607,737

Schedule 6: Discounted Return on Equity Capital Invested

45
 000’ BIRR
Book
Impl. Yr. Production Years
Description Value
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow 35,016 61,473 51,898 59,172 65,710 66,274 66,838 66,312 65,262 65,262 65,262 13,118
1. Inflow of funds 35,016 - - - - - - - - - - -
Borrowing (long term) 35,016 - - - - - - - - - - -
Borrowing (short term) - - - - - - - - - - - -
2. Inflow from operation - 61,473 51,898 59,172 65,710 66,274 66,838 66,312 65,262 65,262 65,262 -
Profit after tax - 56,160 46,586 53,859 60,398 60,962 61,525 62,751 65,202 65,202 65,202 -
Depreciation - 5,312 5,312 5,312 5,312 5,312 5,312 3,562 60 60 60 -
3. Other income - - - - - - - - - - - 13,118
Salvage value of assets - - - - - - - - - - - -
Recoverable asset - - - - - - - - - - - 13,118
Total Cash Outflow 35,616 16,294 8,264 8,264 8,468 7,003 - (53) (106) - - -
4. Investment
Fixed investment 35,016 - - - - - - - - - - -
Pre-Production expenditures 600 - - - - - - - - - - -
Incremental working capital - 9,291 1,260 1,260 1,465 - - (53) (106) - - -
5. Loan repayment
Long term loan (Principal) - 7,003 7,003 7,003 7,003 7,003 - - - - - -
Short term loan (Principal) - - - - - - - - - - - -
Net cash flow (600) 45,179 43,634 50,908 57,242 59,271 66,838 66,365 65,368 65,262 65,262 13,118
Cumulative Net cash flow (600) 44,579 88,213 139,121 196,364 255,634 322,472 388,837 454,205 519,467 584,729 584,729
Net present value (@ 24%) 158,997
Internal rate of return (IRR) 7527%

Schedule 7: Discounted Return on Total Capital Invested

46
 000’ BIRR
Book
Impl. Yr. Production Years
Value
Description
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow - 65,499 54,153 60,863 66,838 66,838 66,838 66,312 65,262 65,262 65,262 13,118
1. Inflow from operation - 65,499 54,153 60,863 66,838 66,838 66,838 66,312 65,262 65,262 65,262 -
Profit after tax without - 60,187 48,841 55,551 61,525 61,525 61,525 62,751 65,202 65,202 65,202 -
external financing
Depreciation - 5,312 5,312 5,312 5,312 5,312 5,312 3,562 60 60 60 -
2. Other income - - - - - - - - - - - 13,118
Salvage value of assets - - - - - - - - - - - -
Recoverable asset - - - - - - - - - - - 13,118
Total Cash Outflow 35,616 9,291 1,260 1,260 1,465 - - (53) (106) - - -
3. Investment

Fixed investment 35,016 - - - - - - - - - - -

Pre-Production expenditures 600 - - - - - - - - - - -
Incremental working capital - 9,291 1,260 1,260 1,465 - - (53) (106) - - -
Net cash flow (35,616) 56,209 52,893 59,603 65,373 66,838 66,838 66,365 65,368 65,262 65,262 13,118
Cumulative Net cash flow (35,616) 20,593 73,485 133,088 198,461 265,299 332,136 398,502 463,869 529,131 594,393 607,511
Net present value(@ 24%) 151,320
Internal rate of return (IRR) 158%

Schedule 8: Projected Balance Sheet

47
 000’ BIRR
Con.Yr. Production Years
Description
0 1 2 3 4 5 6 7 8 9 10
Fixed assets
Fixed investment 35,016 35,016 35,016 35,016 35,016 35,016 35,016 35,016 35,016 35,016 35,016
Pre-production expenditures 600 600 600 600 600 600 600 600 600 600 600
Total Fixed Assets 35,616 35,616 35,616 35,616 35,616 35,616 35,616 35,616 35,616 35,616 35,616
Less acc. Depr'n & ammortiz'n - 5,312 10,625 15,937 21,250 26,562 31,875 35,436 35,496 35,556 35,616
Net fixed assets 35,616 30,304 24,991 19,679 14,366 9,054 3,742 180 120 60 -
Current assets
Cash on hand & at bank - 54,508 98,148 149,062 206,310 265,580 332,418 398,783 464,151 529,413 594,675
Debtors (recievables) - 2,357 2,693 3,030 3,367 3,367 3,367 3,367 3,367 3,367 3,367
Stocks - 6,895 7,813 8,732 9,854 9,854 9,854 9,801 9,696 9,696 9,696
Total current assets - 63,760 108,655 160,823 219,530 278,801 345,639 411,951 477,213 542,475 607,737
Less Current liabilities
Creditors (payables) - - - - - - - - - - -
Overdraft - - - - - - - - - - -
Total current liabilities - - - - - - - - - - -
Total working capital - 63,760 108,655 160,823 219,530 278,801 345,639 411,951 477,213 542,475 607,737
Total net assets 35,616 94,064 133,646 180,502 233,897 287,855 349,380 412,131 477,333 542,535 607,737
Financed by
Paid-up capital 600 9,891 9,891 9,891 9,891 9,891 9,891 9,891 9,891 9,891 9,891
Loan and Credit 35,016 28,013 21,010 14,006 7,003 - (0) (0) (0) (0) (0)
Retained profits (Losses) - 56,160 102,746 156,605 217,003 277,965 339,490 402,241 467,443 532,645 597,847

Total 35,616 94,064 133,646 180,502 233,897 287,855 349,380 412,131 477,333 542,535 607,737

Schedule 9: Repayment of Loan (Debt Financing Schedule)

000’ BIRR
48
 Impl.
Description Yr. Operation Years
0 1 2 3 4 5 6 7 8 9 10
1. Borrowing 35,016 35,016 - - - - - - - - -
Long-term loan - Initial working capital 35,016 - -
Medium-term loan - - -
2. Repayment of Principal - - 4,027 3,221 2,416 1,611 805 (0) (0) (0) (0)
Long-term loan - 4,027 3,221 2,416 1,611 805 (0) (0) (0) (0)
Medium-term loan - - - - - - - - - -
3. Repayment of Interest - - 7,003 7,003 7,003 7,003 7,003 - - - -
Long-term loan 11.5% - 7,003 7,003 7,003 7,003 7,003 - - - -
Medium-term loan 0.0% - - - - - - - - - -
4. End of Year Balance - - 4,027 3,221 2,416 1,611 805 (0) (0) (0) (0)
Long-term loan - 4,027 3,221 2,416 1,611 805 (0) (0) (0) (0)
Medium-term loan - - - - - - - - -

49
ANNEXES

50
 Annex 1: Annual Costs of Production & Expenses

000’ BIRR
Operation years
Cost item
1 2 3 4 5 6 7 8 9 10
Capacity utilization 70% 80% 90% 100% 100% 100% 100% 100% 100% 100%
I. Total Costs of Production 58,194 65,521 72,849 81,227 81,227 81,227 79,476 75,974 75,974 75,974
1. Direct & auxiliary materials 49,839 56,959 64,079 71,199 71,199 71,199 71,199 71,199 71,199 71,199
2. Spare parts 1,050 1,050 1,050 1,751 1,751 1,751 1,751 1,751 1,751 1,751
3. Utilities 981 1,121 1,261 1,401 1,401 1,401 1,401 1,401 1,401 1,401
4. Labour, direct 473 540 608 675 675 675 675 675 675 675
5. Factory Overheads 5,851 5,851 5,851 6,201 6,201 6,201 4,451 949 949 949
Salaries & wages (+ benefits) - - - - - - - - - -
Repair & maintenance 420 420 420 700 700 700 700 700 700 700
Depreciation & amortization 5,312 5,312 5,312 5,312 5,312 5,312 3,562 60 60 60
Insurance 13 13 13 13 13 13 13 13 13 13
Supplies & services 105 105 105 175 175 175 175 175 175 175
II. Selling & Dist'n (Marketing) Costs 1,075 1,229 1,382 1,536 1,536 1,536 1,536 1,536 1,536 1,536
Salaries & wages (+ benefits) - - - - - - - - - -
Marketing costs (0.5% sales) 0.5% 1,075 1,229 1,382 1,536 1,536 1,536 1,536 1,536 1,536 1,536
III. General & Adm. Expenses 4,037 3,232 2,427 1,621 816 11 11 11 11 11
1. Administrative Overheads 11 11 11 11 11 11 11 11 11 11
Salaries & wages (+ benefits) - - - - - - - - - -
Land lease - - - - - - - - - -
Repair & maintenance
Depreciation - - - - - - - - - -
Insurance 10 10 10 10 10 10 10 10 10 10
Fuel & lubricants - - - - - - - - - -
Travelling and perdiem - - - - - - - - - -
Supplies & services - - - - - - - - - -
Miscellaneous 1 1 1 1 1 1 1 1 1 1
2. Financial costs (interest) 4,027 3,221 2,416 1,611 805 (0) (0) (0) (0) (0)
Total Operating Costs 63,307 69,982 76,658 84,384 83,579 82,773 81,023 77,521 77,521 77,521

51
 Annex 2: Net Working Capital Requirement

000’ BIRR
Days of Production Years
Description Coverage
1 2 3 4 5 6 7 8 9 10
1. Current assets 9,291 10,551 11,811 13,276 13,276 13,276 13,224 13,118 13,118 13,118
1.1 Accounts receivables (debtors) 10 2,357 2,693 3,030 3,367 3,367 3,367 3,367 3,367 3,367 3,367
1.2 Inventory 6,895 7,813 8,732 9,854 9,854 9,854 9,801 9,696 9,696 9,696

a) Materials

- Local materials 15 1,530 1,748 1,967 2,185 2,185 2,185 2,185 2,185 2,185 2,185

- Imported materials 90 3,352 3,831 4,310 4,789 4,789 4,789 4,789 4,789 4,789 4,789

b) Spare parts in stock 90 259 259 259 432 432 432 432 432 432 432

c) Work-in-Progress 1 159 180 200 223 223 223 218 208 208 208
d) Finished Products 10 1,594 1,795 1,996 2,225 2,225 2,225 2,177 2,081 2,081 2,081
1.3 Cash-in-hand 30 39 44 50 56 56 56 56 56 56 56

2. Current liabilities - - - - - - - - - -

2.1 Accounts payable (creditors) - - - - - - - - - - -

3. Working capital
3.1 Net working capital (1) - (2) 9,291 10,551 11,811 13,276 13,276 13,276 13,224 13,118 13,118 13,118

3.2 Increase in working capital 9,291 1,260 1,260 1,465 - - (53) (106) - -

3.3 Foreign component (%) 38.9% 38.8% 38.7% 39.3% 39.3% 39.3% 39.5% 39.8% 39.8% 39.8%

52
 Annex 3: Depreciation & Amortization of Fixed Assets

000’ BIRR
Production Years Book value
Description
1 2 3 4 5 6 7 8 9 10 11
A. Fixed Investment
Machinery & equipment 5,252 5,252 5,252 5,252 5,252 5,252 3,502 - - - -

Sub-total of A 5,252 5,252 5,252 5,252 5,252 5,252 3,502 - - - -

Cumulative Sub-total 5,252 10,505 15,757 21,010 26,262 31,515 35,016 35,016 35,016 35,016 35,016

B. Pre-production expenditure 60 60 60 60 60 60 60 60 60 60 -

Cumulative 60 120 180 240 300 360 420 480 540 600 600

Total A & B 5,312 5,312 5,312 5,312 5,312 5,312 3,562 60 60 60 -

Cumulative 5,312 10,625 15,937 21,250 26,562 31,875 35,436 35,496 35,556 35,616 35,616

53