1.Final HM Leather_garment Jan.13.2012

7/28/2019 1.Final HM Leather_garment Jan.13.2012

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INSTITUTE OF PUBLIC MANAGEMENT AND DEVELOPMENT

STUDIES

DEPARTEMENT OF DEVELOPMENT ECONOMICS

HENOS LEATHER GARMENT PLANT P.L.C

PROJECT FEASIBILITY STUDY

SUBMITTED TO -DR.NIGUSSIE

SEMIE

Prepared by Hailemariam Abera


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CSU, Addis Ababa

TABLE OF CONTENTS PAGE

....................................................................................................................................................1

INSTITUTE OF PUBLIC MANAGEMENT AND DEVELOPMENT STUDIES.................1

DEPARTEMENT OF DEVELOPMENT ECONOMICS........................................................1

HENOS LEATHER GARMENT PLANT P.L.C......................................................................1

PROJECT FEASIBILITY STUDY...........................................................................................1

SUBMITTED TO -DR.NIGUSSIE SEMIE .........................................1

Prepared by Hailemariam Abera .........................................................................................1

Course: project Planning and Analysis...............................................................................1

...........................................................................................................................................1

January 07, 2012 .......................................................................................................................1

CSU, Addis Ababa ...........................................................................................................2

...................................................................................................................................................2

TABLE OF CONTENTS PAGE..............................................................................2

SUMMARY................................................................................................................................41.BACKGROUND......................................................................................................................6

2.1 The Owner............................................................................................................................6


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4.4.1 Raw Materials Supplies..................................................................................................10

4.4.2Utilities.............................................................................................................................11

4.MARKET STUDY ................................................................................................................11

5.1 General..............................................................................................................................11

5.2 Past Supply and Present Demand....................................................................................12

5.2.1 At National Level Past Supply and Consumption........................................................12

5.2.2Demand Analysis.............................................................................................................15

5.2.2.1Demand at National Level ...........................................................................................15

5.2.2.2Demand at the Regional Level ....................................................................................16

5.3 Pricing and Distribution....................................................................................................18

5.4 PLANT CAPACITY AND PRODUCTION PROGRAM ...............................................18

5.4.1Plant Capacity..................................................................................................................19

5.4.2Production Program........................................................................................................195.4.3Production Process..........................................................................................................19

5.ORGANIZATION, MANAGEMENT AND MANPOWER................................................20

6.1 Organizational Management.............................................................................................20

6.2 Manpower..........................................................................................................................20

6.3Organizational Structure....................................................................................................20

6.4 MANPOWER AND TRIANIGN REQUIREMENT........................................................22

5.2.1Manpower Requirement .................................................................................................22

5 2 2T i i R i t 22


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9.2 Gender issue.......................................................................................................................27

9.Risk Assessment....................................................................................................................28

10.1 Characteristic (personal risk)..........................................................................................28

10.2Business Risk....................................................................................................................28

10.3Collateral Risk...................................................................................................................28

10.Conclusion .........................................................................................................................29


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Ethiopia has the largest livestock population in Africa. But, taking the country as a whole

there is underutilization of this huge economic resource potential. In accordance with this,

the ultimate target of this investment project is to make use of this relatively unexploited

resource potential and take part in the growing manufacturing activities by establishing

leather producing plant.

This project feasibility study deals with establishment of leather garments producing plant

in Mekelle town, Tigray National Regional State. The objective of this project is to

produce good quality garments and to create job opportunities for the local communities.

The following presents the main findings of the feasibility study.

The demand projection pointed out that there is sufficient demand in Tigray region alone

for leather garments. Accordingly, the planned plant is set to produce 3000 jackets and

3000 coats annually. The total investment cost of the project including working capital is

estimated at Birr 3,010,219 and creates jobs 13 people amounting to income of Birr

196,020.

The financial result indicates that the project will generate profit beginning from the first

year of operation. Moreover, the project will payback fully the initial investment less


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Total fixed investment costs 2,946,154

Annual Operational Cost: . 1,178,496birr

Pre-production Cost: .53,846birr

Depreciation Period:.. 20 years for building & 5 years for vehicles

Total Sales Revenue for the 1st year:2,430,000 birr

Income Tax .. 35% of the profit

Net Cumulative Profit, 10 years .. 9,108,158 birr

Pay Back Period .. 3 years

Net Present Value 3,704,954 birr

Internal Rate of Return .32 %

1. BACKGROUND

2.1 The Owner

Name of the Licensee: . Henos Leather garment Plant P.L.C

Manager (would be): Hailemariam Abera

Address: Mekelle Town, Kebele 11, House No. 598

Business: Small Scale Leather garment Plant


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jackets and coats. The project is also planned to create job opportunities and improve the

income of the local communities. Similarly, the project will have linkage effect with domestic

tanneries and animal farmers though creating market for their products. The leather raw

materials can be obtained from the domestic tanneries. The project is to produce and supply

the products for the markets in and around Mekele, and Addis Ababa with dependable quality.

The project will also maximize its profit without being hostile to the environment.

2.3 Brief Information on the owner and project coordinator

The owner of the project W/rt Tsehay Abera has allotted all the initial required capital to run

the project and it amounts to Birr 1.248 . She is academically capable of running the project in

that she has acquired MSC degree from Daad University of Germany in Organizational

Management. Much of the required money needed to accomplish the project will be covered

by her. She has over 10 years of work experience in both government and private

organizations working as organization manager. The prospective coordinator for this project

is Ato Ashebir Abera who has sufficient experience in managing private manufacturing

enterprises undertaken in the nation in addition to getting his second degree in similar field of

study.

2.4 Brief on the project

The project will be situated in Tigray Regional State, Mekele town, Kebelle 11 near Adi-

shumdhun. This place is near to the market place of Mekele town and will be easily accessible


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Total Birr . Birr 4,100,000

3. TECHNICAL ASSESSMENT4.1 Location of the Project

Mekelle is believed to be an appropriate location for the proposed plant. The appropriateness

of the location for the proposed project is in view of availability of infrastructure, easy

transport access to inputs, as well as major market area for the output is Mekelle. Similarly,

there is availability of the major raw material, i.e. finished processed (tanned) leather. Thus,

the selected location of the plant is situated at Mekele town, Kebele 11, in a distract named as

AdishumdhunDistrict. According to the resource potential study, finished leather which is

the main raw material is identified to be purchased from Sheba Leather Industry PLC located

at.Wukro town, Wukro wereda of which only 40 kilometers from Mekele. As an alternative

finished leather can also be purchased from other tanneries located in and around Addis

Ababa. In addition, Mekelle is the capital town of the regional, where there is relatively high

market potential in the region.

4.2 Project LayoutThe total site area for the proposed plant is estimated to be 1000 square meters where 225

square meters for two workshops where sawing and finishing, inspection and cutting are


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The total cost of these machinery and equipment including freight insurance and bank cost is

estimated to be about Birr 800,000.

4.3.1 Projects Machinery & Equipments

The total cost of machinery and equipment including freight insurance and bank cost is

estimated to be about Birr 800,000.

Table 1: List of Machinery and Equipment

ItemNo. Machinery and Equipment

Unit of

Measure Quantity

1 Blind stitching machine 1

2 Button hole making machine 1

3 Button sewing machine 14 Cylinder bed sewing machine 1

5 Cutting machine, straight blade (7height) 1

6 Flat bed sewing machine 8

7 Single Needle Block 1

8 Single Needle Post-Bed Needle Feed 1

9 Strap Cutting 1

10 Hydraulic Cutting Press 111 Dyes for Hydraulic Cutting 60

12 Leather Skiving Machine 2


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3 Computers & accessories 4

4 Printers 1

5 Cupboard 46 Chairs & tables 4

7 File cabinet 4

4.4 Raw Materials and Utilities

4.4.1 Raw Materials Supplies

The most common raw material required for the production of leather garments is processedleather from tannery industries. There are many of local tannery industries that can supply

adequate amount of processed leather to leather garments producing plants; Among these

local tanneries we find:- Addis Ababa, Elico,Dire, Walya and Batu (in Addis Ababa region),

Modjo, Ethiopian Tannery, Hafede, Shoa, Hora, Bale, Kolba and Tikur Abaye (in Oromiyya

region), and Bahir Dar, Debre Birhan, Dessie, Kombolcha, Mersa and Abeya (in Amhara

region) and Sheba (in Tigray region) .In addition to processed leather, the proposed plant

requires suede leather, inner nylon lining fabric, zippers, buttons, shoulder pads, elastic band,

and thread. Some of these are imported materials but they are readily available in domestic

markets. The details of annual raw materials requirement at full production capacity are

shown in Table 3 below.


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4.4.2 Utilities

The major utilities required by the plant are electricity, water and telephone and they arealready available in the vicinity and will be easily installed to the project. The details annual

raw materials requirement at full production capacity are shown in Table 4 below.

Table 3 Utilities Requriement per year

Item Unit of Unit Cost (000 Birr)No. Description Measure Qty Price

(Birr)LC FC Total

1 Electricity Kwh 56,250 0.474 26,640 - 26,640

2 Water M3 500 1.5 750 - 750

Total - 27400

4. MARKET STUDY

5.1 General

Ethiopia has a large competitive advantage in the leather industry because it ranks number 1

in Africa and 10th in the world with respect to the size of its livestock population. The Ethiopian leather and


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leather garment to be produced by the proposed small plant mainly targets the urban

population of the Tigray National Regional State.

5.2 Past Supply and Present Demand

5.2.1 At National Level Past Supply and Consumption

Leather garment production in Ethiopia includes both industrially made and those produced at

cottage small scale level. Most of the cottage and small scale industries are found in and

around Addis Ababa while the rest are located in few major towns of the country.

In general, a large proportion of demand for leather garments is met by local production while

a few amount of a high grade product, usually for the extremely higher income group, is

imported from overseas. This imported leather garments does not exceed 100 pieces per year.

All of the Ethiopian large leather garment factories are located in Addis Ababa which are the

major leather garments producing plants of the country. However, their target market is

mainly for export. While the rest are cottage and small scale industries that are found mainly

in Addis Ababa and produce for the domestic market.

Although it is difficult to estimate the exact supply and demand for the product due to lack of


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(E.C..). . (pieces)

1993/94 22,484

1994/95 13,0341995/96 10,411

1996/97 16,838

1997/98 7,599

1998/99 22,054

1999/00 26,024

2000/01 30,869

2001/02 36,488

2002/03 42,975

2003/04 50,498

Total 279,274

Average 25,389

Source: CSA, Statistical Abstract 1993/94 1997/98

As can be seen from Table 5, the average annual level of production in the 11 years under

consideration is about 25,389 pieces. But the trend of production is increasing over the recent

7 years and last year it reached to 50,498 pieces. In this regard it has to be noted that

information obtained from CSA refers only to the production of large and medium scale

industries which have licenses from the Ministry of Industry and corresponding Bureau of the

Regional States of the country. Moreover, it does not include enterprises that have less than

ten workers. Hence, the data obtained from CSA, underestimates the domestic production of

leather garments for the reasons mentioned above. Therefore, in order not to underestimate


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(E.C..). . (pieces) *

1993/94 4,476

1994/95 13,0321995/96 6,928

1996/97 304

1997/98 1,006

1998/99 1,197

1999/00 1,499

2000/01 2,034

2001/02 2,775

2002/03 3,808

2003/04 5,311

Total 42,370

Average 3,852

*Since quantities in the External Trade Statistics are

given in kilograms for the years 1993/95 2003/04

E.C.. an adjustment is made into pieces using analteration rate of 1 kg to be 2 pieces of leather

wearing garments.

Source: CSA, Statistical Abstract 1993/94 2003/04 E.C..

Table 6 reveals that annual exports of leather wearing garment to the overseas market has

been shrinking from 13,032 pieces to 304 pieces in the years 2003/04. But, in the recent six

years there is an increasing trend in which it had grown more than five folds. In spite of the

above increase trend, the annual maximum amounts still reached are low compared with the


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(E.C..). .

. Production Imports Exports Consumption

1993/94 33,726.00 100.00 4,476.00 29,350

1994/95 19,551.00 100.00 13,032.00 6,619

1995/96 15,617.00 100.00 6,928.00 8,789

1996/97 25,257.00 100.00 304.00 25,053

1997/98 11,399.00 100.00 1,006.00 10,493

1998/99 33,081.00 100.00 1,197.00 31,984

1999/00 39,036.00 100.00 1,499.00 37,6372000/01 46,304.00 100.00 2,034.00 44,370

2001/02 54,732.00 100.00 2,775.00 52,057

2002/03 64,463.00 100.00 3,808.00 60,755

2003/04 75,747.00 100.00 5,311.00 70,536

Total 418,913.00 1,100.00 42,370.00 377,643

Average 38,083.00 100.00 3,852.00 34,331

As in the Table above the domestic consumption of leather wearing garment had shown that

declines in from 1993/94 to 1997/98 E.C., but since 1998/99 E.C., it has been in increasing

trend and amounted up to 70,536pieces in 2003/04 E.C. The possible reason for the declines

in domestic consumption of leather wearing garment was due to unexpected fluctuations in

the external demand which in turn created supply shortage in the local market. From this it

can be understood that the local market is still able to absorb further supply of leather wearing

garment


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domestic demand is growing at an average rate of 16% per annum. Considering half of the

30% growth rate in the demand projection for export market will have high probability to

meet that demand, but if the 15% growth rate for domestic market is taken into account, then

supply of the product would be in excess of its demand. A good method for demand

projection would be using some determinants of demand like the level of income, growth rate

and size of population. Therefore, using table 8 of population data, derived effective demand

for leather garments products is estimated in table 9.

Table 7 Urban Population Size Of Ethiopia And Tigray By Sex, July 2011

Male Female Both Sex

Ethiopia 6,751,654 6,999,915 13,751,569

Tigray 482,382 538,565 1,020,947

Source: CSA, National population and Housing Census of Ethiopia. May 2007

5.2.2.2 Demand at the Regional Level

Since, quantity of demand for leather garments is not documented in detail. In order to

project the future demand, the demand for the leather wearing garments is conservatively

assumed from the incom level of the urban population. Therefore, to determine the current

and future demand for the products in the region, the following conservative are assumptions

are considered..

i At least 0 3 percent of the urban females in the region have demand for leather Jacket and


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Applying the urban population size, the present (2004) regional demand for the leather

garments in the domestic market is 6,440pieces and is expected to grow at the rate of 2.9%

which is the same as that of population growth rate. In the region there is only one tannery

located in Wukro town, Sheba Leather Industry PLC, which produces variety of finished

leather products (except leather jackets and coats) and semi processed finished leather. The

majority of its finished leather products are exported to foreign market while the semi

processed finished leather and some the finished leather products like shoes, hand bags,

school bags, ladies bags, waist belts, brief cases are sold in domestic markets. Accordingly,

the projected demand for the urban population of Tigray for the next 10 years is calculated as

follows:-


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Table 9 Projected Demand And Unsatisfied Demand

Year(E.C.)

Domestic

Market(Pieces)

Export

Market(Pieces)

Total(Pieces)

Existing

Supply(Pieces)

Unsatisfied

Demand(Pieces)

2004 88,516 5,311 93,827 75,850 17,977

2005 91,083 6,161 97,244 75,850 21,394

2006 93,724 7,146 100,870 75,850 25,020

2007 96,442 8,290 104,732 75,850 28,882

2008 99,239 9,616 108,855 75,850 33,005

2009 102,117 11,155 113,272 75,850 37,422

2010 105,079 12,940 118,019 75,850 42,169

2011 108,126 15,010 123,136 75,850 47,286

2012 111,261 17,412 128,673 75,850 52,823

2013 114,488 20,198 134,686 75,850 58,836

As can be seen from Table 10, the unsatisfied demand for leather garment will constantly

grow at an average rate of 14% per year from the present 17, 9776 pieces to 58,836 pieces

during the coming 10 years. The figure can substantially increase if the assumption is relaxed

and also if other regions' demand is incorporated in the document.


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5.4.1 Plant Capacity

According to the estimation of the machines manufacturer written on the manual, the plant

has a production capacity of 20 pieces of leather garments per 8 hours a day. But if working

hours is shift system

5.4.2 Production Program

Production schedule holds on 300 working days per annum and 1 shifts of eight hours each.

The plant will start production at 60% of its capacity in the first year of operation (2004). A

gradual capacity increase is proposed for the plant so as to allow for manufacturing skill

development. Hence, the full capacity of production shall be attained at the fourth year and

then after. The proposed production program is stated in Table 11

Table 10 Production Programme

Type

Outputs

(pcs):

Annual Capacity Utilization (%)

1st year= 50%

2nd year =67%

3rd year= 83%

4th -10th years= 100%

Jackets 1,500 2,000 2,500 3,000

Coats 1,500 2,000 2,500 3,000


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5. ORGANIZATION, MANAGEMENT AND

MANPOWER

6.1 Organizational Management

The company should have appropriate organizational structure so as to be able to achieve its

objectives as well as to the satisfaction of standard requirement. It is important for a company

to have a Board of Management (BOM), which will be responsible for the overall activities of

managerial, leadership and policymaking.

Under the BOM there will be a general manager who is responsible for leading the two

important departments. The production department is responsible for all main production

activities and the others. Administrative and Finance Departments, will take theresponsibilities of running the supportive staff and general services issues.

6.2 Manpower

Henos Leather Garment Plant P.L.C has made manpower requirement plan for a successful

implementation of the proposed project. The administrative staff are considered as supportive

personnel and expected to be 4, while the production department shall consists of 5 technicalworkers. There should also be 2 guards and a cleaner. Therefore, the total number of workers

is assumed to be about 13 personnel including the general manager. In general, the

BOM

Supervisor and Purchaser

GeneralManager


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6.4 MANPOWER AND TRIANIGN REQUIREMENT

5.2.1 Manpower Requirement

. The total number of manpower needed in the proposed project is 13 which include both

skilled and unskilled workers. The details of the manpower requirement along with the annual

labour cost is shown in Table 13

Table 11 Manpower Requirement

Item

No. Job Title No.

LabourCost (Birr)Salary

per

worker Monthly Annual

1 General Manager 1

2,500.00

2,500.0

0

30,000.00

2 Administration, Finance

Commercial & Manager

1 2,000.00 2,000.0

0

24,000.00

3 Accountant and Sales Person 1

1,000.00

1,000.0

0

12,000.00

4 Designers and Tailors 2

1,800.00

3,600.0

0

43,200.00

5 Supervisor and Purchaser 1

1,000.00

1,000.0

0

12,000.00

6 Mechanic and Electrician 1

1,000.00

1,000.0

0

12,000.00

7 Production & Technical 1 1,500.00 1,500.0 18,000.00


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However, it is proposed that tailors and designers be give appropriate on-site training of leather

garments. Estimated cost of on-site training of this nature is about Birr 30,000.

6. FINANCIAL ANALYSIS

7.1 Initial Investment Cost and Source of Finance

Table 12 Initial Investment Cost and Source of Finance(Birr)

S.No

Cost Items Totalcost

OwnCntribution

Bank Loan

1 Land300,000

300,000

100%

2 Building and Civil Work 1766154 266154 15% 1,500,000 85%

3 Plant Machinery and

Equipment 800,000200,00

0 25%600,00

0 75%

4 Office Furniture andFixture 40,000 40,000

100%

5 Office Equipment and

supplies 60,000 60,000100

%

6 Vehicle280,000

280,000

100%

7 Pre-production cost53 846 53 846

100%


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progressively increase in the course of the operation time and reaches about Birr 1,272,344 in

10 years.


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Financial Position

The projects balance sheet shows quite good financial position. At the end of 1 st year, the net

worth will be Birr 643,619 and will increase to about Birr 10,097,208 at the end of projected

years.

Liquidity

The cash flow projection indicates an overall liquidity of the project. The cumulative cash

balance at the end of the projected years would be about Birr 10,097,208.

Financial Internal Rate of Return and Net Present Value

Based on the cash flow projection for discounting, the calculated IRR of the project is 32%,

Benefit Cost Ratio is 2.863 and the Net Present Value at 10% discount rate is Birr 3,704,954.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period.

The project's initial investment will be fully recovered within 3 years.


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7. ECONOMIC and SOCIAL BENEFITS

Economic and Social Benefit

The project can create employment for 13 persons. In addition to supply of the domestic

needs, the project will generate Birr 2.8 million in terms of tax revenue. The establishment of

such factory will have a foreign exchange saving effect to the country by substituting the

current imports.

The proposed project possesses wide range of benefits where it promotes the profit

maximization objective of the business owner and there by fulfills the socio-economic goals

and objectives the state government and the community. It also helps diversify the economic

activities of the society and it creates linkage between the agricultural (livestock) and

industrial sector. The other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 9108158 within the

j lif S h l h j i h fi d i i il


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Like most of the projects, the proposed project is expected to create employment opportunity to

some citizens. That is, it will provide a permanent contract employment 13 people. Consequently the

project creates income of Birr196,020.00 per year. This would be one of the good character of the

project.

D. Pro Environment Project

The proposed production process is environment friendly as the plant uses already processed

leather.

8. CROSS CUTTING ISSUES ASSESSMENT

9.1 HIV AIDS

HIV AIDS is an epidemic disease which could hinder the viability and success of the project.

There are some governmental and nongovernmental organizations which play a dominant role

in minimizing the burden of it. The project cooperating with the stakeholders will contribute

its best in addressing the problem by creating awareness of the epidemic to the community

and by helping the victims. There will be HIV AIDS club that will help to create awareness

for the new generation there by to solve the problem at the grass root level. Not implementing

this will create a short term as well as long term manpower and other community based

problems on the project In this the project will have a positive response in performing its


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9. Risk AssessmentThere are universally accepted lending policies on risks from which the following risks are

identified and the related mitigations are given here under.

10.1 Characteristic (personalrisk)

This is the most important risk which needs serious attention As to this company, the Ownerhas sufficient years of work experience in both government and private organizations. This can

help to mitigate the risk that comes from personal problem.

10.2 Business Risk The outcome of the business, which is industrial unit, is generally found to be dependable. The

demand and supply gap reveal the need of the product of the project. According to the demand of

leather garment in the project proposed area, the effect of competitors in this sector would not be

an immediate alarming threat at least for the coming five years. However, the reaction of

competitors should be attended, in addition to an advanced promotional work and sustainable

goodwill creation in the project area as well as in the public. To realize this motive the

management and bureaucracy should be designed and practiced in line of work. Every time there


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and the projected financial reports imply a good leverage condition that the company will have a

capacity to pay the principal and interest without any problem.

7.4 Construction Risk

This is one of the most important areas of risk as the factors that affect for construction are

dynamic changing from time to time. In the case of Henos Leather garment Plant P.L.C, the

construction work of the plant building will be made at two phases. To accomplish the work of

the construction restrict follow up and regulation is important by the Board of the project.

10. Conclusion

The Henos Leather garment Plant P.L.C is a business firm that will begin its operation in

2004 E.C at Mekelle Town of Tigray National Regional State. The promoter of the project has

a deep experience in the similar projects and will contribute 992,681 birr, which is 32% of

the total investment cost as a startup capital. The deep interest of the owner in this project and

willingness to monitor at every phases timely is a positive asset for the project that contribute

for the feasibility and realization of the project.

h l d f h j i l f bl f h i i f h d


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In addition to proper placement of manpower, the financial analysis shows the viability of the

project. The projected income statement reveals that the annual profit will increase from Birr

655,859.00 in the first period of the project to Birr 1,272,344.00 at the end of the project

period. The average net income will be Birr 910,816.00. The cash flow for financial planning

indicates that the project will not face any liquidity problem. The financial internal rate of

return FIRR of the project will be 32% showing 22.5% margin over the lending rate and other

bank charges. Moreover, the sensitivity analysis exhibited that the business will be safe to the

extent of more than 10% decrease of sales or 20% increase in fixed assets or20% operating

costs. The initial investment can safely be recovered until the end of third year. In general, the

projected financial results justify the acceptance of the proposed project. Moreover, the social

impact of the project in terms of alleviating education quality problems and unemployment

makes it to be viable.

8.2 Loan Needed

Based on the overall assessments of the project, the small Leather garment Plant requires aloan of Birr 2,100,000 from external sources to fully cover the building construction that

would be located at Mekele Adi shumdhun district Keble 11 As the detail assessment results


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a) Principal Repayment

The principal amount of Birr 2,100,000 shall be repaid in 117 equal monthly

installments.

b) Interest Payment

Interest payment is 10 % of the loan per annum amortized over 117 months and is

payable on monthly basis together with the principal repayment amount.

c) Other bank charges

0.5% of the loan per annum on the outstanding balance payable on monthly basis

d) Grace Period

Grace Period is three months for the loan repayment from the date of the loan

disbursement.

8.2.2 Collateral

1. First degree mortgage of the plants building with its all facilities, which willbe located at Mekele, Adi shumdhun district, Keble 11.

2 Business Mortgage Registrable by Tigray Regional Trade & Industry


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ANNEXES


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9.1 Assumptions Employed in the Projected Financial Analysis

9.1.1 Operating Costs

Most of the operating costs items are calculated based on of market assessment of similar

plants average cost over the last year.

Salaries and Wages based on payroll: 10% increment per annum

Technical personnel = Birr 87,360.00/year

Supportive staff = Birr 144,300.00/year

Total = Birr 231,660.00/year

Repair and maintenance = 2% of the fixed assets

Cost Items Totalcost

Repair andMaintenance

1 Building and Civil Work 1,766,154

30000

2 Plant Machinery and Equipment 800,000 16000

3 Office Furniture and Equipment 100,000 2000

4 Vehicle 280,000 5600

T t l 2 946 15 53600


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OfficeEquipments & Furniture = Average of 6 months actual & 10% increase per

annum

= 9,166.67x 12 = 110,

000.00Birr/year

Insurance: = 0.75% of the fixed investment

= Birr 2,680,000x 0.75% = Birr 20,100/year

Gowns & Uniform = Two per technical worker, guard & cleaner per annum at Birr

300/uniform

= 2 x 5 x 300 = Birr 3,000 /annum

= 2 x 2 x 300 = Birr 1,200/annum

i /


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Interest rate = 10% of the loan

Sales tax on interest = 5% of interest costs

Profit tax = 35% of net income before tax

Miscellaneous = Average of 6 months actual & 5% increase/annum

= Birr 833.33 x 12 = Birr 10,000

9.1.2 Capacity Utilization

Sales is assumed to commence at 50% of installed capacity and increase by 16.67%

each year until it reaches the assumed attainable capacity, 100%.

9.1.3 Revenue

Sr

No.

Type of

Leather

Garment

Income at

100%

Capacity

Income at

50%

Capacity

Income at 66.7%

Capacity

Income at

83.33%

Capacity

Income at

100%

Capacity

1 jacket3,000,00

01,500,00

0 2,000,0002,500,00

0 3,000,000


36/50

9.1.7 Grace period would be -------- after first disbursement.

9.1.8 Number of repayments: 117 equal constant principal monthly installments along

with the amortized interest payment.

9.1.9 Initial Working Capital

30 days Salaries and Wages = Birr 16,335

15 days r Inventory = Birr 41,667

30 days miscellaneous = Birr 833

Total = Birr

58835

9.1.10 Technical & Administrative Staff and

a) Supportive Staff and TheirSalaries


37/50

b) Technical Personnel

Item

No. Job Title No.

LabourCost (Birr)Salary per worker Monthly Annual

1 Designers and Tailors 2

1,800.00

3,600.00

43,200.00

2 Supervisor and Purchaser 1

1,000.00

1,000.00

12,000.00

3 Mechanic and Electrician 1

1,000.00

1,000.0

0

12,000.00

4 Production & Technical Manager 1 1,500.00 1,500.00

18,000.00

5 Sub-Total 5 7,100 85,200

Employee Benefit:= 10% of B. Salary 710 8520

Grand Total 8 7810 93720


38/50

9.1.12 Detailed Revenue

S.

No.

Type of Leather

Garment

Unit

Price

(Birr)

Qty Sales

at 100%

Capacity

Income at

50%

Capacity

Income at

66.7%

Capacity

Income at

83.33%

Capacity

Income at

100%

Capacity

1 Jacket 900 3,000 1350000 1800000 2250000 2700000

2 Coat 720 3,000 1080000 1440000 1800000 2160000

Total 2430000 3240000 4050000 4860000

9.2 Financial Analysis Projections

9.2.1 Total investment costs

Description\Year 0 1 2 3 4 5 6 7 8 9 10

Total fixed investment

costs

2,680,00

0 0 0 0 0 0 0 0 0 0 0

Total pre-production

expenditures 53,846 0 0 0 0 0 0 0 0 0 0

Interest 10,219 0 0 0 0 0 0 0 0 0 0Increase in net working

capital 0 0 199,003 202,115 205,557 42,659 46,806 51,361 56,372 61,879 67,932

Total investment costs

2,744,06

5 0 199,003 202,115 205,557 42,659 46,806 51,361 56,372 61,879 67,932

9.2.2 Operating costs projection

Description\Years 1 2 3 4 5 6 7 8 9 10

38


39/50

Salary & wages 178,200 196,020 215,622 237,184 260,903 286,993 315,692 347,261 381,988 420,186

Raw materials 500,000 666,670 833,330 1,000,00 1,000,00 1,000,00 1,000,00 1,000,000 1,000,00 1,000,000

Repair & maintenance 53,600 54,672 55,765 56,881 58,018 59,179 60,362 61,570 62,801 64,057

Office Equipments & 100,000 110,000 121,000 133,100 146,410 161,051 177,156 194,872 214,359 235,795

Utilities 27,400 30,140 33,154 36,469 40,116 44,128 48,541 53,395 58,734 64,608

Fuel & Lubricant 2,000 2,200 2,420 2,662 2,928 3,221 3,543 3,897 4,287 4,716

Insurance 20,100 20,100 20,100 20,100 20,100 20,100 20,100 20,100 20,100 20,100

Gowns & uniforms 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800

Miscellaneous 10,000 10,500 11,025 11,576 12,155 12,763 13,401 14,071 14,775 15,513

Depreciation 159,769 159,769 159,769 159,769 159,769 159,769 159,769 159,769 159,769 159,769

Financial costs 122,627 122,627 122,627 122,627 122,627 122,627 122,627 122,627 122,627 122,627

Total operating costs 1,178,496 1,377,49 1,579,61 1,785,16 1,827,82 1,874,63 1,925,99 1,982,362 2,044,23 2,112,171

9.2.3 Revenue projection

Description\Year

s 1 2 3 4 5 6 7 8 9 10

Gross sales

revenue

243000

0

324000

0

405000

0

486000

0

486000

0

486000

0 4860000

486000

0

486000

0

486000

0Less sales tax

(15%) 316957 422609 528261 633913 633913 633913 633913 633913 633913 633913

Net sales revenue211304

3281739

1352173

9422608

7422608

7422608

7 4226087422608

7422608

7422608

7

39


40/50

9.2.4 Cash flow for financial planning

Description\Years 0 1 2 3 4 5 6 7 8 9 10Scrap11

Total cash inflow

3,010,2

19

2,113,0

43

3,016,3

93

3,723,8

53

4,431,6

43

4,268,7

45

4,272,8

92

4,277,4

47

4,282,4

58

4,287,9

65

4,294,01

8

Inflow funds 0 199002 202114 205556 42658 46805 51360 56371 61878 67931

Inflow operation3,010,2

192,113,0

432,817,3

913,521,7

394,226,0

874,226,0

874,226,0

874,226,0

874,226,0

874,226,0

874,226,08

7

Salvage value300000

0276717

6253435

2230152

8206870

4183588

0160305

6137023

2113740

8 904584 67176067176

0

Total cash outflow3,010,2

191,704,2

082,360,3

202,768,7

193,179,6

853,044,5

153,079,0

853,117,0

243,158,6

773,204,4

043,254,61

2

Increase in fixed assets3,010,2

19 0 0 0 0 0 0 0 0 0 0Increase in current

assets 0

199,00

2

202,11

4

205,55

6 42,658 46,805 51,360 56,371 61,878 67,931

Operating costs896,10

01,095,1

021,297,2

161,502,7

721,545,4

301,592,2

351,643,5

951,699,9

661,761,8

441,829,77

5 0

Income (corporate) tax401,31

6605,57

8808,75

11,010,7

19995,78

9979,40

7961,43

1941,70

2920,04

4 896,268 0

Financial costs122,62

7122,62

7122,62

7122,62

7122,62

7122,62

7122,62

7122,62

7122,62

7 122,627 0

Loan repayment284,16

5338,01

1338,01

1338,01

1338,01

1338,01

1338,01

1338,01

1338,01

1 338,011 0

Surplus 0408,83

6656,07

3955,13

41,251,9

581,224,2

301,193,8

071,160,4

231,123,7

811,083,5

611,039,40

6 0Cumulative Cash

Balance

643,61

9

1,064,9

09

2,020,0

44

3,272,0

01

4,496,2

31

5,690,0

38

6,850,4

60

7,974,2

42

9,057,8

02

10,097,2

08

40


41/50

9.2.5 Income statement projection


sales revenue2,113,04

32,817,3

913,521,73

9 4,226,0874,226,08

74,226,08

74,226,08

74,226,08

74,226,08

74,226,08

7

Less operating costs1,055,86

91,254,8

711,456,98

5 1,662,5411,705,19

91,752,00

41,803,36

41,859,73

51,921,61

31,989,54

4

Operational margin 1,057,174 1,562,520 2,064,754 2,563,546 2,520,888 2,474,083 2,422,723 2,366,352 2,304,474 2,236,543

In % of revenue 50 55 59 61 60 59 57 56 55 53

Financial costs 122,627 122,627 122,627 122,627 122,627 122,627 122,627 122,627 122,627 122,627

Gross profit from operation 934,5471,439,8

931,942,12

7 2,440,9192,398,26

12,351,45

62,300,09

62,243,72

52,181,84

72,113,91

6

In % of revenue 44 51 55 58 57 56 54 53 52 50

Income (corporate) tax 319,142 496,013 671,794 846,372 831,441 815,060 797,084 777,354 755,696 731,921

Net profit 615,406 943,8811,270,33

3 1,594,5471,566,82

01,536,39

61,503,01

21,466,37

11,426,15

11,381,99

5

In % of revenue 29 34 36 38 37 36 36 35 34 33

Ratios (%)

Net profit to equity

Net profit to net worthNet profit + interest toinvestment

41


42/50

9.2.6 Cash flow projection for discounting

Description\Years 0 1 2 3 4 5 6 7 8 9 10Scrap11

Total cash inflow 02,113,0

432,817,3

913,521,

7394,226,

0874,226,

0874,226,

0874,226,

0874,226,

0874,226,

0874,226,

087

Inflow operation 02,347,8

263,329,4

384,115,1

584,901,2

094,738,3

114,742,4

584,747,0

134,752,0

244,757,5

314,763,5

84

Salvage value300000

0276717

7253435

4230153

1206870

8183588

5160306

2137023

9113741

6 904593 671770671,77

0

Total cash outflow3,010,2

191,457,1

852,059,4

512,467,8

502,878,8

162,743,6

462,778,2

162,816,1

552,857,8

082,903,5

352,953,7

43Increase in fixedassets

3,010,219 0 0 0 0 0 0 0 0 0 0

Increase in net workcapital 0 0 199002 202114 205556 42658 46805 51360 56371 61878 67931

Operating costs 01,055,8

691,254,8

711,456,9

851,662,5

411,705,1

991,752,0

041,803,3

641,859,7

351,921,6

131,989,5

44

Income (corporate)tax 0 401,316 605,578

808,751

1,010,719

995,789

979,407

961,431

941,702

920,044

896,268

Net cash flow

-3,010,2

19 655,859 757,9401,053,8

891,347,2

711,482,4

411,447,8

711,409,9

321,368,2

791,322,5

521,272,3

44

Cumulative net cashflow

-3,010,2

19

-2,354,3

60

-1,596,4

20

-542,53

0804,74

02,287,1

813,735,0

525,144,9

836,513,2

637,835,8

149,108,1

58Net present value @ 3,704,9

42


43/50

10% DF 54

Internal rate of return 32%

Payback period 3 YEAR

9.2.7 Sensitivity analysis

Description FIRR

Sales decrease by 10% 21%


Operating costs increase by10% 27%


Fixed assets increase by 10% 29%Fixed assets increase by 20% 26%

9.3 ECONOMIC OPERATING COST ANALYSIS


Salary & wages 130530 143583 157941.3173735.4

3191108.9

73210219.8

703231241.8

573254366.0

431279802.6

474307782.9

121

Raw materials 377000502669.

18628330.8

2 754000 754000 754000 754000 754000 754000 754000

Repair & maintenance 53600 54672 55765 56881 58018 59179 60362 61570 62801 64057

Office Equipments &Furniture 88000 96800 106480 117128 128840.8

141724.88

155897.28

171487.36

188635.92 207499.6

Utilities 39182 43100.2 47410.22 52150.67 57365.88 63103.04 69413.63 76354.85 83989.62 92389.44

Fuel & Lubricant 1732 1905.2 2095.72 2305.292 2535.648 2789.386 3068.238 3374.802 3712.542 4084.056

Insurance 20100 20100 20100 20100 20100 20100 20100 20100 20100 20100

43


44/50

Gowns & uniforms 4800 4800 4800 4800 4800 4800 4800 4800 4800 4800

Miscellaneous 10000 10500 11025 11576 12155 12763 13401 14071 14775 15513

Total operating costs 724944878129.

581033948.

061192676.

3921228924.

3011268679.

1761312284.

0051360124.

0551412616.

7291470226.

008

Ecomic Gross Sales Revenue

Year 0 1 2 3 4 5 6 7 8 9 10economicbenefit 1832220 2442960 3053700 3664440 3664440 3664440 3664440 3664440 3664440 3664440EconomicCost

2314239.16 724944

878129.58

1033948.06

1192676.392

1228924.301

1268679.176

1312284.005

1360124.055

1412616.729

1470226.008

net benefit

-2314239.

16 11072761564830.

422019751.

942471763.

6082435515.

6992395760.

8242352155.

9952304315.

9452251823.

2712194213.

992economic NPV@ 10.23% DF 8,324,650

economic IRR 69%

SENSETIVITY FOR ECONOMY

Description EIRR





Fixed assets increase by 10% 64%

Fixed assets increase by 20% 59%

44


45/50

For Economic Sesitivity

Years 0 1 2 3 4 5 6 7 8 9 10

economicbenefit 1832220

2442960

3053700

3664440

3664440

3664440

3664440

3664440

3664440

3664440

economiccost

2314239.16 724944

878129.6

1033948

1192676

1228924

1268679

1312284

1360124

1412617

1470226

net benefit

-2314239.

16 11072761564830

2019752

2471764

2435516

2395761

2352156

2304316

2251823

2194214

economicNPV

8,324,650

economicIRR 69%

Sales decrease by 10%economicbenefit 1648998

2198664

2748330

3297996

3297996

3297996

3297996

3297996

3297996

3297996

economiccost

2314239.16 724944

878129.6

1033948

1192676

1228924

1268679

1312284

1360124

1412617

1470226

net benefit

-2314239.

16 92405413205

3417143

8221053

2020690

7220293

1719857

1219378

7218853

7918277

70economic

NPV

6,710,88

0economicIRR 60%

Sales decrease by 20%economicbenefit 1465776

1954368

2442960

2931552

2931552

2931552

2931552

2931552

2931552

2931552

economic 2314239. 724944 87812 10339 11926 12289 12686 13122 13601 14126 14702

45


46/50

cost 16 9.6 48 76 24 79 84 24 17 26

net benefit

-2314239.

16 74083210762

3814090

1217388

7617026

2816628

7316192

6815714

2815189

3514613

26

economicNPV

5,097,110

economicIRR 50%

Op. Cost increase by10%economicbenefit 1832220

2442960

3053700

3664440

3664440

3664440

3664440

3664440

3664440

3664440

economic

cost

2314239.

16

797438.

4

96594

2.5

11373

43

13119

44

13518

17

13955

47

14435

12

14961

36

15538

78

16172

49

net benefit

-2314239.

161034781

.614770

1719163

5723524

9623126

2322688

9322209

2821683

0421105

6220471

91economicNPV

7,753,292

economicIRR 66%

Op. Cost increase by

20%economicbenefit 1832220

2442960

3053700

3664440

3664440

3664440

3664440

3664440

3664440

3664440

economiccost

2314239.16

869932.8

1053755

1240738

1431212

1474709

1522415

1574741

1632149

1695140

1764271

net benefit

-2314239.

16962287.

213892

0518129

6222332

2821897

3121420

2520896

9920322

9119693

0019001

69economic 7,181,93

46


47/50

NPV 3economicIRR 63%

Fixed Cost increaseby10%economic benefit

183222024429

6030537

0036644

4036644

4036644

4036644

4036644

4036644

4036644

40economiccost

2545663.076 724944

878129.6

1033948

1192676

1228924

1268679

1312284

1360124

1412617

1470226

net benefit

-

2545663.076 1107276

1564830

2019752

2471764

2435516

2395761

2352156

2304316

2251823

2194214

economicNPV 8,114,704economicIRR 64%

Fixed Cost increase by20%economic

benefit 1832220

24429

60

30537

00

36644

40

36644

40

36644

40

36644

40

36644

40

36644

40

36644

40economiccost

2777086.992 724944

878129.6

1033948

1192676

1228924

1268679

1312284

1360124

1412617

1470226

net benefit

-2777086.

992 110727615648

3020197

5224717

6424355

1623957

6123521

5623043

1622518

2321942

14economicNPV 7,904,757economic 1832220 24429 30537 36644 36644 36644 36644 36644 36644 36644

47


48/50

benefit 60 00 40 40 40 40 40 40 40economiccost

2777086.992 724944

878129.6

1033948

1192676

1228924

1268679

1312284

1360124

1412617

1470226

Evaluation on the Benefit Cost Ratio of a project

Description

Year

0 1 2 3 4 5 6 7 8 9 10 Total

Dicounted Benefit @ 10% DR -3010219596176

626059

791787

920186

920596

816599 723295 638987 560762 539474 4123700

Dicounted Cost @ 10% DR -3010219541924

517125

594870

628487

571690

460562 371050 298407 237763 228737 1440395

Benefit/Cost Ratio @ 10% DR 2.863

48


49/50

Income Tax Rate (on Salary)

Salary Range

0 to 150 = 0%

151 to 650 = 10% -15

651 to 1400 = 15% -45.5

1401 to 2350 = 20% -117.5

2351 to 3350 = 25% -235

3351 to 5000 = 30% -412

above 5000 = 35% -662

Amortization Formula:-

r

ni

AP)1(

11

+

=


50/50

n

n

i

iiA

)1(

1)1(

+

+=

Population Size of Tigray Region by,Urban, Urban + Rural and Sex;

Year

(E.C..). . .

Urban Urban + RuralMale Female Both Sexes Male Female Both Sexes

2000 E.C. 400484 447405 847889 2132965 2197422 4330388

2001 E.C. 419337 468466 887803 2188585 2255623 4444207

2002 E.C. 439077 490519 929596 2245872 2315603 4561474

2003 E.C. 459746 513610 973356 2304885 2377425 4682310

2004 E.C. 481388 537788 1019176 2365685 2441157 4806842

2005 E.C. 504049 563104 1067153 2428335 2506867 4935201

2006E.C. 527789 589626 1117416 2495066 2572398 5067464

2007 E.C. 552648 617397 1170046 2563880 2639899 52037792008 E.C. 578678 646477 1225155 2634848 2709433 5344281

2009 E.C. 605934 676926 1282860 2708044 2781067 5489111

Source: National Regional Government Of Tigray, Bureau of Plan And Finance, Feb 30, 2010 GIS and Statistics

Information Sub Process

50

Documents

1.Final HM Leather_garment Jan.13.2012