Chemical and Construction Input Industry Development Institute. Project Profile on the Establishment of Roof TILES From CLAY Production PLANT

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1 Chemical and Construction Input Industry Development Institute Project Profile on the Establishment of Roof TILES From CLAY Production PLANT Information Technology and Technical Service Directorate June 2008 E.C Addis Ababa

2 Table of Contents 1. Executive Summary Product Description and Application Market Study, Plant Capacity and Production Program Market Study... Error! Bookmark not defined Present Demand and Supply Projected Demand Pricing and Distribution Plant Capacity Production Program Raw Materials and Utilities Availability and Source of Raw Materials Annual Requirement and Cost of Raw Materials and Utilities Location and Site Technology and Engineering Production Process Machinery and Equipment Civil Engineering Cost Human Resource and Training Requirement Human Resource Training Requirement Financial Analysis Underlying Assumption Investment Production Costs Financial Evaluation Economic and Social Benefit and Justification ANNEXES... 14

3 1. Executive Summary This profile envisages the establishment of a plant for the production of 55 m 3`tons of roof tiles from clay at full capacity. The present countrywide demand is estimated at 7.6 million m 3 tons per annum. The annual future countrywide demand is expected to grow to m 3 tons in the year in the year The envisage plant will be able to cover a very small portion of the demand The Total Initial Investment including working capital is estimated at Birr 4.7 million of which Birr 2.5 million is for plant machinery and equipments. The plant will create employment opportunities for 16 persons. The project is financially viable with an internal rate of return (IRR) of 24.15% and a net present value (NPV) of Birr 1.06 million at 18 % annual discount rate. 2. Product Description and Application Roofing tiles made out of clay, are used for roof covers. The existing dominant practice is to use galvanized iron sheets whose raw material is imported in bulk as it is relatively cheaper and simpler to use. The product comes in different gauges ranging from 28 to 32 in thickness. Production roofing tiles with locally available clay could reduce the cost of houses construction. Although the product is relatively new to the market, it is gaining wide acceptance in a short period of time. 1

4 3. Market Study, Plant Capacity and Production Program 3.1 Market Study Local Import The local import of ceramic products has reached to annual average of 97,087.6 tons and million USD during the period The average annual growth during the same period has reached to around 27% (please see table 3.1). Table 3.1 Import of Ceramic products Code '6908 '6907 '6910 '6902 '6904 Product label Imported quantity, Tons Imported quantity, Tons Imported quantity, Tons Imported quantity, Tons Imported quantity, Tons Glazed ceram flags&paving,hearth/wall tiles; mosaic cube Unglazed ceram flags&paving,hearth/wall tiles; mosaic cube Ceramic sink,wash basin,bath,bidet &similar sanitary fixture Refractory bricks,blocks,tile etc&sim refractory ceram const good ne Ceramic building bricks, flooring blocks support/filler tiles '6911 Tableware,kitchenware, of porcelain/china '6905 Roofing tiles,chimney pots,cowl etc&other ceramic constructional good '6914 Ceramic articles, nes '6912 Ceramic tableware,kitchenware, othar than porcelain/china

5 Code '6903 '6913 '6909 '6901 '6906 Product label Imported quantity, Tons Imported quantity, Tons Imported quantity, Tons Imported quantity, Tons Imported quantity, Tons Refractory ceramic goods nes Statuettes and other ornamental ceramic articles Ceramic ware for labor.,chemical or techinal use, etc Bricks, blocks, ceramic goods of siliceous fossil meals Ceramic pipes, conduits, gutterings and pipe fittings Total (Ton) 59,614 67,311 78, , ,691 Total (000 USD) Growth in Quantity (% Local Production The local gross value of structural clay products has reached to annual average of 19.4 thousand birr during the period 2006/7-2010/1. The average annual decreasing growth during the same period has reached to around 11% (please see table 3.2). Table 3.2 GVP of Structural cement Product Type Gross Value of Production (Thousands Birr) 2006/7 2007/8 2008/9 2009/ /11 Manufacture of structural clay products 23,540 20,243 21,770 17,110 14,157 Annual Growth

6 3.1.3 Present Demand and Supply Roofing tiles made of clay can be a good substitute to the corrugated metal sheet. The tiles can be corrugated both for aesthetic and working convenience reasons. However, clay tiles for roofing require different kind of truss which could be more expensive for regular type of houses. As a result, it is assumed that only high multi-storied buildings (more than two floors) will be using clay tiles for roofing. The demand for roof tiles in the years 2003, 2004, 2005 and 2006 were estimated at 2.52, 2.72, 2.94, and 3.18 million m 3 tons respectively. Taking a conservative estimate of 5% annual increase, the current demand will stand at 7.16 million m 3 tons. Projected Demand The following table shows the projected demand. The national countrywide demand for clay tiles is so large that market demand will not be a tensing problem for a small project like the one proposed Pricing and Distribution Table 1: Projected Demand Projected Demand Year (million m 3 tons) Currently one tone of clay tiles cost about Birr 100,000. It is suggested that this new plant sale its product at a price of Birr 60,000 per ton allowing attractive profit margin for the whole and retail sellers. The exiting wholesales network can be used as distribution channel. 4

7 3.2 Plant Capacity The plant will have a capacity of producing 10,000,000 pcs or about 55 tons of metre squares of roofing tiles on a single shift and 275 working days per annum considering Sundays and public holiday and some possible stoppages. 3.3 Production Program The plant will operate at 75% and 85% capacity utilization in the first and second years respectively. Full capacity will be reached on the third year. Gradual capacity build up is required to allow the operators gain experience on working with the plant machinery and equipment Co-ordination of sufficient supplies and inputs as well as penetration of the market is also expect to take some time. 4 Raw Materials and Utilities 4.1 Availability and Source of Raw Materials The major raw materials like clay and cement rocs are locally available. Resign and pigments should be imported. 4.2 Annual Requirement and Cost of Raw Materials and Utilities The basic raw material is clay. The clay has to be burned and hence wood or coal can be used to fire the burns. Accordingly, the annual requirement will be as follows. 5

8 Table 2: Annual Raw material Requirements at Full Capacity No. Material Qty (ton) Local Foreign Total 1 Clay , ,000 2 Grey cement , ,000 3 Aggregate , ,640 4 Marble chips ,000 32,000 5 Pigments , ,000 6 Resins 7 75,600 75,600 7 packing material 30,000 30,000 Total 0 860, ,600 1,214,240 Table 3: Annual Utility Requirement at Full Capacity Items Unit Qyt Cost Electricity Kwh ,063 Water m ,925 Lump sum Lubricants 1000 Consumable " 2000 Total 82,988 5 Location and Site Hawasaa,Near Bahir Dar, Dessie, Debre Markos or any localities along the major roads and where clay soil is available can be appropriate location. 6 Technology and Engineering 6.1 Production Process The raw clay is exposed to the weather for about a year. This will improve the plasticity of the clay. The weathered clay is then cut and fed to heavy duty pug mill crusher. The crushed and pugged clay is extruded in the form of blocks and is directed to a wire cutting table. 6

9 The blocks are allowed to dry for a few days and the dried stabs are moulded with a title press. The moulded tiles are dried in a continuous drying kiln. After the furnace is allowed to cool, the tiles will be unloaded for dispatch. Alternative technological process: The major processing stages for making roof tiles from clay are preparation of the clay soil (i.e excavation of the soil from the ground, removing foreign materials, probably grinding or breaking the soil into finer particles, moving the soil to molding section, adding water to the soil and making it into a dough, putting the dough into moulds, firing the green roof tiles in a specially designed oven, removing the fired tiles from the oven, and finally staking the finished clay The technology, machinery and equipment could be secured from India. 6.2 Machinery and Equipment The machinery and equipment requirement is given Table 4 below: Table 4: Required Machineries and Equipments Item Description Qty. Total 1 Vibrating Tables Rubber Moulds Mixers Tile press Fork lift Trucks Pallets Total 2,543,000 The total cost of machinery and equipment is estimated at Birr 2.54 million Supplier Address: Ningbo Hualong Machinery Factory ShenXiShan JiShiGang Town,Yinzhou District,Ningbo,ZheJiang,China Ning Bo China (Mainland) Tel: Fax: admin@nbhljx.com 7

10 6.3 Civil Engineering Cost The plant requires a total area of 1800 m 2 out of which 600 m 2 is covered area. The total land lease estimated at Birr 72,000 and the construction cost is estimated at Birr 1.2 million. 7 Human Resource and Training Requirement 7.1 Human Resource The human resource requirement of the plant is a presented in Table 5. Table 5: Human Resource Requirement at Full Capacity Salary/Wage (Birr) Job Title No. Monthly Annual A. Administration 1 Plant Manager ,000 2 Secretary ,600 3 Accountant ,000 4 Sales man ,000 5 Clerk ,000 6 General Service ,000 B. Production 0 1 Technician ,000 2 Skilled workers ,200 3 Unskilled Workers ,200 Total ,000 Employment Benefits 20% of Annual Salary 37, , Training Requirement Induction training is envisaged at the preparation period. Other on-job trainings may also be required after commencement. Birr 22,000 is included in the working capital for the training purpose. 8

11 8 Financial Analysis 8.1 Underlying Assumption The financial analysis of milk powder producing plant is based on the data provided in the preceding chapters and the following assumptions. A. Construction and Finance Box 1: Construction and Finance Construction period 2 year Source of finance 40% equity and 60% loan Tax holidays 2 years Bank interest rate 12% Discount for cash flow 18% Value of land Based on lease rate of ANRS Spare Parts, Repair & Maintenance 3% of fixed investment B. Depreciation Box 2: Depreciation Building 5% Machinery and equipment 10% Office furniture 10% Vehicles 20% Pre-production (amortization) 20% 9

12 C. Working Capital (Minimum Days of Coverage) Box 3: Working Capital Raw Material-Local Raw Material-Foreign Factory Supplies in Stock Spare Parts in Stock and Maintenance Work in Progress Finished Products Accounts Receivable Cash in Hand Accounts Payable 30 days 120 days 30 days 30 days 10 days 15 days 30 days 30 days 30 days 8.2 Investment The total initial investment cost including the working capital at full capacity is estimated at Birr 4.74 million. The details are shown in Table 6. Table 6: Initial Investment and Working Capital Total Initial Investment Item Cost Land 3,600 Building and civil works 1,200,000 Office equipment 75,000 Vehicles 250,000 Plant machinery & equipment 2,543,000 Total Fixed Investment 4,071,600 Pre production capital expenditure* 203,580 Total Initial Investment 4,275,180 Working capital at full capacity 465,299 Total 4,740,479 *Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during construction and expenses for company s establishment, project administration expenses, commission expenses, preproduction marketing and interest expenses during construction. 10

13 8.3 Production Costs Total production cost at full capacity is estimated at 2.4 million. The details are shown in Table 7. Table 7: Production Cost at Full Capacity Total Production Cost at Full Capacity Items Cost 1. Raw materials 1,214, Utilities 82, Wages and Salaries 223, Spares and Maintenance 122,148 Factory costs 1,642, Depreciation 412, Financial costs Total Production Cost 341,315 2,396, Financial Evaluation I. Profitability The income statement (Annex 4) shows that the proposed project generates profit starting from the first year of operation. Profits start at Birr 103,468 in first year and reach at Birr 976,357. Gross Profit to Sales starts at 4.18% and reach at 42.27% at eight year. The total profit to be earned during the ten years of operation amounts to Birr 7,825, These indicators prove that the project is profitable. II. Breakeven Analysis The breakeven analysis shows that the Total Revenue equals the Total Cost at 29.4% of capacity which is achieved at the first year of operation. III. Payback Period The project pays back its initial investment at about the first quarter of the fourth year 11

14 IV. Simple Rate of Return The simple interest rate is 20.3%. V. Internal Rate of Return and Net Present Value A 10% decrease in sales revenue will decrease the total revenue to Birr 5,449,431while a 10% increase in cots of inputs will decrease the total profit to Birr 6,780,208. VI. Sensitivity Analysis The Internal Rate of Return is 24.1% and the Net Present Value at 18% discount rate per annum is about Birr 1.06 million 9 Economic and Social Benefit and Justification Based on the foregoing presentation and analysis, we can learn that the proposed project possesses wide range of benefits that complement the financial feasibility obtained earlier. In general the envisaged project promotes the socio-economic goals. These benefits are listed as follows A. Profit Generation The project is found to be financially viable and earns Birr 7,825, in 10 years. B. Tax Revenue In the project life under consideration, the government will collect about Birr 3 million from corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create additional fund for the regional government that will be used in expanding social and other basic services in the region C. Import Substitution and Foreign Exchange Saving As there is no sufficient tiles domestic production, it will ease import burden. save hard currency to be allocated on other vital and strategic sectors 12

15 D. Employment and Income Generation The proposed project is expected to create employment opportunity to 16 persons. This would be one of the commendable accomplishments of the project. E. Pro Environment Project The proposed production process is environment friendly. F. Diversity The proposed project contributes to diversification of economy. 13

16 ANNEXES 14

17 Annex 1: Total Net Working Capital Requirements (in Birr) CONSTRUCTION PRODUCTION Year 1 Year Capacity Utilization (%) % 85% 100% 100% 1. Total Inventory Raw Materials in Stock- Total Raw Material-Local Raw Material-Foreign Factory Supplies in Stock Spare Parts in Stock and Maintenance Work in Progress Finished Products Accounts Receivable Cash in Hand CURRENT ASSETS Current Liabilities Accounts Payable TOTAL NET WORKING CAPITAL REQUIREMENTS INCREASE IN NET WORKING CAPITAL

18 Annex 1: Total Net Working Capital Requirements (in Birr) (continued) PRODUCTION Capacity Utilization (%) 100% 100% 100% 100% 100% 100% 1. Total Inventory Raw Materials in Stock-Total Raw Material-Local Raw Material-Foreign Factory Supplies in Stock Spare Parts in Stock and Maintenance Work in Progress Finished Products Accounts Receivable Cash in Hand CURRENT ASSETS Current Liabilities Accounts Payable TOTAL NET WORKING CAPITAL REQUIREMENTS INCREASE IN NET WORKING CAPITAL

19 Annex 2: Cash Flow Statement (in Birr) CONSTRUCTION PRODUCTION Year 1 Year TOTAL CASH INFLOW Inflow Funds Total Equity Total Long Term Loan Total Short Term Finances Inflow Operation Sales Revenue Interest on Securities Other Income TOTAL CASH OUTFLOW Increase In Fixed Assets Fixed Investments Pre-production Expenditures Increase in Current Assets Operating Costs Corporate Tax Paid Interest Paid Loan Repayments Dividends Paid Surplus (Deficit) Cumulative Cash Balance

20 Annex 2: Cash Flow Statement (in Birr): Continued PRODUCTION TOTAL CASH INFLOW Inflow Funds Total Equity Total Long Term Loan Total Short Term Finances Inflow Operation Sales Revenue Interest on Securities Other Income TOTAL CASH OUTFLOW Increase In Fixed Assets Fixed Investments Pre-production Expenditures Increase in Current Assets Operating Costs Corporate Tax Paid Interest Paid Loan Repayments Dividends Paid Surplus (Deficit) Cumulative Cash Balance

21 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED CONSTRUCTION PRODUCTION Year 1 Year TOTAL CASH INFLOW Inflow Operation Sales Revenue Interest on Securities Other Income TOTAL CASH OUTFLOW Increase in Fixed Assets Fixed Investments Pre-production Expenditures Increase in Net Working Capital Operating Costs Corporate Tax Paid NET CASH FLOW CUMULATIVE NET CASH FLOW Net Present Value (at 18%) Cumulative Net present Value

22 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued) PRODUCTION TOTAL CASH INFLOW Inflow Operation Sales Revenue Interest on Securities Other Income TOTAL CASH OUTFLOW Increase in Fixed Assets Fixed Investments Pre-production Expenditures Increase in Net Working Capital Operating Costs Corporate Tax Paid NET CASH FLOW CUMULATIVE NET CASH FLOW Net Present Value (at 18%) Cumulative Net present Value Net Present Value (at 18%) 1,060, Internal Rate of Return 24.1% 6

23 Annex 4: NET INCOME STATEMENT ( in Birr) PRODUCTION Capacity Utilization (%) 75% 85% 100% 100% 100% 1. Total Income 2,475,000 2,805,000 3,300,000 3,300,000 3,300,000 Sales Revenue 2,475,000 2,805,000 3,300,000 3,300,000 3,300,000 Other Income Less Variable Cost 1,088,774 1,233,944 1,451,698 1,451,698 1,451,698 VARIABLE MARGIN 1,386,226 1,571,056 1,848,302 1,848,302 1,848,302 (In % of Total Income) Less Fixed Costs 521, , , , ,222 OPERATIONAL MARGIN 864,324 1,040,226 1,304,080 1,304,080 1,304,080 (In % of Total Income) Less Cost of Finance 760, , , , , GROSS PROFIT 103, ,912 1,019,651 1,076,537 1,133, Income (Corporate) Tax , , , NET PROFIT 103, , , , ,396 RATIOS (%) Gross Profit/Sales 4.18% 24.92% 30.90% 32.62% 34.35% Net Profit After Tax/Sales 4.18% 24.92% 21.63% 22.84% 24.04% Return on Investment 18.69% 22.27% 21.06% 20.70% 20.34% Return on Equity 5.46% 36.86% 37.64% 39.74% 41.84% 7

24 Annex 4: NET INCOME STATEMENT (in Birr): Continued PRODUCTION Capacity Utilization (%) 100% 100% 100% 100% 100% 1. Total Income 3,300,000 3,300,000 3,300,000 3,300,000 3,300,000 Sales Revenue 3,300,000 3,300,000 3,300,000 3,300,000 3,300,000 Other Income Less Variable Cost 1,451,698 1,451,698 1,451,698 1,451,698 1,451,698 VARIABLE MARGIN 1,848,302 1,848,302 1,848,302 1,848,302 1,848,302 (In % of Total Income) Less Fixed Costs 453, , , , ,506 OPERATIONAL MARGIN 1,394,796 1,394,796 1,394,796 1,394,796 1,394,796 (In % of Total Income) Less Cost of Finance 113,772 56, GROSS PROFIT 1,281,024 1,337,910 1,394,796 1,394,796 1,394, Income (Corporate) Tax 384, , , , , NET PROFIT 896, , , , ,357 RATIOS (%) Gross Profit/Sales 38.82% 40.54% 42.27% 42.27% 42.27% Net Profit After Tax/Sales 27.17% 28.38% 29.59% 29.59% 29.59% Return on Investment 21.32% 20.96% 20.60% 20.60% 20.60% Return on Equity 47.29% 49.39% 51.49% 51.49% 51.49% 8

25 Annex 5: Projected Balance Sheet (in Birr) CONSTRUCTION PRODUCTION Year 1 Year TOTAL ASSETS 2,137,590 4,740,479 5,113,947 5,374,811 5,668,519 5,948, Total Current Assets ,299 1,251,283 1,924,663 2,630,887 3,322,930 Inventory on Materials and Supplies , , , ,753 Work in Progress ,036 47,641 56,048 56,048 Finished Products in Stock ,072 95, , ,096 Accounts Receivable , , , ,000 Cash in Hand ,052 28,392 33,402 33,402 Cash Surplus, Finance Available , ,309 1,223,159 1,805,587 2,497,631 Securities Total Fixed Assets, Net of Depreciation 2,137,590 4,275,180 3,862,664 3,450,148 3,037,632 2,625,116 Fixed Investment ,035,800 4,071,600 4,071,600 4,071,600 4,071,600 Construction in Progress 2,035,800 2,035, Pre-Production Expenditure 101, , , , , ,580 Less Accumulated Depreciation , ,032 1,237,548 1,650, Accumulated Losses Brought Forward Loss in Current Year TOTAL LIABILITIES 2,137,590 4,740,479 5,113,947 5,374,811 5,668,519 5,948, Total Current Liabilities , , , ,000 Accounts Payable , , , ,000 Bank Overdraft Total Long-term Debt 1,282,554 2,844,288 2,844,288 2,370,240 1,896,192 1,422,144 Loan A 1,282,554 2,844,288 2,844,288 2,370,240 1,896,192 1,422,144 Loan B Total Equity Capital 855,036 1,896,192 1,896,192 1,896,192 1,896,192 1,896,192 Ordinary Capital 855,036 1,896,192 1,896,192 1,896,192 1,896,192 1,896,192 Preference Capital Subsidies Reserves, Retained Profits Brought Forward , ,380 1,516,135 9.Net Profit After Tax , , , ,576 Dividends Payable Retained Profits , , , ,576 9

26 Annex 5: Projected Balance Sheet (in Birr): Continued PRODUCTION TOTAL ASSETS 6,267,394 6,690,063 7,152,552 8,128,909 9,105,266 10,081, Total Current Assets 4,054,794 4,799,263 5,583,552 6,881,709 8,179,866 9,478,023 Inventory on Materials and Supplies 263, , , , , ,753 Work in Progress 56,048 56,048 56,048 56,048 56,048 56,048 Finished Products in Stock 112, , , , , ,096 Accounts Receivable 360, , , , , ,000 Cash in Hand 33,402 33,402 33,402 33,402 33,402 33,402 Cash Surplus, Finance Available 3,229,495 3,973,963 4,758,252 6,056,409 7,354,566 8,652,723 Securities Total Fixed Assets, Net of Depreciation 2,212,600 1,890,800 1,569,000 1,247, , ,600 Fixed Investment 4,071,600 4,071,600 4,071,600 4,071,600 4,071,600 4,071,600 Construction in Progress Pre-Production Expenditure 203, , , , , ,580 Less Accumulated Depreciation 2,062,580 2,384,380 2,706,180 3,027,980 3,349,780 3,671, Accumulated Losses Brought Forward Loss in Current Year TOTAL LIABILITIES 6,267,394 6,690,063 7,152,552 8,128,909 9,105,266 10,081, Total Current Liabilities 360, , , , , ,000 Accounts Payable 360, , , , , ,000 Bank Overdraft Total Long-term Debt 948, , Loan A 948, , Loan B Total Equity Capital 1,896,192 1,896,192 1,896,192 1,896,192 1,896,192 1,896,192 Ordinary Capital 1,896,192 1,896,192 1,896,192 1,896,192 1,896,192 1,896,192 Preference Capital Subsidies Reserves, Retained Profits Brought Forward 2,269,711 3,063,106 3,959,823 4,896,360 5,872,717 6,849, Net Profit After Tax 793, , , , , ,357 Dividends Payable Retained Profits 793, , , , , ,357 10

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