64.

PROFILE ON PRODUCTION OF EXERCISE BOOKS

PAGE

SUMMARY 64-3

II. PRODUCT DESCRIPTION & APPLICATION 64-3

III. MARKET STUDY AND PLANT CAPACITY 64-3 A. MARKET STUDY 64-3 B. PLANT CAPACITY & PRODUCTION PROGRAMME 64-6

IV. RAW MATERIALS AND INPUTS 64-7 A. RAW & AUXILIARY MATERIALS TABLE OF CONTENTS 64-8 B. UTILITIES 64-9

V. TECHNOLOGY & ENGINEERING 64-9 A. TECHNOLOGY 64-10 B. ENGINEERING 64-11

VI. MANPOWER & TRAINING REQUIREMENT 64-11 A. MANPOWER REQUIREMENT 64-11 B. TRAINING REQUIREMENT 64-13

VII. FINANCIAL ANALYSIS

A. TOTAL INITIAL INVESTMENT COST 64-13 B. PRODUCTION COST 64-14 C. FINANCIAL EVALUATION 64-15 D. ECONOMIC BENEFITS 64-16

I. SUMMARY This profile envisages the establishment of a plant for the production of exercise books with a capacity of 1,000 tonnes per annum. The present demand for the proposed product is estimated at 10,678 tonnes per annum. The demand is expected to reach at 24,592 tonnes by the year 2017. The plant will create employment opportunities for 42 persons. The total investment requirement is estimated at about Birr which Birr 4.12 million is required for plant and machinery. 8.68 million, out of

The project is financially viable with an internal rate of return (IRR) of 29 % and a net present value (NPV) of Birr 7.49 million discounted at 8.5%. II. PRODUCT DESCRIPTION AND APPLICATION Exercise books are laminated on carton covered booklets with inner sheets for use by students, usually containing notes, problems or exercises and practicing a lesson. They are produced in Variety of attractive external designs and glossy lamination, line margin or square. III. MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY 1. Past Supply and Present Demand

The supply of exercise books is mainly met through import, the local production covering only 10% of the total supply. The supply of exercise books is presented in Table 3.1.

Year Tons 1997 3,561 1998 2,904 1999 1,697 2000 112,445 2001 5,023 2002 5,606 2003 10,038 2004 7,880 2005 7,163 Table 3.1 2006 IMPORTED EXERCISE BOOKS (TONNE) 11,169

Source: Customs Authority Imported exercise books record in 2000 was about twice the remaining nine years total import. Due to this highly exaggerated record it is excluded from the data set. Classifying the data set in two; 1997-1999 and 2001-2006 the average annual import respectively was 2,720 and 7,813 tons. From this classification it is quiet evident that in 2001-2006 the supply stepped up to five thousand tons. Further, the average annual growth rate in 2001-2006 was 23%. In determining the current effective demand 23% growth rate is applied on the annual average import of 2001-2006 and an estimated 10% local production added. Thus the current effective demand for exercise books is estimated at 10,678 tons. 2. Demand Projection The demand for exercise books is the function of the student population in the country. The education sector development through more coverage of the population the growth in population with the priority to be given to education in this age of knowledge based economy makes the demand for exercise books ever increasing. In 2001-2006 an annual growth rate of 23% was recorded for imported exercise books. In the latest three years or 2004-2006 the growth rate average was 8.7% annually.

Year Tons 2008 11,607 For the purpose of this study the later alternative is considered to project the demand 2009 for exercise books. 12,617 2010 Therefore the demand for exercise books is made at 8.7% growth rate. The demand 13,714 in 2017 will attain 24,592 tons. Projected demand is presented in Table 3.2. 2011 14,908 Table 3.2 2012 PROJECTED DEMAND FOR EXERCISE BOOKS (TONNE) 16,205 2013 17,614 2014 19,147 2015 20,813 2016 22,623 2017 24,592

3. Pricing and Distribution The price of a standard 100 sheets exercise book of Malaysian origin is Birr four. Factory get price for the new project will be Birr 2. The product will find it outlet through stationeries and shops. B. PLANT CAPACITY AND PRODUCTION PROGRAMME 1. Plant Capacity According to the market study, the envisaged plant is proposed to have an annual production capacity 7 million piece of exercise books will be installed (which is estimated to be 1000 tones). Production capacity is based on a schedule of 300 Year working days per annum and 3 shifts of eight hours per day. 1 2 2. Production Programme 3-10 Capacity Utilization [%] The envisaged production programme is given in Table 3.3. The schedule is worked 75 out in consideration of the time required for gradual build-up in labour productivity 85 and fine-tuning of machinery. Production starts at 75% of plant capacity in the first 100 Production [million Nos.] year of operation and reaches full-gear in the 3rd year of operation and then after. 5.25 5.95 Table 3.3 10 PRODUCTION PROGRAMME

IV. MATERIALS AND INPUTS A. RAW MATERIALS The major raw material required for an exercise book manufacturing plant is woodfree a writing paper with a weight basis of 55g/m2, which is normally produced by using bleached kraft pulp of hard wood and soft wood fibers. Another raw material pressing paper used for covers, which has a weight basis of about 120g/m2. Both of these raw materials are supposed to be obtained from the Wonji Paper Mill for the time being until a small-scale paper mill is to be set up in the region. Other materials required for the production of exercise books are stitching wire (0.56mm diameter), and water based flexographic printing ink, which have to be imported. Auxiliary material requirement comprise mainly of corrugated boxes (Cartoons), which are also supposed to be obtained from the Wonji Paper Mill. The raw materials required for the production of 7 million Pcs. of exercise books and the corresponding cost is indicated in Table 4.1.

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

L.C F.C Total 1 Wood-free writing paper tonnes 897.12 10,200 9,150.62 9,150.62 2 Pressing/Cover paper tonnes 102.88 6,710 690.32 690.32 3 Stitching wire tonnes 2.12 Table 4.1 12,710 ANNUAL RAW MATERIALS REQUIREMENTS AND COST 9.83 17.11 26.94 4 Sr. B. UTILITIES No. Printing ink Utility tonnes Electricity and water are the two major utilitiesof Unit required by the plant. Table 4.2 2.21 below shows annual requirements and associated costs at full production capacity of Measure 36,330 the plant. Qty.28.15 Unit price 52.28 (Birr) Table 4.2 Cost (000 80.43 BIRR) ANNUAL UTILITIES REQUIREMENT AND COST 1 5 Electricity Cartoons KWh No. 122,322 25116 0.4736 5 57.931 251.16 2 Water 251.16 3 m Grand Total 1,359 10,130.08 3.10 69.39 4.212 10,199.47 Total

62.143

V. TECHNOLOGY AND ENGINEERING A. TECHNOLOGY 1. Production Process Exercise books manufacturing belongs to the paper converting industry. The most appropriate technology used for the production of these items is called the flexographic printing. The flexographic manufacturing process involves the following operations. Unwinding of paper reel; Flexographic printing (printing/ruling with two or more colours); Cross-cutting with overlapping; Sheet collecting and counting; Cover feeding either for pre-printed-or for flexographic printing: Wire stitching and folding; Cutting of long edges & trimming; Packing; and Exercise book manufacturing does pose any adverse impacts on the environment. 2. Source of Technology The manufacturing technology and machinery required for exercise books manufacturing plant can be obtained from renowned suppliers in Europe and Asia. The following company is renowned in this line of business and can supply the machinery at affordable prices.

Maneklal and Sons (Exports), 237 / 239 Perin Nariman Street Fort, Mumbai 400 001, INDIA, Tel: (+91 22) 22618951 / 22618962 Fax: (+91 22) 22618903 / 22679573, e-mail: sales@maneklalexports.com.

Sr. No. Description No. [Set] 1. Unwinding unit 1 2. Printing/ruling machine 1 3. Rotary cross cutter with overlapping system 1 4. B. ENGINEERING Sheet counting & collecting unit 1 5. 1. Machinery and Equipment Sheet feeder for pr-printed & pre-cut covers 1 The list of machinery and equipment required for the manufacture of exercise books 6. equipment is estimated at Birr is given in Table 5.1. Total cost of machinery and Transferring unit 4.12 million, out of which Birr 3.09 million is required in foreign currency. 1 7. Table 5.1 LIST Deep pile delivery device OF MACHINERY AND EQUIPMENT 1 8. Wire stitching unit 1 9. Back pressing machine 1 10. Cutting & trimming machine 1 11. Transport and material handling facilities 12. Compressor 1 13. Baling machine for trimmings 1 14. Workshop equipment -

2. Land, Building and Civil Works Total land requirement of the project is estimated at 3,000m 2, out of which 1,000m2 is built-up area. Cost of building construction at the rate of Birr 1,500 per m 2 is estimated at Birr 1.5 million. Total land lease cost, for a period of 80 years with cost of Birr 0.10 per m2, is estimated at Birr 24,000. The total investment cost for land, building and civil works, assuming that the total and lease cost will be paid in advance is estimated at Birr 1,524,000. 3. Proposed Location The most important factor for an exercise book manufacturing factory is availability of sufficient market as it is not basically a resource-based project. In view of this, town Jemu, at Meant Shasha wereda is believed to be the most optimal location. VI. MANPOWER AND TRAINING REQUIREMENTS A. MANPOWER REQUIREMENT Total manpower requirement, including skilled and unskilled labor is 42 persons. Correspondingly, total annual labor cost, including fringe benefits, is estimated at Birr 364,500. Table 6.1 shows the list of manpower required and the estimated annual labor costs.

Sr. No. Position Description Req. No. Monthly Salary [Birr] Annual Salary [Birr] 1. General Manager 1 2000 24000 2. Production & Technical Head 1 1800 21600 3. Finance & Administration Head 1 1600 19200 4. Commercial Head 1 1600 19200 5. Accountant

600 7200 6. Sales Person 1 600 7200 7. Purchaser 1 500 6000 8. Clerk 3 900 10800 9. Secretary Table 6.1 2 MANPOWER REQUIREMENT AND LABOUR COST 1000 12000 10. Quality Control Head 1 1600 19200 11. Production Foreman 3 2400 28800 12. Designer 1 800 9600 13. Operator 8 4000 48000 14.

Mechanic 1 700 8400 15. Electrician 1 700 8400 16. Unskilled labour 10 2000 24000 17. Guard 3 600 7200 18. B. TRAINING REQUIREMENT Diver 2 On-site training programme can be arranged for key production, maintenance and 900 quality control/design personnel in consultation with the machinery and technology 10800 supplier. The training can best be carried out during commissioning and performance testing of the factory. Cost of an on-site training of this nature is estimated at Birr Sub-Total 100,000. 42 24300 VII. FINANCIAL ANALYSIS 291600 The financial analysis of the exercise book project is based on the data presented in Workers Benefit assumptions:the previous chapters and the following = 25% of Basic Salary 6075 72900 Construction period 1 year Source of finance 30% equity Grand Total 70% loan Tax holidays 3 years Bank interest 8.5 % Discount cash flow 8.5% Accounts receivable 30 days Raw material local 30days Raw material, import 90days Work in progress 2days Finished products 30 days Cash in hand 10 days Accounts payable 30 days A. TOTAL INITIAL INVESTMENT COST 30375 364500

The total investment cost of the project including working capital is estimated at Birr 8.69 million, of which 21 per cent will be required in foreign currency. The major breakdown of the total initial investment cost is shown in Table 7.1.

Sr. Total Cost No. Cost Items (000 Birr) 1 Land lease value 24.0 2 Building and Civil Work 1,500.0 3 Plant Machinery and Equipment 4,120.0 4 Office Furniture and Equipment 125.0 5 Vehicle 450.0 6 Pre-production Expenditure* 577.4 7 Table 7.1 Working Capital INITIAL INVESTMENT COST 1,882.2 Total Investment cost 8,678.6 21

* N.B Pre-production expenditure includes interest during construction ( Birr 427.39 thousand ) training (Birr 100 thousand ) and Share thousand costs of registration, licensing and Foreign Birr 50 formation of the company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST The annual production cost at full operation capacity is estimated at Birr 11.98 million (see Table 7.2). The material and utility cost accounts for 85.60 per cent, while repair and maintenance take 2.13 per cent of the production cost.

Items Cost % Raw Material and Inputs 10,199.48 85.09 Utilities 62.14 0.52 Maintenance and repair 254.99 2.13 Labour direct 218.7 1.82 Factory overheads 72.9 0.61 Administration Costs 218.7 1.82 Total Operating Costs 11,026.91 91.99 Depreciation Table 7.2 619.5 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR) 5.17 Cost of Finance 340.97 2.84 C. FINANCIAL EVALUATION Total Production Cost 11,987.38 1. Profitability 100 According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project. The income statement and the other indicators of profitability show that the project is viable.

2. Break-even Analysis The break-even point of the project including cost of finance when it starts to operate at full capacity ( year ) is estimated by using income statement projection. BE = Fixed Cost = 26 % Sales Variable Cost 3. Pay Back Period The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 4 years. 4. Internal Rate of Return and Net Present Value Based on the cash flow statement, the calculated IRR of the project is 29 % and the net present value at 8.5 % discount rate is Birr 7.49 million. D. ECONOMIC BENEFITS The project can create employment for 42 persons. In addition to supply of the domestic needs, the project will generate Birr 4.76 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.