T H E P IP E & H O S E P R

PIPE & HOSE EXTRUSION PROJECT

A preliminary Study (II)

Prepared by:

CONTENTS

Introduction Project description Special features of the extruder Production output Analysis . Cost Analysis . Projected profit/ loss statement . .. Brief Marketing Information Conclusion ..

Page: iii 1 3 8 9 14 17 18

(ii)

INTRODUCTION
In this preliminary study (II), attempt has been made to outline the commercial implications of setting up the extrusion plant starting from the acquisition of a single production line (Machine A). This is expected to increase up to 3- set of extruders over a 3- year plant development plan. In addition, other investment guideposts such as technical & manpower requirements, as well as commercial viability and financial position of the extrusion project shall be outlined in this report. This pipe extrusion project has been designed to specifically promote an adaptive technology, which is aimed at the full utilization of polypropylene as a basic raw material for the industrial manufacture of pipes in Nigeria. The pipe Industry in Nigeria is chiefly dominated by imported machinery, which are wholly dependent on PVC, as its only raw material. This has placed a higher demand for PVC, thereby increasing its cost. Consequently, the introduction of this extruder which uses polypropylene (which is 55% cheaper than PVC) as an alternative raw material for pipe manufacturing, provides a production cost advantage that has great commercial implications. The pipe project no doubt, is very viable and we welcome you to critically appraise the prospects as highlighted in this report before coming to that conclusion.

PRODUCT DEVELOPMENT:
The extrusion plant is a design- prototype of an adaptive technology with the capacity to produce pipes using polypropylene, as it's basic raw material. The use of polypropylene for the production of pipes is an innovative technology, which distinguishes this particular extruder from other imported ones that are designed to use only PVC as core raw material. Polypropylene is a stronger hydro- carbon than PVC, it produces pipes with high tensile strength, that can equally withstand higher pressures. It is commonly used for the production of waterproof bags, Jelly- cans, etc. The cost of polypropylene in Nigeria is about 55% less than PVC due to lower demand. This extruder combines the flexibility of using both polypropylene and PVC for the production of pipes. It can produce higher quality pipes from polypropylene at nearly 50% less than the production cost of PVC pipes. The implication of this feature is that this extruder has a competitive production cost advantage over other similar grade of machines in the market. This is quite significant, because the cost of raw materials represents over 50% of the total production cost outlay for pipe & hose manufacturing. The ability to reduce the pipe manufacturing cost considerably using polypropylene makes this extruder a highly competitive and an attractive investment. (iii)

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PROJECT DESCRIPTION:
The project to manufacture pressure pipes and hoses is being proposed by a company HI-SKILL TECHNOLOGIES in association with their technical partners- Ikebude Industrial Ltd. It is planned that IKEBUBE INDUSTRIAL LTD would provide the technical support to run the extrusion plant over an agreed period under a proposed technical management agreement. This proposed technical agreement shall ensure that within a stipulated number of years from the commencement of production, that the requisite number of technicians are adequately trained by the technical group to take over the technical management of the extrusion plant. The extrusion plant project is designed for the manufacture of various sizes of high-grade pressure pipes - from high-density polypropylene blow and also PVC waste pipes & hoses with sizes ranging from 8mm to 100mm. The extruders production line was developed with a built-in flexibility to enable it to be changed according to the changing demands in the market for pressure pipes, PVC pipes, Hoses, etc. The extrusion plant is designed with a combined capacity to process an average of 7,200kg of raw materials per day or up to 2,073,600 million kilogram (kg) of raw materials annually. The capacity utilization of the extrusion plant is estimated at 25% of the above installed capacity for the first year of operation. The plant utilization is expected to increase up to 45% within the first 3 years of operation.

PRODUCTION PROCESS:
The production process of the pipes & hoses extruder has been made simple based on the system developed by the technical management group. The production system comprises of 3 distinct processes, which involve - extrusion, cooling and cutting stages. The extrusion plant is designed to be made up of 3 complete sets of extruding machines. The first set produces pipes & hoses of size ranging from 8mm to 45mm; the second set produces size ranging between 45mm - 75mm and the third set produces size from 75mm to 100mm. The production process for all the 3 machines is identical and involves the same procedures. An outline of the production process include the following: First, the raw materials (which includes - PVC scraps, powder, grains and polypropylene) is fed into the hopper which can contain up to 25kg weight of the raw material. From the hopper it is then sent to the extrusion chamber where it is subjected to various heating action and then it is passed through the cooler bath or water-recycling plant where the product is cooled and finally passes on to the take-up unit. And from there, it is sent to the cutting machine where the product is cut according to size and specifications of the production plan. The production process is a continuous production system built on a split system (or Battery form) production line.

R A W M A T E R IA L S

THE EXTRUSION PLANT PROJECT

H OPPER

W ATE R R E C Y C L IN G PLANT

AN OUTLINE OF THE PRODUCTION PROCESS:

EXTRUDER

CO OLER BATH

TA KE - U P U N IT

C U T T IN G M A C H IN E

PRO DUCT CH ANNEL

Page 2

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SPECIAL FEATURES OF THE EXTRUDER:

The extruder machine is designed with a built-in flexibility to offer a wide range of features hitherto not found in other similar extruders available in the market. These capabilities gives the manufacturer a cutting edge advantage over his competitors in various areas such as flexibility in raw material intake, speed, low production costs, etc. Some of these features are as follows: The extruder has a special ability to produce pipes from polypropylene as its basic raw material. This particular capability of the extruder places it high above its contemporaries, as the cost of polypropylene is about 55% lower than PVC. This enables the manufacturer to have a tremendous production cost advantage. The plant enjoys a special advantage that enables scraps of polythene waste to be recycled in the recycling plant and directly processed into polypropylene pipes. (The recycling feature is however optional). The extruder operates a short- screw system, which gives it a risk-advantage over the imported ones - which has the long-screw system that is usually prone to damages. This makes the extruder very economical due to low maintenance costs. The extruder combines the production of both pipes and hoses against the idea of separate production lines for pipes and for hoses. This singular feature enables the manufacturer to save tremendous amount of money from the cost of setting-up separate production machines for pipe and hoses. The machines have a unique flexibility that enables it to directly process all forms of raw materials. It can directly process PVC scraps, powder, or grain; this is unlike the imported ones that are selective and can only process pre-treated (or palletized raw materials). This capability ensures that the machines production output is greatly increased due to time and money saved from going through the traditional processes of palletization. Every replaceable part of the extruder machine is available locally and can easily be supplied by the technical group - which is based here in Nigeria. In addition, as part of the Technical Agreement, the technical consultants shall train technicians which shall be capable of taking over the running and maintenance of the machine. All damages during production can be fed back into the machine and re- processed into a final product. No Materials are lost during production with the machine.

PROJECT OUTLINE
LAND AND BUILDING: The factory site shall contain 5 buildings, each for raw materials, production line, finished products, recycling plant, and damages unit. They would be contained in a fenced area of about

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100 x 150m. The factory production line space is estimated at 34 x 17m, and approximately 5.7m height. For the purpose of this study, it is estimated that the cost of leasing a 100 x 150m land, and erecting 5 factory buildings (each about 34 x 17m area & 5.7m height) is projected at Ten million Naira (N10 million) **Note that this is the projected cost of erecting such a structure around Enugu**. However, due to the differentials in costs of construction in various parts of the country, it is recommended that the cost of land and building be calculated according to the prevailing cost of construction materials within the proposed location for the factory site.

OUTLINE OF THE FACTORY LAYOUT

* * G E N E R A L H E I G H T O F B U I L D 3 I N 4 Gm = 5 . 7 M

E C Y C P L A N

L I N G 1 T 7 m

3 4 m R A W P R O D A T E R 1I A0 L S L I N m S T O R E U E

1 0 m

1 7 m M 1 0 0 m

C T I O N 1 0 m D A M U N

A G I T

1 0 m

3 4 m

F I N I S H E D 7 P R O D U 1 C mT 3 4 m 1 5 0 m

MACHINERY & EQUIPMENT: The complete set of 3 extrusion machines required for production in the extrusion plant is estimated to cost the sum of N9.2 million.

This sum includes cost of installation and other handling charges for transportation etc. The technical consultants shall provide all the necessary support for machine installation.
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An anatomy of the 3 sets of extruder machines, indicate that each of them have identical components with the specifications ranging from 8mm to 100mm respectively. Each extruder is made up of the following basic components, thus: Machine Components: a. Gear Systems b. Screws & Barrel c. Die head d. Moulds e. Water Bath f. Take-up rollers g. Cutting machine(s) h. Rail line(s) i. Heating elements (bands) j. Control panel(s) k. Electricity Motors l. Electricity water pump(s) etc. A COMPARATIVE ANALYSIS OF THE EXTRUDER COST: The following chart features the corresponding value of a complete set of imported extruders, with the same specifications as the ones mentioned above. IMPORTED EXTRUDERS: RANGE: 8mm 45mm 45mm 75mm 75mm 100mm TOTAL COST (in $, N) PRICE ($) 50,000.00 75,000.00 125,000.00 $250,000.00 N 4,500,000.00 6,750,000.00 11,250,000.00 N22,500,000.00

From the above data, the cost of acquiring the 3- sets of imported extruder, with equivalent specifications is estimated at N22, 500,000 million (or $250,000.00). While the localized one cost a total of N9, 200,000 million (or $102,222.00).

PRODUCTION DETAILS
Basic Raw material input: The extruder machine uses the following listed materials for the production of PVC pipes, highgrade pressure pipes, & Hoses, thus: a. Polypropylene b. PVC c. Grains d. Powder (Directly without palletization)

e. Scraps (of finished products)

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The raw materials are sold in 25kg bags; the prices vary and are dependent on the sources and state of the raw material. (ie either palletized or in powdered form/ scrap) Sources of Raw Materials: The raw materials for the production of pipes & hoses are procured from the refineries and petrochemical plants found in the following location across the country thus: a. Kaduna Refinery. b. Warri Refinery. c. Eleme Petro-chemical plant, Port-Harcourt. d. Lagos. The raw materials availability is high and the sources are quite inexhaustible and relatively affordable at varying quantities. EXTRUDER MACHINE SPECIFICATIONS: The 3 sets of machine required to make up the extrusion plant production lines are built to produce pipes and hoses with size specifications ranging from 8mm to 100mm the details are as follows: MACHINE i. Machine (A)- Production line (1) ii. Machine (B)- Production line (2) iii. Machine (C)- Production line (3) RANGE/SIZE OF PIPE & HOSE 8mm - 45mm 45mm - 75mm 75mm - 100mm

POWER The 3 sets of extruder machines [A, B, & C] that make up the extrusion plant all have a combined power requirement of approximately 100 kilowatts of electricity. Each extruder therefore, has an estimated power requirement of about 33 kilowatts. MACHINE SPEED Each extruder has an average screw speed of about 80 r.p.m. MACHINE OUT PUT CAPACITY: The 3 extruders have been designed with a combined capacity to process over 450 kg of its basic raw materials per hour. The details are enumerated below: Machine i. Machine (A) production line (1) ii. Machine (B) Production line (2) iii. Machine (C) Production line (3) Size of Pipe/Hose(mm) 8mm - 45mm 45mm - 75mm 75mm - 100mm Capacity (kg/hr) 100kg/hr 150kg/hr 200kg/hr

INCREASING MACHINE OUTPUT CAPACITY: The extruder is built with a flexible split (or a battery form) production system which enables the machines output capacity to be increased or expanded through the introduction of additional lines

of production for each respective machine. This design concept makes it possible for the manufacturer to easily expand their production output.
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MACHINE OPERATING INFORMATION: The extruder is designed to achieve optimal performance when it works over a longer period. Also, the product output quality improves tremendously over time - this makes it imperative that the machine must be kept working continually. Therefore, to enhance the machine efficiency, it is recommended that a multi-shift production system be adopted for the factory operations. In this study, a 2-shift-16 hours per day (8- hrs per shift) production system has been adopted. Under this arrangement, the manpower requirements for a 16 hours per day (8 hours per shift) production system are as follows: MANPOWER (Production): a. Skilled Labour Maintenance engineer Materials engineer b. Unskilled Labour Machine operators (Machine A, B, C) Packers Supervisor(s) No 1 1 2 3 6 4 13

The manpower requirement for the production Department is 15 persons per shift or 30 persons for a 2-shift system. ORGANIZATION STRUCTURE The company structure is designed to reflect the management function and objectives. It is expected to provide effective co- ordination, limiting the span of control of each person in the organization. The organization structure for the factory is as follows:

BOARD OF DIRECTORS General Manager

Mkt. Manager

Production Manager

Admin. Manager

Prod. Engineer

Qlity Ass. Sup. .

Accountant

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PRODUCTION OUTPUT ANALYSIS:

The 3-extruder machines have been designed to produce specific sizes of pipes and hoses. Each product has its own size length. These variables determine the actual volume output of each particular product per day. However, for the purpose of this study, we shall base our production analysis on the production capacity of only a single extruder. In otherwords, it is assumed that the extrusion plant shall begin its operations with one extruder, out of the 3- sets of extruders required for the plant. PRODUCTION OUTPUT USING ONLY MACHINE (A) [PRODUCTION LINE 1] The detail for the production of 32mm pipes using the production line (1) is as follows; PRODUCTION OF 32mm PIPES: The machine (A) or production line (1) is designed with an in-built capacity to undertake the production of 8mm-45mm hoses/ pipes. The machine processes average of about a 100 kg of its basic raw materials per hour. This translates approximately to about 1,600 kg of raw materials per day of 16 machine hours in a 2-shift system comprising of 8-hours per shift. The production details for producing a 32mm pipe are as follows: PIPE STATISTICS: Size of pipe = 32mm Length of pipe = 18 ft. Weight of pipe = 1.5 kg Thickness of pipe = 1.2 mm PRODUCTION CAPACITY: Normal production capacity Max. machine hours per day Max. production volume per day Standard weight of final product = 100kg (raw materials) per hour = 16 hours (2-shifts/ day) =[100kg x 16 hours] = 1,600 kg per day = 1.5 kg (per 18 ft. length)

PRODUCTION OUTPUT DATA: (TABLE 1) 1 DAY Plant Utilization Shift Per Day (288 working days/year) Production Volume (in Kg.) Ave. Product output (in pipe) 20% 2 320 213

1 MON. 20% 2 7,680 5,112

1ST 6 MON. 20% 2 46,080 30,672

2ND 6 MON. 20% 2 46,080 30,672

1 YEAR 20% 2 92,160 61,344

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COST ANALYSIS
There are various cost centres and cost units involved in the establishment of the extrusion plant. These cost areas must be adequately assessed before any meaningful investment decision can be taken in setting up the extrusion plant. In this instance, the cost analysis shall focus primarily on the cost of setting up the plant with only one production line [i.e. Production line (1) or machine (A)]. A combination of costing methods such as - process costing, marginal costing and productivity costing techniques shall be employed to provide relevant information regarding the cost-volume and profit relationship for the project. In addition, due to the homogenous nature of the product and the manufacturing process, which is essentially continuous in nature - it is necessary that the relative changes in cost, volume and type of output be reflected in these appraisals. Therefore, the general cost requirements for establishing the extrusion plant has been articulated and divided into the following cost classification thus: fixed costs, variable costs, prime costs (or direct costs), overhead costs, etc. The details are as follows; FIXED COSTS: These represent cost of items or facilities, which are not susceptible to any substantial change within a certain periods of time or interval. They are appropriation types of costs that have no casual relationship arising from the amount of business actually done. They include the following LAND AND BUILDING: The factory site is expected to occupy a fenced area of land measuring about 100 x 150m in size. The value of this size of land is estimated to cost N2 million (around Enugu). The factory shall be made up of about 5- building structures and each shall occupy an area of about 34 x 17m and 5.7m height. The cost of erecting such a factory structure is estimated at N10, million Naira, (around Enugu). Therefore, the projected total cost of land and building for the factory is estimated at N12 million Naira. It is however; recognized that the cost of land and building varies because construction cost differs from one part of the country to another. Consequently, the specific cost shall be determined according to the proposed location for the plant. **Please note that for the purpose of this study, the cost of land and factory site development/construction shall be substituted with the cost of factory Rent**

PLANT & MACHINERY: The extruder machine (A) is valued at the sum of N2.6 million, only. The installation and other handling costs for the machine is estimated at N50, 000.00 only.
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Therefore, the total cost of plant & machinery is estimated at N2.65 million Naira (N2, 650, 000.00) only. POWER: It is also a priority requirement that adequate arrangements must be made for an alternate power source apart from NEPA. In this regard, atleast a 200 KVA Generating plant must be provided as a standby power source for the plants operations. The cost of this power plant (a used one) is estimated at N800, 000.00 only. VEHICLES: It is recommended that atleast; one pool car or van is provided for the factory to facilitate the conveyance of factory materials and other conveniences. A factory van is estimated to cost about six hundred thousand Naira (N600, 000.00) only. Therefore, the total fixed cost for the project is estimated at N4,050,000.00 only. SEMI-FIXED COST This category of costs represents expenditures which cannot be directly associated with the production of a cost unit but are apportioned as preliminary and pre-operative expenses. The semi-fixed costs are as follows;

Cost of Establishment -Office furniture & equipment -Electricity & water Installation -Telephone/Fax lines Taxes and Duties -Registration/ legal fees -Business/ Regulation Taxes TOTAL

Amount (N) 600,000.00 90,000.00 75,000.00

80,000.00 50,000.00 895,000.00

The total semi-fixed cost for the project is estimated at Eight hundred and ninety- five thousand Naira (N895, 000.00), only.

PRODUCTION OVER HEAD COST:

The production overhead costs represent cost, which cannot be traced to specific units of products. They are synonymous with the fixed costs of product and distribution for a one-year period. The breakdown of the production overhead costs for a one year period is as follows:
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COST CENTRE Administration Expenses :(1 yr. Projections) Factory Rent Factory Power/ Rate Maintenance costs (repairs etc) Factory Insurance Premiums Other Power costs (Gasoline, etc.) Contingence expenses Administrative Staff salaries: Admin. Manager (1) Personnel Officer (1) Accountant (1) Book keeper (1) Purchasing/Store officer (1) Factory Management Salaries: Engineers (4) Machine Operators (3) Parkers (4) Cleaners (4) Quality Assurance Staff Salaries: Quality Assurance Supervisor (1) Line supervisors (2) Marketing Staff Salaries: Marketing Manager (1) Sales Men (3) Salesmen Travelling Costs Auxiliary Staff: Security Supervisor (1) Security Officer (6) Gate Men (2) Top management Salaries: Non-Exec. Directors Allowances (3) General Manager (1)

AMOUNT (N) 200,000.00 52,000.00 40,000.00 35,000.00 180,000.00 50,000.00 527,000.00 132,000.00 60,000.00 120,000.00 60,000.00 84,000.00 456,000.00 480,000.00 180,000.00 144,000.00 96,000.00 900,000.00 96,000.00 172,000.00 268,000.00 144,000.00 252,000.00 120,000.00 516,000.00 84,000.00 288,000.00 96,000.00 468,000.00 1,440,000.00 300,000.00 180,000.00 1,920,000.00

 Production Manager (1) TOTAL COST

N5,055,000.00

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Therefore, the production overhead costs for the factory is estimated at five million, fifty- five thousand Naira only (N5, 055,000.00 million) per year.

DIRECT MATERIAL COSTS

The direct material costs are regarded as expenses, which are directly traceable to a particular unit of output. They can also be referred to as prime costs. In this instance, the Direct Material costs for machine (A) or production line (1) are enumerated below; GENERAL MATERIAL INFORMATION 1 bag of raw material poly propylene (PP) weights 25kg = N1,125.00 I kg of raw material poly propylene (PP) = N45.00 per kg 1 kg of master badge (colouring) = N450.00 or 45k per gram 1kg of colouring is required per 250 kg of material or 1 kg of raw material requires .004kg or 4g of colouring. DIRECT MATERIAL COSTS FOR MACHINE (A) (Production of 32mm pipes) (TABLE 2) Plant Utilization Shifts Per Day (288 working days/ year) Quantity of Material (in kg) Total cost of Material (@ N45/ kg) Total Product output (pipe) 1 Day 20% 2 320 14,400 213 1 Month 20% 2 7,600 342,000 5,112 1st 6 Mon. 20% 2 46,080 2,073,600 30,672 2nd 6 Mon 20% 2 46,080 2,073,600 30,672 1 year 20% 2 92,160 4,147,200 61,344

The Direct material cost for the production of 32mm pipes with machine (A) for a period of 1 year = N4,147,200.00 million.

PRODUCTION COST ANALYSIS

The total production cost for the extrusion plant can be deduced by adding the general production overhead cost to the combined direct material cost thus: TOTAL PRODUCTION COST = PRODUCTION OVERHEAD COST MATERIAL COST + DIRECT

THE BUDGETED FACTORY PROFIT = SALES MINUS TOTAL PRODUCTION COST. 1) TOTAL PRODUCTION COST FOR MACHINE (A) Direct Material Cost = N4,147,200.00 Production Overhead Cost = N5,055,000.00 Total Production Cost = N4, 147,000 + N5, 055,000 =N9, 202,200 million
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In conclusion, the total production cost for the extrusion plant for a 1-year period is estimated at N9, 202,200 million. For a concise overview of the cost analysis for the extrusion plant, please refer to the cost analysis chart. WORKING CAPITAL: The estimated sum of N2 million is to be set aside as working capital. This amount represents the value of an average 1- month stock of raw materials plus 1- week of work in progress.

COST ANALYSIS CHART AT A GLANCE: (TABLE 3) Capacity Utilization Shift per day (288 days/ year) Product output (in pipes) Machine (A) [32mm pipes] Total product Output (inpipes) Direct Material cost: (in N) Machine (A)-[1,600kg/day] Total Material Cost: (in N) Production Overhead cost: (Machine A, B, & C) Admin/ Mgt. Exp(Rent,etc.) Factory/ Admin. Staff salaries Auxilliary Staff salaries Marketing Staff salaries Top Management salaries Total overhead cost (in N) Total Production Cost: Machine (A) Total Production Cost (in N) 1 DAY 20% 2 1 MONTH 20% 2 1ST 6 MON. 20% 2 2ND 6 MON. 20% 2 1 YEAR 20% 2

213

5,112

30,672

30,672

61,344

14,400 1,830 5,639 1,625 1,792 6,666 17,552

342,000 43,916 135,333 39,000 43,000 160,000 421,249

2,073,600 263,500 812,000 234,000 258,000 960,000 2,527,500

2,073,600 263,500 812,000 234,000 258,000 960,000 2,527,500

4,147,200 527,000 1,624,000 468,000 516,000 1,920,000 5,055,000

31,952

763,249

4,601,100

4601,100

9,202,200

SUMMARY OF GENERAL COST ANALYSIS (1 YEAR PERIOD) From the foregoing analysis, the fixed cost for the extrusion plant project is estimated at N4,050,000 million, while the semi- fixed cost is N895, 000.00; therefore the capital cost for the extrusion plant is estimated at N4,945,000 million only. This represents capital expenditures only. **(Please note that the cost of land/building is not included in this estimate). The total production overhead cost for the extrusion plant for a 1-year period, using the production line (1) or machine (A)- is estimated at N5,055,000 million.
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The Direct material cost for machine (A) at 20% installed capacity over a 1- year period is N4,147,200 million. The total Production cost for machine (A) for a one-year period equals N9,202,200 million. The working capital requirement for the extrusion plant is estimated at N2 million Naira only.

PROJECTED PROFIT/ LOSS STATEMENT FOR THE PLANT Table 4 represents the projected profit/ loss statement of the extrusion plant project over a oneyear period of operation; while using only production line (1) or machine (A). Production has been based on 2 shifts of 16 hours per day and 288 working days per year. Production during the first year of operation is estimated at 20% of installed capacity. At 20% capacity utilization 61,344 pipes are to be produced during the first year of operation. The net sales revenue from the pipes within the first year is estimated at N13,495,680 million. The operating profit or profit before tax in the first year of operation is projected at N4,293,480 million. This indicates that the extrusion plant starts to make profits from the first year of operations. (TABLE 4) Capacity Utilization Product Output (in Pipes) 32 mm pipes Total Product output (Pipes) Sales Revenue (in N) 32 mm pipes (@N220/pipe) Total Sales Revenue (in N) Total Production Cost (inN) Machine (A) Total Production Cost Profit before Tax (in N) 1 DAY 20% 213 46,860 31,952 14,908 1 MONTH 20% 5 ,112 1,124,640 763,249 361,391 1ST 6 MON. 20% 30,672 6,747,840 4,601,100 2,146,740 2ND 6 MON. 20% 30,672 6,747,840 4,601,100 2,146,740 1 YEAR 20% 61,344 13,495,680 9,202,200 4,293,480

PROFITABILITY - MEASUREMENT & CONTROL

Profitability is the primary aim and the best measure of efficiency in competitive business. Against this backdrop, this report attempts to examine the relationship between the capital invested in the extrusion plant and the projected profits over time. Other Guideposts to profitability such as percentage rate of return on capital invested, sales volume, as well as other criterion for profitability measurement shall also be briefly examined.
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BREAK- EVEN POINT ANALYSIS: The Break- even Chart is a graph showing the amount of fixed and variable cost and the sales revenues at different different volumes of output. The Break- even point for the extrusion plant is as follows: ANNUAL SALES @ 100% CAPACITY TOTAL COSTS FIXED COSTS THE BREAK- EVEN POINT CHART: The Break- even point is as follows; (TABLE 5) N
100 90 80 70 60 50 40 30 20 10 0

= = =

N67, 541,760 million N9, 202,200 million N4, 945,000 million

10

20

30

40

50

60

70

80

90

100

Capacity utilization
BREAK-EVEN POINT

The break- even point for the extrusion Plant is reached at 10% of installed capacity. This shows that the plant begins to make profits while operating at above 10% of installed capacity.

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MEASURES OF PROFITABILITY FOR THE EXTRUSION PLANT: (FOR A 3- YEAR PERIOD) (TABLE 5) Plant utilization Net Sales Revenue (in N) Less Material Cost Less Overhead Cost (+10%) Profit Before Tax Less Taxes on Income (21%) Profit After Tax (in N) % Return on Capital Employed YEAR 1 20% 13,495,680 4,147,200 5,055,000 4,293,480 901,630.80 3,391,849.20 27% YEAR 2 30% 20,275,200 6,220,800 5,560,500 8,493,900 1,783,719 6,710,181 48% YEAR 3 40% 27,033,600 8,294,400 6,116,550 12,622,650 2,650,756.5 9,971,894 60%

From Table (5) above, the profit after- tax for the first year of operation is N3,391,849.20 million, with the plant utilization estimated at 20%. The percentage return on capital during this period is about 27%. The projected profit after tax for the second year period is estimated at N6, 710,181 million; this increases to about N9, 971,894 million during the third year. The return on capital employed ranges from 48% to 60% within the same period of operation.

RATE OF RETURN ON CAPITAL EMPLOYED FOR THE FIRST YEAR: The rate of return on capital employed is the percentage profit to capital employed. In this analysis, attempt shall be made to establish this ratio for the extrusion plant over a 1- year period thus; CAPITAL EMPLOYED = VARIABLE COST + FIXED COST = N9, 202,200 + N4, 945,000 = N14, 147,200 million SALES = N13, 495,680 million PROFIT = N4, 293,480 million Therefore, rate of return on capital employed = PROFIT X SALES

SALES = N4, 293,480 X N13, 495,680 = 0.27 X 100% = N14, 147,200 27% return on capital employed N13, 495,680 X 100%

CAPITAL EMPLOYED

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BRIEF MARKETING INFORMATION

An extensive market investigation and survey of the pipe and hose industry led to the compilation of considerable information about the existing market structures for pipes and hoses in Nigeria. The supply of pipes and hoses in Nigeria is chiefly from local producers and the marketing is carried out mainly through the distributors who buy directly from the manufacturers. The major distributors of pipe and hose products in Nigeria are located at Lagos, Onitsha, and Kano. Their distributive channels cuts across Aba, Enugu, Lagos and the ECOWAS sub-region. The market leaders on pipes and hoses include Niger pipes- Kano, which have a controlling share of the market. It was also observed that their product quality is higher than most ones and they package their products in Batches that can easily be conveyed. This arrangement has given them a comparative edge amongst other local competitors like Udegbunam pipes, etc. A significant demand for Nigerian pipes and hoses come from the neighbouring countries like Togo, Ghana and others from the ECOWAS sub-region. Buyers from these countries come all the way from their countries to buy pipes here in Nigeria. Pipes and hoses are not seasonal products; their demand is quite stable throughout the year. This can be attributed to the various uses of the products, which cuts across different sectors of the economy. The proposed plant is expected to produce pipes using mainly polypropylene as its basic raw material. The polypropylene pipes are produced at 55% less cost than the PVC pipes; and at the current market price for pipes, this polypropylene pipes shall be sold at over 32% factory profit. This is indicative of the competitive production cost advantages of this particular extruder. The Machine combines other notable technological advantages, which can enable it, compete favourably in the Export market. For instance, the extruder has this singular capability of producing high- grade pressure pipes from high-density polypropylene blow. This particular grade of pressure pipes has a high demand in the international market and it is used for highintensity gas pipes, Borehole, reservoirs, etc.

The extrusion plant can specifically target its products to satisfy this particular segment of the market by designing its production specifications to satisfy the demand for this particular type of pipes. The export details for this brand of pipes shall not be treated fully in this study but shall be contained in the export report for this project. The complete absence of reliable market data in the contemporary Nigerian manufacturing sector, had compelled us to rely on market place information randomly sampled across the market centres. This marketing information although not exhaustive shall no doubt provide a guide of some sought for an effective investment decision.

THE EXTRUSION PLANT PROJECT

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CONCLUSION:
The foregoing analysis represents a preliminary working study containing a concise overview of the technical and financial requirements necessary for the setting up of a complete extrusion plant using this particular adaptive technology. It is expected that this document shall form the basic reference data for the articulation of further information that may be useful for a fruitful investment in the pipe and hose Industry. God bless you.

HI- SKILL TECHNOLOGIES

ENUGU- NIGERIA. 2000.