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FEASIBILITY REPORT

ON THE PRODUCTION OF
POLYMER WRITING PENCILS

PREPARED BY:

STEMGART VENTURES NIGERIA LIMITED


11 OKUNFOLAMI STREET,
OFF ADEBAYO MAKOLU
ANTHONY VILLAGE,
LAGOS STATE.
PHONE: +234-805-641-6008
Email: ebubec@stemgartventuresandconsult.com
Feasibility report on the production of wooden Writing Pencils

IMPORTANT NOTICE

This Feasibility Report has been compiled by Stemgart Ventures Limited on behalf of Z-
Industries Limited. The Feasibility Report is prepared for the exclusive use of directors
and lenders and investors in Z- Industries Limited.

The information contained in this Feasibility Report is subject to updating, expansion,


revision and amendment. It does not purport to contain all the information that the
recipient may require.

It must be emphasised that no business is free of major risk and few business
plans/feasibility reports are free of errors of omission and/or commission. Therefore no
representation or warranty, express or implied, is or will be given by Stemgart Ventures
Limited, or their respective partners, employees, or consultants or any other person as to
the accuracy and the achievement or reasonableness of any projections, targets, estimates
or forecasts included in this report.

Potential investors are therefore advised to be aware of the inherent risks associated with
this business, which must be fully appreciated, evaluated and discussed with their
professional advisers as a preclude to making investment decisions.

Accordingly, neither Stemgart Ventures Limited, nor their respective partners,


employees, or consultants nor any other person shall be liable for any direct, indirect, or
consequential loss or damage suffered by any person as a result of relying on any
statement in or omission from this report and any such liability is expressly disclaimed.

This report is confidential and meant for use only by the person to whom it is issued and
who have signed the required confidentiality agreement. This report may not be copied
or distributed by the recipient to third parties (other than in confidence to the Recipient’s
professional advisers). In the event that the recipient does not continue with his interest
in the company, this business plan must be returned to Stemgart Ventures Limited.

11 B Okunfolami Street,
Anthony Village,
Lagos
+234 805 641 6008

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TABLE OF CONTENTS

CHAPTER ONE ......................................................................................................5


1.1 THE ASSIGNMENT .................................................................................................5
1.2 EXECUTIVE SUMMARY ........................................................................................6
CHAPTER TWO .................................................................................................... 10
2.1 THE NIGERIAN ECONOMIC AND INVESTMENT REVIEW ....................... 10
2.2 PENCIL MANUFACTURING INDUSTRY IN NIGERIA'S ECONOMY ....... 12
CHAPTER THREE ............................................................................................... 14
3.1 COMPANY FORMATION .......................................................................................... 14
3.2 OWNERSHIP STRUCTURE AND BOARD REPRESENTATION................... 14
3.3 SHAREHOLDERS ......................................................................................................... 14
3.4 MANAGEMENT ............................................................................................................ 14
CHAPTER FOUR .................................................................................................. 16
4.1 PROJECT DESCRIPTION ........................................................................................... 16
4.2 PRODUCTION PROCESS........................................................................................... 16
4.3 RAW MATERIALS ......................................................................................................... 17
4.4 PACKAGING METHODS .......................................................................................... 18
4.5 MANPOWER DEVELOPMENT AND TRAINING ............................................. 18
4.6 TECHNICAL MANAGEMENT ................................................................................. 18
4.7 ENVIRONMENTAL FACTORS ................................................................................ 19
CHAPTER FIVE .................................................................................................... 20
5.1 PROJECT COST ............................................................................................................. 20
5.2 FINANCING PLAN ...................................................................................................... 21
5.3 DETAILS OF INVESTMENT COST......................................................................... 21
5.3.1 Land Acquisition and Development .............................................................................. 21
5.3.2 Buildings ....................................................................................................................... 21
5.3.3 Plant and Machinery ..................................................................................................... 21
5.4 ESSENTIAL SERVICES/UTILITIES........................................................................ 22
5.5 VEHICLES ....................................................................................................................... 23
5.6 OFFICE FURNITURE, FITTINGS AND EQUIPMENT ..................................... 23
5.7 PRELIMINARY AND PRE-OPERATIVE EXPENSES: ....................................... 23
5.8 INTEREST DURING CONSTRUCTION ................................................................ 23
5.9 WORKING CAPITAL ................................................................................................... 24
5.10 CONTINGENCIES ..................................................................................................... 24
CHAPTER SIX ....................................................................................................... 25
6.1 INTRODUCTION ......................................................................................................... 25
6.2 PRODUCT IDENTIFICATION ................................................................................. 25
6.3 LOCATIONAL ADVANTAGE .................................................................................. 26
6.4 SUPPLY ANALYSIS....................................................................................................... 26
6.4.1 Writing Pencils ............................................................................................................. 26
6.5 PROJECTED SUPPLY .................................................................................................. 27
6.5.1 Demand Analysis ......................................................................................................... 28
6.6 SUPPLY GAP ANALYSIS ............................................................................................ 30
6.7 MARKET PROSPECTS ................................................................................................ 30

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6.8 MARKET NEEDS/TRENDS ...................................................................................... 35


6.9 PRICING AND DISTRIBUTION STRATEGIES .................................................. 35
6.10 MARKETING MIX ...................................................................................................... 36
CHAPTER SEVEN................................................................................................ 41
7.1 PROFITABILITY AND FINANCIAL ANALYSIS ................................................. 41
7.2 UTILITIES ....................................................................................................................... 41
7.3 MAINTENANCE ........................................................................................................... 41
7.4 ADVERTISEMENT AND SELLING EXPENSES ................................................ 41
7.5 DEPRECIATION ........................................................................................................... 42
7.6 AMORTIZATION.......................................................................................................... 42
7.7 FINANCE CHARGES ................................................................................................... 42
7.8 TAX PROVISION .......................................................................................................... 42
7.9 PROFITABILITY ANALYSIS ..................................................................................... 42
7.10 CASH FLOW ANALYSIS ........................................................................................... 43
7.11 BALANCE SHEET ANALYSIS ................................................................................ 44
7.12 SENSITIVITY ANALYSIS ......................................................................................... 44
7.13 INTERNAL RATE OF RETURN ............................................................................. 44
7.14 BREAK EVEN POINT ............................................................................................... 45
CHAPTER EIGHT ................................................................................................ 46
8.1 EMPLOYMENT ............................................................................................................. 46
8.2 GROSS VALUE ADDED ............................................................................................. 46
8.3 LOCAL INPUT/FOREIGN INPUT RATIO ........................................................... 46
8.4 FOREIGN EXCHANGE SAVINGS .......................................................................... 46
8.5 ECONOMIC RATE OF RETURN (ERR) ................................................................. 46
8.6 SOCIAL BENEFITS....................................................................................................... 46
CHAPTER NINE .................................................................................................. 48
9.1 RISK ANALYSIS:............................................................................................................ 48
9.2 FUNDING ....................................................................................................................... 48
9.3 RAW MATERIALS SUPPLY ........................................................................................ 48
9.4 COMPETENT TECHNICAL EXPERTISE ............................................................. 48
9.5 UNSTABLE ENERGY SECTOR ................................................................................ 48
9.6 SWOT ANALYSIS .......................................................................................................... 49
9.7 SUGGESTIONS.............................................................................................................. 49
9.8 RECOMMENDATIONS .............................................................................................. 50
Project Cost – Appendix 1 ..................................................................................................... 51
Profit and loss Account – Appendix 2.................................................................................... 55
Balance Sheet – Appendix 3 .................................................................................................. 56
Cash Flow – Appendix 4 ...................................................................................................... 58

Financial Ratios – Appendix 5.............................................................................................. 59


Cost of Management and Labour – Appendix 6 (N) ............................................................. 61
Assumptions and Milestones – Appendix 7 ........................................................................... 63
Capital Funding – Appendix 8 ............................................................................................. 65

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CHAPTER ONE

PREAMBLE

1.1 THE ASSIGNMENT

Following initial consultation with the Directors of Z- Industries Nigeria Limited, the
company commissioned our firm to carry out a feasibility study of their proposed writing
pencil plant with the following terms of reference:

a} To determine the investment cost of setting up a modern manufacturing outfit for the
production of polymer writing pencils in Ikorodu, Lagos state, covering both the fixed
and floating assets, as well as the working capital requirement.

b} To propose a suitable financing structure for the project.

c} To investigate the demand and supply structure of the products and justify the
establishment of this project on the basis of the market analysis.

d} To investigate the raw material requirements, their sources and cost implications as
well as the strategies for an uninterrupted supply to guarantee optimal capacity
utilization.

e} To analyse and advise on the required plant and machinery, and to ensure complete
configuration, reliable operation and high quality products.

f} To prepare detailed financial projections and demonstrate the ability of the company
to service its debt obligations and make reasonable returns to shareholders.

g} To recommend an appropriate Organizational and Management structure, and to


ensure effective management of the company.

h} To prepare Draft and Final Reports on the result of the various investigations,
advising on the feasibility or otherwise of the project.

The study was done based on information collected from the sponsors as well as from
primary and secondary sources.

The information gathered from various sources were analyzed and an in-depth feasibility
report was put in place.

The summary of the report is given hereunder.

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1.2 EXECUTIVE SUMMARY

a) Company: Z- Industries Nigeria Limited

b) Factory Site: Kilometre KM 321, Ikorodu Road, Ikorodu, Lagos State.

c) Ownership structure: 100% Nigerian.

d) Products:
i. Writing Pencil.
ii. Cosmetic Eye Pencils.

e) Proposed Machinery Suppliers:

i. AMASCO ENTERPRISES LTD.


1303 China Aerospace Centre,
143 Hoi Bun Road Kwun Tong,
Kowloon Hong Kong,
Tel:+852 2889 3812 Fax:+852 2898 7727.
Email: info@amasco-hk.com

OR
ii. QINGDAO EVERSHINING IMPORT & EXPORT
CO.,LTD.
120 Ningxia Road, Qingdao,P.R. China

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f) Project cost.

COST ITEM COST COST TO BE TOTAL N


ALREADY INCURRED ‘000
INCURRED N ‘000
31/12/2007
N ‘000

LAND & LAND DEVELOPMENT 0 3000 3,000

BUILDINGS 0 9000 9,000


PLANT AND MACHINERY 0 47,207 47,207

ESSENTIAL SERVICES/UTILITIES 0 3,500 3,500

PRICE CONTINGENCY 0 6,271 6270.745321

TOTAL FIXED ASSETS 0 68,978 68,978

MOVEABLE ASSETS 0 5,800 5,800


PRELIM. & PRE-OP. EXP. 3,000 6,000 9,000

WORKING CAPITAL 0 63,521 63,521


TOTAL CAPITAL COST 3,000 144,299 147,299

INTEREST AND LOAN REPAYMENTS 0 41,712 41,712


CAPITALISED
OTHER CONTINGENCIES 0 7,215 7,215

TOTAL PROJECT COST 3,000 193,226 196,226

g) FINANCING ARRANGEMENT:

FINANCING MODE EXISTING ADDITIONAL TOTAL N %


31/12/2007 N N ‘000 ‘000
‘000

Promoters Equity 3,000 35,332 38,332 20%


Long Term Loan 0 81,000 81,000 41%
Mezannine Debt 0 54,000 54,000 28%
Over Draft 0 22,894 22,894 12%
Total 3,000 193,226 196,226 100%

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h) Manpower:
 Direct – 69

 Indirect – 20

Total 89

i) Long Term Loan


Amount: N81.0 million (US $0.623 million)

 Payment period: 6 years

 Frequency: Quarterly

 Moratorium: 1 year

 Interest Rates: 15% per annum for Mezannine and 21% per annum for term
loan.

j) Capacity utilization
Year 1 2 3 4 5
(%) 70 75 80 90 90

k) Break – even point (1st year): 68.8 % of installed capacity

l) Internal Rate of Return (IRR): 95.3 %

m) Return on Capital Employed (ROCE): 50%

n) Gross Value Added: N1,089 million in the fifth year of operation.

o) Market prospect:

i. Assured Local Market.

ii. Proposed selling price policy is realistic and reasonable

iii. Good quality products assured

iv. Export market potential exists, especially to neighbouring West


African countries.

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p) Economic Justification

i. Employment generation

ii. High potential for foreign exchange savings/earnings.

iii. Gross Value added is very high.

iv. High Economic Rate of Return (ERR)

v. Revenue generation to Government through Tax

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CHAPTER TWO
INTRODUCTION

2.1 THE NIGERIAN ECONOMIC AND INVESTMENT REVIEW

Industrialisation has been acknowledged as the engine of growth for almost all countries
of the world. Over the years, Nigeria has exported all its primary products to European
and other western countries where they are processed into finished goods. These finished
goods are later imported back into the country at exorbitant amounts of money. The
Governments over the years have made concerted efforts to change Nigeria’s agrarian
nature to an industrialized one. To accomplish this, the Governments embarked on
series of plans and visions that were designed to encourage industrialization.

The various National Development Plans, the Rolling Stock Perspective Plan and the
Vision 2010 embodied the goals, strategies and public investment programmes and
socio-economic policies of the various Governments designed with a view to accelerate
the country's development process.

The prime objective of the various programmes embarked upon between 1990 and 2000
were to consolidate the gains of SAP (Structural Adjustment Programme) in order to
break fetters that have shackled the economy in low-key equilibrium or in a state of
fundamental disequilibrium.

The democratisation of the polity and the free market economy of the present
government appear to be a good terrain for the growth of the economy in the spirit of
the Vision 2010. It is expected that inflow of foreign exchange will be enhanced, as the
various sanctions are being lifted. Internally, the Government is expected to regulate the
economy, constantly fine-tuning the monetary and fiscal policies by introducing measures
to pacify the turbulent environment in which investors find themselves. Funds are
expected to be made available to private investors in the form of soft loans for
establishing projects which will utilize available local resources, and promote input-
output linkages within the country's manufacturing and other sectors. Companies that
are foreign exchange earners are considered priority.

The country has the indices, (large population, varied natural resources, and expertise)
for rapid economic growth. This explains why the current Government policies are
skewed in favour of the manufacturing sector.

After years of economic mismanagement and deep corruption, there is now a dynamic
reform team comprising the Economic Management Team, which is supporting the
President in driving forward an ambitious reform agenda. The government has launched
its poverty reduction strategy - the National Economic Empowerment and
Development Strategy (NEEDS), and alongside this, it has restored macroeconomic
stability, and effectively managed oil revenues. DFID and the World Bank are supporting
the NEEDS programme through a joint Country Partnership Strategy.

The NEEDS focuses on four key strategies:


 Reforming government institutions and to restructure and strengthen
government

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 Growing the private sector by reducing the influence of government in the


economy and accelerating the privatisation, deregulation and liberalisation
programme
 Beginning to implement a social charter to improve people’s access to health,
education, welfare, employment, security and participation
 Value re-orientation including anti-corruption, freedom of information and
enhancing the role of civil society.

The administration is taking decisive action against corruption. Nigeria is leading the
world on its implementation of the Extractive Industries Transparency Initiative (EITI)
and has established a dynamic Economic and Financial Crimes Commission (in 2003) to
fight corruption. At State level, the challenges are greater, but here too there has been
progress. Most States have implemented State Economic Empowerment and
Development Strategies (SEEDS). Their performance in economic governance - the
policy, institutional, and legal environment within which an economy functions, and
transparency, is being measured. Reforms are being introduced to improve the
accountability of local government. Donors and the Federal government are helping
States to reform.

2.1.1 Nigeria and the Millennium Development Goals (MDGs)

DFID has been working hard with the Nigerian authorities to ensure that all the savings
from the debt cancellation are effectively targeted on reducing poverty. The debt deal will
mean an additional $1 billion a year is available for the government of Nigeria to spend
on poverty reduction, employ an extra 120,000 teachers and put 3.5 million children into
school.

A Universal Basic Education (UBE) bill, to get girls as well as boys into school, was
recently approved at the federal level, and most states are in the process of applying this
ruling at the local level. Net primary enrolment is around 60% and rising slowly, but
greater effort is required if Nigeria is to reach the universal primary education MDG by
2015. Pencils are one of the products that will receive a boost due to these policies. Z –
Industries Limited intends to contribute to satisfaction of this need.

With a start-up production capacity of 103 million units representing less than 10% of
the 2005 figures, meeting our sales target should not be a problem considering the
envisaged quality of Z –Pencil’s' products and our unique and innovative sales strategy.
Presently, due to the massive demand of pencils attributable to the ever-increasing
population growth and the aggressive educational drive by the Federal and State
governments, the importers have capitalised on the availability of this collossal market to
bring in very low quality pencils since Nigerians have no other choice. It is this anomaly
that Z-Pencils Limited hopes to address.

To advise on the technical input of the company is Qingdao Evershine of China - a


company with over a hundred years in the pencils manufacturing industry. Apart from
the manufacturing of pencils, Qingdao are the leading manufacturers of pencil-making
machines on the Asian continent and their products compete favourably with that of the
EU countries and are relatively cheaper. This company shall supply the needed

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machinery and the locally unavailable raw materials of Z - Pencils, the most important
being the graphite lead input.

2.2 PENCIL MANUFACTURING INDUSTRY IN NIGERIA'S ECONOMY

According to Forbes.com, the pencil rank as the fourth most important tool of all time,
in terms of its impact on human civilization after the knife, the abacus and the
compass. The origins of the pencil date to the ancient Romans, who used to write with a
device known as a stylus - a metal stick, usually lead, which was used to scratch words
onto papyrus. In 1564, a huge cache of graphite was discovered in Borrowdale, England.
Local residents used it to mark sheep, and soon discovered that they could cut it into
sticks and carry it with them. Scientists of the day thought graphite was a form of lead –
that’s why we still call the stuff in pencils "lead" even though it is graphite. Graphite is
generally soft and crumbly, so soon after, Italian craftsmen came up with the idea of
hollowing out a stick of juniper wood and filling it with graphite. Later versions would
sandwich the lead between two pencil halves and glue them together.

In 1662, the first mass-produced pencils were made in Nuremburg, Germany, and in
1795, a French Chemist named Nicholas Conte invented a technique to make pencils
lead out of powdered graphite and clay. In 1770, Edward Naime, an English engineer,
created and began selling the first rubber erasers. The practice of painting pencils yellow
began in the 1890s. Pencil manufacturers wanted to advertise that they were using high-
quality Chinese graphite, so they painted them a color associated with Chinese royalty.
Today, 75% of the pencils sold are still painted yellow though with some other color
inputs. Pencils are however not manufactured in Nigeria, and the local demand is
supplied by imports mainly from Asia. (Source: statistics from the Central Bank of
Nigeria (CBN) and the Nigerian Customs Service)

All the pencils currently being used in Nigeria and indeed, the West and East African
sub-regions are imported mainly from Asia. Nigeria alone imported over 1.4 billion units
in 2005 at over $50 million and it is expected that this shall exceed 2 billion units in 2008
when Z-Pencils Limited shall commence operations.

Z-Pencils Limited is a limited liability company set up to function as an integrated wood


processing and manufacturing Company with specialization in the production of various
pencil types as initial product focus. The company will be located on a 2 acre property in
Ikorodu, Lagos State of Nigeria. The property has been identified and Design/Pre-
construction plan for the Factory shed, Warehouse, Bay, Admin and Residential
Blocks/Buildings are in the final stages. Total project cost for start-up is
$1.41(NGN182.9) million. We are seeking $1,038,000 (NGN135 million) for the
purpose of start-up operations and to cover operating expenses for a three month
period. Promoters will invest $295,000 (NGN38.4 million) as its equity in the company.

The $1,038,000 in loan funds will enable the company acquire the needed machinery and
other capital assets to commence operations with a projection of over 150 million pencils
annually running on a three shift basis. As pioneer manufacturers of pencils in Nigeria,
with immense marketing opportunities in Nigeria and the West African sub-region, it is
projected that the company will reach its break-even point in the first year of operations
and achieve a minimum turnover in excess of $3.5 million in the first and second years of
operations after which production capacity shall be increased to 90% to about 200

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million units annually. It is projected that turnover shall reach $6.3 million in the third
year of operation and production capacity shall be increased by adding a new line every
two years for the next eight years which shall bring the capacity to about one billion
annually with 10 production lines. This is to enable Z-Pencils meet a minimum of 40%
demand of Nigerian pencil users in 10 years.

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CHAPTER THREE
THE COMPANY

3.1 COMPANY FORMATION

Z- INDUSTRIES Nigeria Limited (ZIL) is a private limited liability company


incorporated on the 26th of July, 2007 with an authorized share capital of N1,000,000
divided into 1,000,000 ordinary shares of N1.00 each. To provide the company with
adequate capital base for the implementation of the proposed project, arrangement will
be made to increase the authorised share capital to N60.0 million by the creation of
additional 59,000,000 ordinary shares of N1.00 each, ranking pari-passu in all respects
with the existing shares. The Memorandum of Association of the company permits it to
go into the production of pencils. Both the Certificate of Incorporation and the
Memorandum and Articles of Association are available for inspection. Its registered
Office is at Anthony in Lagos. However, the Company’s certificate of Incorporation
No.RC.386431 and the Memorandum and Article of Association will be updated to
reflect the new additions.

The amended certified true copies of the above documents must be submitted to the
funding institution for scrutiny and they should be found satisfactory prior to
disbursement of the loan.

3.2 OWNERSHIP STRUCTURE AND BOARD REPRESENTATION

It is planned that the board of Z- Industries Limited will consist of five members. The
board representation can be changed, amended and altered after due process has been
followed.

The present shareholders of the company have considerable business experience. They
are on the board of other successful companies.

3.3 SHAREHOLDERS

The three main shareholders of Z- Industries Limited are Nigerians who have the means
of increasing their share capital in the company whenever the need arises. Profile of
Directors are included in Appendix xxx

3.4 MANAGEMENT

The Z- Industries management team will be made up of the following: The Chairman, a
General Manager, a Production Manager, an Accountant, a Marketing/Sales Manager
and a Quality Control Manager.

While the General Manager reports to the Chairman the weekly activities of the
company, the Chairman in turn will report the monthly performance of the company to
the Board of Directors.

The functions of other members of the management team are highlighted below:

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General Manager: In addition to assisting the Chief Executive in the day to day running
of the company’s affairs, he or she shall directly be in charge of Production and
Maintenance as well as the Quality Control Departments. He or she will develop
production plans and control to ensure efficient operations of the production plants. He
will liaise with the Accounts Department for the timely supply of required raw materials
to ensure uninterrupted production. He or she will develop standards for the company’s
products in co-operation with the Marketing/Sales Department.

He or she will vet and recommend for approval all maintenance schedules as may be
prepared by the Departmental Heads. He is to see to the general safety of both men and
material through constant review of safety procedures and training. He will ensure the
efficient operation and maintenance of the company’s facilities.
A seasoned Engineer or Technologist with cognate experience in similar ventures will
occupy this position.

Production Manager: He or she will head the Production Division. He or she shall be
responsible for all production activities of the company.
The incumbent shall be an Engineer with not less than 5 years cognate experience with at
least two in a pencil processing plant. His or her field of specialisation could be
Mechanical, Production or Industrial Engineering and the qualification must be
registered with Council for the Regulation of Engineering in Nigeria (COREN).

Accounts Manager: He or she will ensure the optimal utilisation of the company’s
resources - human, materials and finance. He or she will enforce discipline and good
labour relations. He or she will keep record of all company assets and ensure maximum
returns on the utilisation of the assets.

A qualified Accountant with ICAN or ACCA qualification or B.Sc. Accounting will hold
this position. He or she must have not less than two years cognate experience in a
manufacturing outfit.

Marketing/Sales Manager: He or she will be responsible for the supervision of the


Marketing and Purchasing Departments, which form the Commercial Division. He or
she must ensure that the right quality of goods are purchased and sold. He or she will
conduct periodic research on market situations as well as on the availability of good raw
materials for management decisions. He or she will advise management on the current
market prices and product distribution dynamics.

The incumbent must be a graduate of Economics or any of the Social Sciences and must
have undergone practical training/experience in Marketing/Purchasing. He or she must
have not less than 5 years relevant experience.

Manager (Quality, Research & Development): He or she shall be responsible for the
control of the quality of the company’s products. He or she shall also be responsible for
the development of new products that will ensure the competitiveness of the company’s
products in the market. The incumbent must have at least an HND certificate in wood
Technology with not less than four years experience.

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CHAPTER FOUR
THE PROJECT

4.1 PROJECT DESCRIPTION

Z- Industries Nigeria Limited is proposing to writing pencils. The company’s second


product which it will commence production in the third year, will be cosmetic pencils.
The plants to be used have the following annual installed capacities based on three shift
of eight hours per day and working 300 days in a year.

(a) Writing Pencils –100 million units per annum

(b) Cosmetic Pencils – 90 million units per year

4.2 PRODUCTION PROCESS

Pencils are made of wood and lead graphite. Most pencils are made of cedar wood and
Gmelina as these do not warp easily. The most important ingredient in a pencil is the
graphite, which most people continue to call lead. Pencils were initially made with pure
graphite but the graphite mines of Borrowdale in the UK were soon depleted and
graphite was less plentiful. Presently, graphite powder is combined with clay, water, wax
and other chemicals then baked. A harder or softer writing core could be produced by
varying the proportion of clay to graphite – the more graphite, the blacker and softer the
pencil.

Now that most commercially used graphite is made in factories rather than mined,
manufacturers are able to easily control its density. The graphite is mixed with clay
according to the type of pencil being made – the more graphite used, the softer the
pencil, and the darker its line. For colored pencils, pigments are added to the clay, and
virtually no graphite is used.

Two methods are used to form the graphite into its finished state. The first is an
extrusion method in which the graphite and wax mixture is forced through a mold to
create a spaghetti-like string, which is then cut to precise measurements and dried in
ovens. In the second method, the graphite and clay mixture is poured into a machine
called a billet press. A plug is placed over the top of the press, and a metal ram ascends
from the bottom to squash the mixture into a hard, solid cylinder called a billet. The
billet is then removed from the top of the machine and placed into an extrusion press
that forces it through a mold, slicing off strips the size of the pencil core.

To make the wood casings for the pencils, square slats are formed, and then grooves are
cut into the slats. Next, graphite sticks are inserted into the grooves on one slat, and then
a second slat with empty grooves is glued on top of the graphite-filled slot. Correctly
sized pencils are cut out of the sandwich, and the eraser and metal ferrule attached.

The wood usually arrives at the factory already dried, stained, and waxed, to prevent
warping. Logs are then sawed into narrow strips called slats; these are about 7.25 inches
(18.4centimeters) long; .25 inch ( .635 centimetres ) thick, and 2.75 inches ( 6.98

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centimetres ) wide. The slats are placed into a feeder and dropped, one by one, onto a
conveyor belt which moves them along at a constant rate.

The slats are then planed to give them a flat surface. Next, they pass under a cutter head
that makes parallel semi-circular grooves – one half as deep as the graphite is thick –
along the length of one side of each slat. Continuing along the conveyor belt, half of the
slats are coated with a layer of glue, and the cut graphite is laid in the grooves of these
slats.

The slats without glue – and without graphite in the grooves – are placed on another belt
that carries them to a machine that picks them up and turns them over, so they are laying
on the belt with the grooves facing down. The two conveyor belts then meet, and each
unglued slat is placed over a slat with glue and graphite, forming a sandwich. After the
sandwiches have been removed from the conveyor belt, they are placed into a metal
clamp and squeezed by a hydraulic press and left clamped together until the glue is dried.
When the pencils are dried, the ends are trimmed to remove excess glue.

The next step is shaping, when the sandwiches actually become pencils. The sandwiches
are placed on a conveyor belt and moved through two sets of cutters, one above and one
below the belt. The cutters above the sandwiches cut around the top half, while the
lower set cuts around the bottom half and separates the finished pencils. The majority of
pencils are hexagonal, so designed to keep the pencils from rolling off surfaces. A single
sandwich yields six to nine hexagonal pencils.

After the pencils have been cut, their surfaces are smoothed by sanders, and varnish is
applied and dried. This is done with varnishing machines, in which the pencils are
immersed in a vat of varnish and then passed through a felt disk, which removes the
excess varnish. After drying, the pencils are put through the process again and again until
the desired color is achieved. Finally, the pencils receive a finishing coat.

The pencils once again are sent on a conveyor belt through shaping machines, which
remove the excess varnish that has accumulated on the ends of the pencils. This step also
ensures that all of the pencils are of same length.

Erasers are then attached, held to the pencil by a round, metal case called a ferrule. The
ferrule first attaches to the pencil either with glue or with small metal prongs, and then
the eraser is inserted and the ferrule clamped around it. As a final step, a heated steel die
presses the company logo onto each pencil.
Colored pencils are produced in much the same way as black-writing pencils, except that
their cores contain coloring materials such as dyes and pigments instead of graphite.
First, clay and gum are added to pigment as bonding agents, and then the mixture is
soaked in wax to give the pencils smoothness. When the pencils have been formed, the
outsides are painted according to the color of the center mixture.

4.3 RAW MATERIALS

The main raw materials are wood, graphite, paints, ink, aluminium clips, white glue,
erazer, and heat transfer aluminium. The company will source its wood raw materials
from the open wood market in Ondo State.

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The finished lead, paints & ink, aluminium clips, white glue, heat transfer film aluminium
shall be supplied by Quingdao Evershine of China. The plant/ machineries shall also be
sourced from same company however, there are other resourceful suppliers in Hong
Kong, China, Germany and Taiwan who have indicated their willingness to supply Z-
Pencils with the needed raw materials in case of any eventuality or delay by our main
suppliers.
Wood represents 50% volume of our raw materials; Lead 40% in volume; Ink, Paints and
other inputs, 10%.

4.4 PACKAGING METHODS


Pencils are universally measured and sold in "Gross". A gross is 144 units. There are
carton options the least being 12 grosses in one. Other sizes of cartons include 20, 24,
36, 50, and 100 gross content. The gross method of measurement is mainly applicable to
the open market through distributors and wholesalers. Each gross will be packed in clear
plastic with minimal markings but the encasing carton will be attractively designed for
aesthetics and with enough information as statutorily required.

The intended packaging for schools, colleges, corporate bodies, politicians and NGO's
shall come in clear plastic packages containing three, six and twelve units. The pencils
shall be clearly branded as required by the requesting organisation, school or individual.

4.5 MANPOWER DEVELOPMENT AND TRAINING

(a) Staffing:

The estimated manpower to operate and maintain the plant facilities at the initial stage,
including the technical and general administration of the factory is about 89. This
estimate covers the top management; middle and junior level executives and other
supporting staff.

The breakdown of the manpower requirement for the factory is as follows:


S/N Category Direct Indirect Total
1. Top Management 4 4

2. Other Managers 2 2
3. Senior Staff 4 4
4. Other Staff 59 20 79
Total 69 24 89

4.6 TECHNICAL MANAGEMENT

Although proposals for the supply of plant and machinery for this project are being
obtained from some suppliers, it is advisable to ensure the reliability of the suppliers
through the preparation of Plant and Machinery Supply Agreement, incorporating
guarantees and Spare parts back up. In view of the need for good quality product and
the potential to develop new ones, an experienced General Manager would be appointed,
and training will be arranged with the assistance of the Machinery Suppliers.

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4.7 ENVIRONMENTAL FACTORS

Waste water is the main by-product in the manufacture of pencils. Other waste products
are torn paper, damaged cartons and pieces of cellophane sheets.

The waste water will be drained into soak-away pits. This way, the waste water is
absorbed back into the ground naturally. The waste water is not harmful to life or the
environment because it contains no harmful chemicals. .

Damaged cartons as well as pieces of cellophane sheets will be sold to companies that
recycle them. This will help to preserve natural resources, as the whole world is looking
for ways to reduce the depletion of natural resources.

The proposed methods of waste disposal are considered reasonable as they do not
offend any known existing environmental sanitation law. Generally, the production
process is environmental friendly.

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CHAPTER FIVE
THE PROJECT COST

5.1 PROJECT COST

The total project cost including financing costs is estimated at N196.3million, including a
working capital provision of N63.5 million. The project base cost is estimated at N
141.03 million.

The breakdown of the project cost is summarized below:

COST ITEM INCURRED TOTAL


31/12/2004 N’000
N’000 COST TO BE INCURRED

FOREIGN LOCAL
N’000 N’000

LAND & LAND 0 0 3000 3,000


DEVELOPMENT
BUILDINGS 0 0 9000 9,000
PLANT & MACHINERY 0 42,487 4,721 47,207
ESSENTIAL 0 0 3,500 3,500
SERVICES/UTILITIES
TOTAL FIXED ASSETS 0 42,487 20,221 62,707
MOVEABLE ASSETS 0 0 5,800 5,800
PLELIM. & PRE-OP. EXP. 3,000 3900 2,100 9,000
WORKING CAPITAL 0 19,056 44,465 63,521
TOTAL PROJECT BASE COST 3,000 22,956 52,365 78,321

INTEREST AND LOAN 0 0 41,712 41,712


REPAYMENT CAPITALISED

CONTINGENCIES & 0 0 13,486 13,486


PROVISIONS
TOTAL PROJECT COST 3,000 65,443 127,783 196,226

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5.2 FINANCING PLAN


The estimated total project cost of N196.2 million is proposed to be financed as follows

EXISTING
ADDITIONAL
COST TOTAL
FINANCING MODE COST %
31/12/2007 N’000
N’000
N’000

SHARE CAPITAL 3,000 35,332 38,332 19.53%


LONG TERM LOAN 0 81,000 81,000 41.28%
OTHER FINANCING 0 76,894 76,894 39.19%
TOTAL 3,000 193,226 196,226

This financing arrangement gives a Debt/Equity Ratio of 4:1 and a Fixed Assets
Coverage of 3:2 over the long-term loan. The ratios are considered satisfactory. The
foreign portion of the term loan will be used to import the required items of plant and
machinery while the local portion will be used for the payment of customs duty, and
such related charges.

5.3 DETAILS OF INVESTMENT COST

5.3.1 Land Acquisition and Development

The Chief Promoter of the project has negotiated to acquire about 1 acre of land at
Ikorodu, Lagos state. An assessment of the space shows that it is more than enough for
the proposal. The land is estimated to cost about N3.0 million.

5.3.2 Buildings

The factory complex will be developed with three distinct and functional structures
linearly arranged in about three adjacent rows. Construction material will be clad steel
structures (Clad with aluminium Long span sheets) suitable for the purpose of
manufacturing.. The production factory will cover 1500 m². Other buildings will include
the security office (16.82m²), Administrative block (119.0 m²), Main store (700 m²),
Generator house (54.80m²), Toilet/washrooms (4.2 m²) Canteen (39.53 m²), General hall
(55.0m²), Perimeter fence built with solid concrete blocks (8,975.63 m²). It is estimated
that about N9.0 million will be expended on the buildings.

5.3.3 Plant and Machinery

The complete plant and machinery could be supplied by any of the three machinery
suppliers listed below:

(a) AMASCO ENTERPRISES LTD.


(b) QINGDAO EVERSHINING IMPORT & EXPORT CO.,LTD

The long–term loan of N81.0 million will be used towards procuring the machines as
well as cover other expenses.

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5.4 ESSENTIAL SERVICES/UTILITIES

Water: Water is needed for the preparation of the wooden slates, general cleaning of the
production plants as well as for general use on the factory complex. The company will
sink one borehole at a cost of N700,000..

Electricity: Given the epileptic supply of electricity in the country, provision has been
made for one (1) standby Generator of 120 KVA rating, to ensure an uninterrupted
electricity supply. This is planned to be acquired at a cost of about N3.5 million,
including the switchgear and cables. The company will also need to purchase a 3-phase
Transformer and connect directly to the National High Tension (33,000 V) line that is
about 0.2 kilometres away.

Others: Other utility requirements are, fire-fighting equipment, Fuel storage tanks for
Diesel and Fuel Oils. This can be procured locally.

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5.5 VEHICLES

The following provisions are made: (These costs are for Lease arrangement)
Type No. Use Cost (N'000)
Salon Cars 2 Management 2,000.0
Pick-up truck 1 Workshop 800.0
Salon Car 1 Admin/Finance 400.0
10 Ton Trucks 1 Sales/Raw Materials 1,200.0
Total 4,400.0

5.6 OFFICE FURNITURE, FITTINGS AND EQUIPMENT

A provision of N1.4 million has been made to cover the cost of buying computers,
photo copiers, Air conditioners, Tables, Chairs, Filling Cabinets, electrical fittings,
carpets, etc.. The amount is to be apportioned as follows:
Equipment Type N'000
Office Equipment 900.0
Office Furniture 400.0
Fittings 100.0
Total 1,400.0

5.7 PRELIMINARY AND PRE-OPERATIVE EXPENSES:

These Preliminary expenses would be on; Company Formation, Feasibility Study,


Travelling/ Hotel Expenses, Administrative Expenses, Consultancy Expenses and
Miscellaneous activities. About N7.8 million would be spent as follows:

Item Incurred N’000 To be Incurred Total N’000


N’000

Company Incorporation Expenses 1,000.00 250 1,250.00


Travelling Expenses 1,000.00 500 2,500.00
Admin Expenses 1,000.00 1,500.00 2,500.00
Feasibility Study 800 - 800
Miscellaneous 250.00 500.00 750.00
TOTAL 4,050.00 2,750.00 7,800.00

5.8 INTEREST DURING CONSTRUCTION

The total financial charges payable before the commercial operation of the plant is
capitalized as Interest during Construction. The estimated sum of N12.5 million is based
on the planned disbursement of 30% of the machinery cost at ordering, 60% at shipment
and the balance of 10% after successful commissioning. This estimate covers both the
commitment fee as well as the interest charges on the disbursement of the overdraft
towards the procurement of Raw Materials before commercial operations begin.

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5.9 WORKING CAPITAL

A working capital requirement of N63.5 million is estimated for the first year of
operation. This is broken down as follows:

Item Stock level (days) N'000

Cash at Hand 30 5,483


Stock of Raw Materials (Foreign) 60 5,821
Stock of Raw Materials (Local) 30 6,791
Work-In-Progress 1 1,617
Stock of Finished Goods 14 9,504
Accounts Receivable 30 44,488
Accounts Payable 15 -10,183
TOTAL 63,521

5.10 CONTINGENCIES

Three types of contingencies are provided for in our estimates. These are:

 Physical - This is to make provisions for the cost of items that may have been
inadvertently omitted in the course of estimating the machines.

 Price - This is to provide for possible cost escalation arising from increased price
of goods due to inflationary pressure.

 Currency Fluctuations - It is assumed that the exchange rate of the Naira to


other foreign currencies may increase to N140 for US Dollars and N174 for the
Euro used in the conversions respectively.

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CHAPTER SIX
MARKET ANALYSIS

6.1 INTRODUCTION

Z- Industries Nigeria Limited is proposing to set up facilities for the production of


writing pencils. It also intends to produce cosmetic pencils. Both products will be
produced in conformity with the international Standard Organization and the Standards
Organisation of Nigeria (SON)

6.2 PRODUCT IDENTIFICATION

A pencil is a handheld instrument used to write and draw, usually on paper. The writing
is done with graphite (except for colored pencils), which is typically covered by a wooden
sheath. Pencils may also have an eraser or "rubber" attached to one end. The pencil
differs from most pens (other than erasable pens) in that erasing is possible.

Made of graphite, a crystalline form of carbon, mixed with clay. There are varying
degrees of hardness for pencils, the softest varieties contain little or no clay. Pencils are
rated and labelled by degrees of hardness. 6B is very soft, producing a darker line. HB
and F are the middle degree of hardness. 2H up to 8H (hardest) and produce very light
graphite deposits respectively

Z-Pencils will manufacture all pencil degrees from school pencils to professional pencils
for artists, artisans, engineers and architects. These include: 9H, 8H, 7H, 6H, 5H, 4H,
3H, 2H, H, HB, B, 2B, 3B, 4B, 5B and 6B and colored pencils. These will come in exotic
colors and attractive shapes which will include ergonomic triangular, round, oval flat and
rectangular. The B series are softer than the H series. But Z-Pencils shall commence
operations with the market-dominant degrees which are the common writing pencils
(H, HB and 2B) for all categories of students from the nursery schools through to the
universities.

We aim to produce about seven different brands of these pencil degrees with the
following brand names:

 Unzu
 Asante
 Zulu
 Kusu
 Bogolo
 Massai
 Asabi
Each brand shall have its own distinct shape and color and shall be managed as a distinct
brand even though they shall be coming from one stable. Some will come complete with
erasers and some will not. It is expected that the brand manager shall strategize towards
making his/her brand the most dominant and most visible thus engendering a healthy
competition.

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The reason for this unique marketing strategy is not farfetched as there are a plethora of
pencils in the market but no leading brand although Faber Castel and Staedler are well-
known by professionals. It is almost impossible for anyone to mention or remember a
pencil brand despite the fact that pencils are purchased daily. We aim to position our
brands of pencils as the most unique by embarking on massive advertising and marketing
strategies that will ensure our pencils become household names.

6.3 LOCATIONAL ADVANTAGE

The factory shall be located on a 2 acre plot of land in Ikorodu, Lagos State and shall be
fitted with state-of-the-art pencil production facilities that can compare and compete
effectively with what is obtainable in Europe and Asia. The choice of location is based
on the proximity of Ikorodu to Ore in Ondo state from where the bulk of the wood
input for the pencils shall be obtained and the vast pencils market of south western
Nigeria. South western Nigeria has the largest number of schools and students in the
country and the West African sub-region. And the nearness of Ikorodu to the Lagos
Ports makes for easy delivery of lead to the factory once in every three months.

Also, Ikorodu has all the infrastructural facilities which Z-Pencils shall benefit from.
There are modern means of transporting both raw materials and finished goods to and
from the factory site. Electricity is available and there is an abundance of potential
technical labour. Apart from the factory building and machinery, other facilities shall
include comfortable staff quarters complete with amenities for all categories of staff;
delivery trucks, official vehicles, safety equipments, fire fighting equipment, generators,
forklifts, boilers, warehouses, boreholes, office equipments, communications gadgets,
staff canteens, staff clinic and security posts.

6.4 SUPPLY ANALYSIS

6.4.1 Writing Pencils


Nigeria, according to statistics from the Central Bank of Nigeria, imported 1.4 billion
units of pencils in 2005 (approximately 10 million Gross) at $50 million. It is expected
that this figures will be surpassed in 2006 and shall be in excess of 2 Billion units by the
time we commence operations in 2008.

There are different types of pencils with degrees ranging from 9H to 6B with 8H, 7H,
6H, 5H, 4H, 3H, 2H, H, HB, 2B, 3B, 4B, and 5B in between. These pencils are classified
according to professional usages viz:

 Writing Pencils (H, HB, B, and 2B)


 Drawing and shading Pencils (2B, 3B, 4B, 5B, and 6B)
 Masonry Pencils
 Steno Pencils
 Copying Pencils
 Carpenter's Pencils

The dominant degree range of pencils are the writing pencils which are predominantly
utilized by all categories of students irrespective of whether they are in the nursery,
primary, secondary or tertiary institution. For the nursery and primary schools, the

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dominant pencils are the H, HB, and 2B which accounts for about 90% of the total
volume of pencils imported. These students shall be our primary target market. The
remaining 10% is shared amongst the other degrees of pencils and colored pencils. The
professional pencils are exclusively used by professionals i.e graphic artists, architects and
engineers. These shall form our secondary target market. Pencils are also used in every
office nationwide and these categories of users are mostly executives.

As earlier stated, pencil importation is primarily dominated by Asians, especially the


Chinese; but the distributors, wholesalers and merchants are predominantly, Nigerians.
Amongst the major importers are:

TABLE 6.1 MAJOR IMPORTERS OF PENCILS IN NIGERIA

MARKET VOLUME
S/N COMPANY ADDRESS
SHARE (million)
5th Floor, Great Nigeria
Quing Xiang Long
1 House, 47/57 Marina, 40% 650 million Units
Commodity Co.
Lagos
China Town, Lekki,
2 Lee Yang Commodities 25% 450 million Units
Lagos
China Town, Lekki,
3. Schneider Investments 15% 200 million Units
Lagos
28, Ojuelegba Road,
4 Artworld Limited 10% 150 million Units
Suru-lere,Lagos
5 Others 10% 150 million Units
Total 1,600

Sources: (1) Central Bank of Nigeria,

6.5 PROJECTED SUPPLY


WRITING PENCILS

There are strong indications that the yearly increase in supply of writing Pencils will
persist into the future for several reasons.

With the democratically elected government in place and more conducive economic
environment, investors are prepared to invest. This is because the financial sector is
better placed to solve the problem of sourcing working capital funds; the energy sector is
expected to improve significantly to minimize the logistic problems; while capital inflow
may encourage new entrants or existing producers to modernize their machinery. These
would enhance capacity utilization of the existing installed capacity and increase the
national installed capacity thereafter.

In projecting the supply of writing Pencils, the following assumptions were made;

(1) That the present known and unknown importers supply 1.6 billion units per annum

(2) This is thereafter projected at 3%, which is the estimated growth rate of the supply.

The resultant projection is shown in Table 6.2 below.

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TABLE 6.2 PROJECTED SUPPLY OF WRITING PENCILS (MILLION PENCILS)

YEAR PROJECTED
SUPPLY

2006 1,600
2007 1,648
2008 1,697
2009 1,748
2010 1,801

Sources: From assumptions

6.5.1 Demand Analysis

6.5.1.1 Demand for Writing Pencils

Nigeria, with a population of over 130 million according to UN statistics, has over 80
million students with primary and nursery school students making up 70% of this figure.
This category of students must necessarily utilize pencils between the ages of two and
eight before being introduced to other writing materials like ball-point pens. However,
since pencils are indispensable in homes, schools and offices, it simply means that all
literate adults and every single student is a potential user or actual user of pencils. The
usage of pencils continues through primary school to the university, and even beyond,
though, to different degrees. Also, according to CBN statistics, the usage of pencils in
Nigeria is not uniform as some regions have more students than others.

Table 6.3 below shows the population of pencil users in Nigeria in 2005 :

TABLE: 6.3 POPULATION OF PENCIL USERS IN 2005

Estimated
Pencil Users in Population Volume Average Per Sales Value in US $
Nigeria (Million) (Million) Person (Million)
Nurser/Primary
School Students 44 1300 30 23
Secondary school
students 28 308 11 16
Tertiary Students 11 90 8.1 8
Professionals 3 28 8.3 2.3
Total 86 1726 49.3

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TABLE 6.4 REGIONAL ANALYSIS

Nos of Students Volume Sales Value in


Regions (million) (million) US $ (million)
Northern 20 350 11
Western 35 600 23
Sothern 30 450 16

The national population is expected to exceed 140 million in 2008 with a projected 10%
increase in the number of primary school students according to UN statistics. The same
trend is applicable to other West African countries that shall form the bulk of our
offshore market.
TABLE 6.5 MARKET ANALYSIS

Market Analysis

2008 2009 2010 2011 2012


Potential Units Units Units Units Units
Customers
Primary/Nursery 1,573,000,000 1,730,300,000 1,903,330,000 2,093,663,000 2,303,029,300
school students
Secondary School 370,260,000 407,286,000 448,014,600 492,816,060 542,097,666
students
Tertiary Students 109,147,500 120,062,250 132,068,475 145,275,323 159,802,855
Professionals 32,675,720 35,943,292 39,537,621 43,491,383 47,840,522
Others 11,444,400 12,588,840 13,847,724 15,232,496 16,755,746

Totals 2,096,527,620 2,306,180,382 2,536,798,420 2,790,478,262 3,069,526,088

The above potential market size is based on UN statistics

Market Analysis (Pie Chart)

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6.6 SUPPLY GAP ANALYSIS

Table 6.7 below compares the projected supply with the projected demand for writing
Pencils to determine the supply gap
TABLE 6.6-PROJECTED SUPPLY GAP (IN MILLION UNITS)

PROJECTED PROJECTED SUPPLY GAP


SUPPLY DEMAND
WRITING PENCILS WRITING PENCILS WRITING PENCILS
YEAR
2006 1,600 1,792 192

2007 1,648 1,886 238

2008 1,697 2,096 399

2009 1,748 2,159 411


2010 1,801 2,224 423
Average Supply Gap 332

Source: Calculated from Tables 6.2 and 6.5

6.7 MARKET PROSPECTS

According to available statistics from the CBN, the total number of pencils imported
into the country in 2005 was in excess of 1.4 billion units or about 10 million gross. A
gross is 144 units. This is 9% higher than the previous year's figure of 1.23 billion. This
indicates that the growth rate is in tandem with that of the overall population as each
new-born baby automatically becomes a potential user of pencils. It is estimated that the
demand will further grow by 10% in 2006, 12% in 2007 and 14% in 2008.

Simply put, since the Nigerian population rate is growing at about 9% annually according
to the United Nations statistics, the market growth rate for pencils follows the same
trend.

Also, there has been a massive educational drive by world bodies like UNESCO, the
federal and state governments and this has considerably increased the number of
children being registered in primary schools annually. Statistics from the Federal Ministry
of Education indicate that the number of children registered in primary schools across
the country has consistently increased by 11% annually since the advent of democracy in
1999.

The crave for educational and professional attainment by Nigerians has increased the
number of tertiary institutions with a resultant turnout of pencil users. In other words,
the pencils market will keep growing at about 10% annually if the population growth
remains the same

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From our analysis as shown in Table 6.6, the supply gap for writing Pencils averaged 332
million units per annum.

6.7.1 INDUSTRY ANALYSIS

The Nigerian pencils industry is dominated by a few very large Asian companies, such as
Quing Xiang Long Commodity Company and Lee Yang Investments Limited. Of these
major competitors, Quing Yang Long is the largest, with approximately 40% market
share. Last year, the company reported sales of approximately $27 million.

As earlier stated pencils are not manufactured in Nigeria but imported. The industry is
primarily dominated by Asians who import from their home countries in China, Taiwan,
Hong Kong and Malaysia and distributed to Nigerian wholesalers and distributors.

The quality of the lead or graphite input is rather low compared with what is available in
the EU countries and this is due to the fact that nothing that can be done about it since
Nigerians do not have any options. The graphite inputs are rather brittle and of the
lowest grade. The offshoot of this is incessant and frequent breakages. However, this has
not debarred Nigerians from purchasing these inferior pencils as there are no options to
choose from. On the average, about 800,000 gross of pencils are imported on a monthly
basis with a market price of over $4.3million.

The introduction of a locally manufactured pencil of a better quality is bound to be


appreciated by end-users especially if the market price is relatively lower than what is
presently obtainable. Also, there is no dominating or leading brands of pencils as the
importers believe solely in the availability of a ready market. There is no conscious effort
at promotional or positioning strategy since the market is always growing. It is this vital
weakness that Z-Pencils shall capitalize upon by embarking on massive promotional
efforts aimed at positioning Z-Pencils’ range of pencils as a household name

6.7.2 GLOBAL ANALYSIS

Data available from the Writing Instrument Manufacturers Association, WIMA, (a global
association) indicates that in 2005 a total of 77 billion units of wooden-cased pencils
were produced and that the global market will continue to grow at 25% for the next five
years. This table shows the volume per continent. Australia and Africa are insignificant
players as most of the pencil factories located here are subsidiaries of the giants in
Europe and America:

Continent Volume in 2005 Percentage


Asia 37.5 billion units 45%
European Union 25 billion units 30%
North America 14.5 billion units 23%
Others 800 million units 2%

Major Global Pencil Players include:


(a) Faber-Castell of Germany
(b) Dixon Ticonderoga Company of the USA
(c) Qingdao Evershine of China

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(d) General Pencil Company


(e) Rose Moon Inc
(f) Camel Pencil Mfg Co of Japan
(g) mitsubishi Pencil Co of Japan
(h) Sanford Pencil Co of the UK
(i) Shelbyville Pencil Company, Inc
(j) Staedler Mars GnbH & Co
(k) Bic Deuschland GmbH & Co
(l) Acco Cumberland Pencil Co, UK
(m) Shachiata (UK) Limited
(n) Cleo Veryrieb GmbH & Co

6.7.3 TARGET MARKET SEGMENT STRATEGY

Based on the above analysis of the market demographics, size and unit potential, our
core target markets are:
1. Students - primary, secondary and tertiary
2. Professionals - Engineers, Architects, Graphic Artists and Visual Artists
3. Office Workers

Surveys indicate that in the students category the nursery and primary students constitute
over 70% of the entire student population of 80 million hence the plan to manufacture
more of writing pencils. These utilised over a billion units in 2005. Z-Pencils
Limited shall focus on this unique target market, through regional distribution and
direct selling via its various relationship and referral networks. In addition, a significant
amount of investment will be made in advertising to promote product awareness. Direct
selling is far more effective in closing sales as well as in terms of sales and marketing
costs. Direct marketing shall be directed at schools who would have their
names engraved on the pencils.

In reaching the student population, Z-Pencils intends to adopt a direct marketing strategy
of sales to the following institutions :
The Federal Government - Ministry of Education
National, State and Local Governments Primary & Secondary Education Boards
National Petroleum Development Trust Fund
Universal Basic Education (UBE)
Educational Trust Fund (ETF)
The various multilateral education agencies – USAID, EDC, DFID, UNESCO &
UNDP - focusing on their various Literacy Enhancement Assistance Programs.

With a production capacity of 100 million pencils for the first year and a projected
growth rate of 100% biennially, it is estimated that Z-Pencils can meet 50% of the
national pencil requirements in about eight years. It is also safe to say that the demand in
the market and the specific marketing & sales strategy to be adopted will ensure that all
of Z-Pencils brands are successfully sold without much fuss in Nigeria. Empowering
minds and strengthening literacy and education in Nigeria and indeed the West African
sub-region.

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6.7.4 REVIEW OF THE FUNDING OF PRIMARY EDUCATION IN


NIGERIA - A view into potential funding sources for our direct
marketing of pencils to Governmental organizations

Under the Nigerian Constitution, federal and state governments have concurrent
responsibility for primary education. The federal government determines national policy,
sets standards, and monitors performance. State governments are responsible for
designing, developing, and delivering the service. Examples include designing the
curriculum and preparing legislation.

In addition, local governments have a formal responsibility, dating from the Local
Government Decree of 1976, for providing and maintaining primary education, subject
to necessary assistance from the states (Federal Ministry of Education, Education Sector
Status
Report, Abuja, Nigeria, 2003). All three tiers of government—federal, state, and local—
fund primary education.

6.7.4.1 Federal and state governments:

Capital expenditures (buildings, books, and furniture) come from the federal and state
governments’ share of the Federation Account. The Federation Account holds all
federally collected revenues. The funds are divided among the three tiers of government
according to a formula determined by the National Assembly. Some of the funds in this
account accrue from government-owned mineral resources, a set percentage (13%) of
which is returned to the states, apportioned on the basis of the states’ original
contributions. Thereafter, 15% of VAT revenues is distributed to the federal
government, 50% to state governments, and 35% to local governments. Of the funds
remaining within the Federation Account, 54.7% goes to the federal government, 24.7%
to state governments, and 20.6% to local governments.

State governments also pay the recurrent costs for managing State Primary Education
Boards (SPEBs), Local Government Education Authorities (LGEAs), and primary
schools.

6.7.4.2 Local governments:

The local governments’ 20.6% share of the Federation Account results in two types of
local funding for education. First, at the state level, a percentage of the local share (a
“first charge”) is set aside for primary school teachers’ salaries and allowances. Local
governments may then use a part of what remains for direct assistance to primary
schools. They also contribute own-source revenues to primary education.

6.7.4.3 Funding towards education


i. Federal government:

Of the federal government’s total budget of N893.3 billion in 2005, only about 11%,
or N93.8 billion, was budgeted for the education sector. This 11% allocation
compares negatively to 21% in Botswana; 26% in Ghana; and 22% in Namibia.
Nigeria allocates almost 60% of its education budget to tertiary education and less
than 40% to primary and secondary education combined.

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Most of the federal government education budget for 2005 (N72.2 billion) went in
for recurrent expenditures. The remaining N21.6 billion funded capital expenditures.
Another national source of revenue is the Universal Basic Education (UBE)
programme, which also provides money for capital expenditures in primary schools.

The national Education Tax Fund (ETF) transfers funds directly to benefiting
institutions for specific capital projects. Allocations are made according to pre-agreed
percentages for primary (20%), secondary (30%), and tertiary (50%) Disbursements
for primary education are made on the basis of “equality.” Every local government in
the country receives an equal amount, irrespective of the number of primary schools
it has or its primary school enrollment. The money is transferred directly to the
SPEB in each state.
Despite the criterion that 20% of total ETF revenues be allocated to the primary
level, ETF allocations to SPEBs that are dedicated to primary education— as
opposed to secondary or tertiary— have declined over time. Further, the total
percentage of Naira actually distributed to SPEBs has been continuously lower than
100% and has declined as well. This results in negative consequences for school
environments, in areas such as overcrowded classrooms and inadequate furniture.

ii. State governments:

State governments allocate minimal proportions of their recurrent and capital


budgets to primary education. The accompanying graphs illustrate, for a sample of
two states, that 2003 contributions for recurrent costs for primary education were
around 2.7% and 2.2%, and for capital costs around 1% and 0.6%.

iii. Local governments:

Local governments shoulder the brunt (86%) of the costs for primary education from
their share of the Federation Account. Although state governments are expected to
provide around 10–12%, the previous graphs show that they provide much less. The
federal government provides even smaller amounts. The horizontal formula
determining the share to each local government does not emphasize primary
education expenditures. Although financing primary education is a concurrent
function of federal, state, and local governments, local governments bear the greatest
financial responsibility.

Nigeria can improve budgetary support to primary education at all tiers of


government and especially support state governments to develop improved
education budgets: The 2002 Supreme Court ruling and the revised, but not yet
approved, National Policy on Education give greater responsibility to states to enact
laws and develop budgets. Clarify and enforce, at the state level, the responsibilities
of state and local governments for budgetary support to primary education (see
diagram on institutional arrangements below). Reduce differences between approved
state budgets and released funding for primary education. Encourage stakeholders to
demand budgets from federal, state, and local governments; SPEBs; and LGEAs.

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6.8 MARKET NEEDS/TRENDS

The availability of this vast pencils market has resulted in the importation of inferior
quality pencils with very brittle graphite inputs and inferior wood. The result of this is
frequent breakages. The market need for now is a high quality pencil with high quality
graphite input that can withstand frequent usage.

Also, the present method of distribution, according to pencil dealers is too cumbersome.
The dealers would prefer a more friendly method of distribution which Z-Pencils can
fulfil through the acquisition of delivery trucks that will supply directly to customers at
any designated place in the country.

Pencils are compulsorily and exclusively used by nursery and primary school children
between the ages of two and eight and these purchase an average of one pencil weekly
due mainly to loss and breakages. After this compulsory phase, pencil usage continues
even up to the tertiary level and beyond.

The purchasing pattern is such that most parents buy in packs and issue to their kids and
wards as they lose or break them. In most cases, this can happen on a twice weekly basis,
especially with very young kids. The primary school students individually average about
30 pencils annually, given the population of 44 billion it can safely estimated that there is
a real demand for about 1.3 billion units per annum for primary kids alone. If worked to
accommodate other population categories, the market volumes grows to over 2.5 billion
for 2007.

The professionals purchase highly specialized pencils from art shops and are more
careful with them. A professional artist purchases a minimum of 48 different pencil types
annually. These pencils are generally more expensive than the ordinary pencils hence the
artist guards his range of pencils very jealously.

6.9 PRICING AND DISTRIBUTION STRATEGIES

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(a) Market Prices of Writing Pencils

As can be observed from the Table below, the average wholesale price per gross for
writing Pencils was N720 in year 2005 as against N790 and N880 in 2006 and 2007
respectively. By the same token, the average retail price per gross was put at N1440,
N1580 and N1720 in 2005, 2006 and 2007 respectively. The rising price trend was a
reflection of high cost of foreign exchange for the procurement of the pencils and
transport cost due largely to fuel scarcity.

TABLE 6.8 MARKETING PRICES OF WRITING PENCILS IN NIGERIA

AVERAGE 2005 2006 2007


PRICES/GROSS
WHOLESALE N720 N790 N880
RETAIL N1440 N1580 N1720

To enable Z- Industries gain quick acceptance in the market, it intends to charge the
following prices for its products.

(i) Writing Pencils N750 per Gross

6.10 MARKETING MIX

A crucial element in every marketing strategy is the marketing mix which is the particular
group of variables offered to the market at a particular point in time, in order to
maximize revenue and profit. These variables are product, price, promotion and place.

PRODUCT

We will focus on producing high quality pencils that will be readily acceptable and
compare favourably with what is currently available in the Nigerian market, at a lower
price. The product quality image is further enhanced through the packaging, advertising,
promotion and distribution

There should be adherence to quality control measures to withstand the intense


competition from the existing import.

The brand name must be unique, catchy and attractive. Essentially there should be bright
colour printing of primary packaging labels and secondary cartons.

PRICING

Z-Pencils shall seek to provide premium products at very competitive prices that will
offer the best overall value to our clients. This will enable them optimize profitability
while minimizing other related obstacles to sales.

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Z-Pencils’ pencils can be economically produced and marketed in the country at a lower
price than what is currently available. At an estimated production cost of three naira per
unit, selling at five naira a unit shall ensure a good profit margin. This selling price is
currently lower than the present market price of seven naira and this we hope to
capitalize upon effectively. Interaction with the distributors has shown that they are
willing to purchase from Z-Pencils at the stated price of N5 or $0.04 per unit.

PROMOTION

Every product needs to be promoted, to draw the attention of the market place and its
benefits identified. Since Z- Industries products are consumer goods, we propose
advertising via the media (press, radio and television, direct mail and outdoor posters)
should be put in place. Furthermore, the company’s promotional policy should focus on
such corporate/institution buyers like NGO’s, Education Ministries, parastatals and so
on. However, it might be necessary to engage the services of a reputable media
consultant for a cost- effective promotional policy.

The first promotional strategy shall be in form of an interactive session with the major
distributors, wholesalers, retailers, school proprietors and other stakeholders on the
official commissioning of the factory. This will afford them a first-hand feel of our
products and an opportunity to discover the advantages of doing business with us. Other
promotional strategies include the following:

 Customization of our quality pencils for high profile primary, secondary and tertiary
schools nationwide
 Targeting people who make a living using pencils
 Branding of pencils for corporate bodies, NGOs, education ministries, parastatals
and individuals for distribution to schools
 Embark on massive advertising and promotional campaigns via the media (press, TV.
radio, and billboard)
 Introduction of pre-education and literacy programs among school children
 Creating market demand for Z-Pencils brands by sponsoring a national literacy
campaigns
 Sponsoring art, writing, architecture, and design competitions and conferences
around Nigeria and the west African sub-region
 Embark on product give-aways to influential people within the user group. These
include government officials, legitimate politicians, corporate executives, etc
 Introduction of attractive packaging to reinforce premium image

The best place to reach our targeted customers is the children's belt on television. With
qualitative and interesting TV commercials, each brand of Z-Pencils’ pencils shall strive
for a distinct identity. Each brand manager has the responsibility of making his brand a
household name.

PLACE/DISTRIBUTION

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Distribution policies focus on the various means (channels) through which the
company’s product is made available to the final consumer.

Z - Pencils' aim is to open other distributive channels that are currently being under-
utilized. These will include the traditional channels like distributors and wholesalers with
new innovative channels like that of schools, colleges, and corporate bodies. Since
pencils are low-involvement products, they are bought for functional reasons and carry
little or no symbolic meaning. Their unit price is low, irrespective of the brand chosen or
selected. They are routinely purchased. There is little economic, social or psychological
risk of making the wrong brand decision or choice hence pencils are sold in every
imaginable outlets.

In Nigeria, pencil is perceived and is sold as an educational rather than a wood


product. The present distribution pattern is such that the products leave the importers'
warehouses to the major distributors, wholesalers and from there to retailers in the open
markets. There is no conscious effort at media promotion. Since pencils are generally
compulsory for all category of students, the importers do not feel the need for any media
promotional strategies. Z-Pencils Limited shall capitalise on this weakness by embarking
on massive promotional and positional drive through the media. Our international roll-
out expansion program involve the opening of distribution channels in Ghana, Republic
of Benin, Togo, Cote D'Ivoire and other West African countries

The reason for this strategy is not farfetched as these four mentioned countries possess a
combined national population of over 100 million with Cote D'Ivoire having about 50%.

Countries Population
Cote D'Ivoire 52 million
Ghana 40 million
Togo 8 million
Benin 3 million

The pencils market situation in the entire West-African sub-region is similar to that of
Nigeria in that pencils are not manufactured in any. Asians also dominate these markets
and initial contacts with the major distributors and wholesalers indicate a positive
response for Z-Pencils’ pencils. A major advantage buying from Z-Pencils is the price
and the economic advantage of lesser logistic demands.

COMPETITION AND BUYING PATTERNS

The concept and value of our locally made pencils is all about quality. There is no doubt
that we have to compete with the importers of these pencils but we work towards
gaining the confidence of the major marketers. This is indeed an opportunity to promote
and to encourage our indigenous industries. A market research shows that customers are
sensitive to products that are well packaged, available and affordable and also, meet their
expectations.

SALES STRATEGY

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As stated, Z-Pencils will sell pencils as they are manufactured. Pre-production marketing
efforts have been on going for sometime now. We have established a sales plan, however
our production will dictate how quickly our sales team will expand. One distributor we
have contacted expects to purchase 10 million pencils annually for the next two years. Z-
Pencils plans to open regional offices in Abuja (North), Aba (South) and Lagos (West) in
order to cover the entire country. We shall also make in-roads into the West African sub-
region
Our concept is to introduce Z-Pencils’ pencils to many schools, state ministries of
education, primary education boards, corporate bodies, NGOs, and high profile
politicians.

This business plan calls for the company to grow itself. The Ikorodu factory will
commence with an initial production capacity of 103 million pencils annually after which
production shall be increased by 100% every two years. This translates to about 10
production lines with a projected capacity of one billion pencils annually in eight years.
Our factory is strategically located in a rural community where a good labour force exists
but jobs are not plentiful and economic development will benefit the community.
Presently, some indigenous importers like Graphos Nigeria Limited have shown interest
in either becoming distributors or wholesalers of Z-Pencils through a sole distributorship
arrangement in some states of the federation.

SALES FORECASTS

Our sales forecast assumes no change in costs or prices as pencil prices are relatively
steady, which is a reasonable assumption for the first few years. We are projecting
on producing 8.5million pencils monthly or 103 million annually and to sell an average of
7.5million monthly or 90 million units annually at just five naira or $0.04 a unit. This
amounts to $288,461 (37.5 million naira) monthly or $3.46 million (N450 million)
annually. This figure (103 million) represents just about 10% of the quantity of pencils
imported in 2005.

We are projecting to increase capacity every two years by 100% for the next eight years in
order to achieve 50% of the current market requirement. The key to our growth is in the
quality of our brand of pencils, our pricing strategy, our unique packaging and the
willingness of the wholesalers, distributors to do business with a pioneering Nigerian
company and the support of our financiers.

The company will begin by utilizing its extensive contacts with several major distributors
and wholesalers to leverage sales through direct sales methods and innovative delivery
system. A number of these wholesalers and distributors have expressed an interest in
purchasing the proposed products of Z -pencils. The company's extensive advertising
campaign will be used to create product awareness through the use of trade journals,
direct mail advertising, and other means.

Sales Forecast

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2008 2009 2010


Unit Sales
Writing Pencils 90,000,000 95,000,000 180,000,000
Total Unit Sales 90,000,000 95,000,000 180,000,000

Unit Prices 2008 2009 2010


Writing Pencils $0.04 $0.04 $0.04

Sales
Writing Pencils $3,600,000 $3,800,000 $7,200,000
Total Sales $3,600,000 $3,800,000 $7,200,000

Direct Unit Costs 2008 2009 2010


Writing Pencils $0.02 $0.02 $0.02

Direct Cost of Sales


Writing Pencils $1,440,000 $1,520,000 $2,880,000
Subtotal Direct Cost of Sales $1,440,000 $1,520,000 $2,880,000

Sales by Year

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CHAPTER SEVEN
7.1 PROFITABILITY AND FINANCIAL ANALYSIS

In estimating the operating expenses during the operational years, the following
assumptions and provisions are made:

(a) Capacity utilization is expected to start from 70% in the first year and grow steadily to
90% in the fifth year when it is expected to stabilize.

(b) The plants annual installed capacity is 1.1 million gross (144 Pencils per gross = 158
million pencils) per year

(c) Average Ex Factory prices are assumed to be N 750 per gross

7.2 UTILITIES

Utility costs include cost of electricity consumed by the production plants, fuel oils
consumed by the boiler/machinery, diesel consumed by the generators, petrol, lubricants
and other related costs. The company will at the initial stage rely solely on Generators
pending the stepping down of the National Electricity Power Authority national grid
which is about 0.7 kilometres away. Thus, a provision of 3.0% of Net Sales revenue will
be made available for utility costs.

7.3 MAINTENANCE

The proposed plant and machinery will be easily maintained at a relatively reasonable
cost since they are being purchased newly. However, the machines must be adequately
maintained for optimum performance. Hence, for the maintenance of the plant and
other fixed assets, a provision of 1.7% of the fixed assets cost has been made in the first
year of operation. This is expected to increase in consonance with capacity utilization of
the plant in subsequent years.

7.4 ADVERTISEMENT AND SELLING EXPENSES

Since Z- Industries products are going to be new in the market, it is assumed that the
company will spend substantial amount on advertising and promotion. In this regard, an
estimate of 5.5% of Net Sales revenue is expected to cover the cost of advertisement in
the media, sales and distribution cost, as well as sponsorship of programmes on
Television.

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7.5 DEPRECIATION

Depreciation is computed on a straight-line basis using the following rates:

(i) Building 5%
(ii) Plant and Machinery 10%
(iii) Generators 10%
(iv) Other Utilities 10%
(v) Vehicles 20%
(vi) Office Furniture and Equipment 20%

7.6 AMORTIZATION

An amortization rate of 20% is applied on the following;

o Preliminary and Pre-operative Expenses

o Interest during Construction

o Legal documentation Fees

7.7 FINANCE CHARGES

It is assumed that the long-term loans would attract 21% per annum interest rate. The
tenor of the long-term loan is taken as 6 years, with one-year moratorium.

The short-term loan or overdraft facility, which will be used to finance the working
capital, is expected to be obtained at an interest rate of 22.5% per annum. This short-
term loan is expected to have a tenure of three years, and a monthly repayment without
any moratorium.

Provision is made for Bank charges, which may depend on the turnover of accounts in
the Banks.

7.8 TAX PROVISION

Tax provision of 30% and 2% on assessable profit have been assumed in the
computation of Company and Education Taxes respectively after provision has been
made for capital allowance.

7.9 PROFITABILITY ANALYSIS

The company’s Net Sales Revenue, after making provision for 5% VAT, is expected to
rise from N125.9 million in the first year to N1,200 million in the fifth year. Similarly,
annual Net Profit is expected to improve from N88.1 million in the first year to N869.6

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million in the fifth year. Excise duty is not expected to be paid by this company in the
immediate future.

Return on Sales is expected to rise from 18 % in the first year to 36% in the fifth year.
The projected Profit and Loss Account is summarized below:

TABLE 7.1 SUMMARY OF PROJECTED PROFIT AND LOSS ACCOUNT

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5


Net Sales 485 699 825 1,444 2,365
(N’Million)
Profit before Tax 126 221 296 663 1,242
(N’Million)
Profit after Tax 88 155 207 464 870
(N’Million)
Return On Sales 18% 22% 25% 32% 37%
(%)
Return On Equity 108% 87% 93% 145% 173%
(%)
Return on Capital 50% 58% 69% 122% 160%
(%)

These indicators show reasonable and satisfactory returns.

7.10 CASH FLOW ANALYSIS

The cash flow projection before and after financing is summarized below. The
projections show that the company will be able to generate sufficient funds to service its
debt as well as meet other operational requirements without difficulty. It is proposed that
debt service coverage of 3, for the period of repayment, is considered good, noting that
the minimum during the period is 1.2

The Cash Balance for the period is as follows:


TABLE 7.2 SUMMARY OF BALANCE SHEET

Closing
Cash Debt
Balance Serve
(N’million) Coverage
Yr. 0 -110
Yr. 1 165 1.2
Yr. 2 342 2.5
Yr. 3 542 4.0
Yr. 4 886 6.6
Yr. 5 1,521 11.3

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The total deficit of N110 million during the implementation period (i.e. Yr.0) will be
financed partly by the promoters Equity.

7.11 BALANCE SHEET ANALYSIS

The projected Balance Sheet is shown in Appendix 3. Net Current Assets in the first year
is expected to be N209 million and would rise to N1,017 million in the fifth year.
Retained Earnings are expected to rise from N78.0 million in the second year to N419.0
million in the fifth year and these will assist the company in meeting future investment
plans from internally generated funds. The current ratios decrease from 4.2 in the first
year to 1.7 in the fifth year. 9 This is based on investment in year 3 on cosmetic pencils
manufacturing Plant)
The summary of the projected Balance Sheet is given below:

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5


Paid Up Share Capital 38 38 38 38 38
(N‘million)
Retained Earnings 78 217 279 419
(N‘million)
Current Ratios 4.23 4.18 2.47 1.86 1.72

Debt/Equity Ratio 1.16 0.50 0.34 0.19

The liquidity positions, as well as the financial leverage, over the projected period are
quite satisfactory.

7.12 SENSITIVITY ANALYSIS

The sensitivity of the project is tested on Sales and the cost of raw/packaging materials,
using the Opportunity Cost of Capital as 21.0%. The analysis shows that a 56.0% drop in
revenue or 215.0% rise in the cost of raw and packaging materials will render the project
unviable. The projections have assumed very conservative estimates such that selling
prices are not likely to drop by such a rate, while increases in raw material cost is most
unlikely to be unnecessarily high. The proposed prices are less than the current ex-
factory prices in the industry.

The project is therefore not sensitive to changes in any of the variables.

7.13 INTERNAL RATE OF RETURN

The Internal Rate of Return Before and After Financing is shown to be 95.3% and
119.8% respectively, which are very satisfactory, as they are much higher than the highest
borrowing rate of 22.5%. The high IRR value is considered good, attractive and
attainable.

Assumptions used in the calculations are:

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- Projected life span of the project taken as 10 years

- 2007/2008 is taken as implementation period.

- Salvage value taken at 5% of Plant and Machinery, 10% of buildings, 100% for
Land and Land Development, 5% for utilities, 2.5% for Office
Equipment/Furniture and 100% for Raw Materials.

7.14 BREAK EVEN POINT

With the envisaged production schedule, the company is expected to break even with
production at 68.8 % of the installed capacity, with sales revenue of N334 million. This
capacity utilization is achievable in the first year of operation and is considered very
satisfactory.

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CHAPTER EIGHT
ECONOMIC ANALYSIS

The project is desirable to the Nigerian economy when analysed by the following
parameters.

8.1 EMPLOYMENT

At a time when the rate of unemployment is soaring, with attendant social vices, the
provision of employment to at least 89 Nigerians is a good indicator. This is expected to
have a positive multiplier effects on the Nigerian economy in general and the
environment in particular.

8.2 GROSS VALUE ADDED

The company’s contribution to the national income in terms of Gross Value Added is
N679 million in the fifth year of operation. This is equivalent to N7.6 million per person
employed in the company and about 1.6 % of sales revenue in the first year. This is
considered very satisfactory especially with the number of employed people.

8.3 LOCAL INPUT/FOREIGN INPUT RATIO

The local input/foreign input ratio which shows the extent to which the project relies on
local sources for the inputs stands at 70:30. This implies that 70 % of the project’s inputs
would be sourced locally.

8.4 FOREIGN EXCHANGE SAVINGS

The project will generate an annual net foreign exchange savings of US $3.5 million
(N485 million) which is considered very good. The products of Z- Industries wholly
imported currently, hence the huge foreign exchange savings.

8.5 ECONOMIC RATE OF RETURN (ERR)

The project has an Economic Rate of Return of 91%, which is quite adequate when
compared with the opportunity cost of capital of 22.5%. The analysis assumes a Foreign
Exchange Premium of 1.5 for the adjustment of sales revenue.

8.6 SOCIAL BENEFITS

The company would offer far reaching social benefits to the people around the project
location in particular and other states in general. The financial returns to this company
are such that the government would benefit in the form of Company and Educational
Tax, Employees P.A.Y.E, etc. the average tax returns to government over the first five

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years of operation is N150 million per annum. The project will also contribute directly to
the government policy on education.

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CHAPTER NINE
RISK ANALYSIS AND CONCLUSION

9.1 RISK ANALYSIS:

The analysis in this report has been based on primary survey and secondary data from
published information. The analysis shows that the implementation and operation of the
project will not encounter much difficulty; however the following areas need to be
closely watched by the planners, the executors and the operators.

9.2 FUNDING

The Nigerian Economy is currently short of Long- Term loan able funds. This may lead
to unnecessary time and cost overruns, which in turn may derail the implementation
plan.

9.3 RAW MATERIALS SUPPLY

The 70% of the raw materials will be sourced locally. To ensure regular supply, a firm
arrangement must be made with the various suppliers.

9.4 COMPETENT TECHNICAL EXPERTISE

There is the risk of not being able to put a good management in place. Without a good
and experienced management team, the planned financial and economic returns will
remain a mirage.

This risk is guarded against by the plan to recruit key technical personnel that are
dynamic fresh minds, or recruit from wood processing companies in the country. It is
also planed to recruit an experience expatriate in the field of pencil manufacture from
China.

9.5 UNSTABLE ENERGY SECTOR

The plant requires steady uninterrupted power supply. The successful operation of the
plant will be jeopardized by poor and unstable power supply in the country. Frequent
outages are also dangerous to the equipment.

In consideration of this, the plant will be equipped with a generating set, which will
switch on automatically when the public supply of electricity goes off.

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9.6 SWOT ANALYSIS

The strengths, weaknesses, opportunities as well as the threats to the success of the
project are examined as follows:

Strength

(a) Being a new plant, it has new, modern and functional facilities. The proposed
machinery suppliers are well known and their machines are very reliable.

(b) Its location in Ikorodu makes proximity to the large Ibadan and Lagos markets easily
accessible, as well as being in a good position for access to the Northern, Eastern and
Southern parts of the country.

Weakness

(a) Being a new business with no track record, it will need to make its presence felt in the
market immediately.

(b) Infrastructure around the site is scanty and will require extra costs, which might lead
to high cost of production.

Opportunities

(a) There is no local manufacturer in the west African sub region


(b) Largest pencil consumer/market in Africa.

Threats

The importers already have established distributors and an impressive network of


wholesalers and it may be difficult to win over customers. However, with high quality
products and a good marketing strategy, the threat can be overcome.

9.7 SUGGESTIONS

The following suggestions should be noted for successful implementation and operation
of the project.

In view of the state of the economy, prompt provision of funds must be made to avoid
unnecessary time and cost overruns.

The management of the company as proposed should be given free hand in running the
affairs of the company. In this regard, the management by a General Manager as
proposed should be put in place to ensure stability and growth.

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There must be Machinery Supplier Agreement to ensure reliable performance of the


suppliers.

Strong Research Department should be put in place to ensure the production of High
Quality and innovative products.

Adequate training of the technical staff, both within and outside the country, is essential
to maintain international standard of the products so as to be able to effectively compete
in the market.

Regular and adequate maintenance system should be adopted to avoid frequent machines
breakdowns. This will ensure uninterrupted production so that the desired profitability
level would be achieved.

There should be job description for all the positions in line with what has already been
done for management. The format of the job description should be standard design
describing basic job functions to be performed, academic/ technical requirements,
reporting structure etc.

9.8 RECOMMENDATIONS

Based on information gathered from our fieldwork and other researches on this project
and going by the analysis articulated in the preceding chapters of the report, we are
convinced that this proposal is worthwhile.

With a break-even point of 68.8% of installed capacity, the project will achieve
profitability right from the first year of operation when the plant would be operated on
three shift per day.
The proposed plants are to be sourced from a reliable company, with adequate spare
parts and technical services back up. The proposed machinery suppliers are known all
over the world and all their components are sourced from reputable companies.

The analysis has shown that the project is technically feasible. Economic analysis shows
it is desirable, while the established market and financial returns show it is viable.

We therefore, recommend the proposal for financial assistance and implementation for
the benefits of the generality of Nigerians.

In reviewing the financials below, calculated in Naira, the exchange rate of the Naira to
US dollars is N130/$1 (That is, one hundred and thirty nairas exchange for one dollar).

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Project Cost – Appendix 1

TOTAL TO
COST INCURRED COST TO BE INCURRED BE

Promoters Institutions INCURRED


Estimate Estimate 2007 2007 2008 2008 2009 2009
As at Dec As at Dec TOTAL
2007 2007 FOREIGN LOCAL FOREIGN LOCAL FOREIGN LOCAL COST
N
N ‘000 N ‘000 N ‘000 ‘OOO N ‘000 N ‘000 N ‘000 N ‘000 N ‘000 N ‘000
LAND AND
BUILDING

Land Acquisition and


compensation 0 0 0 3000 0 0 0 0 3,000 3,000
Land Development 0 0 0 0 0 0 0 0 0 0
Buildings 0 0 0 9000 0 0 0 0 9000 9,000

Weighbridge Structure 0 0 0 0 0 0 0
Professional Fees 2.50% 0 0 0 0 0 0 0 0 0

Physical Contingencies 1.50% 0 0 0 0 0 0 0 0 0


TOTAL LAND AND
BUILDING 0 0 0 12,000 0 0 0 0 12000 12,000

PLANT AND
MACHINERY

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Plant and Machinery (c&f) 0 0 0 0 38,247 0 0 0 38,247 38,247

Ancillary Equipment 0 0 0 0 0 0 0 0 0 0
Spares (c&f) 0 0 0 0 0 0 0 0 0 0
Marine Insurance 0.50% 0 0 0 0 0 191 0 0 191 191
Custom Duty 2.50% 0 0 0 0 0 956 0 0 956 956
Port dev. charges 7.00% 0 0 0 0 0 2,677 0 0 2,677 2,677
Transport charges 1.50% 0 0 0 0 0 574 0 0 574 574

Cost of opening L/C 1.50% 0 0 0 0 0 574 0 0 574 574


Installation &
Commissioning 0 0 0 0 0 1,500 0 0 1,500 1,500
VAT @ 5% 0 0 0 0 0 1,912 0 0 1,912 1,912
Physical contingency 1.50% 0 0 0 0 574 0 0 0 574 574

TOTAL PLANT AND


MACHINERY 0 0 0 0 38,821 8,385 0 0 47,206

ESSENTIAL
SERVICES/UTILITIES
Generator 200 KVA 0 0 0 0 0 3,500 0 0 3,500 3,500
Boreholes & Storage
Tanks 0 0 0 700 0 0 0 0 700 700
Other Utilities 0 0 0 0 0 0 0 0 0 0
Marine Insurance 0.50% 0 0 0 0 0 0 0 0 0 0
Customs duty 15.00% 0 0 0 0 0 0 0 0 0 0
Port dev. Charges 7.00% 0 0 0 0 0 0 0 0 0 0

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Clearing Charges 1.50% 0 0 0 0 0 0 0 0 0 0

Cost of opening L/C 1.50% 0 0 0 0 0 0 0 0 0 0

Physical contingencies 1.50% 0 0 0 10.5 0 52.5 0 0 63 63


VAT @ 5.00% 0 0 0 35 0 175 0 0 210 210

TOTAL UTILITIES 0 0 0 746 0 3,728 0 0 4,473 4,473

TOTAL FIXED
ASSETS 0 0 0 12,746 38,821 12,112 0 0 63,679 63,679

Vehicles 0 0 0 0 0 4,400 0 0 4,400 4,400

Office furniture & fittings 0 0 0 0 0 1,400 0 0 1,400 1,400


Preliminary & pre-
operative expenses 3,000 3,000 0 6,000 0 0 0 0 9,000 9,000
Working capital 0 0 0 0 19,056 44,465 0 0 63,521 63,521

TOTAL PROJECT
BASE COST 3,000 3,000 0 18,746 57,878 62,377 0 0 142,000 142,000
Interest during
construction 22.50% 0 0 0 0 0 10,526 0 0 10,526 10,526

Legal documentation fees 3.00% 0 0 0 4,260 0 0 0 4,260 4,260


Appraisal fees 1.00% 0 0 0 1,420 0 0 0 0 1,420 1,420
Price contingency
(Building) 2.50% 0 0 0 300 0 0 0 0 300 300
Price contingency (Plant &
Machinery) 2.50% 0 0 0 0 1,180 0 0 0 1,180 1,180

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Price contingency
(Utilities) 2.50% 0 0 0 112 0 0 0 0 112 112
Contingency due to
currency fluctuation 1.10% 0 0 0 0 0 1,562 0 0 1,562 1,562
Exchange rate at L/C
opening 0 0 0 0 0 0 0 0 0 0

Exchange rate at delivery 0 0 0 0 0 0 0 0 0 0


TOTAL PROJECT
COST 3,000 3,000 0 24,837 59,058 74,465 0 0 161,360

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Profit and loss Account – Appendix 2

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12


Revenues - 485,100,000 698,544,000 825,155,100 1,444,021,425 2,365,307,094
Cost of Sales - 97,020,000 139,708,800 165,031,020 288,804,285 473,061,419
Gross Profit (Loss) - 388,080,000 558,835,200 660,124,080 1,155,217,140 1,892,245,675
Selling & Marketing Costs - 128,223,511 175,384,670 198,199,834 280,637,196 390,357,882
Admimistrative Expenses - 92,381,333 120,738,009 127,726,977 171,536,435 224,348,842
Other Income - - - - - -
EBITDA - 167,475,155 262,712,520 334,197,269 703,043,509 1,277,538,951
Depreciation 1,800,000 16,471,667 16,471,667 16,471,667 21,650,758 21,650,758
Amortisation of Goodwill - - - - - -
EBIT (1,800,000) 151,003,489 246,240,853 317,725,603 681,392,751 1,255,888,193
Interest Expense 8,370,000 25,110,000 24,895,025 22,207,674 18,283,378 13,545,644
PBT Before Execeptional Items (10,170,000) 125,893,489 221,345,828 295,517,928 663,109,373 1,242,342,549
Exceptional Income/(Loss) - - - - - -
Profit/(Loss) Before Tax (PBT) (10,170,000) 125,893,489 221,345,828 295,517,928 663,109,373 1,242,342,549
Provisions for Taxation - 37,768,047 66,403,749 88,655,378 198,932,812 372,702,765
Profit/(Loss) After Tax (PAT) (10,170,000) 88,125,442 154,942,080 206,862,550 464,176,561 869,639,784
Dividends - - 15,494,208 144,803,785 324,923,593 608,747,849
Retained Earnings (10,170,000) 88,125,442 139,447,872 62,058,765 139,252,968 260,891,935
Transfer to General Reserve (10,170,000) 88,125,442 139,447,872 62,058,765 139,252,968 260,891,935

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Balance Sheet – Appendix 3

Z-PENCILS Balance Sheet - 10 Year Pro Forma


All figures in NGN

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12


Fixed Assets 10,200,000 91,539,446 75,067,779 58,596,112 71,472,630 49,821,871
Goodwill on Acquisition - - - - - -
Total Fixed Assets 10,200,000 91,539,446 75,067,779 58,596,112 71,472,630 49,821,871
Stocks - 3,773,000 5,433,120 6,417,873 11,231,278 18,396,833
Accounts Receivables - 40,425,000 58,212,000 68,762,925 120,335,119 197,108,925
Bank & Cash Balances 152,962,324 165,060,235 341,931,774 542,225,507 885,936,022 1,520,739,679
Total Current Assets 152,962,324 209,258,235 405,576,894 617,406,305 1,017,502,418 1,736,245,437
TOTAL ASSETS 163,162,324 300,797,681 480,644,673 676,002,417 1,088,975,048 1,786,067,308
Accounts Payables - 6,641,869 9,533,445 10,775,284 14,545,068 21,317,280
Taxes Payable - 37,768,047 66,403,749 88,655,378 198,932,812 372,702,765
Dividend Payable - - 15,494,208 144,803,785 324,923,593 608,747,849
Salaries Payable - 5,100,000 5,610,000 5,610,000 8,591,000 8,591,000
Total Current Liabilities - 49,509,915 97,041,402 249,844,447 546,992,472 1,011,358,894
Long Term Loans 135,000,000 135,000,000 127,867,633 108,363,567 84,935,204 56,769,108
Contingent Liability - - - - - -
Deferred Taxation - - - - - -
Total Non-Current Liabilities 135,000,000 135,000,000 127,867,633 108,363,567 84,935,204 56,769,108
TOTAL LIABILITIES 135,000,000 184,509,915 224,909,035 358,208,014 631,927,677 1,068,128,002
Capital & Reserves
Equity Capital 38,332,324 38,332,324 38,332,324 38,332,324 38,332,324 38,332,324
General Reserves (10,170,000) 77,955,442 217,403,314 279,462,079 418,715,047 679,606,982

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TOTAL EQUITY 28,162,324 116,287,766 255,735,638 317,794,403 457,047,371 717,939,307

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Cash Flow – Appendix 4

Z-PENCILS Cash Flow Statements - 10 Year Pro Forma


All figures in NGN

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12


Operating Activities:
EBITDA - 167,475,155 262,712,520 334,197,269 703,043,509 1,277,538,951
Less:
Interest Payments 8,370,000 25,110,000 24,895,025 22,207,674 18,283,378 13,545,644
Tax Payments - - 37,768,047 66,403,749 88,655,378 198,932,812
Net Change in Working Capital - (32,456,131) (16,045,544) (10,293,839) (49,634,814) (77,167,149)
Cash Flow from Operations (8,370,000) 109,909,024 184,003,905 235,292,007 546,469,938 987,893,347
Investing Activities:
Purchase of Fixed Assets 12,000,000 97,811,113 - - 34,527,276 -
Disposal of Fixed Assets - - - - - -
Total from Investing Activities (12,000,000) (97,811,113) - - (34,527,276) -
Financing Activities:
Equity Funding 38,332,324 - - - - -
Loan Receipts 135,000,000 - - - - -
Loan Repayments - - 7,132,367 19,504,066 23,428,363 28,166,097
Dividend Payments - - - 15,494,208 144,803,785 324,923,593
Total from Financing Activities 173,332,324 - (7,132,367) (34,998,274) (168,232,147) (353,089,689)

Net Cash In/(Out) flows 152,962,324 12,097,911 176,871,538 200,293,733 343,710,515 634,803,657
Opening Cash Balance - 152,962,324 165,060,235 341,931,774 542,225,507 885,936,022
Closing Cash Balance 152,962,324 165,060,235 341,931,774 542,225,507 885,936,022 1,520,739,679

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Financial Ratios – Appendix 5

FINANCIAL RATIOS

P&L Ratios Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13


Gross Margin % 0.00% 80.00% 80.00% 80.00% 80.00% 80.00% 80.00%
EBITDA Margins % 0.00% 34.52% 37.61% 40.50% 48.69% 54.01% 54.48%
EBIT Margins % 0.00% 31.13% 35.25% 38.50% 47.19% 53.10% 53.64%
PAT Margins 0.00% 18.17% 22.18% 25.07% 32.14% 36.77% 37.33%
OpEx as % of Gross
Margin 0.00% 45.48% 42.39% 39.50% 31.31% 25.99% 25.52%
Interest Cover by EBITDA 0.00 6.67 10.55 15.05 38.45 94.31 173.00
Dividend Payout Ratio 0.00% 0.00% 10.00% 70.00% 70.00% 70.00% 70.00%

Balance Sheet Ratios Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Current Ratio 0.00 4.23 4.18 2.47 1.86 1.72 1.92
Quick Ratio 0.00 4.15 4.12 2.45 1.84 1.70 1.90
Inventory Days 0.00 14.00 14.00 14.00 14.00 14.00 14.00
Accounts Receivable Days 0.00 30.00 30.00 30.00 30.00 30.00 30.00
Accounts Payables Days 0.00 15.00 15.00 15.00 15.00 15.00 15.00
Sales-To-Assets 0.00 1.61 1.45 1.22 1.33 1.32 1.18
Debt-To-Equity Ratio 4.79 1.16 0.50 0.34 0.19 0.08 0.02
Debt-To-Capital Ratio 0.83 0.54 0.33 0.25 0.16 0.07 0.02
Return on Assets -6% 42% 46% 44% 61% 70% 63%
Return on Capital
Employed -6% 50% 58% 69% 122% 160% 130%
Return on Equity -36% 108% 87% 93% 145% 173% 133%

Cashflow Ratios Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Free Cash Flow to Equity -20,370,000 12,097,911 184,003,905 235,292,007 511,942,662 987,893,347 963,071,438
Breakeven Sales 1,800,000 334,096,511 452,303,147 507,429,497 762,628,674 1,109,418,901 1,151,473,549
Breakeven Sales/Revenue 0.00% 68.87% 64.75% 61.50% 52.81% 46.90% 46.36%
Margin of Safety 0.00% 31.13% 35.25% 38.50% 47.19% 53.10% 53.64%

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Cost of Management and Labour – Appendix 6 (N)

Salaries per Month 10% 0% 10% 0% 10% 0% 10% 0% 10% 0%

CEO 650,000 650,000 715,000 715,000 786,500 786,500 865,150 865,150 951,665 951,665

Chief Operating Officer 600,000 600,000 660,000 660,000 726,000 726,000 798,600 798,600 878,460 878,460

General Manager 300,000 300,000 330,000 330,000 363,000 363,000 399,300 399,300 439,230 439,230

Financial Controller 300,000 300,000 330,000 330,000 363,000 363,000 399,300 399,300 439,230 439,230

Production Manager 150,000 150,000 165,000 165,000 181,500 181,500 199,650 199,650 219,615 219,615

Maintenance Manager 180,000 180,000 198,000 198,000 217,800 217,800 239,580 239,580 263,538 263,538

Engineers 120,000 120,000 132,000 132,000 145,200 145,200 159,720 159,720 175,692 175,692

Sales & Marketing Manager 100,000 100,000 110,000 110,000 121,000 121,000 133,100 133,100 146,410 146,410

Store Manager 80,000 80,000 88,000 88,000 96,800 96,800 106,480 106,480 117,128 117,128

Operators / Technicians 40,000 40,000 44,000 44,000 48,400 48,400 53,240 53,240 58,564 58,564

Marketing Officer 30,000 30,000 33,000 33,000 36,300 36,300 39,930 39,930 43,923 43,923

Customer service 25,000 25,000 27,500 27,500 30,250 30,250 33,275 33,275 36,603 36,603

Materials and Logistics 30,000 30,000 33,000 33,000 36,300 36,300 39,930 39,930 43,923 43,923

Accounting 100,000 100,000 110,000 110,000 121,000 121,000 133,100 133,100 146,410 146,410

Secretarial 30,000 30,000 33,000 33,000 36,300 36,300 39,930 39,930 43,923 43,923

Clerks and admin personnel 20,000 20,000 22,000 22,000 24,200 24,200 26,620 26,620 29,282 29,282

Helpers 15,000 15,000 16,500 16,500 18,150 18,150 19,965 19,965 21,962 21,962
Security Personnel

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20,000 20,000 22,000 22,000 24,200 24,200 26,620 26,620 29,282 29,282

2,790,000 2,790,000 3,069,000 3,069,000 3,375,900 3,375,900 3,713,490 3,713,490 4,084,839 4,084,839

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Assumptions and Milestones – Appendix 7


ASSUMPTIONS &
MILESTONES
Start
Funding Date Aug-07 Capital Structure

Loan Repayment Start May-08 9 Equity 20%

Factory Building Feb-08 6 Mezannine 30%

Install Writing Pencil Equipment Mar-08 7 Debt 50%

Install Cosmetic Pencil Equipment Aug-11 48

Install Cosmetic Pencil Equipment Aug-11 48

Macro Economic Assumptions 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Exchange rate N:US$ (av) 134.80 139.00 144.00 149.00 149.00 149.00 149.00 149.00 149.00 149.00
Consumer Price Inflation (av;%) 13.50% 12.40% 11.20% 10.80% 10.80% 10.80% 10.80% 10.80% 10.80% 10.80%
Commercial banks prime rate(av) 10.50% 11.50% 12.50% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
Real GDP growth 3.30% 4.40% 4.40% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%

P&L Assumptions 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Annual Selling Price Increases 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
COS as % Revenue 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
Production Waste as % COGS 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Annual Salary Increases 10.00% 0.00% 10.00% 0.00% 10.00% 0.00% 10.00% 0.00% 10.00% 0.00%
Annual Cost Increases 13.50% 12.40% 11.20% 10.80% 10.80% 10.80% 10.80% 10.80% 10.80% 10.80%
Management Fees 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%
Training Expenses 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%
Depreciation Rates 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%

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Tax Rates 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
Dividend Rates 0.00% 0.00% 10.00% 70.00% 70.00% 70.00% 70.00% 70.00% 70.00% 70.00%

Balance Sheet Assumptions 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Stock Days 14 14 14 14 14 14 14 14 14 14
Account Receivable Days 30 30 30 30 30 30 30 30 30 30
Account Payable Days 15 15 15 15 15 15 15 15 15 15

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Capital Funding – Appendix 8

Less interest
CAPITAL FUNDING capitalised 131,620,584

Capital Expenditures 109,811,113 138665859.3


Working Capital (3 Months working
Capital) 63,521,211

Total Fund Requirement 173,332,324


Repayment Interest
Amount Start Moratorium Rate Term

Debt Funding 135,000,000

Mezannine Debt 40% 54,000,000 May-08 2 15% 5 0.36

Senior Debt 60% 81,000,000 May-08 2 21% 5 0.60

Equity Funding 38,332,324

Average Annual Payment 41,711,740

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