233.

PROFILE ON PRODUCTION OF LAUNDRY SOAP

233-2

TABLE OF CONTENTS

PAGE

I.

SUMMARY

233-3

II.

PRODUCT DESCRIPTION & APPLICATION

233-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

233-4 233-4 233-6

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

233-7 233-7 233-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

233-8 233-8 233-9

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

233-10 233-10 233-10

VII.

FINANCIAL ANALYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

233-12 233-12 233-13 233-14 233-15

233-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of laundry soap with a capacity of 12,000 tones per annum.

The present demand for the proposed product is estimated at 22,638 tones per annum. The demand is expected to reach at 47,963 tones by the year 2025.

The plant will create employment opportunities for 29 persons.

The total investment requirement is estimated at about Birr 14.13 million, out of which Birr 2.3 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 20 % and a net present value (NPV) of Birr 8.89 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Soap is a cleansing and emulsifying agent that consists essentially of a mixture of watersoluble sodium or potassium salts of fatty acids and that may contain other ingredients such as builders, abrasive material, perfume and dyes.

The major application of laundry soap is for washing or cleansing clothes. It is produced in bar form for use in hand washing.

233-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Laundry tasks are becoming easier with modern cleaner products. Washing clothes in water even with agitation provided by hand or by machine will remove some but not all stains, dirt and particular soils. Water alone cannot remove soils that are not water soluble, and water doesnt have the capability to keep removed soils suspended. Laundry soaps are therefore used in washing clothes and retreating heavy soils or stains prior to washing.

The supply of soaps in Ethiopia is both from domestic production and import. The average import of soaps is about 57% while the domestic production covers 43%. Among the imported products, Indonesia is the main supplier of soaps to the Ethiopian market followed by South Korea.

Since the total supply is dominated by imported products, at the right quality level and packaging there is abundant demand for a new project to capture a reasonable share of the market.

In the past decade the annual average imported soaps volume was 21,560 tons with an annual average growth rate of 5%. On the other hand a linear trend equation on the same series reveals: Y = 472.91X + 18,959

Estimating the current demand through applying the average annual growth rate and linear trend approaches resulted in a current effective demand at 22,638 tons and 24,161 tons respectively. In this study however a conservative estimate of 22,638 tons is

233-5 considered as the current effective demand unsatisfied by the present local production of laundry soap. Supply of soap is presented in Table 3.1.

Table 3.1 SUPPLY OF LAUNDRY SOAP IN TONS

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Local 14,342 10,874 26,146 17,194 14,766 19,249 11,632 14,975 16,825 N.A.

Imported 22,404 14,302 20,438 18,043 25,738 27,290 22,808 16,443 24,634 23,496

Total 36,746 25,176 46,585 35,237 40,505 46,539 34,440 31,419 41,459 -

Source: CSA Annual Survey Manufacturing Industries Customs Authority

2.

Demand Projection

Laundry soap is an every day use product applied for washing. The low level standard of living prevailing in the country was the main reason for the associated low level of soap consumption. Economic development and the rise in income inevitably will lead to better suitable livelihood and usage of soaps.

The demand for laundry soaps although basically depend on the population and other substitute products; income also is detrimental for the proper and frequent usage of soaps by the majority of the low income group of population. The change in the housing patterns of urban dwellers from traditional outdoor kitchens and toilets to better water

233-6 tapped kitchen and toilets will have a direct impact on the demand for soaps. In addition to this, the rural population consumes more and more laundry soaps with a growth in income.

In general the demand for soaps is related to the growth in income. Therefore the estimation of the demand gap left out by the domestic suppliers, is made based on 8.7% annual gross domestic product growth rate achieved in 2005. Demand projected for laundry soap is presented in Table 3.2.

Table 3.2 PROJECTED DEMAND OF LAUNDRY SOAP

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016

Tons 24,608 26,748 29,075 31,605 34,355 37,344 40,592 44,124 47,963

3.

Pricing and Distribution

The price of the most popular brands of B29 is Birr 3.50, Zap Birr 3.00 and Pecock Birr 2.50.

Distribution of laundry soaps is better to be handled through wholesalers who have the experience in the field and good established channels. As a new entrant in the market an

233-7 attractive brand and packaging should be developed and supported by visible advertisement like TV and posters.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1. production capacity

Based on the demand projection indicated above, the proposed plant will have production capacity of 12,000 tones of laundry soap per annum. The unit is envisaged to operate in single shift working eight hours a day for 300 days per year.

2.

Production programme

The plant is expected to operate at 70% and 80% of the installed capacity in the first and second year of implementation, respectively and reach full capacity on the third year.

IV.

MATERIALS AND INPUT

A.

MATERIALS

The raw materials required for the manufacturing of laundry soap are palm fatty acid, caustic soda and additives. All the annual cost of the raw materials is Birr 43,813,100 for details see Table 4.1 below.

233-8 Table 4.1 LIST OF RAW AND AUXILIARY MATERIALS AND COST Total cost (000 Birr ) Sr. No 1 2 3 4 5 Description Palm fatty acid Caustic soda (>98% NaOH) Sodium Chloride Bleaching earth Additives Total Cost Qty (T) 10,800 4,450 420 240 360 FC 21,335.40 9,252.00 90.72 184.68 LC Total

11,340 32,675.40 1,028 10,280.00 562.50 10.08 9.75 562.50 100.80 194.40

30,862.80 12,950.30 43,813.10

B.

UTILITIES

The required electrical energy for lighting, machinery and equipment is 341,000 KWH, water is required for cooling, process, and human consumption and annually it is estimated to be 25,000 m3. The total annual cost is estimated at Birr 299,525.

VI.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The raw materials are melted slowly in a vessel. In order to eliminate the moisture, vacuum dehydration process will be carried out at a certain temperature. Then bleaching earth is added and the solution will be stirred vigorously. Fats & oils separated from the bleaching earth are pumped to saponification kettle and caustic soda solution of a required concentration is then added in small quantity at a time. The soap charged passes through different stage en-route to complete saponification. When the saponification

233-9 process is finished a concentrated salt solution is added to separate the lye. The liquid soap from the tank is heated and pumped to the vacuum spray-drying unit.

The soap powder from the dryer is removed by a set of scrapers and directed to the plodder. Noodles from the plodder are cut into pieces. The pieces are given further homogenization and together with some additives, pressed into bars. The piece of soap is finally cut to the desired size by the cutter and are then stamped and wrapped.

2.Source of Technology

The machinery and equipments required can be obtained from the following address. Frigmaires International Maharashtra -400 013,India Tel: +91-22-24944108 Fax: +91-22-22186046

B.

ENGINEERING

1.

Machinery and equipment

Most of the required machinery and equipment for the production of laundry soap plant are imported. The total cost of machinery and equipment is estimated to be Birr 2,300,000 of which birr 300,000 is in local currency. The list of machinery and equipment is given in Table 5.1

233-10 Table 5.1 LIST OF MACHINERY AND EQUIPMENT

Sr. No 1 2 3 4 5 6 7 8 9 10 11 Pump

Description

Qty

5 1 5 2 1 1 1 2 3 2 2

Mixer with agitator & heating Coil Boiling kettle Filter press Heat Exchanger Booster Compressor Screw Conveyor Weight mixer Cutting machine Stamper Wrapper

2.

Land Building and Civil Works

The plant will require a total land area of 800 m2 of which 650 m2 will be covered by the factory and office buildings, stores, etc. the total cost of building and civil works, estimated at a rate of Birr 2,500 per m2will be Birr 1,625,000cost for holding of land at the rate of Birr 0.8 per m2 and 95years of land holding are estimated at Birr 60,800.

Therefore, the total cost for land holding, building and civil works will be Birr 1,685,800.

3.

Proposed Location

The envisaged plant shall be located in Jinka town, Bakogazer Woreda of Sheka Zone South Omo.

233-11 VI. A. MANPOWER & TRANING REQUIRMENT MANPOWER REQUIRMENT

The envisaged laundry soap plant requires 29 workers. The total estimated annual labor cost is birr 259,500 the detail breakdown of manpower required for the plant is presented in Table 6.1 B. TRAINING REQUIREMENT

Training is required for the production staff on process of technology, machine operation, and maintenance. The training is expected to be given for a period of six weeks by the machinery supplier at the project site. A total of birr 50,000 is allotted for executing the training programme. Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOUR COST Sr. Description No A. Administration 1 Manager 2 Secretary 3 Finance/ Administration 4 Commercial head 5 Sales person 6 Accountant 7 Store keeper 8 Driver 9 Clerk 10 General service Sub total B. Production 10 Technical & production Head (mechanical engineer ) 11 Supervisor (chemist) 12 General mechanic 13 Machine operator 14 Unskilled Worker Sub total Employees benefits (25% of basic Salary) Grand Total No Required 1 1 1 1 2 1 1 2 2 2 14 1 1 2 6 5 15 29 Salary (Birr)

2,500 900 1,500 1,200 500 600 400 350 250 150

30,000 10,800 18,000 14,400 12,000 7,200 4,800 8,400 6,000 3,600 115,200 14,400 12,000 18,000 36,000 12,000 92,400 51,900 259,500

1,200 1,000 750 500 200

233-12 VII. FINANCIAL ANALYSIS

The financial analysis of the laundry soap project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Raw material, import Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30days 90days 2 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 14.13 million, of which 43 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

233-13 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 60.8 1,625.00 2,300.00 100 450 322.46 9278.66 14,136.9 43

* N.B Pre-production expenditure includes interest during construction (Birr 172.46 thousand) training (Birr 50 thousand) and Birr 100 thousand costs of registration,

licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 45.09 million (see Table 7.2). The material and utility cost accounts for 97.83 per cent, while repair and maintenance take 0.25 per cent of the production cost.

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Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 43,813.10 299.52 113.65 124.56 51.9 83.04 44,485.77 444.29

% 97.16 0.66 0.25 0.28 0.12 0.18 98.65 0.99

162.22 0.36 45,092.28 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

233-15

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity (year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

15 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 6 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 20 % and the net present value at 8.5% discount rate is Birr 8.89 million.

D.

ECONOMIC BENEFITS

The project can create employment for 29 persons. In addition to supply of the domestic needs, the project will generate Birr 6.38 million in terms of tax revenue. The

establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.