131.

PROFILE ON PRODUCTION OF CERAMIC SANITARY WARES

131-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

131-3

II.

PRODUCT DESCRIPTION & APPLICATION

131-3

III.

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

131-4 131-4 131-7

IV.

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

131-8 131-8 131-9

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

131-9 131-9 131-11

VI.

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

131-13 131-13 131-14

VII.

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

131-15 131-15 131-16 131-17 131-18

131-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of ceramic sanitary wares with a capacity of 3,600 tonnes per annum.

The present demand for the proposed product is estimated at 2,689 tonnes per annum. The demand is expected to reach at 11,235 tonnes by the year 2025.

The plant will create employment opportunities for 88 persons.

The total investment requirement is estimated at about Birr 40.34 million, out of which Birr 23.45 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 25 % and a net present value (NPV) of Birr 27.83 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Sanitary is the general nomenclature given to ceramic wares used for sanitary facilities, water supply, drainage, sewerage, and sanitary treatment of excertion for the purpose of comfortable living. Because of the incombustible, waterproof, non-abrasion, and

chemical resistant properties all sorts of ceramic products have played a constructive role for comfortable living.

The major raw materials of sanitary ware are ball clay, kaolin, feldspar and quartz. Some of the products are wash basin, water closet, squats pan, urinal, pedestal, bidet and other accessory materials such as toilet roll holder, tooth brush holder, towel and soap holder etc.

Sanitary ware, especially, is closely connected with housing, and so it has developed considerably with the structural improvement and modernization of dwelling.

131-4 Accordingly, this industry has always grown by keeping pace with improvement in living, and it is now indispensable for sanitation in modern housing.

It is believed that the demands for sanitary ware products will further increase together with the increasing demands of new construction.

III.

MARKET AND PLANT CAPACITY

A.

MARKET STUDY

1.

Present Demand and Supply

The countrys requirement for ceramic sanitary wares is met through both domestic production and imports. Tabor Ceramics Factory, which is located in Awassa, remains the sole ceramic sanitary ware producing plant in the country. According to previous IPS study, the annual production capacity of the plant is 990 tons of different ceramic sanitary wares and fittings, including WC pan bottom, WC pan horizontal, cistern, eastern closet, wash basins of 14'', 22" and 25", bidet, and pedestal. Assuming there hasn't been any significant change in the production capacity of the plant, the supply of the product from domestic production and imports during 1997-2004 is depicted in Table 3.1. Domestic production, imports and total supply of ceramic sanitary wares averaged at 990, 1455.20 and 2445.20 tons, respectively, during the period under reference. Thus, domestic production, on the average, accounted for 40.5 percent of the country's requirement for ceramic sanitary ware.

131-5 Table 3.1 SUPPLY OF CERAMIC SANITARY WARE (TONS)

Year

Domestic production

Import

Total supply

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Average

990 990 990 990 990 990 990 990 990 990 990

1386.27 608.51 634.17 526.80 642.82 1208.53 1431.52 1635.26 3355.20 3122.94 1455.20

2376.27 1598.51 1624.17 1516.80 1632.82 2198.53 2421.52 2625.26 4345.20 4112.94 2445.20

Sources: Customs Authority, External Trade Statistics, 1997 - 2004. Previous IPS study.

In determining the demand for ceramic sanitary wares, the average annual supply for the period under reference is considered as the effective demand for the product for the year 2006. The demand for the product is directly related to the growth of the construction sector. Hence, given the substantial growth in the construction sector, the demand for ceramic sanitary wares is estimated to grow at the rate of 10%. Thus the present demand for the product (i.e., for 2007) is estimated at 2689.7 tones.

131-6 2. Demand Projection

As stated above, a rate of growth of 10% is adopted in projecting the demand for ceramic sanitary wares. Assuming the existing domestic supplier of the product will maintain its market share (40.5%), the projected demand and the unsatisfied demand for the product is depicted in Table 3.2.

Table 3.2 PROJECTED DEMAND FOR CERAMIC SANITARY WARE (TONES)

Year

Projected Domestic Unsatisfied Demand Supply 1089.3 1198.3 1318.1 1449.9 1594.9 1754.4 1929.8 2122.8 2335.1 2568.6 2825.4 3108.0 3418.8 3760.7 4136.7 4550.4 Demand 1600.4 1760.4 1936.4 2130.1 2343.1 2577.4 2835.2 3118.7 3430.5 3773.6 4151.0 4566.0 5022.7 5524.9 6077.4 6685.1

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

2689.7 2958.7 3254.5 3580.0 3938.0 4331.8 4765.0 5241.5 5765.6 6342.2 6976.4 7674.0 8441.4 9285.6 10214.1 11235.5

131-7 3. Pricing and Distribution

Based on the average retail price of major ceramic sanitary wares and allowing 40 per cent for wholesale and retail margin, the factory gate price for the products of the envisaged plant is estimated as follows.

Product

Unit Price (Birr)

WC pan bottom WC pan horizontal Cistern Eastern closet Bidet Wash basin 25" Wash basin 22" Wash basin 14" Pedestal

416 619 177 115 752 266 194 106 62

The products of the envisaged plant can get their market outlet through the existing wholesale and retail network. The envisaged plant can also appoint agents at different locations.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study presented above, the envisaged sanitary ware making plant will have a production capacity of 3,600 tones of various kinds of sanitary ware items per year working 300 days, single shift of eight hours a day.

131-8 2. Production Programme

The plant is assumed to start production at 70% of its capacity in the first year, 85% in the second year, and at 100% in the third year and thereafter.

IV.

MATERIALS AND INPUT

A.

RAW MATERIALS

The main raw materials of sanitary ware are ball clay, kaolin, feldspar and quartz. The major raw materials and related inputs required by the envisaged plant are locally available in the region. The annual raw materials costs at full capacity operation are estimated at Birr 12.32 million. The detail annual raw and auxiliary materials at full capacity production are presented in Table 4.1. Table 4.1 RAW MATERIALS REQUIREMENT AT FULL CAPACITY OPERATIONS Sr. No. 1 2 3 4 5 6 7 8 9 10 Kaolin Feldspar Quartz Fritted gloze Matt glaze Gypsum Zirconium Defluculant (sodium silicate) Defluculast (dispex) TOTAL Qty. (Tones) 2,300 2,100 690 452 306 134 306 46 19 6 Unit Cost ('000 Birr) 2.45 0.65 0.695 0.60 7.0 1.30 9.40 4.00 21.00 Total Cost ('000 Birr) FC 2,142.00 432.40 126.00 LC 5,635.00 1,365.00 479.55 271.20 397.80 76.00 Total 5,635.00 1,365.00 479.55 271.20 2,142.00 1,393.60 397.80 432.40 76.00 126.00 12,318.55

Description Ball clay

10.40 1,393.60

4,094.00 8,224.55

131-9 B. UTILITIES

The major utilities required by the plant are electricity, water and furnace oil. The estimated annual requirement of utilities of the plant at 100% capacity utilization rate and their estimated costs are given in Table 4.2.

Table 4.2. UTILITIES REQUIREMENT

Cost 000 Birr Description Electricity , kwh Water, m3 Furnace Oil, m3 Total Qty 550,000 5,000 500 F.C L.C 260.00 50.00 2,705.00 3,015.00 Total 260.00 50.00 2,705.00 3,015.00

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The production process of sanitary ware making plant involves the following major manufacturing operations:

a)

Body Preparation

The raw materials are roughly crushed by the jaw crusher and roll crusher, and then sieved into designated particle sizes, weighed, and then mixed with the required amount of wooden to be micro-reduced by a ball mill. The slip is further sieved and passed

131-10 through the magnetic filter so that it is free from iron impurity as well as being uniform in particle size.

b)

Shaping

Shaping is done by the casting mold method. The prepared cast slip is kept one day under gentle agitation. Next, the slip is poured into a casting mold to be dehydrated and solidified into the shape of sanitary ware. The molded ware taken out of the mold is dried for a suitable length of time under the proper temperature moisture.

c)

Glazing

Glazing is usually sprayed on the bodies either manually or automatically by using a glazing both. Glazing also done by dipping the molded ware in to a tank filled with glazing medium.

d)

Firing

When glazing is completed the molded ware is ready for firing. There are different types of firing kiln: the simple box kiln, the shuttle kiln, the tunnel kiln, etc.

In order to save fuel or energy used for firing and control the draft pressure, temperature etc. inside the kiln, the firing process shall be intermittent. Therefore, it is suggested to use shuttle kiln for the envisaged plant as it is most efficient and economical one.

e)

Inspection

After the final inspection will be carried out for crack, durt, pinhole, and others, flash tact is conducted. Then the items will be palletized and wrapping using polypropylene for dispatch.

131-11 2. Source of Technology

The technology for the manufacture of ceramic sanitary ware plant can be obtained from the following companies.

HANGZHOU XINYI SANITARY WARE CO. LTD Street No.: Yinong Industrial Zone State: east Zip: 311247 City: Hangzhou Country: China Tel: 86-571-82591376 Fax: 86-571-82591877 Cell: 86015925620553

B.

ENGINEERING

1.

Machinery and Equipment

Plant machinery and equipment required for sanitary ware plant is presented in table 5.1. The total investment cost of plant machinery and equipment is estimated at Birr 23.46 million. Out of which about Birr 17.38 million will be required in foreign currency.

131-12 Table 5.1 LIST OF MACHINERY AND EQUIPMENT FOR SANITARY WARE PLANT Sr. No. 1 Cost (Birr) FC

Description

Qty.

LC

Total

Glaze preparation Ball mill 3 Empty pipe line Set Vibrating screen 1 Glass fiber reinforced drums 6 2 Body preparation Ball mill 1 Empty pipe line Set Concrete blunger 3 Discharge line, water dosing Set etc. 3 Casting Dryer unit, ceiling Set Casting bench Set Humidity drier 1 4 Glazing Felting table and accessories 6 Visual inspection table & 3 accessories 5 Grinding Grinding booth and tools 3 Shuttle kiln 1 Kiln car 10 Truck LS 6. Mold preparation Plaster preparation, plaster Set mixing, vacuum extraction 7 Care mold and drying unit LS 8 Mold preparation LS TOTAL INSURANCE, CUSTOMS DUTY, INLAND TRANSPORT, BANK CHARGE, ETC. GRAND TOTAL

1,709,529.90

1,709,529.90

2,543,746.99

2,543,746.99

4,794,923.82

4,794,923.82

1,546,162.05 1,546,162.05

28,508.53 3,465,695.45 688,677.50 75,225.33 578,661.98

28,508.53 3,465,695.45 688,677.50 75,225.33 578,661.98

6,081,480.14 6,081,480.14

1,638,950.00 1,4638,950.00 305,576.00 305,576.00 17,375,657.55 17,375,657.55 6,081,480.14

17,375,657.55 23,457,137.69

131-13 2. Land, Building and Civil Works

The envisaged plant will require a total land area of 10,000m2. The total land lease value for 80 years at the rate of Birr 0.625 per m2 is therefore Birr 500,000. The floor space required for the building of and other facilities will be about 4,500m2. The total estimated cost of building and civil works at the rate of Birr 2,500 per m2 is about Birr 11.25 million.

Therefore, the total cost of land, building and civil works is estimated at Birr 11.75 million.

3.

Proposed Location

The plant can be located in any of the region where raw material, power and other infrastructures are available for the smooth operation of the plant. Therefore it is proposed to locate the plant at Lemo Woreda in Hosaena town.

VI.

MANPOWER & TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The sanitary ware plant will require manpower both for administration and production activities. The total number of manpower is 88, of which 14 are administration staff and 74 are involved in production activities.

The total number of labor cost is Birr 858,750.-. The detail manpower requirement and estimated annual salaries are presented in Table 6.1.

131-14 Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOR COST

Sr. No.

Job Title A. Administration

No.

Monthly Salary (Birr)

Annual Salary (Birr)

1 2 3 4 5 6 7

General Manager Executive Secretary Finance and Administration Head Accountant Store Man Clerk General Service SUB-TOTAL B. Production

1 1 1 1 1 1 8 14

3,000 1,000 2,250 1,500 800 500 350

36,000 12,000 27,000 18,000 9,600 6,000 33,600 142,200

8 9 10 11 12 13 14

Engineer (Production & Technique) Supervisor Quality Control Staff Laboratory Staff Casters Skilled Workers Assistant Skilled Workers SUB TOTAL WORKER'S BENEFIT (25%) GRAND TOTAL

1 2 3 2 35 6 25 74 88

2,500 1,800 1,200 900 850 1000 400

30,000 43,200 43,200 21,600 357,000 72,000 120,000 687,000 171,750 858,750

B.

TRAINING REQUIREMENT

Lack of trained casters or technical personnel can constitute a significant bottle-neck to project implementation and operations. Therefore, the production supervisor, kiln

131-15 operations, casters and technicians need to be given two months training on production activities, repairing and maintenance activities.

The training cost is estimated to Birr 75,000.-.

VII.

FINANCIAL ANALYSIS

The financial analysis of the ceramic sanitary wares 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 30 days 90 days 3 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 40.34 million, of which 56 per cent will be required in foreign currency.

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

131-16

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) 500.0 11,250.0 23,457.1 125.0 200.0 2,356.4 2,454.9 40,343.5 56

* N.B Pre-production expenditure includes interest during construction ( Birr 2.21 million) training (Birr 75 thousand ) and Birr 75 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

21.18

million (see Table 7.2). The material and utility cost accounts for 72.37 per cent, while repair and maintenance take 1.32 per cent of the production cost.

131-17

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 12,318.55 3015 280 412.2 137.4 274.8 16,437.95 2990.71 1760.25 21,188.91

% 58.14 14.23 1.32 1.95 0.65 1.30 77.58 14.11 8.31 100

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.

131-18 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

= 18 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 25 % and the net present value at 8.5% discount rate is Birr 27.83 million.

D.

ECONOMIC BENEFITS

The project can create employment for 88 persons.

In addition to supply of the

domestic needs, the project will generate Birr 17.93 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.