20.

PROFILE ON FOOT BALL, VOLLEY BALL

AND HAND BALL COVERS

20-2
TABLE OF CONTENTS
PAGE

I.

I.

SUMMARY

20-3

II.

PRODUCT DESCRIPTION & APPLICATION

20-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

20-4
20-4
20-6

IV.

MATERIALS AND INPUTS

A. RAW & AUXILIARY MATERIALS
B. UTILITIES

20-7
20-7
20-8

V.

TECHNOLOGY & ENGINEERING

20-9

A. TECHNOLOGY
B. ENGINEERING

20-9
20-10

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

20-13
20-13
20-14

VII.

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

20-15
20-15
20-16
20-17
20-19

SUMMARY

This profile envisages the establishment of a plant for the production of foot ball, volley
ball and hand ball covers with a capacity of 80,000 pieces per annum.
The major raw material required is upper leather, which is available locally.
The present demand for the proposed product is estimated at 292,056 pieces per annum.
The demand is expected to reach at 467,591 pieces by the year 2020.

20-3
The total investment requirement is estimated at Birr 9.29 million, out of which Birr
2.75 million is required for plant and machinery. The plant will create employment
opportunities for 30 persons.
The project is financially viable with an internal rate of return (IRR) of 23.58 % and a
net present value (NPV) of Birr 6.64 million, discounted at 8.5%.
The project will have backward linkage with the leather industry. The establishment of
such factory will have a foreign exchange saving effect to the Country by substituting the
current imports.

II.

PRODUCT DESCRIPTION AND APPLICATION

Foot ball, volley ball and hand ball covers are products for which leather is used as a
principal input in the manufacturing process. Foot ball, volley ball and hand ball are used
to cover the inner tube of the ball and as the name implies used to play the games foot
ball, volley ball and hand ball.

20-4
III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Foot ball, volley ball and hand ball are popular sporting activities. Apart from
competitions, the sports are also played for recreation and fitness. Consequently, the balls
used by the games have high demand. Currently, the demand for the products is met
through import.
Import data from Customs and Revenues Authority lumps up the import data of plastic
and leather foot ball, volley ball and hand ball. However, opinion of knowledgeable
persons indicates that the share of leather foot ball, volley ball and hand ball is about 50%
of the total. Accordingly, the quantity of balls annually imported in to the Country, which
is classified under balls (excl, golf, table tennis, tennis and inflatable) and the share of
leather foot ball, volley ball and hand ball is shown in Table 3.1.
Table 3.1
IMPORT OF BALLS AND THE SHARE OF LEATHER FOOT BALL, VOLLEY
BALL AND HAND BALL (PIECES)
The Share of Leather
Foot Ball, Volley Ball
Year
Total
and Hand Ball
2001
351,563
175,782
2002
558,664
279,332
2003
584,407
292,204
2004
936,790
468,395
2005
185,199
92,600
2006
498,143
249,072
Average 519,128
259,564
Source; Customs Authority.

20-5
As shown in Table 3.1, the supply figure from import fluctuates highly from year to year.
In the period of analyses, the highest level of import was registered in the year 2004
(234,198 pieces) followed by the year 2003 (146,102 pieces). The lowest levels of
import registered are in the years 2005 and 2001, which was 46,300 and 87,691 pieces,
respectively. The years in which recorded import figures were unusually low or high
probably indicate that the high imports in some years were used as a buffer stock for the
following years.
In the absence of a clear trend in the imported quantity of the products, the average of the
most recent 3 years covered by the data set is assumed to reflect the effective demand for
year 2006. Moreover, the average growth rate of urban population, which is the major
user of the product i.e. 4%, is used to estimate the present (2008) effective demand for the
product. Accordingly, taking the average import of 2004 2006 as a base and applying
4% growth rate, the present effective demand for the products under consideration is
estimated at 292,056 pieces.
2.

Projected Demand

To project the future demand for the product, the major influential factor on the demand
for leather foot ball, volley ball and hand ball, i.e., population growth is considered.
Accordingly, an average annual growth rate of 4%, which is equivalent to urban
population growth rate, is used to project the demand for the product. Hence, by taking
the estimated present demand as a base and applying a 4% growth rate the projected
demand for the product is shown in Table 3.2.

20-6
Table 3.2
PROJECTED DEMAND (PIECES)
Projected
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
3.

Demand
303,738
315,888
328,523
341,664
355,331
369,544
384,326
399,699
415,686
432,314
449,606
467,591

Pricing and Distribution

Based on current average price of the product, a factory-gate price of Birr 80/ piece is
adopted for financial analysis. The product can be distributed through the existing sport
shops.
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study, the demand of foot ball and volley ball in the year 2009
will be 303,738 pieces, whereas this demand will grow to 467,591 pieces by the year
2020. Accordingly the envisaged plant will have an annual production capacity of 80,000
pieces (40,000 foot ball & 40,000 volley ball and hand ball covers). Production capacity
is based on a schedule of 300 working days per annum and a single shift of eight hours
per day.

20-7
2.

Production Programme

In the first and second year of production, the plant shall operate with capacity utilization
rate of 75% and 85%, respectively. This is because the plant requires enough time to
penetrate into the market and to develop skill in the design and manufacturing of
appropriate ball covers. In the third year and onwards, full capacity production shall be
attained. Table 3.3 below indicates the production programme of the proposed project.
Table 3.3
PRODUCTION PROGRAMME (IN PCS)
Description
Year
Capacity utilization (%)
a) Foot Ball covers
b) Volley Ball and Hand Ball covers

VI.
A.

Year-1
75
30,000
30,000

Production Year
Year-2
Year-3 & above
85
100
34,000
40,000
34,000
40,000

MATERIALS AND INPUTS

RAW AND AUXILIARY MATERIALS

The raw material required for foot ball volley ball and hand ball covers production
mentioned herein consists of upper leather, which is locally available. Leather industries
located in and around Addis Ababa can be used as a source of upper leather. In addition,
auxiliary materials consumed by the plant include, thread, rivets, air pipes and special
paints. Except for rivet, all the other auxiliary material required are locally available. The
list and cost of these materials is indicated in Table 4.1. The total annual cost of materials
(at full plant capacity) is estimated at Birr 252,525.
Table 4.1
RAW AND AUXILIARY MATERIALS AND COST (AT FULL CAPACITY)

20-8

Sr.

Raw And

Unit of

No.
1.
2.
3.
4.
5.
6.

Auxiliary Materials
Upper Leather
Special paints
Rivets
Air pipe
Thread (assorted)
Miscellaneous
Total

B.

UTILITIES

Qty.

Cost ( 000 Birr)

LC
Total

FC

Measure (Pieces)
m2
10,000
Gallons
300
No
40,500
m
3,00
Km
1,00
-

10.2
1.5
11.7

227.4
3.0
4.5
1.0
5.0
240.9

227.4
3.0
10.2
4.5
2.5
5.0
252.6

Electricity and water are utilities required by the envisaged project. Table 4.2 shows the
annual utilities requirement and its cost.
Table 4.2
ANNUAL UTILITIES REQUIREMENT AND COST
Sr.
No.
1
2

V.

Utility
Electricity
Water
Total

Unit of

Qty

Measure
kwh
m3

20,000
1000

Cost (000 Birr)

9.472
3.25
12.722

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The principal operations involved in foot ball and volley ball covers production are
cutting, skiving, folding, stitching, splitting, Painting and inspecting and packing.

20-9
Cutting is performed either by hand, with the aid of knife and templates or in the clicking
machine. It is an important operation in order to obtain consistent production and a
satisfactory final appearance of the product. The same applies to the cutting of straps and
belts with the strap cutter and cardboard reinforcements with the guillotine cutter.
Skiving and folding is done to secure straight and even edges. Stitching, done on sewing
machine of different types, must take into consideration the materials to be sewn together
(thread, needle, stitch length, etc).

Splitting is sometimes required to reduce the

thickness of leather or other sheet material to be used. Painting is done with spray method
as per the requirement of the existing needs and markets.
The production of volley balls and hand balls is environmental friendly .Wastes produced
can further be utilized to produce balls of various sizes.
2.

Source of Technology

The machinery and equipment required by the envisaged plant can be obtained from the
following company.
JAY PEE EXPORRTS
Tel 6564022, 6525820
Fax 91-11-6859019
E- mail jay0pee@ders Vsnl.Net.In
B.

ENGINEERING

1.

Machinery and Equipment

The list of required machinery and equipment and corresponding estimated cost is
indicated in Table 5.1. The total cost of machinery and equipment is estimated at Birr
2.750 million, out of which Birr 2.5 million is required in foreign currency, and the
remaining Birr 0.25 million is required in local currency.

20-10

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Sr.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9

2.

Machinery & Equipment

Unit of

Qty.

Hydraulic Clicking Machine

Guillotine Cutter
Strap Cutter
Splitting Machine
Skiving Machine
Folding Machine
Sewing Machines
Hand tools
Special paint Spray unit and

Measurement
Pcs
Pcs
Pcs
Pcs
Pcs
Pcs
Pcs
set
set

1
1
1
1
2
1
10
1
1

Cost (000 Birr)

FC
LC
TC
225
150
280
345
620
280
200
50
350

225
150
280
345
620
280
200
50
350

accessories
FOB price
Insurance, customs, bank,

2,500
-

250

2,500
250

freight, etc.
Total Cost

2,500

250

2,750

Land, Building and Civil Works

The plant requires a total of 1500 m2 area of land out of which 1,000 m2 is built-up area
which includes processing area ( 600 square meters ) ,

raw material and finished

products stock areas ( 150 square meters ) , area for offices and general purpose buildings
( 250 square meters ). Assuming construction rate of Birr 2300 per m2, the total cost of
construction is estimated to be Birr 2.3 million.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,

20-11
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention

measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However,
if the land request is above 5,000 m2. The request is evaluated by the Citys Investment

20-12
Authority and passed

with recommendation to the Land Development and

Administration Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the citys Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for the
this profile since it is a manufacturing project a land lease rate of Birr 346 per m 2 is
adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.2 shows incentives for lease payment.

Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Paymen
t
10%
10%
10%

20-13

For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years.
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 31.14 million of which 10% or Birr 3,114,000 will be paid in advance.
The remaining Birr 28.03 million will be paid in equal installments with in 28 years i.e.
Birr 1,000,929 annually.
VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The manpower requirement of the envisaged project is 30 persons. The total annual labor
cost including fringe benefits is estimated at Birr 259.5 thousand. Table 6.1 shows the
manpower requirement and labor cost of the project.

20-14
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST
Sr.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

B.

Description
General manager
Secretary
Accountant
Sales Officer
Purchaser
Storekeeper
Driver
Production Supervisor
Skilled Workers
Design Experts
Semi-skilled workers
Guards
Sub Total
Benefits (25% of Basic Salary)
Total

Req.

Monthly

No.
1
1
1
1
1
1
1
1
15
1
4
2
30

Salary (Birr)
1,500
500
1,200
900
800
500
600
1,000
7,500
1,200
1,200
400
17,300
4,325
21,625

30

Annual Salary
(Birr)
18,000
6,000
14,400
10,800
9,600
6,000
7,200
12,000
90,000
14,400
14,400
4,800
207,600
51,900
259,500

TRAINING REQUIREMENT

On-the-job training will be carried out during plant erection and commissioning. Its cost
is estimated at Birr 20,000.

20-15
VII.

FINANCIAL ANALYSIS

The financial analysis of the leather foot ball, volley ball and hand ball project is based
on the data presented in the previous chapters and the following assumptions:Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

2 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Raw material import

90 days

Work in progress

1 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5% of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at
9.29 million, of which 27 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.

Birr

20-16
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
Cost Items
No.
1 Land lease value

N.B

Total
Cost
3,114.00

2,300.00

2,300.00

Building and Civil Work

Plant Machinery and Equipment

Office Furniture and Equipment

250.00 2,500.00 2,750.00

100.00
100.00

Vehicle

250.00

250.00

Pre-production Expenditure*

573.29

573.29

Working Capital

207.25

207.25

Total Investment cost

*

Local
Foreign
Cost
Cost
3,114.00
-

6,794.54 2,500.00 9,294.54

Pre-production expenditure includes interest during construction ( 453.29

thousand) , training (Birr 20 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 1.73
million (see Table 7.2). The major components of the production cost are depreciation
cost, financial cost and raw material cost which account for 35.55 %, 26.31% and
14.54 % respectively. The other important production costs are maintenance and repair
and direct labour accounting for 7.92% and 7.14 % of the total production cost
respectively. The remaining 8.50 % is the share of utilities, labour over head and
administration cost.

20-17

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs

Cost

252.52
12.72

14.54
0.73

137.50
124.56

7.92
7.17

51.90
83.04

2.99
4.78

Total Operating Costs

Depreciation

662.24
617.20

38.14

Cost of Finance

456.83

26.31

1,736.27

100

Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost

35.55

Total Production Cost

C.
1.

FINANCIAL EVALUATION
Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 1.07 million to Birr
1.36 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 13.42 million.
2.

Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other

20-18
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.
3.

Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, 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

31 %

Sales Variable Cost

4.

Payback Period

The pay back period, also called pay off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
projects initial investment will be fully recovered within 4 years.
5.

Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater

20-19
than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this porject is computed to be 23.58 %
indicating the vaiability of the project.

6. Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value.

It is a

standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 6.64 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 30 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.84 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. The project will create backward linkage with the leather
processing sector.
.