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Working Capital To DBE Proposal 222

Roha Pack PLC produces plastic packaging for beverages, detergents, pharmaceuticals, and other industries. It plans to expand production to meet growing local demand as the Ethiopian economy grows. Major customers need more plastic packaging than existing suppliers can provide. Roha Pack operates a factory in Addis Ababa with capacity for 14,495 tons of PET pre-forms and 1,126 tons of caps annually. It needs additional working capital of 313 million birr to utilize full capacity and meet profit targets by increasing production 32%.

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0% found this document useful (0 votes)
113 views19 pages

Working Capital To DBE Proposal 222

Roha Pack PLC produces plastic packaging for beverages, detergents, pharmaceuticals, and other industries. It plans to expand production to meet growing local demand as the Ethiopian economy grows. Major customers need more plastic packaging than existing suppliers can provide. Roha Pack operates a factory in Addis Ababa with capacity for 14,495 tons of PET pre-forms and 1,126 tons of caps annually. It needs additional working capital of 313 million birr to utilize full capacity and meet profit targets by increasing production 32%.

Uploaded by

Maki
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EXECUTIVE SUMMARY

Roha Pack PLC is a company engaged in production of plastic packaging for beverages, detergent,
pharmaceutical, edible oil, chemical and cosmetics sectors.
The company was established in April, 2003. As part of its strategic plan, the company has planned
to expand its operation of plastic packaging manufacturing targeting the local market.
Ethiopian economy has been growing by double digit for more than ten years now. A lot of
industries that have forward and backward linkage with these sectors are being established. Among
these, plastic packaging manufacturing is one of them. Plastic packaging is bottles that pack water,
CSD, juice, soap, oil, alcohol, pharmaceutical and other liquid products. The PET pre-form is a
Plastic Sector, in which, the most convenience-size bottles are made from Polyethylene
Terephthalate. PET has become the material of choice for bottled beverages, because it is
lightweight and shatter resistant, and PET has been extensively tested for safety.

The major buyer of the plastic packing are, the prominent soft drink bottling companies like Pepsi
Cola, Coca Cola, Ambo mineral water, etc, has huge demand for the pet pre-form and caps every
year and has planned to expand their capacity substantially but the existing packing suppliers can
only supply 40% their requirement, showing that there will be large unsatisfied demand for the
plastic packaging in the country.
Roha Pack PLC is currently operating in its premises located at Addis Ababa city Nifas silk
lafto sub city in area of 4,136 meter square where the necessary infrastructure for the project
are easily available. The factory has the capacity of producing 14,495 tons of PET Pre-
form and 1,126 tons of closures/caps annually on three shifts.
Due to limitation of working capital, however, the factory is now working below capacity
(71%) which is below the industry average However, as our interim financial statement
prepared for the last year ended Sene 30, 2015 shows the net income of birr 129 million
is earned.
The company planned to 2016 budget year to achieve profit of 191 million birr by
utilizing the available capacity and market however sufficient working capital also
mandatory to attain the plan.
Now, therefore, looking the market potential as an opportunity to enhance its
performance and to contribute its part for the country and shareholders, the company
management has prepared the following workable business plan for the one year to come.
The plan mainly aims at increase the capacity by 32%. As a result of increase in
production capacity, both sales and profit level will grow during the planning period.
However, in achieving the sales and profit targets as indicated on the profit & loss and
cash flow projection in the remaining part of the plan, the factory is in need of additional
working capital of birr 313 million in the form of fresh overdraft facility renewable
annually. The facility will be backed by the company’s own movable and immovable
properties. The O/D facility shall be used mainly to cover cost of the raw materials and
conversation cost like power and labor costs.

I. PRODUCT DESCRIPTION AND USE


Roha pack manufacturing private limited company has been manufacturing and supplying
the following list of different pet and HDPE products to beverage industries since last 20
years.
1. PET PREFORMS
 1810 PCO preforms
 30/25 PCO preforms
 Jar with different sizes
 Pet bottle for detergent factory
 Pet bottle for oil processors
 Pet bottle for sprit industries
2. HDPE Products
 28 mm HDPE closures
 30 /25 HDPE Closures
 Jar Closures different size
 Handel for bottle
 20 liter water bottle closure
In each of the product category, there are a number of products varying in size. Among
others, the products are being used for packing beverages, detergents, sprites and oils

II. COMPANY PROFILE

1. Formation

Roha Pack PLC formerly known as Agere-Roha Plc, was established in April 2003 (1995
E.C) with Eight Shareholders, with an initial capital of Birr 5 million in Addis Ababa.
Through time this share distribution is raised to Birr 45,903,000, 86,372,000, Birr
112,642,000 and now the capital raised to Birr 135,482,000 divided in to 135,842 shares of
Birr 1,000 par value each. The existing factory is located at Addis Ababa city, Nefas-Silk
Lafto sub-city, Woreda 12, around Hana Mariam church, 100 meters off the ring road.

Major shareholders of the company Ato Samuel Getachew is an entrepreneur who has the
enthusiasm to invest in the development activity of the country by taking part on plastic
packaging manufacturing, which is believed to be one of the country’s huge potential both in
the form of import substitution, foreign currency generation through export and improving
the lives of local society though employment creation. Ato Samuel Getachew has BSC
Degree in Civil Engineering from Addis Ababa University and he has participated in various
trainings related to Packaging Industry. For the last 20 years he has been working in the
private sector by taking part on manufacturing, sales and import of different products.
The capital structure of the company is presented as follows.

TABLE 1 : SHAREHOLDERS AND CAPITAL STRUCTURE OF THE COM PANY


NAME NATIONALITY NO. PER
OF VALUE
TOTAL (BIRR)
SHARE
Mr.Getachew Beyene Ethiopian 11,594 1,000 11,594,000
Mr.Abreham Getachew Ethiopian 1,159 1,000 1,159,000
Mr. Samuel Getachew Ethiopian 108,770 1,000 108,770,000
Mr. Ermiyas Getachew Ethiopian 2,201 1,000 2,201,000
Mr. Yohanes Getachew Ethiopian 4,864 1,000 4,864,000
Mrs. Zuriyash Andnew Ethiopian 2,520 1,000 2,520,000
Ms.Betelihem Getachew Ethiopian 2,467 1,000 2,467,000
Ms. Azeb Getachew Ethiopian 2,267 1,000 2,267,000
TOTAL 135,842 - 135,842,000

Roha Pack Plc is engaged in the production of plastic packing materials for the last 20 years.
Roha primarily manufactures PET Preforms, Bottles, Closures and Jars. The end user of
Roha Pack products include manufactures in area of Soft Drinks, Mineral Water, Edible Oil,
Detergents, Cosmetics, Confectionery, Pharmaceuticals and Agro industries.

Being the pioneer in the PET /Plastic/ preforms, PET Bottles, HD containers and Closures
manufacturing in Ethiopia, Roha Pack has been close partner of a number of manufacturing
plants, agro-processing industries and cottage industries in the country meeting their plastic
packaging needs.
Roha Pack strongly believes in the proper way of doing business with integrity. To this end,
it extends tech support and trainings for bottling and packing companies. In doing so, the
process of PET supply to companies and bottling and packaging production from the user
end will be flawless.

Roha Pack strongly believes that safety is a global concern, not only because of public
health, but also because of its impact on international trade. In this regard Roha pack has
good Quality and safety management, Good manufacturing practice (GMP) and conducive
work place practices. Currently Roha has enhanced its effort to raise and meet Quality
standards, a Quality demand fundamental by the end users. Some of Roha Pack’s
accreditations are:-
ISO 9001:2015
ISO 22000:2015
PEPSICO Approved
Coca Cola Approved
With the ever-growing PET and preform demands in the country and interest in foreign
companies, Roha Pack is expanding its manufacturing

2. Management and manpower

Under the Managing Director, there is a general manager cascaded down to the hierarchy: the

factory is organized in to 8 departments and 1 service unites. The departments are:

 Finance

 Operation
 Marketing & sales

 Human Resources and General service

 Procurement

 Property administration

 Engineering and

 Quality management service

The service units are safety Health and quality management service units.

Since the success is dependent upon the collaborative effort and synergy of all the team

members, we planned to strive and create a working environment where motivated team

members can flourish and succeed to their highest potential.

Each of the department is lead by qualified and experienced managers who in turn is

accountable to the General Manager. From the management pool all team members have

proven business experience, Thus, one can deduce that the associated management risk is

unlikely, if not zero.


The following table details the management profile

Name Job title Education level Experience

Samuel Getachew Managing Director BSC in Engineering >25 year

Wendimagegn MesheshaGeneral manager MBA ,MAOL and BSC >20 year

Electrical/ Electronics

Mohamed Lemma Marketing & sales manager B.S.C in Economics, >15 year

BSC in Accounting

Tegegn Abebe Operation manager BSC in Engineering >20 year

Wondesen Tesfaye Finance Manager BA in accounting >15 years

Tekeste Ayalew Procurement Manger BA in Accounting 35 years

Kumilachew Mengiste Human Resource and General


BA in Management >30 years

service Head

Ravindra lad Engineering Manager Polymer engineering >30 years

Temesgen Molla Quality management MBA and BSC in chemical 19 years


Engineering

Currently, the company has a total of 374 permanent employees.

Vision mission, Objectives and values


Vision

Roha Pack plc is aspiring to become “The Leader in the Manufacturing of PET/PVC

Packaging in Eastern Africa and ultimately provide “Solutions to Modern

Packaging!”

Mission

Roha Pack plc realizes its responsibility and commitment to produce PET/PVC
bottles with the specified quality according to its customers’ requirement and
expectations at competitive price. This is to be achieved through the following
strategy:

i. Placing its customers on top of its list of priorities, and maintaining


long term business relationship with existing customers,

ii. Continuous development to keep ahead of the market


requirements,

iii. Using the latest , state-of the- art , production


technology ,whenever suitable to provide reliable, high quality,
well-designed and good value for money products to its’
customers,

iv. Enhancing its’ employees capacities and technical skills through


training and ensuring that they are treated with the utmost respect
and fairness in the work place,

v. Future achievement of financial planning and profitability to


ensure share value, confidence and growth

Values and Principles


Our core values and principles are:-

 Enhancing investor value: through profit maximization, creating sustainable growth

strategies, managing for the long- term with a diversified business model.

 Creating satisfied customers: by educating them in to advocates and making sure we

create another satisfied customer every time.

 Investing in people: we would be investing in our people in professional

development motivating talent, creating diversity in a team, appreciating effort and

rewarding results.

 Becoming a regional player: through maintaining highest product quality standard

and customer service.

 Enhancing reputation: through community citizenship, and being legally

responsible.

 Considering stakeholder view: working in partnership with stakeholders.

 Buying Agents: Our supplier partners are our allies in serving the interest of our

customers by bringing to market the safest highest quality product available. We aim

to be the buying agents for our customers and not only the selling agents for our

factory.

3. Future Prospects

The factory has an excellent and promising future since the life style of the people

and urbanization is changing from day to day. Urbanization and development without

modern packing solution is difficult, if not impossible.


This development will pave the way to the factory to sell and promote its quality

product easily. Particularly the following factors show the prospect whereby

contribute positively to the sustainable growth of the factory:

 Increase in investment projects of both government and private sector

 Government attention on Agro processing

 Increase in urbanization results in increase in life style change i.e peoples

forced to use packed waters

Generally economic growth and industrialization results in overall demand increase in

modern packaging solution.

4. Competitors

The company prefers the modern packing material manufacturing because of the

industrlization boom in the country, which results in a higher demand of the packing

materials and the prevalent gap in meeting the demand on top of that the factory will

have its own contribution in substituting import of Packing material ( preform and

Closure ) and preservation of hard currency.

The number of Modern Packing manufacturing factories in the country was eleven. Five

of the eleven packing factories, are fully owned by foreign investor of China and India.

Whereas, Major players Beteweded ,Mintu plast, and our factory Roha pack are the

Modern packing factories in the sector.

Table List of Competitors

Zixing Dukem
Biteweded Alemgena

Mintu Tatek

Finela Tulefa/D.Birhan

Supershine Kadisko

Task Plast Kality

TruthWay Tatek

East Africa Kality

Aqua Pure Kality

Sky Kality

Konjit Kality

5. Marketing strategy

The focus of the company is to avail its products to customers fulfilling the industry’

specification, set to get good market share the company planned to install different

strategies in order to exploit the intended capacity of the machine and to increase

capacity utilization. Thus, the intended strategies to be implemented corresponding to

price, promotion, Distribution and product is described here under


 Price

As there are a number of competitors and options for our customers including imports

we are a price taker. Therefore, to get better profit margin, we should squeeze our

production cost via increasing the volume of production and raw material bulk

purchase, which in turn requires additional working capital.

 Distribution

The company used direct sales for customers by segmenting multinational and small bottlers

on different regional states.

 Product

The product of the company is standardized and hence the product needs high attention to

meet the specification. Thus, the company management will be serious to pass each product

with quality control system.

 Promotion

In order to create awareness, the company has planned for making advertisement by

utilizing Radio. Television, participating in different exhibitions, distributing broachers to

most anticipate and currently utilizing institute.

In a nut shell, the company will use a mix of different marketing strategies as and when

appropriate.

6. Major customers and suppliers

Customers
 Moha soft drinks

 East Africa Bottling ( COCA )

 TOP water

 GOLD Water

 Dega Water

 Yes beverages and foods PLC

 Alang Beverages

 Ambo Mineral Water

 Selam Water

 National alcohol

Suppliers

 Soram Industries

 Husky Injection molding system

 Ekou Molding

 Axcela

 Bourge

III. CAPACITY PROGRAM AND COST

1. Plant Capacity

Assuming 24 working hours per day and 300 working days per year the plant at full capacity

produces 16,500 tons of PET and 1350 ton HDPE products per annum. Currently due to

limitation, the factory is plan to utilize 14,425 ton which is 80 % of available capacity.
2. Production Program

The plan is prepared on the assumption of increasing the capacity by 20% to attain 80%

capacity of the installed capacity in the coming one year. That is production of 14,425 tons of

PET and HDPE for a total production cost of birr 1,685,795,898. The rationale behind such

production plan is that the production equipment is new, and expansion of water bottlers in

country as well as New entrants of multinational company on beverage industry.

3. Production Cost

Production cost includes raw material, labor and overhead costs (conversion costs) the major

raw materials is Pet and HDPE .The cost break down prepared based on the account

relationship extracted from the projected Financial report for the planning year is presented

below.

Cost element Amount

D. material 1,402,833,097

D. labour 16,632,083

Manufacturing Over head 136,612,940

Total Cost of goods sold 1,556,078,119

As shown in the table above, the company has planned to manufacture 14,425 tons of PET

and HDPE products with total manufacturing cost of birr 1,556,078,119 of which 90% is the

raw material cost.


IV.FINANCIAL PROJECTION

a. Projected Profit and loss statement

The projected profit and loss statement prepared for the following one year ended July 8,
2024 based on the assumptions and facts (shown under Table below) is presented below.
Profit and Loss statement
For the year ended February 28 2017
Description Amount in ETB
Revenue 1,877,597,532
Cost of goods sold (1,556,078,119)
D. material 1402833097
D. Labour 16632083
Manufacturing Over head 136612940

Gross profit 321,519,413


Administration & selling expense (129,717,778)
General Administration expenses 53,750,407
Selling and Distribution 8,438,448
Financial charge (DBE loan and dashn O/D 67,528,924
Operating profit (loss) 191,801,634
Profit tax heaven
Net income for the year 134,261,144

The above profit and loss statement prepared for the planning one year shows that the

company will make a net profit of birr 134.2 million.

b. Cash flow projections

The following cash flow forecasting or cash flow management prepared based on the above

profit and loss statement and following assumptions in part V below is a key aspect of
financial management of our factory planning our future cash requirements to avoid a crisis

of liquidity and as the same time to achieve our profit targets.

It enables us to project our future cash income (receipts) and cash expenditure (payments)

over the planning period of time.

The forecast can then be used as a management decision-making tool that allows us to

identify:-

 The level of working capital requirement

 When the financing is required

 What level of loan repayments we can afford,

 When and for what the business will be able to spend cash etc

Budgeted Cash flow Statement


For the budget year 2016
Description ETB
Source
Beginning Bal 23,403,000
Revenue 1,803,016,869
Receivable collection 116,098,657
Total inflows 1,942,518,526
Uses
Production cost except deprecation 1,526,230,313.65
Administration expense except deprecation 46,384,547.99
Selling expense except depreciation 8,438,448
Financial charges 67,528,924
Account payable 267,579,748.71
Capital expenditures going on 231,646,320.40
Taxes payable 22,000,000
Current maturity long term loan 88,201,458.10
Total 2,258,009,760.85
O/D Balance -315,491,234.85

The above cash flow statement summarizes the net cash inflow available in the company at
the end of the planning period. It shows that the overdraft facility will show a credit balance
of birr -315,491,234 ETB.

C. Working capital determination


The additional working capital required at the beginning of the planning period is determined
below under day’s coverage method. The amount will be covered through bank borrowing.

Description MDC* Amt


D. material 360 108,560,546
D. Labour 60 1,383,283
Overheads, except depreciation & Amortization 60 2,121,532
Administration expenses, excluding depreciation & amort. 30 17,853
Selling , except amortization 30 48,383
Total working capital requirement 112,131,597
Less existing working capital
Total current asset 98,200,582
Total current liability (26,313,834) 71,886,748
Additional working capital requirement 40,244,849

Why 360 days for raw materials ?


 Per the existing experience, L/C processing is taking at least 120 days port

clearing & see and inland transportation 120 days production 30 days, stock

period 30 days, receivable days 60 days total 360.

 We need to have adequate stock at times when price decline and apply the bulk

purchase policy .

Alternatively the working capital can be estimated under the following per unit of sales

method

Net Existing W/C

Current Assets 98,200,582

Current Liability (26,313,834)

Net Working Capital 71,886,748

Sales forecasted 171,022,139

Net W/C Per Unit of 1 Birr Sales per interim statement 0.69

W/C Required for the year 46,829,663

As computed above the w/c required under this method is more than the first method.

Thus, to be conservative, we pursue the first method that substantiate the need for

additional working capital of birr 40 million in the form of fresh O/D facility, renewable

annual.
V. OPERATINAL AND FINANCIAL ASSUMPTIONS

 The planning period is for one year.

 300 annual working days,24 working hours per day

 Previous period audited and interim financial statement prepared for the year

ended July 8 2023 and 2023/24 budget year forecasted statements.

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