161.

PROFILE ON STOPPERS, LIDS, CAPS AND

OTHER CLOSURES OF PLASTIC

161-2

TABLE OF CONTENTS
PAGE
I.

SUMMARY

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II.

PRODUCT DESCRIPTION & APPLICATION

161-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

161-4
161-4
161-7

IV.

MATERIALS AND INPUTS

A. RAW MATERIALS
B. UTILITIES

161-8
161-8
161-8

V.

TECHNOLOGY & ENGINEERING

161-9

A. TECHNOLOGY
B. ENGINEERING

161-9
161-10

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

161-13
161-13
161-14

VI.

VII.

I.

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

161-15
161-15
161-16
161-17
161-19

This profile envisages the establishment of a plant for the production of stoppers, lids,
caps and other closures of plastic with a capacity of 190 tonnes per annum. Plastic
stoppers, lids, caps and closures are used in the packaging of cosmetics, soaps, drugs,
chemicals and adhesives and other industries.
The raw materials required are MDPE, Pigment, titanium oxide and mould release agent
which have to be imported.

161-3
The present demand for the proposed product is estimated at 116.72 tonnes per annum.
The demand is expected to reach at 245.82 tonnes by the year 2018.
The total investment requirement is estimated at Birr 5.21 million, out of which Birr
607.50 thousand is required for plant and machinery. The plant will create employment
opportunities for 26 persons.
The project is financially viable with an internal rate of return (IRR) of 26.60 % and a
net present value (NPV) of Birr 4.92 million, discounted at 8.5 %.
The project creates forward linkage with the industrial sector. 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

Stoppers is a truncated conical piece of plastic used to close glass tube, piece of
laboratory glassware or barrel and other containers with orifices.
A closure is a device that seals the contents inside a bottle, protecting the content from
dust, spilling, evaporation, etc.
Plastic stoppers, lids, caps and closures nowadays, are gaining preference in the modern
packaging industry, leaving behind other materials. Keeping in view their capability to
withstand a large number of corrosive chemicals and solvents, ease of fabrication and
comparatively low cost, plastic stoppers, lids caps and closures find extensive application
in the packaging of cosmetics, soaps, drugs, chemicals and adhesives and other
industries.
III.

MARKET STUDY AND PLANT CAPCITY

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A.

MARKET STUDY

1.

Past Supply and Present Demand

Plastic is used as a material for different types of closures. A closure is the device that
seals the contents inside a bottle, protecting the content from dust, spilling, evaporation,
and/or from the atmosphere itself. A stopper is any closure which fits inside the neck of a
bottle to make a seal rather than on top of the finish like crow cap or around the outside
of finish like a crew cap.
One of the most common, non-cork closures is the large and diverse group of threaded
closures. They come in both externally threaded versions. The closure for externally
threaded finished are more recently made from plastic.
The supply of plastic stoppers, lids, caps and other closures is mainly met through import.
Import of closures of plastics is presented in Table 3.1. As can be seen from the Table, the
supply is growing through the years having an average annual supply of 49 tons for the
last ten years. Moreover a least square estimate fitted for 1977 - 2006 data set yields:
Y = 11,581 X - 13,905

R2 = 66%

Thus imported plastic stopper, lids, capes and other closures supply was growing at an
average 11,581 kg. However a closer look at the data set indicates that the first two years
(1997-1998) and the last year (2006) are a bit far from the average line. Therefore,
excluding these three years an alternative least square estimate fitted reveals as follows:
Y = 11,224 X - 3,396

R2 = 93.9%

Further, when the supply in 1999 is excluded and a third least square fitted for the
remaining six years (2000-2005) the following strong linear model is found:

161-5
Y = 12,910 X + 530.87

R2 = 96.8%

Thus the current effective demand is estimated with this third alternative model having an
explanatory power of 96.8%. Accordingly the current effective demand for plastic
stoppers, lids, caps and other closures is estimated at 116,720 kg.
Table 3.1
IMPORTED PLASTIC STOPPERS, LIDS, CAPS AND OTHER CLOSURES (KG)
Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2.

Import
8,927
44,600
16,268
12,120
27,165
34,885
59,577
66,732
73,809
153,813

Projected Demand

The demand for closures is in general related with the demand for bottled products. With
a growing urbanized population and affluence the demand for packed goods increases.
For the project under study demand is projected based on the least square equation:
Y = 12,910 X + 530.87

R2 = 96.8%

Projected demand for plastic stoppers, lids, caps and closures in 2018 is therefore
245,820 kg. Demand projected for the next ten years is presented in Table 3.2.
Table 3.2
PROJECTED DEMAND FOR PLASTIC STOPPERS, LIDS, CAPS AND OTHER
CLOSURES (KG)

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Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Projected Demand
129,100
142,010
154,920
167,830
180,740
193,650
206,560
219,470
232,380
245,820

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3.

Pricing and Distribution

The average current CIF price of plastic stoppers, lids, caps is Birr 15 per kg. The new
project will have a factory get price of Birr 25 per kg. Plastic stoppers, lids, caps will be
distributed directly to customers.
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The annual production capacity of the plant is to be 190 tons of plastic stoppers, lids, caps
and other closures. The plant will operate in a single shift of 8 hours a day for 300 days a
year.
2.

Production Programme

Production will commence at 70% and then 85% &100% in the second and third year and
thereafter, respectively. The production programme is shown in Table 3.3 below.
Table 3.3
PRODUCTION PROGRAMME
Year
Capacity Utilization (%)

1
70

2
85

3
100

Production (tonnes)

133

161.5

190

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IV.

MATERIALS AND INPUTS

A.

RAW MATERIALS

The annual raw materials requirement is indicated in Table 4.1 below. The raw materials
are imported and can be obtained from China, S. Korea and India. The total cost of raw
material is estimated at Birr 2,492.25.
Table 4.1
RAW MATERIALS REQUIREMENT AND COST
Sr.
No.
1
2
3

B.

Description

Qty

HDPE
Pigment, titanium oxide
Mould release agent and others
Total

200
20
LS

Total Cost (000 Birr)

FC
LC
TC
1,872.00
468.00
2,340.00
76.80
19.20
96.00
45.00
11.25
56.25
1,993.80
498.45
2,492.25

UTILITIES

Major utilities for production of stopper, lid, cap and closure of plastic products are
electric power for machine drive and water for general purpose. The annual consumption
of these utilities is shown in Table 4.2.

Table 4.2

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ANNUAL REQUIREMENT OF UTILITIES AND COST
Sr.

Description

Qty.

No.
1
2

Electric power (kWh)

Water (m3)
Total

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

18,000
1,000

Cost (000
Birr)
8.525
3.25
11.775

The products can be manufactured by compression or injection molding. However, for

the envisaged project, it is proposed to manufacture by injection molding process. The
injection molding process begins when the raw materials are loaded into the batching
system hoppers. The material is weighed into the blend chamber as per the recipe. It
then get mixed and released into the extruder barrel.

The action of the screw rotating,

along with the application of heat, causes the plastic to become matter as it moves
forward along the extruder.
The material moving forward creates enough pressure is front of the screw to force the
screw to move backwards. This continues until there is enough material in front of the
screw to fill all the cavities.

The screw is released and act like a syringe to inject the

plastic into a closed cold mould with multiple cavities.

The plastic solidifies with in the mould; the mould is opened and the finished products
are taxing and from the mould. The technological process has no any adverse
environmental impact.

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B.

ENGINEERING

1.

Machinery and Equipment

The machinery and equipment required along with estimated cost are listed in Table 5.1.
The total cost of the machinery and equipment is estimated at Birr 607,500.
Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Sr.
No.
1
2

3
4
5
6
7
8
9
10
11
12
13
14
15

2.

Description
Injection molding machine
(completely automatic)
Semi automatic hydraulic
Injection molding machine
with temperature control
arrangement
Vertical molding machine with
hydraulic plunger
Scrap Grinder
Reprocessing extruder with
cutter
Tumbling barrel with motor
Cooking tank with pump
Portable drilling machine
Pre drying oven
Moulds 20 set average
Filter bench, racks etc
Air compressor, 100 liter/min/
Chain block 1 ton
Weighing scale
Tools and accessories
Grand Total

Qty
1

Total Cost (000 Birr)

FC
LC
TC
125.00
31.25
156.25

75.00

18.75

93.75

60.00

15.00

75.00

1
1

15.00
45.00

3.75
11.25

18.75
56.25

15.00
25.00
2.00
25.00
30.00
17.00
20.00
10.00
7.00
15.00
486.00

3.75
6.25
0.50
6.25
7.50
4.25
5.00
2.50
1.75
3.75
121.50

18.25
31.25
2.50
31.25
37.50
21.25
25.00
12.50
8.75
18.75
607.50

1
1
1
1
1
1
1
1
1
set

Source of Technology

The machinery and equipment required can be obtained from the following company.

161-11
Qingdao Yahua Cap making Co., Ltd
Tel. 86-532-87276262
Callphone: 13793265178
Fax. 86-532-87277953
Add. Lanzhou east Road Eastern Section,
Jiaozhou, Shandong Code 266300
3.

Land, Building and Civil works

The over all land requirement by the envisaged project is about 1,000 m 2, of which 500
m2 is allotted for building and production area. A building covering an area of 500m 2
comprising under ground, ground floor and first floor for store, production facility and
office respectively will be constructed to use the scarce resource i.e. land efficiently. The
total construction cost at a unit cost of Birr 2,300/m2 is estimated to Birr 1,150,000.
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,
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

161-12
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 m 2 the request is evaluated by the Citys Investment
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 this
profile, which is a manufacturing project, a land lease rate of Birr 346 per m2 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,

161-13
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
Payment
10%
10%
10%

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 20.76 million of which 10% or Birr 2,076,000 will be paid in advance.
The remaining Birr 18.68 million will be paid in equal installments within 28 years, i.e.,
Birr 667,286 annually.
VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The plant requires a total of 26 workers.

corresponding labor cost is shown in Table 6.1.

The list of manpower required and

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Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14

Description
General manager
Secretary
Production and technical head
Accountant
Accountant clerk
Finance & administration head
Purchase/sales person
Supervisor
Machine operators
Mechanic
Unskilled workers
Store man
Driver
Guard
Sub Total
Employees benefit (25% basic
salary)
Total

B.

Req.

Monthly

Annual

No.
1
1
1
1
1
1
1
1
6
1
6
1
1
3
26

Salary (Birr)
Salary (Birr)
3,500
42,000
1,000
12,000
2,800
33,600
1,200
14,400
650
7,800
2,500
30,000
1,200
14,400
1,200
14,400
4,500
54,000
900
10,800
2,700
32,400
650
7,800
500
6,000
1,050
12,600
292,200
73,050
365,250

TRAINING REQUIREMENT

The training is required for technical & production head and machine operators during
the period of erection by the machinery supplies for one month. The cost of training is
estimated at Birr 40,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the stoppers, lids, caps and other closures of plastic project
are based on the data presented in the previous chapters and the following assumptions:Construction period

1 year

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Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Raw material foreign

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
5.21 million, of which 9 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.
1

Cost Items
Land lease value

Local
Cost

Foreign
Cost

Total
Cost

2,076.00

2,076.00

Birr

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2

Building and Civil Work

1,150.00

Plant Machinery and Equipment

1,150.00

486.00

607.50

121.5
100.00

100.00

Office Furniture and Equipment

Vehicle

450.00

450.00

Pre-production Expenditure*

425.14

425.14

Working Capital

404.27

404.27

486.00

5,212.91

Total Investment cost

4,726.91

* N.B Pre-production expenditure includes interest during construction ( Birr 285.14

thousand), training ( Birr 40 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 3.32 million
(see Table 7.2).

The raw material cost accounts for 75.09 per cent of the production

cost. The other major components of the production cost are financial cost , depreciation
and direct labour which account for 6.61 %, 6.02% and 5.28 % respectively. The
remaining 6.99 % is the share of repair and maintenance, labour overhead, utilities and
other administration cost.

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

Cost

2,492.25

75.09

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Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

11.78

0.35

30.38
175.32

0.92
5.28

73.05
116.88

2.20
3.52

2,899.66
199.65

87.37

219.50

6.61

3,318.81

100

6.02

Total Production Cost

C.

FINANCIAL EVALUATION

1.

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 802.92 thousand to
Birr 1.39 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 10.27 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
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.

161-18
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 4) is estimated by using income statement projection.

BE =

Fixed Cost

27 %

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
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 26.60 %
indicating the vaiability of the project.
6. Net Present Value

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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 4.92 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 26 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.41 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 creates forward linkage with the industrial
sector