Feasibility Study Egg Farm Hermel

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AFC Consultants International

Egg Farm
TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................... 2

PROJECT DESCRIPTION.................................................................................. 2

PRODUCTION PROCESS.................................................................................. 3

MARKET ANALYSIS .......................................................................................... 3


4.1
4.2

TARGET MARKET.................................................................................................................................................. 4
SWOT ANALYSIS ................................................................................................................................................ 4

MARKETING PLAN........................................................................................... 4

FINANCIAL PLAN ............................................................................................. 5


6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8

INITIAL INVESTMENT............................................................................................................................................ 5
MAJOR ASSUMPTIONS........................................................................................................................................... 5
PROJECTED INCOME STATEMENT ......................................................................................................................... 6
PROJECTED BALANCE SHEET................................................................................................................................ 7
PROJECTED CASH FLOWS ..................................................................................................................................... 8
RATIO ANALYSIS.................................................................................................................................................. 8
BREAK-EVEN ANALYSIS ....................................................................................................................................... 9
SENSITIVITY ANALYSIS......................................................................................................................................... 9

RECOMMENDATIONS AND KEY SUCCESS FACTORS ...................................10

ECONOMIC IMPACT EVALUATION ...............................................................10

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Executive Summary

The proposed project consists of establishing a chicken farm for egg production in Hermel. The
farm will provide quality free range eggs for the hermel caza and close vicinities. Traditionally,
Hermel eggs wholesalers and retailers used to buy their eggs needs from neighboring Syria.
However, with the rising costs of eggs in this market and the increasing transport costs, it has
become too expensive and unfeasible to continue the procurement from Syria. Hence, a new
farm would help to fulfill the needs of the caza for eggs.
The initial investment for the project is estimated at $421,100 which includes $10,000 in land
cost, $375,000 in construction costs, $19,100 in equipment, $12,000 in vehicle, and $20,000
in working capital.
The farm has a capacity for 10,000 chicks, which will produce an average of 9,250 eggs per
day after a cycle of 90 days. They continue production over a period of15 months before being
sold at a price of $0.7 each. Then the cycle is renewed for another 18 months.
The projections are taken over a period of 7 years. The farm is expected to provide a net
profit of $37,612 in year 1 and can reach up to $52,830 by year 7.
The internal rate of return (IRR) is 12% and the payback period, which is the period
necessary to pay back the investment, is 7 years and 9 months.

These results show that the project is feasible. The payback period and the IRR reflect the
importance of the investment, which should be considered as a long term investment that
provides satisfactory annual returns.
A worst-case scenario is taken by assuming that the price per 360-egg box is at $39
instead of $40. In this case, the business will have a seven years average profitability of
$38,342 annually. The internal rate of return is 10%. The payback period is 8 years and 8
months.
A best-case scenario is taken by assuming that the price is increased to $41 per 360-eggs
box. In this case, the business will have a seven years average profitability of $52,058
annually. The internal rate of return is 14%. The payback period is 7 years.
The project will offer 2 job opportunities: one administrator and one worker. The project will
contribute to the region by providing quality eggs at competitive prices. The administrator will
handle the delivery of the eggs to wholesalers and retailers in the region.

Project description

The proposed project consists of establishing a chicken farm for eggs production in Hermel.
The farm will provide quality free range eggs for the hermel caza and close vicinities.
Traditionally, Hermel eggs wholesalers and retailers used to buy their eggs needs from
neighboring Syria. However, with the rising costs of eggs in this market and the increasing
transport costs, it has become too expensive and unfeasible to continue the procurement from
Syria. Hence, a new farm would help to fulfill the needs of the caza for eggs.
The farm will be built on a 2,000 m2 parcel of land. The total built-up area of the farm is
1,250 m2. The construction will take into consideration the light conditions in the farm as light
is very important in the setting up of a farm for layers. It has much to do in the maturation of
the growing layers and their capability to lay plenty of eggs.

Hermel - Feasibility Study Egg Farm

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Production process

The production process starts at buying a stock of one-day old layers from breeder suppliers.
At arrival, chicks are either placed in typical layer pens or reared in a pullet house. At the
hatchery, chicks are vaccinated according to the producers specifications
Chicks placed in pullet houses are reared on a floor covered with absorbent materials, such as
pine shavings. During the first week, pullet chicks are usually beak trimmed. From chick
placement through approximately 90 days of life, the pullets are fed according to body weight
gain and/or age. Moreover, they are heated as shown in the below table. The goal is to raise a
strong and healthy bird that can support egg production.
Week

Temperature
degrees (C)
1

32

2
3
4

30
27
24

5
6 throughout layer
cycle

22
22

Young birds are fed a high protein diet (20 percent) during the first few weeks of life. This
level continuously decreases until it reaches approximately 12 to 15 percent protein during
egg production.
After 90 days, the chicks would not require any heating. The farmer would just feed them and
give them vaccines twice over a period of 15 months. The total production cycle is 18 months.
At the end of the cycle, which extends over 18 months approximately, the hens are sold at
$0.7 to $1 each.

Market Analysis

There are around 2,000 farms in Lebanon producing 400 million table eggs per year.
There are 2 types of breeders:

Layers: Chickens raised to lay eggs


Broilers: Chickens raised for meat production.

Today, there is no breeder industry i n Lebanon. Producers import breeders mainly from
European countries. Tanmia imports breeders from its own company in Egypt.
Table eggs are sold in boxes containing 360 eggs. The estimated wholesale market size is
around USD 34 million.
Large players sell directly to:

Large clients such as supermarkets, restaurants, hotels, etc...

Individuals through their retail outlets


Small and medium size players go through wholesale companies and do not sell directly to
clients.

Hermel - Feasibility Study Egg Farm

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Selling directly to large clients puts producers at risk as the economic recession is forcing
many businesses to close down. Payment terms are different for each client and range from 1
to 4 months
As for Hermel caza, there are no chicken farms for eggs as most wholesalers, retailers and
individuals had traditionally relied on buying the eggs from Syria. However, more recently,
prices have tremendously increased in Syria and the rising cost of fuel have made it unfeasible
to continue supplying the local market from Syria. Hence, it became logical to establish a local
egg production to meet the local demand in the caza and its vicinities.

4.1

Target market

The chicken farm for eggs will target the local retailers as well as wholesalers, and will offer
quality eggs at competitive prices.

4.2

SWOT Analysis

STRENGTHS
WEAKNESSES

There is no similar project in the Hermel


caza. Hence, it will be filling a need in the

Dealing with wholesalers and retailers


area.
may require long payment terms,
which will squeeze the cash flows of
the company.
Investment Requirem
Items
Land
Construction of farm
Egg laying boxes
Feeders
Automatic drinkers
Packaging boxes (reusable)
Vehicle
Working capital
Total Investment Cost

T h$436,100
e p roject ensures immediate returns.

Within a period 3 months,


chicks start producing eggs.

the

Unit cost
Qty
5 2,000
300 1,250
60
120
12
200
18
500
2.5
200
12,000
1

laying

OPPORTUNITIES
THREATS

The lack of egg farms in the region

The hens could be affected by diseases,


represents an important opportunity for
for this reason, it is imperative that the
the project. In fact, local wholesalers and
farm maintains a regular vaccination
retailers used to buy the eggs from
schedule.
Income S t a t e m e n t A s s u m p t i o n s
neighboring Syria. The rising cost of eggs
Production rates could be negatively
C o s t of la yer ch ic k ( 1 day old)
$ 0 . 8 5p e r c hi c k e n
added
to
high
transport
costs
is
making
it
a
ffected by
temperature
extremes.
C o s t of f e e d + v a c c i n e s + h e a t i n g ( 9 0 d a ys )
$ 3 . 7p e r c hi c k e n
more
obtaining
the farm
should
C o s t of
f eed / difficult
c h i ck e n ( oto
v er continue
p e r io d of 15
months)
$ 1 .Hence,
7 3p e r month
p e r administrator
c h i ck e n
supplies
control on
C o s t of
v a c c infrom
e p e rthis
c h i cmarket.
ken
$ 0 .constantly
2 4p e r t h emaintain
15 months
levels to ensure optimal
Number of la ye r c h ic k e n
1 0 , 0 temperature
00
Q
u a n tThe
it y ofincreasing
eggs p r o dcosts
uced p
day have been
9, 50
0 eggs
conditions.
ofe r feed,
N e t p rmatched
o du c t io nby
p e price
r io d o increases
ut of a total
18 months
13 months
in of
such
a way
N e t p r o du c t io n p e r io d
that the profit margins have been
72.2%
The difficult economic situation in the
Number of p ro d u ct io n d a ys p e r y e a r
260 days
maintained at satisfactory levels in the
country
could
affect
the
business,
Pr ic e p e r box ( 3 6 0 e g g s )
$40
business.
especially
with
the
diminishing
Pr ic e in c r e as e s
2%a n nu a ll y
purchasing
power
P a c k a g i n g c o st
$10
. 0p e r 140
c a rt oof
n sthe population.
Pr ic e of c h i c k e n at end of 18 months c yc le
Tra ns po r t co s t s
A n n u a l i nc re as e in g e ne r a l e x p e n s e s
D i v i d e n d s p a yo u t rat io ( ye a r 2 f or wa r d )
Income Tax R a t e ( es ta bl is hm e nt )

Marketing Plan

$ 0 . 7p e r c hi c k e n
2.0%o f s ale s
2%
90%
2%

The egg farm will base its marketing strategy on the following:

Establishing direct contacts with wholesalers in Hermel and Bekaa region and
eventually over all the Lebanese territory.

Ensuring high quality eggs are delivered on a regular and consistent basis to
wholesalers and retailers.

Hermel - Feasibility Study Egg Farm

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Financial Plan

AFC Consultants International

This section details the calculations, assumptions and methodology used as a basis for the
projections of the expected financial performance of the egg farm.

6.1

Initial Investment

Balance Sheet Assumptions


Accounts Receivable
Inventory
Accounts payable

2 months of sales
2 months of cost of goods sold
1 month of cost of goods sold

The above table shows the various investments needed for the establishment of the egg farm.
The initial investment for the project is estimated at $421,100 which includes $10,000 in land
cost, $375,000 in construction costs, $19,100 in equipment, $12,000 in vehicle, and $20,000
in working capital. The farms capacity is for 10,000 laying hens.

6.2

Major assumptions

The assumptions are conservative and are based on achievable market levels.
The following table shows the main assumptions for the income statement. The cost of layer
chick (1-day old) is $0.85. The cost of feed + vaccine + heating for the first 90 days amounts
to $3.7 per chick. Following this period of 90 days, the chicks do not require heating anymore,
but would need vaccines for $0.24 and feed for $1.73 per month per chick.
The 10,000 laying hens produce an average of 9,250 eggs per day for a period of 13 months
out of a total production cycle of 18 months.
The price per box of 360 eggs (12 cartons of 30 eggs each) is currently at $40. The financial
plan takes into consideration annual increases in price of 2%.
The laying hens are sold at a price of $0.7 each after the 18-months cycle is over.

Hermel - Feasibility Study Egg Farm

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The plant will have 2 employees, out of which is one administrator and one worker.
An annual increase in general expenses of 2% is taken into account to account for infla
tion
factors. The dividends payout starting in year 2 and forward will be paid at 90% of th
e net
profits.

The farms accounts receivable are assumed to represent 2 months of sales and the inven
tory
to represent 2 months of cost of goods sold. The accounts payable are assumed to represent
1
month of cost of goods sold.

6.3

Projected Income Statement

Egg Farm
INCOME STATEMENT
Sales
Sales of chicken at end of cycle
Total Revenues

Cost of layer chicks


Cost of feed + vaccine+ heating over 90 days
Cost of feed during the rest of the year
Cost of vaccine during rest of the year
Packaging costs
Transport costs
Labor cost
Administrator salaries
Other charges
Depreciation
Total expenses
Earnings before tax
Tax
Net profit (loss)
Net profit margin

Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
274,444
279,933
285,532
291,243
297,067
303,009
309,069
7,000
7,140
7,283
7,428
7,577
7,729
274,444
286,933
292,672
298,525
304,496
310,586
316,798
8,500
8,670
9,572
36,500
37,230
41,105
155,250
158,355
174,837
2,400
2,448
2,703
5,881
5,999
6,623
5,489
5,739
6,336
3,960
4,039
4,460
4,800
4,896
5,406
500
510
563
12,785
12,785
11,285
236,065
240,670
262,889
38,380
46,263
53,909
768
925
1,078
37,612
45,338
52,830
13.7%
15.8%
16.7%

8,843

9,020

9,201

9,385

37,975

38,734

39,509

40,299

161,522

164,753

168,048

171,409

2,497

2,547

2,598

2,650

6,119

6,241

6,366

6,493

5,853

5,971

6,090

6,212

4,120

4,202

4,286

4,372

4,994

5,094

5,196

5,300

520

531

541

552

12,785

12,785

12,785

11,285

245,228

249,877

254,619

257,956

47,444

48,648

49,877

52,630

949

973

998

1,053

46,495

47,675

48,880

51,578

15.9%

16.0%

16.1%

16.6%

The income statement shows satisfactory income levels with a seven-year average net pr
ofit

margin of 16%. Of course, these results will depend on market conditions and the abilit
y of
the owners/administrator to carefully manage the operations and especially costs
and
operating charges. The company reaches a net profit that exceeds $52,000 in year 7.

Hermel - Feasibility Study Egg Farm


6

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6.4

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Projected Balance Sheet

The balance sheet shows the projected assets and liabilities of the company.

Egg Farm
BALANCE SHEET
Assets
Cash and banks
Accounts receivable
Inventory
Total current assets
Land
Construction
Equipment
Vehicle
Accumulated depreciation
Net Fixed Assets
Total assets

Liabilities & Owners' equity


Accounts payable
Current liabilities

Year 1

Year 2

16,703
111,630
45,741
52,800
25,331
28,527
87,775
192,957
10,000
10,000
375,000
375,000
19,100
19,100
12,000
12,000
12,785
86,495
403,315
329,605
491,090
522,562

17,378
19,570
17,378
19,570

Year 3

Year 4

Year 5

Year 6

31,781

48,097

64,508

81,017

96,273

47,822

48,779

49,754

50,749

51,764

25,838

26,355

26,882

27,419

27,968

105,441

123,230

141,144

159,186

176,005

10,000

10,000

10,000

10,000

10,000

375,000

375,000

375,000

375,000

375,000

19,100

19,100

19,100

19,100

19,100

12,000

12,000

12,000

12,000

12,000

25,570

38,355

51,140

63,925

75,210

390,530

377,745

364,960

352,175

340,890

495,971

500,975

506,104

511,361

516,895

17,725

18,080

18,441

18,810

19,186

17,725

18,080

18,441

18,810

19,186

Year 7

Capital
Retained earnings
Owners' equity
Total liabilities & owners' equity

STATEMENT OF RETAINED EARNINGS


Retained earnings at 1 January
Net profit (loss) for the year
Dividends
Retained earnings at 31 December

436,100
436,100
37,612
66,892
473,712
502,992
491,090
522,562

436,100

436,100

436,100

436,100

436,100

42,146

46,795

51,563

56,451

61,609

478,246

482,895

487,663

492,551

497,709

495,971

500,975

506,104

511,361

516,895

Year 1

Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
0
37,612
42,146
46,795
51,563
56,451
61,609
37,612
45,338
46,495
47,675
48,880
51,578
52,830
40,804
41,845
42,908
43,992
46,420
47,547
37,612
42,146
46,795
51,563
56,451
61,609
66,892

The company is expected to start distributing dividends starting in year 2 a t $40,804 an


d
$47,547 by year 7.

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Egg Farm

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STATEMENT OF CASH FLOWS

Year 1

Net income
Adjustments to reconcile net income
to cash provided by operating activities
Depreciation
Changes in receivables
Change in inventories
Change in payables
Total Adjustments
Cash provided by operating activities
Cash62,905
Flow from Investing Activities
Capital expenditures
Investment in fixed assets
Net cash used in investing activities
- financing activities
Cash flow from
Capital injection
Dividends distributed
Cash provided by financing activities
(47,547)
Yearof1 year
Cash at beginning

Year 2

Liquidity Ratios
Changes in cash
Current Ratio
Cash at end of year
Working Capital
Profitability Ratios
Net Profit Margin
Financial Strength
Total Debt to Owners' Equity
Management Effectiveness
Return on Assets
Return on Equity = ROE
Return on Investment = ROI
Asset Management (Efficiency)
Total Assets Turnover: Sales/tot assets
Working Capital Cycle
Days Sales Outstanding
Days of inventory
Days of payables

Working Capital
Turnover=Sales/Working Capital

Year 2

37,612

Year 3

45,338

12,785
(45,741)
(25,331)
17,378
(40,909)
(3,297)

(416,100)
(416,100)

Year 4

46,495

Year 5

Year 7

48,880

51,578

52,830

12,785
12,785
12,785
12,785
(2,081)
(956)
(976)
(995)
(507)
(517)
(527)
(538)
348
355
362
369
10,544
11,666
11,644
11,621
55,882
58,161
59,319

11,285
(1,015)
(548)
376
10,098
60,501

11,285
(1,035)
(559)
384
10,074
61,676

47,675

Year 6

436,100
(40,804)
(41,845)
(42,908)
(43,992)
(46,420)
(47,547)
(40,804)
(41,845)
(42,908)
(43,992)
(46,420)

436,100
Year 3 -

Year 4
16,703
15,078

16,703

Year 5 48,097 Year 64,508


6
31,781
16,316
16,411
16,509

Year
7
81,017

96,273
15,357

15,256

5.1
5.9
6.8
7.7
8.5
9.2
9.9
70,39716,703
87,716 31,781
105,150 48,097
122,703 64,508
140,376 81,017
156,819 96,273
173,387 111,630
13.70%

15.80%

15.89%

15.97%

16.05%

16.61%

16.68%

3.7%

3.7%

3.7%

3.8%

3.8%

3.9%

3.9%

7.7%
7.9%
9.3%

9.1%
9.5%
11.6%

9.3%
9.6%
12.3%

9.4%
9.8%
13.1%

9.6%
9.9%
13.9%

10.0%
10.4%
15.1%

10.1%
10.5%
16.0%

0.56

0.58

0.58

0.59

0.60

0.60

0.61

60
45
30

60
45
30

60
45
30

60
45
30

60
45
30

60
45
30

60
45
30

3.9

3.3

2.8

2.4

2.2

2.0

1.8

The following table shows the main financial ratios for the Corn fermentation plant.

Chicken Farm For Eggs


Break-even Analysis
Year 7

Year 1

Total Revenues

Year 2
274,444

- Feasibility Study Egg Farm


09Hermel
309,069
Break-even Revenues
17,028
8

Year 3
279,933

16,935

Year 4

285,532

16,948

LBN/B7-4100/IB/99/0225/JC20/0105

16,961

Year 5

291,243

16,975

297,067

15,078

AFC Consultants International

The current ratio, which is computed by dividing current assets by current liabilities, sh
Sensitivity Analysis
Average net income
Average net profit margin
Internal rate of return (IRR)
Payback period in years

Worst-case
$38,342
14%
10%
8 years and 8 months

Most likely
$45,200
16%
12%
7 years and 9 months

Best-case
$52,058
18%
14%
7 years

ows
increasing and high levels throughout the years. The working capital is positive in all
the
years, confirming the ability of the company to meet its short term liabilities.
The net profit margin increases from a level of 13.7% and reaches 16.7% by year 7.
The return on average assets, which is computed by dividing net profits by total assets, sho
ws
how much profit the company is able to achieve from the use of its assets. This ratio h
as an
average of 10% over the 7 years.
The return on average investment shows healthy levels fueled by the growth in profitabil
ity.
The average return on investment is around 14%.
The total assets turnover shows how well the management is making use of its assets.
The
assets turnover is computed by dividing sales over total assets. The company has a relativ
ely
high investment in fixed assets due to the construction budget for the farm.
The days of receivable are at 60 days, i.e. 2 months of sales, the days of inventory repre
sent
45 days of cost of goods sold and the days of payables represent 1 month of cost of
goods
sold.

Year 6
303,0

15,092

6.7

Break-even analysis

The following table shows the annual revenue levels needed for the business project to bre
ak
even. Thus, an average of $17,028 in year 1 is a minimum level for the egg farm to b
reak
even.

6.8

Sensitivity analysis

The internal rate of return (IRR) is 12% a n d t h e payback period, which is the p
eriod
necessary to pay back the investment, is 7 years and 9 months.
These results show that the project is feasible and provides satisfactory returns.
A worst-case scenario is taken by assuming that the price is at $39 instead of $40 per
360egg box. In this case, the business will have a seven years average profitability of $38,
342
annually. The internal rate of return is 10%. The payback period is 8 years and 8 months.
A best-case scenario is taken by assuming that increase in price from $40 to $41 per 3
60egg box. In this case, the business will have a seven years average profitability of $52,
058
annually. The internal rate of return is 14%. The payback period is 7 years.

These results show that the project is feasible and provides satisfactory returns t
o its
shareholders.

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AFC Consultants International

Recommendations and key success factors

In order to achieve satisfactory results, the following recommendations should be taken into
consideration:

Keeping hens healthy: A hen that is healthy and not badly stressed will be resistant to

infection by Salmonella bacteria.


Maintaining optimum temperature and air quality in the farm.
Ensuring that the water supply is clean and uncontaminated.
Hens should not be overcrowded.
Monitoring feed and water consumption closely to be able to identify and deal with a
disease outbreak as soon as possible.
Maintaining good biosecurity, e.g., keeping birds, animals and unauthorized people
out of the layer house. Farm workers should avoid contact with poultry other than
birds in the farm flock.
Keeping the farm clean: A farm that is clean and free of vermin will harbor fewer
Salmonella bacteria and present fewer opportunities for contamination of eggs.
Manure should not be allowed to build up on dropping boards. Dropping should fall
freely away from cages to minimize the number of eggs soiled by fecal materials.
Scraping or washing dried yolk from broken eggs.
Handling eggs properly: Fresh, whole eggs contain natural resistance factors that
inhibit bacterial growth if the eggs are kept cool.
Collecting all eggs promptly, especially in hot weather as eggs easily spoil in a warm
surrounding
Handling eggs carefully to minimize cracks.
Layers will lay eggs regularly if they are kept away from noise and disturbances.

Economic Impact Evaluation

The project will offer 2 job opportunities, of which is one administrator/driver and one
worker. The project will contribute to the general enhancement of socio-economic
environment in the caza and will help to provide quality fresh eggs at competitive prices.

Hermel - Feasibility Study Egg Farm

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