1
FEASIBILITY REPORT
ON
PALM KERNEL OIL EXTRATION BUSINESS
2
TABLE OF CONTENT
Introduction ………………………………………………………………………………….. 3
Product ………………………………………………………………………………………….. 4
Market ……………………………………………………………………………………………. 4
Marketing Plan ………………………………………………………………………………… 5
Management Team …………………………………………………………………………. 5
Production Process ………………………………………………………………………….. 6
Man Power Requirements ……………………………………………………………….. 6
Estimated Capital expenditure ………………………………………………………….. 7
Estimated working Expenditure …………………………………………………………. 7
Production Plan (Budgets $ Schedules) …………………………………………….. 9
Project Financial Statements
(Income Statements and Balance Sheet) ……………………………………………. 10
Projected Evaluation and Viability Test …………………………………………….... 12
Recommendation ……………………………………………………………………………… 13
3
INTRODUCTION
This feasibly report on the establishment of a palm kernel oil expelling factory is based on a
survey done between October 2012 and October 2013. The consultant collected the information
used in this report from existing factories, raw materials markets in various locations and finished
products markets. The consultant also made use of SME Center, Ministry of industries, and other
regulatory agencies.
The Palm Kernel Oil extracting business is primarily a raw material processing business. This is so
because the end product is still a raw material for the big refineries that use it to produce edible
Vegetable oil. The basic raw material in this industry is palm kernel and finished products are
palm kernel oil (PKO) Palm Kernel Cake (PKC) and sludge. The palm kernel oil is the main output
of any palm kernel oil-expelling factory.
The palm Kernel oil (PKO) is the major raw material for the production of vegetable oil. Ninety
percent of what we call groundnut oil in our market is vegetable oil made of palm kernel Oil
(PKO). Again PKO is a major raw material for soap making companies. The palm Kernel Cake (PKC)
is a major by product of a palm kernel oil expelling factory, palm kernel cake is used for producing
animal feeds.
Most of the animal feeds such as chicken feed, pig/cow feeds etc are made with PKC. Sludge is a
minor by-product which is used by people who produce black soap. and other mechanized soap
Industries.
The business is an all-year-round business. The end product are in hot demand all –year-round,
Because of the high demand producers do not stock finished products. Buyers always book for
the products in advance. It is also on cash and carry basis.
Sometimes buyers are even pay in advance in other to secure an expected batch of products.
Prices of the product i.e (PKO and PKC) are elastic or fluctuate up and down, depending on the
season of the year. However the prices of the raw materials i.e Palm kernel also fluctuate along
with the finished product (PKO)
Thus, if the price of the PKO falls the price of the palm kernel (PK) also falls and vice versa. A good
strategist with adequate working capital can make a fortune if it takes advantage of these price
movements.
The major threat to the business is scarcity of palm kernel. If a factory lacks palm kernel it may
not enjoy period of rising prices. Another major problem is irregular supply of electricity.
However, if an entrepreneur knows the various locations and villages such as (Ohozara, Okwor,
Ezza in Ebony state, Nsukka, Nkanu, Isi Uzo in Enugu State, Benue, Kogi, Cross Rivers, Akwa Ibom
4
States Okigwe, Umuagwo Lokpanta in imo and Aba states etc) as the managing Director/Chief
executive of this project knows, then the sourcing of raw material (Palm Kernel) will be very easy.
If the entrepreneur has sufficient funds as working capital, the sky will be his limit all things being
equal, as he is likely to out compete his colleagues in the business. The issue of power outage can
be arrested if standby electric generating plant is acquired as the business grows. Finally the
business is very rewarding with very little risk or fear of failure.
THE PRODUCT
The products are palm kernel oil (PKO) Palm Kernel Cake (PKC) and sludge oil and sludge cake.
An average nut (Palm Kernel) contains about 45% palm kernel oil, about 50% palm kernel cake
and 5% of sludge and moisture. However in the rainy season the moisture contents rises thereby
reducing the oil contents per a measured weight of palm kernel. A well equipped factory can
arrest the problem by either using an electric drier or toaster or sun dried. The (PKO) palm Kernel
Oil is not directly edible. It is used as a major raw material in the manufacture of soap and
detergent. It is always in hot demand. The other product is palm kernel cake (PKC) it is a major
by-product when the main product (Oil) is expelled. The PKC is used by animal feed producers, it
is also in hot demand.
A third product is sludge it is a minor by-product, it is used by black soap makers for their
products. And a good raw material for a mechanized soap industry.
THE MARKET
The market for palm kernel oil (PKO) is very large about 75% of all the edible vegetable oil
consumed in Nigeria and other neighboring West African Countries is made from refined palm
kernel oil. Currently refined palm kernel oil is being exported to West African Countries. At
Eastern region the major buyer of palm kernel oil, are vegetable oil refineries and soap making
companies. Our focus will be on vegetable oil refineries since their demand is far above supply
by more than 500%.That is to say that these refineries demand about 300 metric tons per day
while all the producers at Region cannot produce up to 20 metric tons per week. In short these
vegetable oil refineries do not depend only on the legionary producers for their daily need of
(PKO). However they book up all the outputs from the region even before they are produced.
These refineries include; Aniuzo international LTD, with a capacity of 50 metric tons per day based
at Emene – Enugu. Wilson Nigeria LTD with a capacity of 75 metric tons per day based at Nsukka.
Planet oils LTD with a capacity of 50 metric tons per day based at Aba Abia State, Udeagbala
Holdings with a capacity of 75 metric tons per day based at Aba. Jinals Industries Ltd with a
capacity of 50 metric tons per day based at Umuahia. Top Tree oil mills with a capacity of 70
metric tons per day based at Aba
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Golden Oil with a capacity of 70 metric tons per day based at Onitsha, Star Arrival with a capacity
of 50 metric tons per day based at Onitsha Envoy vegetable oil with a capacity of 70 metric tons
per day based at Onitsha.
Chikason Ltd with a capacity of 50 metric tons per day based at Nnewi Anambra State and some
others at Port Harcourt, Rivers State. The above mentioned refineries go to Enugu daily to search
for palm kernel oil. Our proposed capacity at this point is 10 metric tons per week. As it stands
we do not have any headache at this level of production because the demand is far above what
we can produce, put together even with the other entrepreneurs located in Enugu. And Abia
States. Our task is to ensure that we meet our target of 10 metric tons per week production. The
PKC is as hotly in demand as the PKO. It is also cash and carry business. Our present projected
production of 10 metric tons per week is a small percentage compared to over 400 metric tons
demand per day. The demand for PKC is also high, because the expellers hardly meet with
challenging need of the poultry and animal husbandries in the region.
MARKETING PLAN
We plan to start by selling to the established refineries based at Enugu, Nsukka, Onisha , Aba and
Umuahia. We are making a positive contact with commercial managers and they are hopeful that
we will sell to them when we start operation. They normally send down their trucks (oil tankers)
to Enugu in search of palm kernel oil. We need not incur advert cost in marketing our products.
Our task will normally be to keep to production level as planned in order not to disappoint the
customers when they come to lift oil.
MANAGEMENT TEAM
Our firm is a <<Type of Enterprise>>. The founder and the president (Managing Director is
<<Name of MD>>. He has been involved in palm kernel supply and processing business for more
than five years. He knows the business in and out. The Administrative/production Manager is
also down to earth in terms of administration/production and he enjoys the advantage of youth
since he is still very young and energetic. He will be in charge of production and administration.
The other manpower requirement will include two machine operator, one clerk and two laborers
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PRODUCTION PROCESS
The following processes are involved in expelling palm kernel oil (PKO). The raw material (palm
kernel) is an oil yielding seed which contains about 45% Oil and 50% of cake. The raw kernel is
bought from the village markets, local dealers and transported to the factory. On arrival the bags
of kernel bought are measured and packed ready for processing. At the factory, it is sun dried or
electric toasted in order to remove the moisture contain in the nuts. It is easy to know when the
nuts are dried or toasted since traces of oil will start to appear at the back of the nuts. When they
are dried, they are fed into the palm kernel oil expelling machine for crushing the machine
propels the nuts through adjustable tight iron cage which then squeezes and extracts the oil from
the crushed nuts, the oil goes through the funnel into a container while the cake comes out at
the front end of the machine. The cake is bagged immediately or heaped elsewhere ready for
sale. The oil is then passed into a filter press machine by means of pumping. The filter press
machine removes all debris from the crude thereby leaving us with clear golden-colored oil which
is pumped into storage tank ready for sale. The sludge is collected and stored in open drum also
read for sale. Alternatively the expelled oil can be stored in open drums/container for some days
to sediment. After sedimentation, clean oil is decanted to separate it from sludge and dirt.
Thereafter the clean oil can be stored ready for sale.
The raw kernel is bagged in 80kg bags. Thirty two (32) bags of 80kg each will normally yield one
tone of oil and about one tone of cake. In every dry season it could yield a little more than in wet
/rainy season, it could yield a little less all depending on the special of the raw kernel.
MAN POWER REQUIREMENTS
The estimated manpower requirement and their remuneration are as follows:1.
2.
3.
4.
5.
6.
Managing Director
Admin /Production Manager
Machine Operators
One clerk/Computer Operator
Laborers
Security
1
1
2
1
2
1
@ #50,000 per month
@ #20,000 per month
@ #12,000 per month
@#10,000 per month
@#9,000 per month
@#10,000 per month
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The Managing director who is the president of the co-operative, has more than five years of
experience in palm kernel supply and processing. He will oversee the management of the
enterprise and will be in control of the overall running of the factory.
The Admin Manager is in charge of administration and production he will maintain all operation
records ensure adequate supply of raw material and supervise the operation staff. The machine
operators have vast experience in palm kernel oil expelling machine they are technical persons
who combine experience in mechanical and electrical machines, they are in charge of the
expeller, filter press, electric toasting machine other equipment and tools. The laborers are
unskilled manpower. They are young men in their youth with sufficient stamina and strength to
carry on the manual work involved in the factory.
ESTIMATED CAPITAL EXPENDITURE
The estimated capital expenditure presented below are based on quotations received from
engineer fabricators/suppliers. The figures include cost of delivery/ installation.
Palm kernel oil Expeller (50-70 motor horse power electric Driven) 750,000.00
Palm kernel Electric toaster
150,000.00
Palm kernel oil filter processing machine
300,000.00
Storage tank
25,000.00
Empty Drums (20 in Number)
50,000.00
Wheel Barrow (2 in number
20,000.00
Water pumping machine
35,000.00
Tools
10,000.00
Raw materials (working capital)
Sub – Total
800,000.00
2,146,000.00
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Note ( below items were existing in the business)
Existing items (machines): Less:
Empty Drums 20 in numbers
50,000.00
Wheel Barrows (2)
20,000.00
Water Pumping Machine
35,000.00
Shovels
4,000.00
Storage Tank
25,000.00
Tools
10,000.00
144,000.00
Total Capital /Loan sought for
2,002,000.00
Production Plan (All prices) are as at 12th December 2013
Production Estimate for four weeks
PKO
Unit required for sale
Desired Ending Inventory
20tons
PKC
S/OIL
S/Cake
25.15tones 0.40 tones 0.70 tones
0.28
0.45
0.02
0.04
20.28
25.60
0.42
0.82
20.28
25.60
0.42
0.82
Less Beginning Inventory
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Materials Purchase Budget for four weeks
Desperations
Goods No of Bags
Required for Production
640
Desired Ending Inventory
12.31
N
4,096,000
78784
652.31
4,174784
Note : 1 Bag of kernel of (80kg) = N6,400.00
1 Tone of oil (PKO) sell for N220,000.00
1 Tone of (PKC) sells for
N35,000.00
1 Tone of sludge oil sells for N60,000.00
1 Tone of sludge cake sells for N15,000.00
Production Budget for four weeks
N
Materials producer
Less closing stock
N
174,784.004,
78,784.00
Material cost
4096,000.00
Labor cost
42,000.00
Factory overhead
45,000.00
Cost of factory output
4,183,000.00
Closing stock of finished goods
Cost of goods sold
84461.00
4,098539.00
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CASH BUDGET FOR THE FIRST FOUR WEEKS
Wk 1
wk2
N
Cash Receipt from sales
Total Cost Collected
N
wk3
wk4
N
N
1,062,059.5 1,062,059.5 1,062,059.5 1,062,059.5
1,062,059.5 1,062,059.5 1,062,059.5 1,062,059.5
Cash Payments:
Purchase Raw Materials
Casual Labor $ MISC.
937695
10,000
937695
10,000
937695
10,000
937695
10,000
947,695 947,695 947,695 947,695
Cash Beginning
Cash Collected
Total Cash Available
Less Cash Paid
10,000
1062059.5
1072,059.5
947695
124864.5
1062059.5
1186924
947695
239229
353593.5
1062059.5 1062059.5
1301288.5 1415,653
947695
947695
124,364.5 239,229 353,593.5 467,958
Projected Income Statement For the First three month
N
Sales
Less opening stock of finished goods
Cost of Factory output
12,549000.00
Less ending stock
253383.00
Cost of goods sold
Cross Profit
Less Operating Expenses
Management salaries
Rent
240,000.00
36,000.00
N
16,185,300.00
12,295617.00
3,889,683.00
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Power
Maintenance and repairs
Insurance
Transport
Security
Depreciations
Miscellaneous Expenses
Net Profit before Tax
Les 25% Tax
Net Profit after Taxation
60,000.00
40,000.00
50,000.00
50,000.00
30,000.00
33,500.00
50,000.00
589500.00
3,300,183.00
825045.75
2,475,137.25
Note 1. Tax rate in this work may not be realistic as the co-operative is not yet incorporated
and may not be subjected to company income tax.
2. The figure represents one quarter of a year.
3. Depreciation is at 10% per annum
Projected Income Statement For One Year
N
Sales
Less opening stock of finished goods
Cost of factory output
Less ending stock:
Cost of goods Sold
Cross profit
64,741,200
50,196,000.00
1,013,532.00
51,209,532
13,531,668
Less operating Expenses:
Management salaries
Rent
Power
Maintenance and repairs
Insurance
Transport
Security
N
960,000.00
144,000.00
360,000.00
200,000.00
200,000.00
250,000.00
120,000.00
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Depreciation
Miscellaneous Expenses
134,000.00
280,000.00
Net Profit before Tax
Less 25% Tax
Net Profit After Taxation
2,648,000.00
10,883,668.00
2,720,917.00
8,162.751.00
PROJECTED BALNCE SHEET FOR THE YEAR – END
Assets
Cash
Bank
Account Receivable
Prepayments
Inventory
Fixed Assets (Net)
Total Assets
Liabilities:
Account Payable
Capital
Add Net Profit
Net Worth
N
150,000.00
7562551.00
300,000.00
350,000.00
691650.00
1,206,000.00
10,260201.00
95,450.00
2,002,000.00
8,162.751.00
10,164751.00
10,260,201.00
Viability Test and Project Evaluation
In this section of the report we calculate the payback period and the return on investment with
a view to determine the profitability /Viability or otherwise of the project Investment
(a) Payback Period:
Total Investment
Net Income + Depreciation
= 2,002,000
8162751+134,000
= 2,002,000
8,296751
13
0.2412299274 years
=3.3 Months Payback Period
(b)Annual Rate of Return on investment
=
IRR =Net profit
× 100
Total Investment
1
8,162,751 × 100 = 407.72%
2,002,000 1
=ROI= 407.72%
RECOMMENDATION
On the basis of the above Report/analysis, it is obvious that this project is feasible and viable.
The annual rate of return is very good and satisfactory. If we barrow the money from the bank
we are confident that we will pay back in record of time as the payback period from the
evaluation above is just 3.3 months
Therefore, I recommended that the project for financing, as with good management team the
initial capital will be recovered in a short period of less than six months.