231.

PROFILE ON PRODUCTION OF KNITTED FABRICS & CLOTHES

231-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

231-3

II.

PRODUCT DESCRIPTION & APPLICATION

231-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

231-4 231-4 231-7

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

231-7 231-7 231-8

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

231-9 231-9 231-10

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

231-11 231-11 231-12

VII.

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

231-13 231-13 231-14 231-15 231-16

231-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of knitted fabrics with a capacity of 5.6 million sq.mt per annum.

The present demand for the proposed product is estimated at 5.5 million sq.mt per annum. The demand is expected to reach 10.8 million sq.mt by the year 2020.

The plant will create employment opportunities for 52 persons.

The total investment requirement is estimated at about Birr 5.89 million, out of which Birr 2.68 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 21 % and a net present value (NPV) of Birr 3.48 million discounted at 8.5 %.

II.

PRODUCT DESCRIPTION AND APPLICATION

The knitting industry is in competition with the weaving industry. There are two desirable functions facing the knitted and woven fabric industry. One is to produce fabric with the desired efficiency as fast as possible at the lowest cost. The other is to aim at fashion with beautiful elements. In these two respects, knitted wear is favorable in many ways. Because of in the progress in the realization of fine gauge knitting machine, it is now possible to produce beautiful light-weight fabrics dimensional stability. Knitted fabric is casual and sports like and is appropriate for present day fashion.

The objective of the knitted fabrics for the envisaged plant is to knit cut and sew general out wear (suit, one piece, coat, slacks, skirts, sweater, etc.)

231-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1. Past supply and present Demand

A variety of Knitted fabrics are supplied to the Ethiopian market both from domestic sources and import. The only two textile mills in the country which produce knitted fabrics are Addis Ababa Yarn Factory and Alameda Textile Factory which are located at Addis Ababa and Adwa of Tigray Region. According to the information obtained from knowledgeable people in the textile sector the two factories produce mainly for export on order basis. Export of knitted fabrics in the past five years is given in Table 3.1.

Table 3.1 EXPORT OF KNITTED /CROCHETED FABRICS

Year

Quantity (ton)

Quantity ('000 sq.mt)1

Value (Birr)

2001 2002 2003 2004 2005 Total Average

1,301.7 187.7 532.6 426.9 94.5 2,543.4 506.7

6,508.5 938.5 2,663.0 2,134.5 472.5 12,717 2,543

6,689,688 4,204,952 7,521,931 7,145,971 3,174,764 28,737,306 5,747,462

Source: - Compiled from Customs Authority.

NOTE: - Unit of measure for export data obtained from Customs Authority is in weight. A conversion factor of 200 grams per sq.mt is applied.

231-5 The export of knitted fabrics in the past five years was very erratic. In 2001 the export level was 6,508 thousand sq.mt. In the following year, i.e. 2002, it sharply declined to 938.5 thousand sq.mt. Again during the years 2003 and 2004 the export level increased to 2,663 thousand sq.mt and 2,134.5 thousand sq.mts, respectively. The export level of 2005 was exceptionally very low and declined to 472.5 thousand sq.mts. In the absence of a trend in the data set the average of the past five years was found to be 2,543 thousand sq.mt/.

Ethiopia imports a variety of knitted fabrics from a number of countries. The types of knitted or crocheted fabrics include looped pile fabrics of Cotton and artificial fibers as well as bleached, unbleached, dyed and printed knitted fabrics of cotton, and other textile materials. Imported quantity of the various types of knitted fabrics is shown in Table 3.2.

Table 3.2 IMPORT OF KNITTED FABRICS

Year 2001 2002 2003 2004 2005 2006 Total Average

Quantity ( ton) 1,165.3 936.0 1,138.6 99.6 132.3 84.8 3,556.6 592.8

Quantity ('000sq.mt) 5,826.5 4,680.0 5,693.0 498.0 661.5 424.0 17,783.0 2,963.8

Source: - Compiled From Customs Authority

Note: - The unit of measure for the import data obtained from Customs Authority is in weight. To convert in to sq.mt a conversion factor of 1 sq.mt=200 grams is applied.

231-6 As could be seen from Table 3.2 import of knitted fabrics fluctuates from year to year. The lowest level of import was in year 2006 which is 424 thousand sq.mts while the highest during 2001 which is 5,826.5 thousand sq.mts. In the absence of a trend in the data set the average of the past six years was found to be 2,963.8 thousand sq.mt. To arrive at the total current demand the average of the past six years export and domestic consumption (import) has been added. Accordingly current total demand for knitted fabrics in the domestic and export market is estimated at 5,506 thousand sq.mts. 2. Demand projection

The demand for knitted fabrics is influenced mainly by population growth and income as well as the development of the garment sector, which uses fabrics as its raw material, has a positive impact. In addition the recent opportunities created for export market to

Europe and U.S.A has a significant impact on the growth of demand. Considering this situation an annual average growth of 7% is applied through out the forecasted period (see Table 3.3.) Table 3.3 PROJECTED DEMAND FOR KNITTED FABRICS ('000SQ.MT) Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Demand 5,891 6,304 6,745 7,271 7,722 8,263 8,841 9,460 10,122 10,831 Domestic supply 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 Unsatisfied Demand 3,291 3,704 4,145 4,617 5,122 5,663 6,241 6,860 7,522 8,231

231-7 The unsatisfied demand for knitted fabrics will grow from 3,291 thousand sq.mts in 2008 to 5,122 thousand sq.mt and 8,231 thousand sq.mts by the year 2012 and 2017 respectively.

3.

Pricing and Distribution

The price of knitted fabrics varies according to their finishing type. Knitted fabrics to be produced could be looped pile, bleached, unbleached, dyed or printed. Based on the market observation an average price of Birr 5 per sq.mt is adopted for financial analysis.

Currently distribution of fabrics is undertaken by long established whole sealers, most of them located at Markets area of Addis Ababa and major trading centers of big towns. The envisaged plant can also adopt the exiting distribution system.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The envisaged plant would have a capacity of 3 million square meters knitted fabrics per year. The plant operates single shift of 8 hours per day and 300 working days per annum.

2.

Production Programme

The plant is expected to start at 75% of its capacity during the first year of operation and at 85% during the second years and then to full capacity during the 3rd year and then after.

231-8 IV. MATERIALS AND INPUTS

A.

MATERIALS

The required raw material for the manufacturing of knitted fabrics is cotton yarn. The required amount of raw material at full capacity production is 85 Kg/day.

The annual raw material requirement and its costs are indicated in table 4.1 below.

Table 4.1 ANNUAL REQUIREMENT FOR RAW AND AUXILIARY MATERIALS AND THEIR COSTS

Sr. No 1 2

Description Cotton yarn Packing and labeling Materials Total

Qty. Tone 30 Lump sum -

Cost, 000 Birr F.C L.C Total 1500 1500 250 250 1500 250 1750

B.

UTILITIES

Utilities required are electricity and water. Water is mainly needed for human consumption and general purpose. The annual quantities and cost of utilities are estimated as shown in Table 4.2.

231-9 Table 4.2 ANNUAL UTILITY REQUIREMENT

Sr. No 1 2

Description

Qty. F.C

Cost, 000 Birr L.C 11.60 10.00 21.60 Total 11.60 10.00 21.60

Electric Power Water Total

24,500 Kwh 1000 m

3

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

When the raw material yarn arrives, it can be divided by colors and kept neatly in the raw material store. The raw material yarn is oiled when being wound on to the cone. Oiling of the raw material yarn will make the yarn slide well, and will prevent knitting damage. It will also improve knitting efficiency.

The raw material yarn wound on cone is set on the specified knitting machine and is knitted in to circular fabric. Generally, in circular knitting machine, the latch needle is moved up and down or horizontally by circular rotation of a cam and loop is knitted automatically.

The knitted fabric and clothes then inspected for knitting damage and other flaws, and mending is done when possible.

231-10 2. Source of Technology

The above described technology is available from the following sources: BLUE INDIGO-TINTOKGA BUSTESE TOVAGLIERI Via G. Mazzini, 5-20020 Bienate(MI)-Italy Tel: 0039.0331.305058 Fax: 0039.0331.305260 Web:www.tintoriabustrese.com B. 1. ENGINEERING Machinery and Equipment

The list of machinery and equipment required for the envisaged plant is given in Table 5.1. Table 5.1 LIST OF MACHINERY AND EQUIPMENT FOR KNITTED FABRICS AND CLOTHES Sr. No. 1 Cost (Birr) FC 484,500 306,850 290,000 274,550 476,425 145,350 173,615 2,151,290 2,151,290

Description Single Knitting Machine None Jacquard Pile Jacquard Double Knitting Machine None Jacquard

Qty. 2 1 1 1

LC 537,823. 537,823

Total 484,500 306,850 290,000 274,550 476,425 145,350 173,615 2,151,290 537,823 2,689,113

Jacquard 1 3 Winding Machine Spindle cone cheese wider 1 Drum cone winder 1 4 Fabric inspection machine 1 Total Insurance, Customs Duty, Inland Transport, Bank Charge, Etc. Grand Total

231-11 2. Land, Buildings & Civil Works

The production building will be one-storied steel frame building will be suitable. The floor space required 300 m2. The walls will be plastered, reinforced concrete floor and RHS truss and EGGA sheet roof. Taking into consideration space for easy movement and possible future expansion, the total area of the project will be 1,000 square meters the lease value at a rate of Birr 1.01 per square meter and for 80 years will amount to Birr 80,800. Total built-up area will be 700 square meters. The total building and

construction cost at a unit cost of Birr 2,300 is estimated at about Birr 1,610,000.

3.

Proposed Location

The plant can be located in any of the zonal capital where easy to get clean water, electricity and other infrastructures for the smooth operation of the plant.

VI

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

Total manpower required is 48 persons. The detail of the manpower requirement and the estimated annual labor cost including employees benefit is given in Table 6.1.

231-12 Table 6.1 MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST

Sr. No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Job Title

No. of Persons

Salary (Birr) Monthly 2,000 800 1,700 1,600 1,600 800 750 400 500 700 500 500 800 750 4,000 7,500 1500 700 700 400 400 Annual 24,000 9,600 20,400 19,200 19,200 9,600 9,000 4,800 6,000 8,400 6,000 6,000 9,600 9,000 48,000 112,500 18,000 8,400 8,400 4,800 4,800 371,110.00 92,775.00 463,885.00

General Manager Secretary Production & Technical Head Commercial Head Finance & Administration Head Personnel Accountant Accounts Clerk Cashier Sales person Purchaser Store Keeper Quality Controller Shift Leader Operator(winding department) Operator(knitting department) Laborer Mechanic Electrician Driver Guard Sub Total Employees Benefit 25% basic salary Grand Total

1 1 1 1 1 1 1 1 1 1 1 1 1 1 8 15 10 1 1 1 2 52

231-13 B. TRAINING REQUIREMENT

The supervisor, skilled workers and quality control worker need at least three weeks training on the technology, maintenance and quality control. For the rest, on-the-job training will be sufficient during commissioning and start up period by the machinery suppliers and experts. Total training cost is estimated at about Birr 60,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the knitted fabrics project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8.5 % 8.5 % 30 days 30 days 3 days 30 days 10 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 5.89 million, of which 32 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

231-14 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7

Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 80.8 1,610.00 2,689.11 100 450 482.65 477.74 5,890.3 32

* N.B

Pre-production expenditure includes interest during construction (Birr costs of

332.65 thousand) training (Birr 60 thousand ) and Birr 90 thousand

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 3.14 million (see Table 7.2). The material and utility cost accounts for 56.32 per cent, while repair and maintenance take 3.61 per cent of the production cost.

231-15

Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost C. FINANCIAL EVALUATION

Cost % 1,750.00 55.64 21.6 0.69 113.65 3.61 222.67 7.08 92.78 2.95 148.44 4.72 2,349.14 74.68 483.45 15.37 312.9 9.95 3,145.49 100

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

231-16 2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year ) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

= 41 %

3.

Payback Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 5 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 21 % and the net present value at 8.5 % discount rate is Birr 3.48 million.

D.

ECONOMIC BENEFITS

The project can create employment for 52 persons. In addition to supply of the domestic needs, the project will generate Birr 1.63 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.