Project profile on knitting mill

Table of Contents1. Executive Summary......................................................................................22. Product Description and Application...........................................................3

3. Market Study, Plant Capacity and Production Program...............................33.1 Market Study..................................................................................3

3.1.1 Present Demand and Supply...............................................33.1.2 Projected Demand.............................................................53.1.3 Pricing and Distribution.....................................................6

3.2 Plant Capacity and production capacity..........................................74. Raw Materials and Utilities ........................................................................8

4.1 Availability and Source of Raw Materials.......................................84.2 Annual Requirement and Cost of Raw Materials and Utilities........9

5. Location and Site.........................................................................................106. Technology and Engineering.........................................................................10

6.1 Production Process...........................................................................116.2 Machinery and Equipment ..............................................................136.3 Civil Engineering Cost......................................................................15

7. Human Resource and Training Requirement ................................................178. Financial Analysis.........................................................................................18

8.1 Underlying Assumption....................................................................188.2 Investment.....................................................................................198.3 Production Costs.............................................................................208.4 Financial Evaluation.........................................................................21

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1. Executive Summery

This project profile envisions the founding of a plant for the production of weft knitted fabrics with a capacity of 5125 tons per annum. The plant is intended to sell 100 % of its product to the international market so that it could earn foreign currency to the country and able to reach the vast market opportunity for project promoter.

The present demand for the proposed weft knitted fabric is estimated at 21,304 tons per annum. The demand for weft knitted fabric is likely to reach at 123,031 tons per year by the year 2015 based on the projection made on the five year growth and transformation plan of Ethiopian textile sector.

The total investment requirement is estimated at Birr 169,860,469 Birr, out of which 38.2% is required for plant and machinery, 32.67 % is for working capital, 17.52% for building and civil work and the rest 11.7 is expend for office eq. The project will create employment opportunity for 136 people.

The project is financially viable that it will reach breakeven point at 20% of the capacity and has a payback period of 2 years.

Generally, the project has a backward linkage effect with the yarn industries and forward linkage with the knitted fabric finishing and garment manufacturing industries. The establishment of such factory will have a foreign exchange saving and earning effect to the country by substituting the current imports and by exporting to the world market.

2. Product description and application

Weft knitting is a method of forming a fabric in which the yarn loops are made in horizontal way from a single yarn and intermeshing of loops take place in a circular or flat form in across wise basis.

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Compared to woven and non woven fabrics, Knitted fabrics have very good feature of flexibility in movement, mobility, elasticity and good behavior of recovery from wrinkling. Besides, knitted fabrics are quite easy for multiple designs and pattern changes.

The knitted fabric structure has good absorbency makes it most comfortable to wear. It is often used for clothing such as t- shirts, socks, t- shirts gloves, shirts, sweaters, blouses, formal dresses, high fashion clothes, pajamas and underwear.

Beautiful drape makes knitted fabrics appropriate for many furnishing applications like car seat cover, furniture covers and back fabric for synthetic coats. It is also used for upholstery.

3. MARKET STUDY AND PLANT CAPACITY

3.1 MARKET STUDY

3.1.1. Past Supply and Present Demand

As long as an extreme attention is given to the textile manufacturing sector in the country, a number of foreign and domestic investors are launching many mechanized cotton farms, cotton ginning, spinning mills and textile industries in the country. All the incentives provided such as tax free market for textile products in economic giant continents like US and Europe, 70% by 30% Development Bank loan scheme, 80 years lease land for investors and 5 years tax free spare parts import and other opportunities cheered on many investors to be drawn to the textile sector. Along with the above incentives and motivations the textile manufacturing industries are migrating to Africa and other poor countries due to the increase of labor cost in countries like Turkey, Italy and others. On the contrary, Ethiopia has relatively lower cost labor force and good source of raw material. All the listed reasons fueled the textile sector to show up dramatic change in number and influence the economy of the country. Even though, there is knitting production capacity of 11,100 tons per

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year1in the country, there is still bigger domestic and international knitted textile product demand (‘Then good luck, and remember the sky's the limit.").

The market segment for proposed project is 100% targeted to the international market for the coming 10 years. Ethiopia has exported few amount of knitted fabric for the past 10 years despite the fact that the market for developing nations are still at large and the government had planned in the Growth and transformation plan to export textile products as it is depicted in the following table.

Table 3.1 Export Market demand plan of weft knitting

Year(EC)Knitted fabric Export

plan (In ton)knitted fabric Exported (ton) Growth Rate (%)

1996 4,444 5110.6 15.0%1997 5,697 6551.6 15.0%1998 7,304 8399.6 15.0%1999 9,365 10770 15.0%2000 12,006 13807 15.0%2001 15,392 17701 15.0%2002 18,108 20824 15.0%2003 21,304 24500 15.0%

3. 1.2. Projected Demand

During mid of 2003 Textiles Intelligence published a report "World Markets for Knitted Textiles and Apparel: Forecasts to 2010" showing that world production of knitted textiles and apparel was over 17 million tons accounting for one third of world textile market, and the output will grow by 25% over the following ten years, reaching over 21 million tons. [Source : Textile digests report, 2003].

In terms of knitwear production, a report published in January/February 2010 by just-style shows that during 2004 to 2008, China increased its world market share in knitwear from 20% to 32% partly due to the removal of quotas and also due to the range of yarns and capabilities available.  However, price of knitwear from China is 1 [GTP plan for textile sector, TIDI 2011] and textile digest 2003

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relatively high. The report also reveals that currently the fastest-growing countries for knitwear are Nicaragua, Vietnam, Cambodia and Indonesia.

Accordingly, an average annual growth rate of weft knitting is about 15% hence, by taking the estimated present demand as a base and applying a 15% growth rate the projected demand for the product is shown in Table 3.22

Table 3.2 Export Market demand Projection

Year(EC)

Projected Demand

Knitted fabric (ton

Existing Capacity knitted fabric(In ton)

Unsatisfied demand Lint cotton (ton)

Growth Rate(%)

2003 21,304 11,100 10,204 15.82%2004 25,309 11,100 14,209 6.22%2005 26,989 11,100 15,889 14.05%2006 31,399 11,100 20,299 21.93%2007 40,219 11,100 29,119 15.00%2008 46,252 11,100 35,152 15.00%2009 53,190 11,100 42,090 15.00%2010 61,168 11,100 50,068 15.00%2011 70,343 11,100 59,243 15.00%2012 80,895 11,100 69,795 15.00%2013 93,029 11,100 81,929 15.00%2014 106,983 11,100 95,883 15.00%2015 123,031 11,100 111,931 15.00%

2 [GTP plan for textile sector, TIDI 2011]

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As revealed by the data set in Table 3.2, Weft knitting fabric consumption had exhibited an average annual growth of 15% during the years 1996 to 2003. Assuming the same growth trend will increase to 15%, the future demand for cotton yarn is projected to range from 21,304 tons in year 2003 to 123031 tons by the year 2015. The unsatisfied local market demand by the year 2015 is determined to be 111,931 tons assuming that the existing Knitting capacity 11,100 tons is remained unchanged for the coming 10 years as it is shown in table 3.2.

3.1.3 Pricing and DistributionBased on current average price of the world Knitted fabric market price, the average price of Birr 148 Birr/ Kg is adopted for financial analysis.

Table 3.5 Price distribution

Product Mix U/m

Value addition to yarn Current price(Birr) Weight (%)

Single Jersey kg 20% 138 45%

Rib kg 40% 161 35%

Interlock kg 30% 149.5 20%

Average selling Price 148.35  

3.2 Plant capacity and production program

3.2.1 Plant capacity

On the basis of the projected data obtained, the weft knitting mill is supposed to produce knitted fabric from carded, combed, and dyed yarn and other textile fiber materials at a capacity of 16 tons/day and 5125 tons per annum.

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The knitting mill will work 320 days per annum and 24 hours per day in 3 shifts.

3.2.4 Production program

The planned capacity will be achieved in the third year of the establishment year of the knitting mill. In a period of 12 months project time, the project will be realized. It is estimated that production starts at 80% plant capacity in the first year, 90% in the second year and it will continue to work with this capacity for the coming 10 years.

Table 3.6 Yearly Production Program

Year 1 2 3 4 and above

Capacity Utilization (%) 80 90 100 100

Knitted fabric (Tons) 4096 4608 5120 5120

Remark: No of working days in a year is 320

4. Raw Materials and utilities

4.1 Raw MaterialsThe main raw material required to produce the knitted fabric is raw cotton yarn. The major suppliers of these raw materials are Quality yarn manufacturing mill all over the country. There are auxiliary materials like poly bag, hessian cloth, and tie wire and etc...

Table 4.1 Raw and Auxiliary materials & costsS/n Description U/M Qty Cost(Birr)  A. Raw material     LC FC TC

1 Combed Yarn (45%) kg 1990656235,892,73

6   235,892,736

2 Dyed yarn (20%) kg 884736104,841,21

6   104,841,216

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3 Carded yarn (25%) kg 1105920131,051,52

0   131,051,520

4Open end yarn (10%) kg 442368 52,420,608   52,420,608

  Sub Total        524,206,08

0  B. Auxiliary material          

1 Packing materials kg2,621,03

0     2,621,030  Sub Total         2,621,030  C. Miscellaneous         5,242,061  Sub Total         5,242,061

  Total        532,069,17

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4.2 Utilities

Electricity, fuel and water are the three major utilities required by the envisaged plant. Total annual cost of major utility items at full operation capacity of the plant is Birr 3,066,100.Details are shown in the table below:

Table 4.2 Utilities Requirement

S/N Utility Requirement (Annual) Unit price Cost(Birr)1 Electricity 3456000 kwh 0.55 Birr/Kwh 1,900,8002 Fuel(Diesel Oil) 80,000lt 14.50 Birr/lt 1,160,0003 Water 2000 m3 2.65 Birr/m3 5,300

Total     3,066,100

5. Location and Site

Location of the plant is determined on the proximity of raw materials, availability of infrastructure, availability of skilled man power and distance to potential market outlet.

In view of this, the envisaged plant will be established in Oromiya regional state in Sebeta industrial zone.

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6. Technology and Engineering

1 Production process Knitted structures are progressively built-up from row after row of intermeshed loops. The newly-fed yarn is converted into a new loop in each needle hook. The needle then draws the new loop head first through the old (fabric) loop, which it has retained from the previous knitting cycle. The needles, at the same time, release, (cast-off or knock-over) the old loops so that they hang suspended by their heads from the feet of the new loops whose heads are still held in the hooks of the needles.3

A cohesive knitted loop structure is thus produced by a combination of the intermeshed needle loops and yarn that passes from needle loop to needle loop.

Weft knitting is the more diverse, widely spread and larger of the two sectors, and accounts for approximately one quarter of the total yardage of apparel fabric compared with about one sixth for warp knitting. Weft knitting machines, particularly of the garment-length type, are attractive to small manufacturers because of their versatility, relatively low total capital costs, small floor space requirements, quick pattern and machine changing facilities, and the potential for short production runs and low stock-holding requirements of yarn and fabric.

3 Knitting Technology, David Spencer

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Chart-1 Knitting process flow chart

6.2 Sources of Technology 10

Flat knitting Circular knitting

Yarn receipt

Yarn weighing

Weft knitting

Delivery

Plain

Inspection

Single jersey InterlockRib

Weighing

Rib

The source of technology for weft knitting machines is from reputable knitting machine manufacturers such as Mayer & cie, Fukahara, Hanshin, Stoll Shima and Seiki which are originated from Germany, Japan and South Korea respectively. The reconing machine is originated from india.

The utility machines are selected from the most famous and branded European manufacturer like Luwa (Switzerland), Atlascopco (Belgium) and Iveco (Italy).

6.3 Machinery and Equipment 4

The main features of the knitting machine Originally, the term ‘machine’ used to refer to a mechanism on a bearded needle frame such as the fashioning mechanism on the straight bar frame. Today, it refers to the complete assembly.

A knitting machine is thus an apparatus for applying mechanical movement, either hand or power derived, to primary knitting elements, in order to convert yarn into knitted loop structures.

The machine incorporates and co-ordinates the action of a number of mechanisms and devices, each performing specific functions that contribute towards the efficiency of the knitting action.

The main features of a knitting machine are as follows:1 The frame or carcass, normally free standing and either circular or rectilinear according to needle bed shape, provides the support for the majority of the machine’s mechanisms.

2 The machine control and drive system co-ordinates the power for the drive of the devices and mechanisms.

3 The yarn supply consists of the yarn package or beam accommodation, tensioning devices, yarn feed control and yarn feed carriers or guides.

4 The knitting system includes the knitting elements, their housing, drive and control, as well as associated pattern selection and garment-length control device (if equipped).

4 Knitting technology ,David Spenser

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5 The fabric take-away mechanism includes fabric tensioning, wind-up and accommodation devices.

6 The quality control system includes stop motions, fault detectors, automatic oilers and lint removal systems. Machines may range from high-production, limited-capability models to versatile, multi-purpose models having extensive patterning capabilities. The more complex the structure being knitted, the lower the knitting speed and efficiency. The simplest of the knitting machines would be hand-powered and manipulated whereas power driven machines may be fully automatically-programmed and controlled from a computer system.

Table 6.1 Machinary and Equipment requirement & Cost for knitting 5

S/N Description Brand Origin U/M QtyPrice(Birr)

U/p(Birr) TC(Birr)

1MLBF 20E, 30” Dia Fleece M/C

Mayer & Cie Germany Set 4 840,432 3,361,727

2RELANIT 4 24E, 30” Dia Single Jersey M/C

Mayer & Cie Germany pcs 6 1,050,540 6,303,239

3INOVIT 2.0 18E, 30” Dia Inter Lock M/C

Mayer & Cie Germany pcs 2 612,815 1,225,630

4FV 2.0, 16E, 30” Dia Rib M/C

Mayer & Cie Germany pcs 2 542,779 542,779

6RELANIT 4, 28E, 26” Dia Single Jersey

Mayer & Cie Germany pcs 2 924,475 1,848,950

5 Machinery catalogues of knitting machine manufacturers

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7DXC 3S(2) 24E, 22” Dia Single Jersey M/C Fukahara Japan pcs 3 672,345 2,017,036

8VXC 3S(2) 24E, 24” Dia.Single Jersey M/C. Fukahara Japan pcs 2 714,367 1,428,734

9DXC 3S(2) 24E, 20” Dia Single Jersey M/C. Fukahara Japan pcs 2 630,324 1,260,648

10MBF 3.2 20E, 30” Dia Fleece M/C.

Mayer & Cie Germany pcs 2 1,008,518 2,017,036

11HB-103 52” X 14g Flat Knitting M/C Hanshin S.Korea pcs 12 864,065 10,368,778

12HJ-118,52” X 14g Flat Knitting M/C (Jacquard ) Hanshin S. Korea pcs 4 1,920,667 7,682,669

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CMT-211,84”X14g Semi Jacquard Flat Knitting M/C Stoll Germany pcs 2 1,152,400 2,304,801

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SFF-152T54”X14g Semi Jacquard Flat Knitting M/C

Shima Seiki Japan pcs 10 740,829 7,408,288

15 Reconing M/C PEAS India pcs 1 894,000 894,000

16 CompressorAtlascopco Belgium pcs 1 500,000 500,000

17 Air coditioning system LuwaSwitherland pcs 1 400,000 400,000

18 Stand by Generator Iveco Italy pcs 1 350,000 350,000

  FOB Price     pcs 1  49,914,31

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Freight,Insurance,customs & Bank charges,Material handeling cost        

14,974,294 14,974,294

  Total CIF Land cost          64,888,60

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6.3. Land, building and civil work

The proposed plant requires a total land area of 10000m2. The floor space required for plant building, ware house, parking lot and for other facilities. A building with single story covering an area of 3800m2 will be constructed to accommodate the production hall and office building respectively. The total estimated cost of building civil works at the rate of Birr 6,000 per m2 is Birr 29,764,800. The lease period for the land 80 years and the payment of lease prices is in 40 years.

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Moreover, advance payment of lease based on the type of investment is 10%.The lease price is payable after the grace period annually. Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all manufacturing projects will be located in Oromia region, industrial zone. Therefore, for this profile since it is a manufacturing project a land lease rate of Birr 6.5 Birr/M2/year is adopted.

7. Man power and training requirements7.1 Man power requirement for operation

The manpower requirement is considered at 136 personnel for various levels. This includes Casual labor, technical, supervisory staff and administrative staff. Table below, shows the list of manpower required along with annual labor cost.

Table 7.1 Man power Requirement of weft knitting millS/N Description

Req No Monthly salary

Annual salary

1 Factory Manager 1 10,000 120,0002 Secretary 1 3,000 36,0003 Production and Tech Manager 1 7,500 90,0004 Production supervisor 3 4,000 144,0005 Mechanical maintenance supervisor 1 4,000 48,0006 Electrical Supervisor 1 4,000 48,0007 Machine Operators 90 1,000 1,080,0008 Mechanic 4 1,300 62,4009 Electrician 3 1,300 46,800

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11 Quality and Laboratory manager 1 7,500 90,00012 Process testers 3 2,000 72,00013 Marketing Manager 1 7,500 90,00014 Administration and Finance manager 1 7,500 90,00015 Accountant 1 5,000 60,00016 Clerks 1 1,000 12,00017 Cashier 1 1,200 14,40018 Purchasers 1 1,500 18,00019 Store Keepers 2 1,000 24,00020 Guard 8 700 67,20021 Messenger 1 600 7,20022 Driver 3 800 28,80023 Cleaner 7 600 50,400

  Sub Total     2,299,200  Employee Benefit ( %) 15%   344,880  Grand Total 136   2,644,080

7.2 Man power requirement for Project execution

Table 7.2 below, shows the list of manpower required along with annual labor cost. Total manpower needed, including skilled and unskilled labor is 30 persons.

Table 7.2 Man power Requirement of knitting mill and 12 months labour cost

S/N DescriptionReq. No

Monthly salary/head Annual salary

1 Project Manager 1 16,000 192,000

2 Project Engineer 1 10,000 120,000

3 Construction Forman 1 6,000 72,000

4 Electrician 2 4,000 96,000

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5 Mechanics and Plumbers 2 4,000 96,000

6 Secretery 1 3,000 36,000

7 Finance and Adminstration 1 10,000 120,000

8 Acountant 1 7,000 84,000

9 Purchaser 1 5,000 60,000

10 Cashier 1 1,500 18,000

11 Daily Labourer 10 2,000 240,000

12 Driver 1 1,000 12,000

13 Guard 7 1,000 84,000

  Sub Total 30   1,230,000

  Employee Benefit( %) 30%   369,000

  Grand Total     1,599,000

7.3 Training, Design and Consultancy

The total cost required for design, consultancy, training and commissioning is estimated to be Birr 3.7 million.

Table 7.3 Design, consultancy ,training and test run cost

S/N Description Est Budget/year(Birr)

1 Engineering,Design & consultancy fee 2,000,000

2 training 700,0003 Comissioning and test run with 10% contingency 1,000,000

4 Total 3,700,000

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8. Financial Analysis

8.1 Underlying Assumption

The financial analysis of cotton yarn producing plant is based on the data provided in the preceding chapters and the following assumptions

A. Construction and FinanceConstruction period 12 monthsSource of Finance 30% equity and 70% Loan from bankTax Holidays 5 yearsBank Interest rate 8.50%Discount for cash flow 8.50%Value of Land Based on the lease rate of oromiyaSpare parts & Repair and Maintenance 5% of the fixed investment

B. DepreciationBuilding 5%Machinery and Equipment 10%Office Furniture 10%Vehicles 20%Pre-Production(Amortization) 20%

C. Working Capital(Minimum day of coverage)Raw Material Local 30 days

Raw Material Foreign 120 days

Factories supplies in stock 30 days

Spare part in stock and Maintenance 60 days

Work in Progress 5 days

Finished Product 20 days

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Account receivable 30 days

Cash in Hand 20 days

Accounts payable 30 days

8.2 Investment

The investment cost of the project including working capital is estimated at Birr 170 million. The owner shall contribute 30% of the finance in the form of equity while the remaining 70% is to be financed by bank loan.

Table 8.1 Total Initial Investment

Item LC FC TotalLand 5,200,000   5,200,000Building and Civil Work 19,000,000 10,764,800 29,764,800Office Equipment   1,200,000 1,200,000Vehicles   8,000,000 8,000,000Plant machinery and equipment   64,888,609 64,888,609Total Fixed investment cost   84,853,409 109,053,409Pre-Production(Capital Expenditure)   5,299,000 5,299,000Total initial investment cost   90,152,409 114,352,409Working capital at full capacity 55,508,060   55,508,060

Total 79,708,060 90,152,409169,860,46

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8.3 Production Cost

The total production cost at full capacity operation is estimated at Birr 553.4million. Raw material and utilities accounts for 96.7%, while the rest together costs 3.3% of the total production cost.

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Table 8.3 Total Production cost at full capacityItems Cost1. Raw Material 532,069,1712.Utilities 3,066,1003.Wages and salaries 2,644,0844.Spares and Maintenance 2660345.8555. Depreciation 10,905,3416.Marketing and Promotion 2,030,0007.Adminstrative Expense 5,320,692Total Production cost 553,375,042

8.4 Financial EvaluationI. ProfitabilityAccording to the projected income statement (See Annex 1) the project will generate profit beginning from the first year of operation and increases on wards. The income statement and other profitability indicators also show that the project is viable.II. Breakeven AnalysisThe breakeven point of the projects is given by the formula:BEP = Fixed Cost Sale –Variable Cost at full capacity.The project will break even at20 % of capacity utilizationIII. Payback PeriodInvestment cost and income statement projection are used in estimating the project payback period. The projects will payback fully the initial investment less working capital in 2 years.9. Economic and Social Benefits and JustificationBased on the foregoing presentation and analysis, we can learn that the proposed project possesses wide range of benefits that complement the financial feasibility obtained earlier. In general, the envisaged project promotes

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the socio-economic goals and objectives stated in the growth and transformation plan of the government.

A. Profit GenerationThe project is found to be financially viable and earns on average a profit of Birr 58.1 million per year and Birr 581 million within the project life. Such result induces the project promoters to reinvest the profit which, therefore, increases the investment magnitude in the country.

B. Tax RevenueIn the project life under consideration, the region will collect about Birr 168million from corporate income tax. Such result create additional fund for the government that will be used in expanding social and other basic services in the region.C. Employment and Income GenerationThe proposed project is expected to create employment opportunity to several citizens of the country. That is, it will provide permanent employment to 136professionals as well as support stuffs. D. Pro Environment ProjectThe proposed production process is environment friendly.

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ANNEXES

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