100.

PROFILE ON PRODUCTION OF UMBRELLA

100-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

100-3

II.

PRODUCT DESCRIPTION & APPLICATION

100-3

III.

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

100-4 100-4 100-6

IV.

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

100-7 100-7 100-8

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

100-9 100-9 100-10

VI.

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

100-12 100-12 100-13

VII.

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

100-14 100-14 100-15 100-16 100-17

100-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of umbrella with a capacity of 150,000 units per annum.

The present demand for the proposed product is estimated at 1.16 million units per annum. The demand is expected to reach at 2.31 million units by the year 2017.

The plant will create employment opportunities for 34 persons.

The total investment requirement is estimated at Birr 4.9 million, out of which Birr 2.05 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of present value (NPV) of Birr 1.92 million discounted at 8.5%.

19 % and a net

II.

PRODUCTION DESCRIPTION AND APPLICATION

Umbrella is a small portable, usually closed canopy that is fastened to a frame with hinged ribs radiating from a center pole and which has a circular convex shape when open and which can be opened and closed by means of sliding catch, and which provides protection from weather.

Umbrellas are either manual or automatic. They are also collapsible or non- collapsible types. Collapsible types are preferred for handling. Standard sizes of umbrellas are

basically of four types. These are the extra large size for beaches, oasis and outdoor sheds in bars. The large medium and small sizes are for churches and human protection.

100-4

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

An umbrella is a collapsible, portable hand-held canopy used for protection against rain or sun. It is made from stretching fabric or other material over a wire frame hinged ribs which permit the screen to be opened and closed. Umbrellas are used both in rural and urban areas as a household item. The supply of umbrellas is both from domestic production and import. Until recently the only domestic producer of umbrellas was the United Ability Factory with a capacity of 153,000 units per annum. Imported umbrellas on the other hand are as high as 4,846,640 units. Imported supply of umbrellas as depicted in Table 3.1 show dominantly controlling the market for umbrellas in the country. The major supplying country is China having more than 90% share from the total imported supply.

The average annual imported supply in tons for the last ten years was 1,075.

Table 3.1 IMPORTED UMBRELLA

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Import (Tonnes) 163,899 345,832 496,207 571,036 736,530 1,204,921 1,542,247 1,715,878 1,767,069 2,213,702

Source: Customs Authority.

100-5

For the last six years imported supply record was exhibited in units and the average annual supply was 3,134,071 units. The average weight for an umbrella in the past six years was about 500 gms.

As can be seen from Table 3.1, the tonnage supply of umbrellas depicts a linear trend at an explanatory power of 96.9%. Applying the linear trend equation: R2 = 96.9%

Y = 229,559 X 186,843

The current effective demand for umbrellas is estimated at 2,338 tons which is equivalent to 1,169,153 units.

2.

Projected Demand

The demand for umbrella in the rainy season is much higher for the natural reason of keeping oneself from rain. In the dry season as well umbrellas protect from sunlight. Except the type and durability difference, umbrellas are used by both urban and rural population moreover, women are frequent users and buyers of umbrellas.

The projected demand for umbrellas is made based on the tonnage import supply equation. R2 = 96.9%

Y = 229, 559 X 186,843

The demand for umbrellas is therefore estimated to be 4,634 tons or an equivalent 2,317,000 units of umbrella. Predicted demand is presented in Table 3.2.

100-6 Table 3.2 PROJECTED DEMAND FOR UMBRELLAS

Year

Projected Demand (Tonnes)

Units

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2,568 2,797 3,027 3,257 3,486 3,716 3,945 4,175 4,404 4,634

1,283,933 1,398,712 1,513,492 1,628,271 1,743,051 1,857,830 1,972,610 2,087,389 2,202,169 2,316,948

3.

Pricing and Distribution

An average retail umbrella price for women is Birr 30. The factory set price recommended for the new project is Birr 20.

Distribution outlet of the new project will be the existing established wholesale retail channel which is capable of providing the product at convenient locations to consumers.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The market study for umbrella indicates that the demand of the product in year 2008 is about 1.3 million units, and this figure will grow to about 2.3 million units by the year 2017.

Based on the demand projection indicated in Table 3.2, capital requirement and minimum economy of scale, the proposed plant will have a production capacity of 150,000 units per annum. The plant will operate single shift of 8 hours a day and 300 working days a year. Production capacity can be double, if the plant is operated double shift of 16 hours a day.

100-7

2.

Production Programme

The production programme is prepared based on the selected plant capacity and expected market share to be captured by the project. At the initial stage of production, the plant may require some years to penetrate into the market. Therefore, the plant initially will operate at 75% of its rated annual capacity. During the second year the plant will operate at 85%, reaching 100% operation in the third year and then after. Table 3.3 below shows the production programme indicating capacity utilization of the plant.

Table 3.3 PRODUCTION PROGRAMME

Unit 2008 Production Capacity utilization Units %

Production Year 2009 2010-2017 150,000 100

112,500 127,500 75 85

IV.

MATERIALS AND INPUTS

A.

RAW & AUXILIARY MATERIALS

The major raw materials are those required for manufacturing umbrella ribs and fittings. These are mild steel, spring steel, steel strips and steel wires. Nylon cloth of different colours is also major raw material. Auxiliary materials required by the plant include plastic granules, eyelets, sewing thread, electro-plating chemical and corrugated paper box.

Table 4.1 below shows annual requirement of major raw and auxiliary materials at full production capacity of umbrella. The total cost of raw and auxiliary materials will, therefore, be Birr 1,291,550.

100-8 Table 4.1 RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST (AT FULL CAPACITY)

Sr. No

Description A. Major Raw Materials

Unit

Qty FC

Cost ('000 Birr) LC TC

1 2 3 4 5

Mild steel sheets and strips Spring steel wire Semi-hard steel strip Mild steel wires Nylon cloth Sub-total B. Auxiliary Materials

Kg Kg Kg Kg Mt

43,500 1252.5 600 150 165,000

261.00 9.394 4.50 0.99

825

159.50 5.678 2.720 0.60 495.0 1100.884

275.884

825

1 2 3 4 5

Plastic granules Eyelets Sewing thread Electro-plating chemical Corrugated paper box Sub-total Bank, insurance, freight and handling charges Total Amount

Pcs Pcs Mt Kg Pcs

12,600 240,000 4,599,000 675+3,300

41.58 7.92 37.125 86.625

17.71 16.34 34.041 70

41.58 7.92 17.71 37.125 16.34 120.666 70 1291.55

362.509

929.041

B.

UTILITIES

Electricity and water are the major utilities required by the plant.

The total annual

requirement at 100% capacity utilization rate and the estimated costs are given in Table 4.2 below. The annual expenditure on utilities will, therefore, be Birr 166 830.

100-9 Table 4.2 UTILITIES REQUIREMENT AND ESTIMATED COST

Sr. No. Description Units Quantity

Cost (Birr)

1 2

Electricity Water Total Amount

Kwh M3

300,000 4,500

142,080 24,750 166,830

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Four major sub-processes are required in order to manufacture umbrella. These are:-

a)

Cutting and Straightening Wires

The wire is first cut to the required length on "wine straightening and cutting machine". This machine performs two operations simultaneously. It cuts the wires to the length and straightens it.

b)

Head Cutting and Punching

After the wires are cut and straightened, the ends are flattened on "horizontal head former machine". The flattened ends are now punched with hole to form the 'hinge type'. The middle of the longer wire is also similarly flattened and drilled to accommodate the end of shorter wire.

c)

Balls Making and Assembly

The hinges that are made with the help of special joints are now assembled together to from the hinges. The backs are of small and big circlips, bent and rounded, ends flattened.

100-10

d)

Polishing and Electro-Plating or Painting

After the ribs and fittings are assembled, they are polished. The parts are either electroplated or painted according to the type of design and requirements.

2.

Source of Technology

The technology of umbrella production is widely developed and applied in countries like China, India, Malaysia, etc. The following company can provide the require equipment.

Shanghai Small Enterprises Trade Development Service Centre International Cooperation Division Shanghai 200032 Fax (008621) 6422 08 14

B.

ENGINEERING

1.

Machinery and Equipment

Table 5.1 indicates the list of machinery and equipment required for manufacturing umbrella. The total cost of machinery and equipment of the envisaged plant is estimated at Birr 2.056 million, of which Birr 1.837 million is required in foreign currency and the remaining Birr 219,000 is in local currency.

100-11 Table 5.1 LIST OF MACHINERY AND EQUIPMENT REQUIRED

Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

Description Rib making machine Power press, 5 tons Wire cutting machine Blower Power press, 10 tons Eyelet press Electroplating plant Shearing machine Rolling machine Welding machine Buffing machine Grinder Tube cutter Tube settles Tube straightening machine Beach drilling machine Tube points Hook making unit Color mixer Scrap grinds Injection mould machine Electric oven ABS electro plating plant Spring making machine Sewing machine Cloth cutting frame

Unit Pcs " " " " " " " " " " " " " " " " " " " " " " " " "

Qty. 1 6 1 1 2 2 1 1 1 2 1 1 1 1 1 1 1 2 1 1 1 1 1 1 4 4

100-12 2. Land, Building and Civil Works

Land area is required for production and administration buildings, utilities and for general purpose space. The total land area requirement is estimated at 2,000 m2, of which 1,000 m2 will be for built-up area. At the rate of Birr 1,800 per m2 (with EGA sheet roof, steel

structure with no wall, concrete floor), the investment requirement for buildings will be Birr 1.8 million. The lease value of land at a rate of 0.35 Birr per m2 for 80 years is about Birr 56,000. The over all cost of land, buildings and civil works will be Birr 1.856 million.

3.

Proposed Location

Wonago, Arbaminch Zuria and Abeshenge or Sodo woreda which are found in Gedeo, Gamo Gofa and Guraghe administrative zones respectively are considered as the potential woredas for the envisaged project due to their access to infrastructure and utilities like electricity & water. They are also nearer to the market.

From the above, Dilla town, the center of Wonago woreda is selected to be the location of the envisaged plant.

VI.

MANPOWER AND TRAINING REQUIREMENTS

A.

MANPOWER REQUIREMENT

The proposed plant requires both production and administration workers.

The total

manpower requirement is 34 persons. Table 6.1 below indicates the manpower requirement with monthly and annual salaries.

100-13 Table 6.1 MANPOWER REQUIREMENT WITH MONTHLY AND ANNUAL SALARIES

Sr. No.

Job Title A. Administration Plant manager

No.

Monthly Salary

Annual Salary

1. 2. 3. 4. 5. 6. 7.

Secretary Accountant Salesman Store man Clerk General services

1 1 1 1 1 1 6

2,800 750 1,200 700 700 450 300 -

33,600 9,000 14,400 8,400 8,400 5,400 21,600 100,800

Sub-Total B. Production Production head 1. 2. 3. 4. 5. Sub Total Benefit (25% of BS) Total cost Production workers Unskilled labor Technician Mechanical engineer

12

1 10 8 2 1 22

1,800 600 250 600 1,500

21,600 72,000 24,000 14,400 18,000 150,000 62,700

34

313,500

B.

TRAINING REQUIREMENT

Training is required for production head and machinery operators. It is recommended that the training be given for two weeks during erection and commissioning at the project site. Agreement shall be entered with machinery supplier to provide the training. A total of Birr 15,000 shall be earmarked to execute the training programme.

100-14 VII. FINANCIAL ANALYSIS

The financial analysis of the

umbrella 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 Raw material, import Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30 days 90 days 2 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 4.90 million, of which 47 per cent will be required in foreign currency.

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

100-15 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) 56.0 1,800.0 2,055.0 125.0 200.0 422.5 251.0 4,909.5 47

* N.B Pre-production expenditure includes interest during construction ( Birr 272.47 thousand ) training (Birr 15 thousand ) and Birr 135 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 2.41 million (see Table 7.2). The material and utility cost accounts for 60.42 per cent, while repair and maintenance take 7.46 per cent of the production cost.

100-16 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

Cost 1,291.55 166.83 180 90 30 60 1,818.38 378 217.37 2,413.75

% 53.51 6.91 7.46 3.73 1.24 2.49 75.33 15.66 9.01 100

C.

FINANCIAL EVALUATION

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 total investment (return on total

(Return on equity) and net profit plus interest on

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.

100-17

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

21 %

3.

Pay Back 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 19 % and the net present value at 8.5% discount rate is Birr 1.92 million.

D.

ECONOMIC BENEFITS

The project can create employment for 34 persons. In addition to supply of the domestic needs, the project will generate Birr 1.56 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.