290. buttons from horn
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This document proposes establishing a plant to produce 200 tonnes of buttons from horn annually. It estimates the current demand for horn buttons is 929 tonnes and will grow to 2,528 tonnes by 2020. The plant would employ 11 people at a total investment of 1.54 million Birr. The project is financially viable with an IRR of 30% and NPV of 1.4 million Birr discounted at 8.5%.
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290. buttons from horn
- 1. 290. PROFILE ON PRODUCTION OF BUTTONS FROM HORN
- 2. 290-2 TABLE OF CONTENTS PAGE I. SUMMARY 290-3 II. PRODUCT DESCRIPTION & APPLICATION 290-3 III. MARKET STUDY AND PLANT CAPACITY 290-4 A. MARKET STUDY 290-4 B. PLANT CAPACITY & PRODUCTION PROGRAMME 290-7 IV. MATERIALS AND INPUTS 290-8 A. RAW & AUXILIARY MATERIALS 290-8 B. UTILITIES 290-9 V. TECHNOLOGY & ENGINEERING 290-9 A. TECHNOLOGY 290-9 B. ENGINEERING 290-10 VI. MANPOWER & TRAINING REQUIREMENT 290-12 A. MANPOWER REQUIREMENT 290-12 B. TRAINING REQUIREMENT 290-12 VII. FINANCIAL ANALYSIS 290-13 A. TOTAL INITIAL INVESTMENT COST 290-13 B. PRODUCTION COST 290-14 C. FINANCIAL EVALUATION 290-15 D. ECONOMIC BENEFITS 290-16 I. SUMMARY This profile envisages the establishment of a plant for the production of buttons from horn with a capacity of 200 tonnes per annum. The present demand for the proposed product is estimated at 929 tonnes per annum. The demand is expected to reach at 2,528 tonnes by the year 2020. The plant will create employment opportunities for 11 persons.
- 3. 290-3 The total investment requirement is estimated at Birr 1.54 million, out of which Birr 668,000 is required for plant and machinery. The project is financially viable with an internal rate of return (IRR) of 30 % and a net present value (NPV) of Birr 1.4 million, discounted at 8.5 %. II. PRODUCT DESCRIPTION AND APPLICATION Buttons are items used in garments. Horn buttons are highly durable of all types. Most of the time, they are used with elegant suits. The Region is endowed with large population of cattle. This is believed to be potential resource for horns. Buttons made from horn is resource based product that will substitute the import III. MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY 1. Past Supply and Present Demand Buttons are used by garment manufactures. Therefore, the local demand for the product is influenced largely by the expansion of the local garment industry. According to the information from the Ethiopian Investment Agency, investment permits were issued to a total of 161 projects with a capital of Birr 990 million in the area of garment and related
- 4. 290-4 articles manufacturing, of which 12 are already operational and 15 are under implementation. When the licensed projects become operational the local demand for buttons will increase considerably. However, since there is no domestic facility for manufacturing buttons, the products are imported from overseas. Import of button is given in Table 3.1. Table 3.1 IMPORT OF BUTTON ( TONNE) Year Import 2000 11,950 2001 32,906 2002 42,770 2003 72,439 2004 77,563 2005 41,466 2006 46,228 Source :- Ethiopian Customs Authority. As could be seen from Table 3.1, import data of buttons does not show any trend. Import varies from 11,950 tonnes during the year 2000 to about 77,563 tonnes in the year 2004, respectively. With such very erratic date a trend analysis could not be worked out to estimate the present demand. Hence, the simple average of the period under consideration is assumed to indicate present demand. Accordingly, the present demand is estimated at 46,475 tonnes. Conservatively assuming that the share of buttons made out of horn has a 2% share of the total estimated demand for buttons, the present demand for horn buttons is estimated at 929 tonnes. 2. Projected Demand The demand for buttons is related with the expansion of the garment and leather goods production.
- 5. 290-5 Ethiopia has a good potential to expand the garment and the leather sector due to the availability of the basic raw materials. Moreover, the government has given due attention to these sectors in its industrial policy. Considering these favourable situations, the demand for buttons is estimated to grow by an average rate of 8% per annum (see Table 3.2). Table 3.2 PROJECTED DEMAND FOR HORN BUTTONS ( TONNES) Year Projected Demand 2008 1,004 2009 1,084 2010 1,171 2011 1,265 2012 1,366 2013 1,475 2014 1,593 2015 1,720 2016 1,858
- 6. 290-6 2017 2,007 2018 2,167 2019 2,341 2020 2,528 3. Pricing and Distribution Based on current retail price of the product and assuming profit margin for distributors and retailers, the recommended factory-get price of the envisaged project is Birr 5 per Kg. The product can be distributed through the existing textile accessories distributes or by establishing own distribution centers at strategic locations. B. PLANT CAPACITY AND PRODUCTION PROGRAMME 1. Plant Capacity According to the market study for horn buttons indicated above, the unsatisfied demand for the year 2008 will be 1004 tonnes, and this figure will grow to 1,720 tonnes by the year 2015. Therefore, the envisaged plant will have production capacity of 200 tonnes of horn buttons per annum. Production can be increased if the plant is made to operate double shift for 16 hours a day without increasing investment on fixed capital. 2. Production Programme A gradual capacity build-up is proposed for the plant so as to allow for manufacturing skill development and for establishment of sufficient market outlets. The plant, hence,
- 7. 290-7 will commence production at 65% of full capacity in the first year of operation. Production will be made to grow to 75% and 85% in the second and third year, respectively. Full capacity production shall be attained in the fourth year and then after. Table 3.3 below presents the details of the proposed production programme. Table 3.3 PRODUCTION PROGRAMME Year 1 2 3 4 and then after Capacity utilization (%) 65 75 85 100 Production (tones) 130 150 170 200 IV. MATERIALS AND INPUTS A. RAW AND AUXILIARY MATERIALS The major raw material required for the production of horn buttons is raw horn obtained from cow, ox and others. The region has a high cattle population; Sidama, Debub Omo and Hadiya Zones are with the highest cattle population in the region having 1,258,654, 1,114,258 and 879,147 TLU respectively. At woreda level; Kuraz, Awassa Zuria, and Soro Woredas have the highest cattle population in the region. In addition to horn, polishing materials are very useful in the production of buttons. These materials produce polished surface of the buttons thereby enhancing the quality and appearance of the products. Annual requirement of raw and auxiliary material at full production capacity is given in Table 4.1 below. Table 4.1
- 8. 290-8 ANNUAL REQUIREMENTS OF RAW AND AUXILIARY MATERIALS AND COST AT FULL CAPACITY Sr. Description Qty Cost (000 Birr) LC FC TC No. A. Raw Material 1 Horns (cow, oxen), etc (Tones) 205 205 - 205 B. Auxiliary Materials 2 Polishing materials Req 10 - 10 Total - 215 - 215 B. UTILITIES Electricity and water are utilities required for production of horn buttons. A total of 10,000 kWh electrical energy is required per annum. As regards water the plant will require a total of 200 m3 water per annum. At the rate of Birr 0.474 per kWh for electricity and Birr 10 per m 3 for water, annual expenditure on utilities will be Birr 6,740. V. TECHNOLOGY AND ENGINEERING A. TECHNOLOGY 1. Production Process Production of horn buttons involves four distinct operations, namely:- a) Cutting in circular or other required shape
- 9. 290-9 b) Hole making c) Finishing and polishing d) Packing and dispatching a) Cutting in circular or other shape. This unit operation involves the use of horn cutting circular saw, band saw machine and high speed circle cutting machine. The raw horn is first cut by the circular saw and band saw to the required sizes. Next the horn piece is formed into circular shape by applying the high speed circle cutting machine. This is the cash for circular button production. b) Hole making:- After the horn is cut into circular shape, then the required holes are formed by a hole making machine. c) Finishing and polishing:- This is the process by which the horn button is treated on a lathe machine where the edge and the button face are properly polished by a polishing material so as to give the product smooth and good-looking face. d) Finally the polished and finished product is properly packed and dispatched to the market. 2. Source of Technology Address of Machinery Supplier is given below: Sigema Wood Working CHINA Tel: +86-512-6586-8021 Fax: +86-512-6762-3397 B. ENGINEERING 1. Machinery and Equipment
- 10. 290-10 Machinery and equipment required by the plant and related cost is shown in Table 5.1 below. Table 5.1 MACHINERY AND EQUIPMENT Sr. Description Qty Cost (000 Birr) No. (No.) LC FC TC 1 Horn cutting circular saw 1 18.00 - 18.00 2 Band saw machine 1 25.00 - 25.00 3 High speed circle cutting machine 1 65.00 - 65.00 4 Semi-automatic hole master 1 110.00 - 110.00 5 Double ended polishing lathe 1 60.00 - 60.00 6 Motorized tool post grinder 1 35.00 - 35.0 7 Circular blade and band saw 1 75.00 - 75.0 sharpening machine 8 Special steel borers 2 80 - 80.0 9 Tungsten wire hole making machine 1 45.00 - 45.00 FOB price 593 - 593.0 Freight, Insurance charges, material - 75 75.0 handling charges, Customs CIF Landed Cost 593 75 668.0 2. Land, Building and Civil Works
- 11. 290-11 The total land required by the plant is 300 m 2, of which 150 m2 is built-up area. At land lease rate of Birr 1.0 per m 2, the land lease value for 80 years is Birr 24,000. At unit cost of building (per m2) Birr 2,000 the total cost of built-up area will be Birr 300,000. Thus, the total investment on of land, building and civil works will be Birr 324,000. 3. Proposed Location Location of a plant is determined on the basis of proximity to raw materials, availability of infrastructure and distance to major market outlets. Potential weredas where raw material is obtained in abundance are Bokagazer, Gellila, Banatsemay, Hammer, Kuraz and Salamgo. Among these the selected wereda is Kuraz. It is therefore appropriate to locate the envisaged plant in Omarate town. VI. MANPOWER AND TRAINING REQUIREMENT A. MANPOWER REQUIREMENT The plant requires both production and administrative workers. The details of manpower are given in Table 6.1 below. B. TRAINING REQUIREMENT Two weeks training for three operators is sufficient. Training can be carried out in the workshop of Federal Micro and Small Enterprises Development Agency (FeMSEDA) in Addis Ababa. A total of Birr 5,000 is allotted to carry out the training programme. Table 6.1 MANPOWER REQUIREMENT AND LABOUR COST Sr. Job Title Req. Monthly Annual No. No. Salary Wages A. Administration 1 Manager (finance & Administration ) 1 1,000 12,000
- 12. 290-12 2 Secretary 1 500 6,000 3 Sales man 1 600 7,200 4 Clerk 1 350 4,200 5 General services 2 250 6,000 6 Sub total 6 - 35,400 B. Production 1 Skilled worker 3 600 21,600 2 Unskilled workers 2 250 6,000 Sub total 5 27,600 Workers benefit (25% BS) - 15,750 Total 11 78750 VII. FINANCIAL ANALYSIS The financial analysis of the buttons from horn project is based on the data presented in the previous chapters and the following assumptions:- Construction period 1 year Source of finance 30 % equity 70 % loan Tax holidays 3 years Bank interest 8% Discount cash flow 8.5% Accounts receivable 30 days Raw material local 30days Raw material, import 90days Work in progress 5 days Finished products 30 days Cash in hand 2 days Accounts payable 30 days A. TOTAL INITIAL INVESTMENT COST The total investment cost of the project including working capital is estimated at 1.54 million, of which 13 per cent will be required in foreign currency.
- 13. 290-13 The major breakdown of the total initial investment cost is shown in Table 7.1. Table 7.1 INITIAL INVESTMENT COST Sr. Total Cost No. Cost Items (000 Birr) 1 Land lease value 24.0 2 Building and Civil Work 300.0 3 Plant Machinery and Equipment 668.0 4 Office Furniture and Equipment 75.0 5 Vehicle 200.0 6 Pre-production Expenditure* 229.7 7 Working Capital 45.5 Total Investment cost 1,542.1 Foreign Share 13 * N.B Pre-production expenditure includes interest during construction ( Birr 104.66 thousand ) training (Birr 5 thousand ) and Birr 120 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 693,130 (see Table 7.2). The material and utility cost accounts for 40.47 per cent, while repair and maintenance take 11.54 per cent of the production cost.
- 14. 290-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR) Items Cost % Raw Material and Inputs 215.00 31.02 Utilities 67.4 9.72 Maintenance and repair 80 11.54 Labour direct 43.35 6.25 Factory overheads 14.18 2.05 Administration Costs 35.4 5.11 Total Operating Costs 455.33 65.69 Depreciation 154.3 22.26 Cost of Finance 83.5 12.05 Total Production Cost 693.13 100 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 (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. 2. Break-even Analysis
- 15. 290-15 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 = 34% Sales Variable Cost 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 3 years. 4. Internal Rate of Return and Net Present Value Based on the cash flow statement, the calculated IRR of the project is 30 % and the net present value at 8.5 % discount rate is Birr 1.4 million. D. ECONOMIC BENEFITS The project can create employment for 11 persons. In addition to supply of the domestic needs, the project will generate Birr 829,610 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.