charm apparels plc

14
Charm Apparel PLC. Kabulumulla, Ruwanwella. Tel: 036-2266220 Requesting for part finance to construct two storied building with overall floor area of approx 7000sqft., for the garment factory. Charm Apparels PLC

Upload: chaminda-de-silva

Post on 14-Aug-2015

155 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Charm Apparels PLC

Motto

Charm Apparel PLC.

Kabulumulla, Ruwanwella. Tel: 036-2266220

Requesting for part finance to construct two storied building with overall floor area of approx 7000sqft., for the garment factory.

Charm Apparels PLC

Page 2: Charm Apparels PLC

~ 2 ~

Each customer who patronizes our

establishment while assisting our

company to maintain its competitiveness

in the market becomes a

shareholder in the company’s Progress

motto

Page 3: Charm Apparels PLC

~ 3 ~

The Business Profile

Globalization is a complex process identified as the increasing integration of economies around the world through trade and financial flows and transfer of technology. The costs of living in Sri Lanka are higher than the most of countries in Asia where Sri Lankan companies/ people pick knitting trade to survive. Among many industries influenced by globalization Textile & Apparel Industry stands out. The apparel production and export accounts for two-third of Sri Lanka’s industrial product where the three billion dollar industry is the country’s largest export earner, directly and indirectly supporting one million of the nations and twenty one million inhabitants. In Sri Lanka, textile and apparel industry is the leading industrial sub-sector accounting for 67 per cent of total export earnings. The importance of the industry emerged subsequent to export orientation of the local economy with the introduction of open economic policies in 1977. The industry’s contribution to economic and human development has been significant over the years. Presently, synonymous with the textile & apparel industry is the challenges of a post quota era. Globalization of the textile & apparel industry has enabled consumers to source their textile & apparel preference beyond their national boundaries to benefit from cost and price differentials. In this context, Sri Lanka has increased textile & apparel production to benefit from a wider market to supply its products and the associated increase in export earnings have benefited the trade account of Sri Lanka.

Page 4: Charm Apparels PLC

~ 4 ~

The Company Profile/ management

The Charm Apparel PLC., started in to business in a small town in small scale with only 10 workers in late April 2011, view of to assist 3 garment factories of Nellu Fashions, where the previous owners are famous actress Mrs. Geetha Kumarasinghe and her husband. The company is presently managing with 50 workers of which 32-machine operators, 8-helpers, 7 for packing & cleaning, 1-superviser, 1-factory manager with a mechanic and is managed by 3-directors. Their brief background, experiences and expertise are stated below;

♣ Mr. A. R. M. C. I. K. B. Ranasinghe who is a landed proprietor and is the Trustee/ Nilame at the Kabulumulla-Devalaya by legacy who also had been a building contractor for over a decade or so and has gained a wide experience over the years where he has built up a sound reputation with certain policies imposed by him and is mainly engaged in the business of transportation in addition to the building construction. Mr. Ranasinghe is also the Director of Transport of the Nelu Fashions where he owns 10 Lorries and supplying fire wood to Tea & Rubber factories, raw materials to the 03 garment factories of Nelu fashion by using them.

♣ Mrs. M. M. S. Samarasinghe who is the wife of Mr. Senaka Jayawardena who is also a landed proprietor and Director of Nelu Fashions and having served over 23 years has gained a wide experience over apparel trade and resides at Wattala.

♣ Mrs. M. I. Senarath who is the wife of Mr. Crishantha Senarath who is also a landed proprietor and the Factory Manager of Nelu Fashions and having served over 20 years has gained a wide experience over apparel trade and resides at Hanwella.

Since Mr. Jayawardena and Mr. Senarath themselves are still fulltime working at Nelu Fashions and their main income source comes through the Nelu Fashions their wives have been nominated and registered as the company directors of the Charm Apparel PLC., but the factory is managed and closely monitored by Mr. Jayawardena and Mr. Senerath together with Mr. Ranasinghe whom are all being very close and are being family friends for decades.

Therefore, the investors/ governors of this project are well qualified and having a wide experience over 20 years or so in the textiles & apparel industry where they having ample skills of recourses to managing the business.

Page 5: Charm Apparels PLC

~ 5 ~

The Operation Mechanism of the Company

The Charm Apparel PLC., is a company, engaged in the textile & apparel industry where they costs only for labour and overhead expenses of the sub quotas. The company receives everything i.e. Fabrics, Threads, Buttons etc., from the sub-quota given company of what job requires, except labour force. Presently cuttings are done at Biyagama and all the knitting works done in the Charm Apparels which operates with 50 workers in 32 sawing machines where their current maximum out-put is 1200 pieces per day. The company is presently assisting to the Nelu Fashions, where the company does not hold any assets or link to the Nelu Fashions. The company only receives sub-quotas from them and the payments of same are made independently and according to the job offered and according to the quality of the work/ final product.

Very recently the company joined hands with the Omega Line at Biyagama, who is the leading and one of giants in the textile and apparel industry in Sri Lanka, where they have agreed to give sub-quotas continuously.

Page 6: Charm Apparels PLC

~ 6 ~

The Project

There are countless definitions of sustainability where many are based on the 3-pillar model i.e. economic, ecological and social factors, which most of cases can be measured only by subjectively but when trying to bring these into lasting balance where we often seen it is very difficult to achieve practically. But even then the company directors are trying their best to produce notable achievement where certain aspects of which will be even exemplary once the final wing is constructed of the proposed building which will create over 300 additional direct job opportunities and nearly 500 indirect job opportunities, when the country beset by Tsunami and Civil-war despite many resources much have been done with this proposed building to enhance its sustainability profile. The interest and well being of workers, paid special attention of the investors where they concerned particularly the agreeable environment, outdoor-views, thermal comforts, fresh air and illumination i.e. lighting/ task lighting since they believe that if the worker with having their basic needs taken care of, they are freer to concentrate on the work at hand which lead to bring out their best. The proposed two building of which is approx 3500sqft., in a single floor where on the upper floor, over 150 sawing machines will be lay-over initially and the cutting, washing, ironing, packing will be done at the ground floor which also includes a large dining hall with toiletries. The production spaces and the ventilation aspect of the proposed building are being more concerned which facilitate the indoor air is not re-circulated, but extracted by exhaust fans to ensure effective moisture and heat removal. There is a huge tube-well will be constructed and free meals and medical care will be supplied to ensure the health of the all workers. Only the construction cost of the proposed building estimated to be approx LKR.31.00 Mio., where the company directors plan to have all segments available in a textile & apparel industry in future which includes washing, printing etc. When the business become more profitable, a part of revenue will be utilised to enhance such segments and thereby will be create more job opportunities additionally.

Page 7: Charm Apparels PLC

~ 7 ~

Proposed Facilities

The company requires financial assistance of LKR.25.00 Mio., as a one-off loan with a grace period to complete the constructions of the proposed building repayable over 8-years under SME where the Central Bank offers financial assistance at low interest rate for entrepreneurs in view of to create new capacities or enhance the existing capacities in the economy to product more goods and services through the investment in SME projects. Total estimated capital requirement/ cost & value of the proposed business expansion will be approx LKR.50.00 Mio., as detailed given below; ♠ Proposed building LKR. 31.00 Mio. < Part finance necessary through a bank

♠ 150 sawing machines LKR. 8.00 Mio. < Already financed through equity

♠ Washing plant LKR. 6.00 Mio. < Finance through equity

♠ Generator/ Tube well/ Irons/ Ironing & Cutting tables Others

LKR.

5.00 Mio.

< Already financed through equity

Total costs & value of the existing business venture is approx LKR.30.00 Mio., as detailed given below;

♠ Existing land/ buildings LKR. 25.00 Mio. < Already financed through bank & equity

♠ 50 sawing machines LKR. 3.00 Mio. < Already financed through equity

♠ Other Fixture & fittings’ LKR. 2.00 Mio. < Already financed through equity

Bankers

Presently, the Charm Apparel PLC is exclusively banking with Seylan Bank PLC at Ruwanwella branch and the subject property of the proposed building construction is taken place is the same property where the existing registered business location and is mortgaged to the Seylan Bank PLC at Ruwanwella. Further, one of investors/ directors of the company are also one of prime clients of Seylan Bank PLC at Ruwanwella, whom is banking with since 2002.

Page 8: Charm Apparels PLC

~ 8 ~

Statement of projected financials for the next 3-years

Profit & l0ss statements All figures in LKR.’000

year’12 year’13 year’14

Turnover 86,400 95,040 108,000 Direct Production Cost (66,875) (66,875) (66,875) Gross Profit 19,525 28,165 _ 41,125 Overheads (_5,760) (_5,760) (__5,760) Net Profit before Finance Cost 13,765 22,405 _ 35,365 Finance Cost (_5,701) (_5,701) (__5,701)

Net Profit for the Year _ 8,064 16,704 _29,664

Balance sheets All figures in LKR.’000

year’12 year’13 year’14 Assets Non Current Assets Property/ Plants & Equipments 60,058 60,243 61,608

Current Assets Cash & Cash Ebullient ___ 975 _ 7,399 16,039

Total Assets 61,033 67,642 77,647

owner’s Equity Financed by Partners 22,500 22,500 22,500 Projected Profits for the Year _ 8,006 16,704 29,664

Current liabilities Long term & Medium term debts 30,527 28,438 25,483

Total liabilities 61,033 67,642 77,647

Page 9: Charm Apparels PLC

~ 9 ~

Projected CASH-FLOW STATEMENT FROM THE PERIOD OF 3-YEARS

year’11 year’12 year’13 Year‘14

Investment Cash In-flow ♣ Owner’s Equity 22,500 - - -

Investment Cash Out-flow ♣ Land & Buildings 56,000 - - - ♣ Machines & Equipments 19,000 - - - ♣ Vehicles - _7,500 - - ♣ Office Furniture _5,000 _2,500 - -

Total 80,000 10,000 - -

Net Surplus/ (Deficit) (57,500) (10,000) - -

Cash & Cash Equivalent - ___ 975 _ 7,399 16,039

Operating Cash In-flow ♣ Revenue from TCW/Omega-line 12,381 86,400 95,040 108,000

Operating Cash Out-flow ♣ Salaries & Wages _ 6,840 48,875 48,875 48,875 ♣ Electricity/ Overheads & Others ___ 978 _ 5,760 _ 5,760 _ 5,760 ♣ Admin & Establishments _ 5,250 18,000 18,000 18,000

Total 13,069 72,635 72,635 72,635

Net Deficit/ Surplus (_ 687) 13,765 22,405 35,365

Debt Equity Cash In-flow ♣ Loans & Advances 25,000 - - - ♣ Leases - _ 3,000 - -

Total 25,000 _ 3,000 - -

Debt Equity Cash Out-flow ♣ Interest on Debts __ 636 _ 1,503 _ 1,503 _ 1,503

Net Deficit/ Surplus 24,364 _ 1,497 (1,503) (1,503)

Net Cash flow – effect Net Deficit/ Surplus (33,823) (27,586) ___715 50,616

Page 10: Charm Apparels PLC

~ 10 ~

Cash – flow notes

Investment

In-flow : Investors contribution as at date approx for LKR.22.500 Mio.

Out-flow : Existing land & building is LKR.25.00 Mio. Land & Building Proposed Building estimated LKR.31.00 Mio. LKR.56.000 Mio.

200 sawing Machines worth LKR.11.00 Mio. Machines & Equip. Other fixture & fittings worth LKR.08.00 Mio. LKR.19.000 Mio.

Office furniture Equipments estimated for LKR.05.000 Mio. Total Out-flow for the Year 2011 LKR.80.000 Mio. ============ In 2012 Vehicle needed for goods transportation LKR.07.500 Mio. Office-cubicles/ Machines & Equip for 3-Directors LKR.02.500 Mio. Total Out-flow for the Year 2011 LKR.10.000 Mio.

============

operating

In-flow : Sales Proceeds - TCW (1200 Pics. @ US$.2.00) = 2400 @ LKR.100/- LKR.00.240 Mio. Sales Proceeds - TCW (1300 Pics. @ US$.1.00) = 1300 @ LKR.100/- LKR.00.130 Mio. Sales Proceeds - TCW (3300 Pics. @ US$.1.05) = 3465 @ LKR.100/- LKR.00.347 Mio. Omega Line (1200 Pics. per day @ US$.0.60) = 720 x 162 days @ LKR.100/- LKR.11.664 Mio. Total In-flow for the Year 2011 LKR.12.381 Mio. ============ In 2012 (yearly prod. 864,000/- @ LKR.100/-) = LKR.86.400 Mio. (4800 Pics. per days x 300 days per year @ US$.0.60 = 864,000/-)

In 2013 (yearly prod. 864,000/- @ LKR.110/-) = LKR.95.040 Mio. (US$ rated @ LKR.110/- due to mitigate inflation in the year’13)

In 2014 (yearly prod. 864,000/- @ LKR.125/-) = LKR.108.00 Mio. (US$ rated @ LKR.125/- due to mitigate inflation in the year’14)

Page 11: Charm Apparels PLC

~ 11 ~

Out-flow : Salaries & Wages paid for Apr’11 & May’11 = LKR.00.540 Mio. Salaries from Jun-Dec’11 (LKR.0.90 Mio. x 7) = LKR.06.300 Mio.

Electricity: Apr’11 (10 Machins @ LKR.1,700/-) = LKR.00.017 Mio. Electricity: May’11 (30 Machins @ LKR.1,700/-) = LKR.00.051 Mio. Electricity: Jun-Dec’11 (50 Machins x 7 months) = 350 @LKR.1,700/- LKR.00.595 Mio.

Overheads & others (LKR.35,000/- x 9 months) = LKR.00.315 Mio.

Admin & Est. (LKR.250,000/-x 3 dir x 7 months) = LKR.05.250 Mio. Total Out-flow for the Year 2011 LKR.13.068 Mio.

============ Year ’12 – Year’14, Electricity for 200 Machines = LKR.04.080 Mio. (200 Machins @ LKR.1,700/- per year)

Year ’12 – Year’14, Overheads for 200 Machines = LKR.01.680 Mio. (200 Machins @ LKR.8,400/- per year)

Year ’12 – Year’14, Admin fees for 3 directors = LKR.18.000 Mio. (LKR.500,000/- per month x 3 x 12 months)

debt/ equity

In-flow : Proposed finance through SME = LKR.25.000 Mio.

Part finance for a Vehicle in Year ’12 = LKR.03.000 Mio.

Out-flow : Proposed SME rate @ 9% p.a. for 8-years = LKR.00.636 Mio. (Int. per month is LKR.105,838/42 x 6 months)

Proposed SME rate @ 9% p.a. for 8-years = LKR.01.270 Mio. (Int. per month is LKR.105,838/42 x 12months)

Proposed SME rate @ 9% p.a. for 8-years = LKR.00.233 Mio. (Int. per month is LKR.105,838/42 x 6 months) . Total Out-flow from Year’12 – Year’14 LKR.01.503 Mio.

============

Assumptions: ♣ Projected sales considered, only the businesses expected from Omega-Line

due to affect safe projections. ♣ For the year 2013 & 2014, higher US$-LKR conversion rate calculated due to

inflation and it has not being considered for the 2012 due to safe projections. ♣ Administration fees from Apr – May ’11 not being taken.

Page 12: Charm Apparels PLC

~ 12 ~

Capital budgeting—Return-On-Investment (ROI) analysis

ROI is the one of the most popular and widely recognised traditional method of evaluating investment projects and is indentified as the number of years required to recover the initial investment in a project

All figures in LKR.’000

Cash flow and ROI statement

Benefit Drivers Year-0 Year-1 Year-2 Year-3

Greater margin driven by higher production capacity 86,400 95,040 108,000 Improved cycle time benefits:

Reduced energy cost due to less running time 125 125 125 Reduced labour cost due to less running time 100 100 100 Fewer accidents, resulting in less workers' compensation

100 100 100

Improved quality benefits: Fewer defects, resulting in less rework 100 125 150 Fewer customer returns, resulting in less reprocessing costs

25 50 75

Reduced time spent handling customer complaints 25 50 75

Total annual benefits 86,875 95,590 108,625

Implementation filter 75% 85% 90%

Total benefits realized 65,156 81,252 97,763

Costs Year 0 Year 1 Year 2 Year 3

Total 50,450 54,635 54,635 54,635

Benefits Year 0 Year 1 Year 2 Year 3

Annual benefit flow (50,450) 10,521 26,617 43,128 Cumulative benefit flow (50,450) (39,929) (13,312) 29,815

Discounted benefit flow Year 0 Year 1 Year 2 Year 3

Discounted costs 50,450 47,509 41,312 35,923 Discounted benefits 0 56,658 61,438 64,280 Total discounted benefit flow (50,450) 9,149 20,126 28,357 Total cumulative discounted benefit flow (50,450) (41,301) (21,175) 7,182

Initial investment Year 0 Year 1 Year 2 Year 3

Initial investment 50,000 0 0 0 Implementation costs 400 0 0 0 Ongoing support costs 0 48,875 48,875 48,875 Training costs 50 25 25 25 Other costs 0 5,735 5,735 5,735 Total costs 50,450 54,635 54,635 54,635

ROI measures

Cost of capital 15% Net present value 7,182 Return on investment 58% 85% 104%

Payback (in years) 2.31 => 2-Years & 4-Months

Page 13: Charm Apparels PLC

~ 13 ~

Viability & Feasibility of the project

Marketability

In the enchanting apparel industry where garments are a prized obsession in the fashion world, there are serious constraints in terms of diversifying the industry into the international market where the Sri Lanka’s premier marketable products are niche items like lingerie, high value dresses, high performance apparel and value added products.

The country’s strengths are being world-class manufacturers, highly complainants and ethicalness, environmental friendliness, reliability, good quality, logistic excellence and innovativeness while the weaknesses are poor backward integration, costs, distance to market and general lack of productivity while the opportunities were mainly branding and the threats to the industry were bilateral and multi lateral agreements between trading blocks and labour shortages.

The industry is focussing on targeting new export markets like Japan, China, Russia and India towards converting the product portfolio into a high end product.

However, the textile & apparel industry in Sri Lanka should be cautious because the economic recovery is not at full strength. Making the ‘Made in Sri Lanka’ label synonymous with quality, reliability and social and environmental accountability in the global context is been given top priority.

The proposed business is located in close proximity of Nelu Fashions at Kabulumulla on the Avissawella–Hatton main road and it is expected that the Nelu Fashions garment’s sub quotas will be given continuously and that can be assure since the proposed company’s true governors of which are also the key players in the Nelu Fashions. Even at present one of the giants in the Sri Lankan textile & apparel industry, the ‘Omega Line’ signed agreement with that they will be given sub quotas/ business to the Charm Apparels continuously starting from 16th June 2011 where they are much concerned and impressed by the quality of the finished goods. Thus, there would be a high demand and market for the proposed project of which that they aim to finish 4,800 pieces per day @ US$.0.60 per piece with full swing in early January 2012 after finalise the proposed construction and under above circumstances this would not be a dream.

Page 14: Charm Apparels PLC

~ 14 ~

Technicality

All specialised personals/ workers required for this project to perform who are commonly and cheaply available in this vicinity and this project does not involves any high valued sophisticated machines and equipments where skilled personal/ worker should attend to.

Financially

Even at present the company joined hands with one of Sri Lanka’s biggest company in the textile & apparel industry, Omega Line to give business continuously in addition to the sub quotas given from the Nelu Fashions.

Furthermore, this project makes LKR.7.182 million annual net profit in present

value terms with ROI rate of 2.31, therefore this project is financially viable.

Objective of the report

The objective of this report is to explain in detail of the project and to evaluate the project in 4 different aspects i.e. marketability, technicality, managerial and financial feasibility of the above project to expand the business locally & internationally by providing infrastructure facilities to human resource thereby giving rise to job opportunities in the country.