27.

PROFILE ON WOOD SCREW

 27-2
TABLE OF CONTENTS
PAGE
I. SUMMARY 27-3

II. PRODUCT DESCRIPTION AND APPLICATION 27-3

III. MARKET STUDY AND PLANT CAPACITY 27-3

A. MARKET STUDY 27-3

B. PLANT CAPACITY AND PRODUCTION PROGRAMME 27-8

IV. MATERIALS AND INPUTS 27-9

A. MATERIALS 27-9
B. UTILITIES 27-9

V. TECHNOLOGY AND ENGINEERING 27-9

A. TECHNOLOGY 27-9
B. ENGINEERING 27-10

VI. MANPOWER AND TRAINING REQUIREMENT 27-11

A. MANPOWER REQUIREMENT 27-11
B. TRAINING REQUIREMENT 27-11

VII. FINANCIAL ANALYSIS 27-11

A. INVESTMENT 27-12
B. PRODUCTION COSTS 27-13
C. FINANCIAL EVALUATION 27-14
D. ECONOMIC BENEFITS 27-15
 27.3
I. SUMMARY
This profile provides basic information on the technology and manufacturing of wood
screws. The current demand for wood screw is estimated at 99,437 kgs. The demand
is expected to grow to 105,588 kgs in 1999 and to 154,422 kgs by the year 2007.

Based on the demand projection the proposed plant will have an annual capacity to
produce 106,200 kgs of wood screw.

The plant would provide employment opportunity for 12 persons. The total initial
investment requirement is Birr 3935.02 out of which Birr 2041.2 thousand is for
machinery and equipment. According to the financial evaluation the project will have
a financial internal rate of return (IRR) 28.58% and the net present value discounted
at 16 percent is Birr 2016.55 thousand.

II. PRODUCTION DESCRIPTION AND APPLICATION

Wood screw is a removable fastener used usually to join wood works, furniture and
sometimes product made from metals and plastic. It has generally the head tampered
to a point and the shank threaded.
The head is commonly of the counter shank shape and is slotted suitably for the
screwdrivers. The size of wood screw is designated by the gauge number of the shank
and by the full length. The most common size of wood screws fall between ½”x
gauge No 4 to 3”xgauge No.14.

Rivet is a head pin of metal used to join two or more pieces permanently by passing
the shank through a hole in each piece and then heating or pressing down the plain
end so as to make the second head. The size of rivet is designated by the shank
diameter and the length

A. MARKET AND PLANT CAPACITY

1. Present Demand
The major end-users of wood screw are furniture and joinery producing enterprises.
Wood screw is currently not produced in the country and thus import is the only sources
of supply to the domestic market. The country has been importing substantial quantity of
screw, including screw bolts, and nuts over the last many years. (See Table 3.1)
 27-4
Table 3.1
IMPORT OF WOOD SCREW
Year Qty ,In kgs
1985 94,870
1986 341,114
1987 55,997
1988 42,971
1989 85,791
1990 83,726
1991 42,594
1992 54,696
1993 99,437

Sources: Customs and excise tax administration external trade statistics

The import data shows major fluctuation from year to year, which may be due to non-
availability of foreign exchange under the previous regime and similar problems during
the transitional period. The import figure was 341.114 kgs in 1986. Thereafter it declined
for three consecutive years suggesting that the excess import in one period may be even
out supply in 1991 and 1992, which may be explained by foreign exchange shortage
during the transitional period. It reached 94,437 kgs in 1993 in the period considered to
be normal with regard to availability of foreign exchange. As the figure for 1993 can be
comparable with that of 1985 (the period considered to be normal with regard to
availability of foreign exchange under the former regime) the 1993 import data has been
considered as reflecting current effective demand.

As indicated earlier the major end users of wood screw are furniture and joinery
producing enterprises with a major share of production being that of private sector (see
Table 3.2)
 27-5
Table 3.2
GROSS VALUE OF PRODUCTION OF FURNITURE BY SOURCE ( ‘000 BIRR)

Year State Enter Private Enter Total Deflated Annual % of

Pries Pries Value Change
1981/82 7,013 6,521 13,534 3,698
1984/85 12,781 12,861 25,642 6,820 84
1985/86 14,111 26,373 40,484 9,971 28
1986/87 13,498 25,880 39,378 9,032 9.4
1990/91 19,530 67,160 77,600 12,970 12.7
Average growth rate 11.4%

Source: MOI statistical Bulletin III and IV, HASIDA report on survey of private
Industries, various issues.
In the period 1981/82-1990/91 the value of production of furniture and fixture enterprises
grew at rate of 11.4%. In order to determine the level of wood screw consumption,
information on value of production and corresponding wood screw consumption was
collected from two furniture and joinery producing enterprises and consumption
coefficient was developed (see Table 3.3)
 27-6
TABLE 3.3
WOOD SCREW CONSUMPTION BY TWO FURNITURE INDUSTRIES AND
CORRESPONDING VALUE OF PRODUCTION

Tikur Abay Warka Total

Production in Wood screw Production Wood screw Production Wood screw
Year ‘000 Br. in packet in ‘000 Br. in packet in’000 Br. in packet
1987/88 2,263 851 4,030 1,987 6,293 2,838
1988/89 3,006 1,276 4,043 1,936 7,049 3,212
1989/90 3,103 1,497 3,987 1,711 7,090 3,208
1990/91 3.170 1,127 4,054 1,877 7,224 3,004
1991/92 3,241 1,402 3,580 1,483 6,821 1,885
1992/93 3,755 959 3,297 1,297 6,682 2,256
1993/94 4,097 1,265 5,343 2,095 9,442 3,360
50,601 19.763

SOURCE: - Tikur Abay and Warka furniture enterprises.

 27-7
As indicated in Table 3.3 for every 50,601 thousand production about 19,763 gross of
wood screw will be consumed.

2. Demand projection

Future demand for wood screw has been projected using the consumption coefficient
approach and simple rate of growth method. In the simple rate of growth approach a
4.5% growth rate been applied to demand based on the growth of building construction
which is the major user of furniture (see Table 3.4)

Table 3.4
PROJECTED WOOD SCREW DEMAND DERIVED FROM FUTURE
FURNITURE PRODUCTION PROJECTION

Projected furniture
Year production at 11.3% Derived wood screw Demand Demand Based
growth) ‘000 Birr In gross In kgs Import data

1997 148,310 57,924 68,350 99,437

1998 165,218 64,528 76,143 103,912
1999 184,053 71,885 84,824 105,588
2000 205,035 80,079 94,493 113,474
2001 228,408 89,208 105,265 118,580
2002 254,447 99,378 117,266 123,916
2003 283,454 110,707 130,634 129,493
2004 315,768 123,328 145,527 135,320
2005 351,766 137,388 162,117 141,409
2006 391,867 153,050 180,599 147,773
2007 436,540 170,497 201,186 154,422

The projected demand for woods screw based on consumption coefficient shows that
demand grows from 68,350 kgs in 1997 to 201,186 in the year 2007. This indicates that
the demand would triple within 10 years. This high growth has been considered as
unrealistic and demand projection based on import data has been considered as realistic
based on the volume of imports of wood screw in the past year and adopted in this study.
27-8
3. Pricing and Distribution
According to information from furniture and joinery enterprises, which are the main users
of wood screw, the average landed cost of wood screw is Birr 25kg.Based on this
information the selling price of Birr 25kg has been adopted for this profile. The product is
foreseen to be sold directly to the furniture and joinery plants and through hardware and
building material dealers.

The product can be directly distributed to major furniture and joinery enterprises and
through wholesalers in building materials.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity
The present demand for wood screws is estimated to be 99,437 kgs. This demand is
expected to grow to 105,588 kg by the year 1999 and to 154,422 kg by the year 2007 at
4.5% growth rate. Per Year. It is suggested, therefore, that the plant would have an annual
capacity of 90,000 gross or 106,200 kgs.

2. Production Programme

The plant is envisaged to operate on shift (8 hours) a day for 270 days a year. It is
suggested to operate at 75% and 85% of its capacity in the first and second years of
operation respectively and at full capacity from the third years on wards (see Table 3.5).
The working days have been estimated by discounting holidays and planned maintenance
time from calendar days of the years.

Table 3.5
PRODUCTION PROGRAMME

Year Projected Demand Proposed Capacity Demand Coverage

1997 99,437
1998 103,913
1999 108,558 79,650 73%
2000 113,474 90,270 79%
2001 118,580 106,200 89%
2002 123,916 " 87%
2003 129,493 " 82%
2004 135,320 "
2005 141,409 "
2006 147,713 "
2007 154,422 "

27-9
The capacity build-up has been estimated by taking into account the adjustment of
feedstocks, labour and equipment to the technology selected.

The annual production at full capacity is estimated at 106.2 tones.

III. RAW MATERIALS AND INPUTS

A. RAW MATERIALS

The major raw materials required for wood screw and rivets making is steel wire. The
size of the wire varies according to the wood screws and rivets produced by the plant.
The annual wire requirement and cost of these materials at full capacity operation is
estimated at Birr 1.050 of which 90% is for steel wire.

B. UTILITIES
The major utility required for running the plant is electric power. About 81 kwh of
electricity is required per day. Small amount of saw dust; grease, cutting oil, machine oil
and light are also required. The annual cost of utilities is estimated to Birr 10,000.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. General

Wood screw is made from wire rod ,by a process which involves rivet making, polishing.
Slotting threading and finishing.
The wire coil which has the gauge size of the wood screw to be manufactured is fed into
nut heading machine which produces rivets automatically. In the case that a wire gauge
and the head shape are to be changed, the die and the punch would be changed too.

After the rivet making process, which give the required head, the rivet are polished to get
smooth and shining surface. Saw dust and leather waste are used for this purpose in the
tumbling barrel. Polished rivets are then put into the hopper of threading machine for
slotting the heads automatically. The slotted rivets are pointed and threaded by a treading
machine after being fed through its hopper. Finishing is performed by washing the wood
screw with light oil for removing cutting oil and dust.

The light oils is then removed by a centrifugal separation after which the finished product
are packed and made ready for delivery to the market.

27-10
2. Source of Technology
Wood screw making technology and machinery is widely available in many developing
countries including Japan China and India.

B. ENGINEERING
1. Machinery and Equipment
The main machinery required for wood screw making plant are heading, slotting and
threading machine. The list of machinery and equipment for the plant are given in Table
5.1
Estimated total cost of machinery and equipment is Birr 2.1 million. The installation cost
is assumed to be 5% of machinery and equipment cost.

Table 5.1
LIST OF MACHINERY AND EQUIPMENT FOR MANUFACTURING OF WOOD
SCREW
Item Description Quantity
No (set)
1 Automatic double stroke heading machine Type 1 1
2 Type II 1
3 Tumbing Burre/ 1
4 Automatic slotting machine type I 1
5 Type II 1
6 Automatic wood screw threading machine type I 1
7 Type II 1
8 Type III 2
9 Oil separator 1
10 Bite and cutter grinder 1

27-11
2. Building and Cecil Works
The plant will have a total land area of 300 m2 of which 250 m2 will be built up area.
The civil construction work including site preparation is estimated at Birr 350.4 thousand.
VI. MANPOWER AND TRAINING REQUIREMENTS
A. MANPOWER REQUREMENTS
Considering one shift plant operation the man power requirement for the plant is 12
persons. The break down is given in Table 6.1
Table 6.1
MAN POWER REQUREMENT
Category Number Monthly Salary Annual Salary (‘000
(Br.) Br)
Manager/supervisor 1 1,200 14,40
Skilled worker 2 2x350 8.40
Unskilled workers 4 4x150 7.20
Others 5 5x350 21.00
Total 12 4,250 51

B. TRAINING REQUIREMENT
The maintenance of automatic machine used for heading, slotting and threading require a
skilled manpower. Hence, adequate training is required for maintenance personnel some
training is also required for the operators. Machinery suppliers could easily provide such
trainings during the plant start up period. The total cost of training is estimated at Birr
7,000.

VII. FINANCIAL ANALYSIS

The financial analysis of wood screw is made, based on the data provided in the
preceding chapters and on the following assumptions.

27-12
  General
Construction period 2years
Financing 40% equity
60% loan
Bank interest 16%
Discounting factor for cash flow 16%
Land value based on lease rate region 14
Spare parts, repair and
Maintenance 2.4% of the fixed investment

 Depreciation
Machinery and equipment 10%
Vehicles 20%
Office, furniture and equipment 10%
Building 5%
Pre-production cost 20%
 Working Capital
Working capital has been estimated for the following minimum days of coverage.
- Accounts receivable 30 days
- Inventory material 110 days
- Work in progress 15 days
- Finished product 15 days
- Cash in hand 10 days
-Accounts payable 30 days
A. INVESTMENT
The total investment cost of the project including working capital (see Table 7.1) is
estimated at Birr 3935.02 thousand. Owners are assumed to contribute 40% of the form
of equity while the remaining 60% is expected to be financed by long-term bank loan.
27-13
 Table 7.1
TOTAL INITIAL INVESTMENT IN ‘000 BIRR
No Items L.C F.C Total %
1 Land 26 - 26
2 Building % civil works 350.4 - 350.4
3 Office equipment 200 - 200
4 Vehicles 172 178 350
5 Plant machinery and equipment 408.5 1652.7 2041.2
6 Total fixed investment cost 1156.9 1810.7 2967.6
7 Pre-production capital expenditure 530.71 - 530.71
8 Total initial investment 1687.61 1810.7 3498.31
9 Working capital at full capacity 42.958 393.75 436.788
1730.57 2204.450 2204.45

The major component of the investment are plant machinery and equipment, building and
civil works, pre-production expenses accounting for 51.9%, 8.9% and
13.45%,respectively.

The foreign component of the project accounts for 56% of the total investment

B. PRODUCTION COSTS
The total production cost at full capacity operation is estimated at Birr 1860.1 thousand
(see Table 7.2). Raw materials and utilities (including energy) account for 56.45 percent.
Repair and maintenance account for 3.82% of the production costs.

………………………….
* Pre-production capital expenditure include:

 Preliminary capital issue expenditure- expenses for registration and formation of

the company including legal fees.
 Expenditure for preparatory studies-pre-investment studies consultancy fees for
engineering and supervision of erection and other expenses for planning.
 Other pre-production expenditure- salaries and fringe benefits of personnel
engaged in pre-production, pre production marketing costs and promotional
activities, interest on loan and insurance during construction and training cost
etc.
 27-14
Table 7.2
TOTAL PRODUCTION COST ‘OOO BIRR
Year
Items 3 4 5 6
Raw materials 787,5 892.5 1050 1050
Utilities 7.5 8.5 10 10
Energy - - -
Lab our, direct 20 20 20 20
Repair, maintenance 71 71 71 71
Spares - - - -
Factory overhead 30 30 30 30
Factory costs 916 1022 1181 1181
Administrative overhead 73 73 73 73
Depreciation 419.5 419.5 419.5 419.5
Financial 304.5 265.9 225.9 186.6
Total production cost 1713 1779.72 1899,4 1860.01

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement (see Table 7.A.1) the project will generate
profit beginning from 1st year of operation. Important ratios such as the percentage of net
profit to total sales, net profit to equity (Return on equity) and net profit and interest on
total investment (return on total investment) are high.

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

2. Break –even Analysis

The break-even point of the project is estimated by using income statement projection.

BEP = FIXED COST = 613.514 X 100 = 613.514 x100

Sales variable cost 2655-1060 1595

The project will break even at 38.5% of capacity utilization.

 27-15

3. Pay back period

Investment cost and income statement projection are used in estimating the project
payback period. The project will payback fully the initial investment less, working capital
in 3 year and 1 month.

4. Simple Rate of Return

The simple rate of return is ratio of annual net profit on capital. This ratio is computed
only for one year at full capacity. The annual rate of return on total capital invested is as
indicated below:
RI = NP + I x 100
K

Where Wp = is net profit after depreciation interest charge and taxes

I = interest
K = total investment cost of fixed asset and working capital
Thus RI = 516,661 + 186,624 = 17.87
3935.02
5. Internal Rate of Return and Net present Value
Based on cash flow statement (see Table 7.A.2) the calculated IRR of the project is
28.58% and the net present value at 16% discount is Birr 2016.55 thousand.

D. ECONOMIC BENEFITS
The project can create employment opportunity for 12 people. In addition to increasing
the supply of goods to the domestic market, the project will generate Birr 2523.81
thousand in terms of tax revenue. The regional government can also collect employment
and income tax and sales tax from the project thereby increasing its tax base. Wood screw
is fully imported and the project is expected to save foreign exchange.