report no. 2887-tu - world...
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Report No. 2887-TU
TURKEY
STAFF APPRAISAL REPORT
SUMERBANK COTTON TEXTILE
RATIONALIZATION PROJECT
April 30, 1980
Industrial Projects Department
This document has a restricted distribution and may be used by recipients only in the performance ofitheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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INTERNATIONAL BANK FOR RECONSTRTJCTION AND DEVELOPMENT
TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
STAFF APPRAISAL REPORT
CURRENCY EQUIVALENTS
Except where otherwise indicated, all figures are quoted in Turkish Lira (TL)and US Dollars (US$) (Exchange rate as of January, 1980) 1/:
TL 1.0 = US$0.0142TL 70.0 = US$1.00TL 1,000,000 = US$14,285.70
Previous rates were:From June 1979 to January 1980 TL 47.1 = US$1.00From April 1979 to June 1979 TL 26.33 = US$1.00From March 1978 to April 1979 TL 25.25 = US$1.00From September 1977 to March 1978 TL 19.443 = US$1.00
ABBREVIATIONS AND ACRONYMS
ASM = Alim ve Satim Muessesse - Sumerbank's Sales DivisionBCE = Base Cost EstimateCTD = Sumerbank Cotton Textile Division to be formed under the ProjectDPF = Dyeing, Processing and Finishing SectorDYB = Devlet Yatirim Bankasi O.A. (State Investment Bank)EEC = European Economic CommunityFTA = Financial Technical AssistanceGHERZI = Gherzi Textile OrganizationJSC = Joint Stock CompanyOTA = Operational Technical AssistanceOP = Operating ProfitPAT = Profit After TaxPPF = Project Preparation Facility of the BankRMP = Rationalization and Modernizatic,n ProgramSB = SumerbankSEE = State Economic EnterpriseSPO = State Planning OrganizationSTTRC = Sumerbank Textile Training and Research CenterSYKB = Sinai Yatirim ve Kredi Bankasi A.O.TL = Turkish LiraTSKB = Turkiye Sinai Kalkinma Bankasi A.S.UNDP = United Nations Development ProgramUNIDO = United Nations Industrial Development Organization
1/ Since January 1980, the rate is being adjusted for differential inflationbetween Turkey and her major trading partners. The rate of TL7O=US$1.00is used for this report.
FOR OFFICIAL USE ONLY
TURKEY
APPRAISAL OF SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
TABLE OF CONTENTS
Page No.
I. INTRODUCTION ........................................... ....... 1
II. THE TURKISH TEXTILE INDUSTRY .............................. 2
A. Economic Background ......................... . 2B. The Textile Industry ... ........... ......... . . . .............. . 3C. Textile Consumption ........................ . 5D. The Cotton Textile Industry ........................ 6E. Exports ......*7F. Development Strategy for the Textile Sector ........ 8
III. THE MARKET AND MARKETING OF COTTON TEXTILES IN TURKEY ... 8
A. Past Supply and Consumption of Cotton Textiles....e. 8B. Supply and Demand Projections of Cotton Textiles ... 9Co Supply of Raw Cotton .... o...o .... - o.. 12D. Marketing of Cotton Textiles o..oo..... 12Eo Pricing o..o.oo.. 13
IV. THE COMPANY ..... o...o.oo ...... 13
A. Sumerbank Holding Company (The Beneficiary)c.....o.. 13
1. History, Objectives and Role of Sumerbank o... 132. Organization and Management ... 143. Financial Structure and Performance 15
B. Sumerbank Cotton Textile Operations 18
1. Organization and Reorganizational Concept 182. Management and Labor 193. Production Facilities,Technology and Operations 204. Marketing and Reorganization 225. Pricing .... o....... 256. Past Financial Performance and Future Prospects 267. Rationalization and Modernization Program (RMP) 27
This Report was prepared by 0. de Bruyn Kops, J.C. Duvigneau, A. Sandigand Y. Suzuki of the Industrial Projects Department.
This document hs a mtricted distribution and may be used by recipients only in the performanceof their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.
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TABLE OF CONTENTS (Continued) Page No.
V. THE PROJECT ............................... ...... 28
A. Project Objectives .... ...... . .... .... ............ 28B. Scope and Location ... *ooo.........o ..o . .....* 29C. Machinery, Equipment and Buildings .o ........... 30D. Technical Assistance ... o ........ ... ........ 31E. Project Management and Implementation .............. 32
1. Project Management .......*....... ............. 322. Implementation Schedule ....... ................ 333. Recurring Action Programs .. oo ............ .... 33
F. Employment and Training ............................ o 35G. Ecology ..oo ......... o.o...... ...... ...... ..o 36
VI. CAPITAL COSTS. FINANCING PLAN AND PROCUREMENT .... o....... 36
A. Capital Cost Estimates ......... o .............. o...o 36B. Financing Plan ..o.................................... ..... o.oo .o.*... 39C. Procurement o................................ .o........ o .... o. ..o.... 41D. Allocation of Bank Loan and Disbursement .... o ...... 41
VII. FINANCIAL ANALYSIS. .. ....... o . .... .. .o ............. . .. 42
A. Projected Production Build-up and Sales .... .. o.. 42B. Operating Cost Estimates ........................... 43C. Financial Projections and Financial Covenants....... 44D. Financial Rate of Return .... o*.o...o. ....... .. . .. 46E. Audit and Reporting ......... o......... . .......... .o... . 46F. Major Risks ................. o...................*... 47
VIII. ECONOMIC ANALYSIS ......... ........ .................. ... .... ........ . 48
A. Economic Costs and Benefits ............ 48B. Economic Rate of Return ...... 49C. Other Benefits ..................................... 50
IX. AGREEMENTS .............................................. 50
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LIST OF ANNEXES
ANNEX
2-1 Textile Fiber Consumption in Turkey, 1970-782-2 Number of Spindles, Looms and DPF Capacity in the Turkish
Cotton Textile Industry, 1972-77
3-1 Historic Textile Consumption in Turkey1. Cotton Woven Fabrics: Production, Exports and Domestic
Consumption, 1970-782. Cotton Yarn: Production, Exports and Domestic Consumption,
1970-783-2 Supply/Demand Balance of Cotton Textile Products, 1978-85
4-1 Organization Chart: Sumerbank Holding4-2 Organization Chart: Typical Sumerback Cotton Textile Mill4-3 Organization Chart: Sales and Purchasing Establishment
(ASM-Istanbul)4-4 SB Financial Statements4-5 Financial Projections - SB Non-Cotton Operations4-6 Projected Organization of CTD4-7 List of SB Cotton Textile Plants and Activities4-8 SB Cotton Textile Product Mix, 19774-9 SB Cotton Textile Operations - Financial Data4-10 SB Cotton Textile Operations - Financial Projections
without the Project
5-1 Production with and without Project5-2 Terms of Reference for Technical Assistance5-3 Staffing of Project Implementation Unit
6-1 Estimates of Capital Cost and Working Capital Requirement6-2 Annual Financing Requirements and Financing Plan6-3 Projected Disbursement Schedule
7-1 Sales Projections7-2 Assumptions for Financial Projections7-3 Financial Projections with Project7-4 Incremental Financial Projections for Project7-5 Financial Rate of Return
8 Economic Rate of Return
MAPS
1. IBRD No. 14576 - Sumerbank Production Units2. IBRD No. 14575 - Sumerbank Cotton Textile Plants
and Project Activities3. IBRD No. 14577 - Sumerbank Retail Network of ASM
SELECTED DOCUMENTS AND DATA AVAILABLEIN THE PROJECT FILE
Referred toReference Title and Date Under Para
A Sumerbank Macroplan 1976 4.47B Terms of Reference, Feasibility Study, 1977 4.47C GHERZI Contract for Feasibility Study, 1978 4.47D Diagnosis Report I to III, June 1979 4.47E Recommendation Report I to III, June 1979 4.47F Mr. Ferber's Report on Financial Situation, July 1979 4.47G Updated Recommendation Report, Nov. 1979 4.47H GHERZI Contract OTA, Stage I Sept. 1979 5.12I Terms of Reference FTA, Stage I Nov. 1979 5.13J Fourth Five Year Plan, Section on Textiles, 1978 2.19K Textile Fiber Consumption in Selected Countries, 1974
and Domestic Consumption and Use of Manmade Fibersin Turkey 1973-1978 2.11
L Supply and Demand: Garments and Household Articles,1977-83 3.01
M Supply and Demand Projections of Cotton TextileProducts in Turkey, 1978-85 3.06
N SB Procedures for Budgeting and Investment Planning 4.070 Assumption for Financial Projections for SB Non-
Cotton Operations 1979-86 4.15P New Spinning Plants at Adana, Diyarbakir and Karaman,
February 1980 4.28Q Details of Cost Estimates 6.01R CTD - Wage and Salary Earners 1979-83 7.04
I. INTRODUCTION
1.01 The Government of Turkey has requested the Bank to help finance
the first phase of a Rationalization and Modernization Program (RMP) for the
cotton textile manufacturing operations of Sumerbank (SB), which is one of the
most important State Economic Enterprises (SEE) in the country and which is
also active in the manufacture of wool textiles, leather, chemicals, ceramics,
in the marketing of its products, and in banking. SB, with total employment
of over 40,000 (in its wholly owned entities alone) and annual net sales of
about TL 30 billion, consists of 30 wholly owned and seven majority owned
(over 80%) companies and holds numerous minority interests in differentbranches of industries.
1.02 SB owns all public sector cotton textile operations in Turkey,
consisting of 13 fully and 6 majority owned plants, located throughout the
country (Maps IBRD 14576/7). SB's cotton textile operations contribute
about 60% of SB's sales, account for between 15% and 20% of the Turkish
cotton teltile industry's production capacity, and produce annually about 200
million m of cotton fabric (mostly dyed or printed, mass-produced fabricsconsumed in rural areas and by the urban poor).
1.03 Capacity utilization, productivity and product quality in SB's cotton
textile operations has been declining over the past years, resulting in poor
profitability. To a large extent these growing problems have been caused
by the well-known deficiencies inherent in the Turkish SEE system. Therefore,
to rehabilitate its operations, and to make them again viable, SB will under-
take, in addition to the physical rehabilitation of plants, action programs
that are to implement reorganization, reorient its operational and marketingphilosophy, and improve staffing and management systems.
1.04 A feasibility study, executed by GHERZI Textile Organization (GHERZI)of Switzerland, in close cooperation with SB and the Bank, recommended the RMP
which would increase SB's effective production capacity of cotton fabric from
the present 207 million m (1979) to about 300 million m by 1986. The pro-
posed Sumerbank Cotton Textile Rationalization Project (the Project) will cover
the first phase of the investments under the RMP to 1983 2and will increase SB's
effective cotton textile capacity to about 250 million m . This will beachieved through (i) overdue rehabilitation measures (provision of spare parts
and machine assemblies); (ii) replacement or modernization of obsolete machin-ery and equipment; (iii) addition of a garment plant (employment generation
and export potential); and (iv) organizational, operational and managerialimprovements to be supported through the provision of technical assistance.
1.05 The Project is to help modernize, rationalize and rehabilitate, in a
comprehensive and well controlled way, the entire public sector cotton textile
industry to restore production levels already achieved in the early 1970s, andto make it competitive domestically as well as internationally. It is in line
with Turkey's attempts to reorganize and rehabilitate the State EconomicEnterprise System along sound business principles as spelled out under the
fourth Five Year Plan (1979 to 1983) and the Economic Policy Package ofJanuary 25, 1980.
1.06 Total financing required for the Project, including working capitaland financial charges during construction are estimated at US$150.5 million,of which US$104.0 million would be in foreign exchange. The proposed IBRDloan of US$83 million 1/ will cover 94% of the estimated foreign exchangerequirements for fixed assets, including technical assistance but excludingUS$2.3 million local taxes, and represents 56% of the Project's total finan-cing needs including additional working capital requirements for existingoperations. Foreign exchange requirements for working capital and interestduring construction (US$18.0 million equivalent or 12% of total financing)will be met by SB's own export receipts. The local costs (US$44.5 million) 2/are proposed to be met 40% by equity, and 60% through internal cash generation.
1.07 The Bank has previously been involved in the Turkish cotton textilesubsector in various ways. In the public sector this included two SB projects(Erzincan and Karaman Maras) costing together US$24 million equivalent,partly financed from the proceeds of a loan (1024-TU of 6/28/1974) to DevletYatirim Bankasi O.A. (DYB). To date these two projects have only shown alimited success. The second loan to DYB (1379-TU of 3/23/1977) is financingtwo SB cotton textile projects (Izmir Printing and Izmir Garments) costingabout US$15 million; these two projects have been modified recently within theframework of the RMP preparation and will benefit from technical assistanceunder the proposed Project. In the private sector, loans to Turkiye SinaiKalkinma Bankasi A.S. (TSKB) have contributed about US$30 million since 1971.Under loans 1734/55-TU of 9/17/1979 the Bank extended creditlines of US$80million to TSKB and Sinai Yatirim ve Kredi Bankasi A.O. (SYKB) to modernizethe private textile sector through provision of technical assistance, training,institution building, modernization of existing and addition of new capacity.Finally, IFC has contributed about US$11 million to the textile sector and hasrecently approved another project (MENSUCAT Sanayi ve Ticaret A.S.).
1.08 Missions consisting of Messrs. Duvigneau (Chief), Sandig, Suzuki,de Bruyn Kops of the Industrial Projects Department and Mr. Makowitzki(Consultant) visited Turkey in September and November/December 1979 toappraise the Project. A post-appraisal mission visited Turkey in March 1980to confirm with SB's new management various understandings previously reached.
II. THE TURKISH TEXTILE INDUSTRY
A. Economic Background
2.01 Over the last decade (1967-78), the Turkish economy has grownat 6% per year, and has undergone marked transformation. As a result of
1/ Including US$1.0 million from Project Preparation Facility (PPF)Funds (P-013/018-TU).
2/ Including US$19.8 million equivalent for working capital for existingoperations.
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strong Government incentives, supplemented by protection against competitionfrom imports, the share of industry in GDP increased from 14% in 1962 to 23%in 1978, while the share of agriculture declined from 34% to 21%. Reflectinga gradual structural change, the share of consumer goods in industrial outputdeclined from 57% to 42% during 1967-78, with that of intermediates andcapital goods rising from 43% to 58%. However, the economic progress hasbeen punctuated (in 1958, 1970 and 1977) by severe balance of payments crises,mainly because of the country's over-emphasis on import substitution, and aninability to develop a strong export base.
2.02 The Government has generally been involved in basic industries whereprivate capital has hesitated to enter because of long gestation periods,heavy capital requirements, or high risks. While the primary purpose ofState Economic Enterprises (SEEs) is production, they have also been chargedwith social goals, such as the development of backward regions, provision ofemployment and maintenance of price stability, which all have contributed totheir generally poor financial performance. Low salaries, political pressuresand otherwise limited autonomy, and overstaffing have affected the qualityof their management and operating efficiency. The private sector has investedmainly in profitable consumer goods and durables, and has only recentlyentered into intermediate and capital goods production. It carried out 57%of industrial investment during the last decade and now accounts for about50% of value added in manufacturing. However, as a result of the recent eco-nomic crisis, private manufacturing investment stagnated from 1974 to 1977and fell 11% in real terms in 1978.
2.03 Industry in Turkey faces several problems. The immediate onesare low capacity utilization, low productivity, and the low level and rateof growth of manufactured exports. SEEs have deliberately been orientedtowards the domestic market. Export incentives have not been sufficient tooutweigh the advantages of effective industrial protection which, in a climateof growing domestic demand, have made domestic sales more profitable thanexports. Therefore, also the private sector has been concentrating on thelocal market. In 1977, exports accounted for only 7% of the gross output ofthe manufacturing sector, and about 75% of these exports were concentrated intextiles, leather products and processed goods.
2.04 The immediate objective in the industrial sector must be to improvethe utilization of existing capacity. Over the longer term, substantialimprovements in structure, efficiency and international competitiveness willbe needed in many of the existing industries, particularly in the SEEs, toenable them to use resources effectively and compete successfully at home,as well as provide some of the thrust for increased exports. The proposedProject fits well into this strategy as it aims at increasing capacityutilization, efficiency, productivity and product quality of SB's cottontextile operations through a program of rationalization, modernization andtechnical assistance.
B. The Textile Industry
2.05 Turkey, as the sixth largest producer and the third largest exporterof cotton in the world, has a good raw material base for expansion of itstextile industry. At present, it produces about 500,000 tons of cotton per
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year, of which almost 60% is locally processed into textiles. However,Turkey's production of other fibers has been lagging behind demand and itpresently imports annually 10% (10,000 tons) of its artificial and syntheticfiber requirements and 9% (5,400 tons) of its woolen consumption.
2.06 After food processing, textiles is the largest manufacturing in-dustry in Turkey. The organized textile industry's 1/ value of production,employment, investment, exports and its respective shares in manufacturingindustry are shown below.
Turkey - Textile Industry, 1967-78 /a
1967-78Annual
1967 1972 1974 1978 Growth%/b (%)/b (%)/b (%)/b
Investment (constant 1978TL billion) 3.3 (16) 8.5 (18) 19.0 (28) 5.8 (9)/c 5.3
Value of Production (constant1978 TL billion) 55.3 (17) 71.8 (16) n.a.(15) 99.5 (14) 5.5
Employment ('000) 126 (12) 138 (10) 159 (11) 200 (12) 4.3Exports (current US$ million) 3 (4) 55 (23) 148 (25) 322 (52) 52.5
/a Organized sector only, including garment making./b Share in manufacturing industry./c Estimate based on 1977.
Source: State Planning Organization.
Investment in the organized sector, fueled by generous incentives (certifi-cates of encouragement) and growing domestic and export markets, reacheda peak of TL 19.0 billion in 1974 (1978 prices), when it accounted for 28%of total manufacturing investment. It has since tapered off because ofexcess capacity in spinning and adverse economic developments in the country.Capital intensity also increased dramatically, reflecting the heavy investmentin modern equipment, particularly in spinning. One of the most strikingdevelopments in the textile industry has been the rapid growth of exports(US$321.6 million in 1978), from only 4% of manufacturing exports in 1967 to52% in 1978 (para 2.17).
2.07 The industry's growth has been realized through an increasingnumber of large, fully integrated units. Large enterprises (here defined asemploying 200 or more workers), while representing 13% of the number of firms,
1/ Defined as establishments employing 10 or more workers.
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account for 73% of employment in the organized sector. The nature and degreeof integration (spinning, weaving and finishing) of production units varywidely. The number of large and fully integrated units, which account foran estimated 20-25% of employment in the textile sector, are increasing.The organized garment sector has also been growing fast, from 25 registeredestablishments in 1963 to about 600 at the present time, although large firmsin the garment industry are very few and their total employment does notexceed 5,000. About one half of the textile enterprises in the organizedsector are located in the Istanbul area.
2.08 In the unorganized textile sector there are an estimated 8,000 smallestablishments, employing about 100,000 persons, of which 60% are engaged ingarment making and knitting activities. The balance (40%) consists mostly ofsmall weavers with obsolete equipment.
2.09 The cotton textile industry accounts for the bulk of textile produc-tion, with about 83% of total volume output. In the organized cotton segment,an estimated 155,000 workers are employed in spinning, weaving and finishing,and about 25,000 in the garments/making-up and knitting segments. The outputof the cotton segment, mainly geared towards the domestic market, has beengrowing at an average of 5% per year during 1970-78. Knitting output has beengrowing at an even faster rate, estimated at around 17% per year. The woolensegment, including carpets, accounts for 17% of production and employs anestimated 20,000 workers. Although the Turkish consumption of wool has beenrelatively stagnant, the wool sector has been growing at 6-7% a year, using anincreasing percentage of man-made fibers to meet the highly income-elasticdemand for worsted fabrics.
2.10 Although the public sector, under SB's management, pioneered -starting in the early 1930's - the large integrated production units in theTurkish textile industry, its role has gradually diminished and about 80% ofthe industry is now in private hands. SB, in the late 1970s, accounts for 19%of investment in the textile sector, 14% of production, 17% of value added and13% of employment. Unlike the private sector counterparts, SB sells most ofits textile production through its own retail network to low income groups inurban and rural areas. Consequently, enhanced by the present situation ofundersupply of textiles in Turkey (para 3.01), there is little competitionbetween SB and the private sector. The organization and performance of SBcotton textile operations are further described in Chapter IV.
C. Textile Consumption
2.11 Textile consumption in Turkey, at 7.7 kg per capita in 1978, isconsiderably higher than in countries with a comparable per capita incomewhile much lower than in industrialized countries (Annex 2-1 and Project File,Item K). The relatively high consumption is mostly due to the existence ofa sizeable domestic textile industry based on local cotton and a climatewith a considerable temperature range. The consumption of cotton fibersis 59% of total fiber requirements, while synthetic fibers account for 30%,and wool and cellulosic fibers for the remaining 11%. But while cotton andwool consumption grew by 4% and 2% per year in the 1970's, the annual increase
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for synthetics was 25%. However, the increase for synthetics consumptionis expected to slow down because of import tariffs and high domestic pricesproduced by a protected local industry of limited capacity.
D. The Cotton Textile Industry
2.12 The rapid expansion of the private organized cotton sector since1970 has been accompanied by increases in labor productivity of about 14% peryear. This is higher than for manufacturing as a whole and reflects a heavyprogram of investment in modern textile equipment, particularly in spinning.Individual segments of the industry (spinning, weaving, finishing) differgreatly in structure and degree of sophistication and efficiency, and arediscussed in some detail below.
2.13 In Spinning, the industry recently underwent a program of rapidexpansion and modernization in which the number of spindles more than doubledfrom 1.3 to 3.0 million, between 1972 and 1977 when capacity stabilized (Annex2-2). But actual yarn production in 1978 amounted to only about 288,000 tons,of which 81,000 tons were exported, as compared with an available capacityof about 427,000 tons, reflecting a low capacity utilization rate of 67%.Capacity utilization has been constrained by: (i) the limited domesticweaving capacity, which can only absorb about 60% of yarn output at fullcapacity; (ii) import restrictions imposed by the EEC, to which about 90% ofTurkish yarn exports go; (iii) poor planning and control of production; andmore recently (iv) power shortages which may have accounted for 10-20% ofunderutilization in 1979. Despite its modern vintage, labor productivity inspinning in Turkey ranges from 42% to 64% of European standards. A largeportion of this difference could be corrected without additional investmentsthrough improved maintenance, job scheduling, working methods and load assign-ments, with the result of increased yarn output estimated at 10-15%.
2.14 Turkey's cotton weaving capacity is concentrated in 40-50, mostlyintegrated, mills. Available capacity is now largely being utilized andmost of tye fabrics output is consumed locally. C pacity increased from 960million m in 1972 to an estimated 1,190 million m in 1979, mainly becauseof the replacement of narrow looms by wider and faster automatic looms (Annex2-2). Still more new looms are required to replace worn-out equipment (esti-mated to be 12-18% of capacity) to narrow the present imbalance with availablespinning capacity in the country and to meet the growth of demand (para 3.03).Labor productivity in Turkish weaving plants ranges from only 35% to 57% oftheir European counterparts. A large portion of this difference would becorrectible without additional investment through improved operations withthe result of increased weaving output of about 20%.
2.15 Despite excess capacity for the dyeing, printing and finishing seg-ment as a whole, there are regional shortages of capacity for certain typesof fabrics. This segment is dominated by the private organized sector whichoperates nearly 85% of installed capacity, mostly as a service industry thatfinishes fabrics on commission basis. In 1976, production of this segment wasabout 910 million linear meters, at a capacity utilization of 70% (Annex 2-2).It is estimated that about 25-30% of existing dyeing equipment and possibly70% of printing equipment are obsolete.
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2.16 The garment/making-up industry has mostly modern equipment, but itslabor productivity is only some 40% of European standards (except for a fewfirms with technical assistance from foreign marketing partners). This ismostly due to uneconomically short production runs, unsuitably cramped premises,poor plant layout, organization and work methods. Cost control is practicallynonexistent and there is, therefore, scope for considerable improvement inperformance in areas of industrial engineering and production management.
E. Exports
2.17 Production and marketing of Turkish textiles, with the recentexception of yarn, has traditionally been geared to the local market, whichconsumes about 92% of total production. This domestic orientation is causedby: (i) a relatively inefficient textile industry (largely prompted by thesevere restrictions of textile imports); (ii) trade restrictions imposed bythe EEC, the main trading partner for Turkish textiles; and (iii) a domesticmarket which is partly undersupplied, but at the same time of sufficient sizeto sustain a sizeable local textile industry. Until recently, only yarnexports were marginally profitable since production tax on yarn (35% ofproduction cost) is not levied on exported yarn; that exemption is not applic-able to exported fabrics or garments. Yarn exports (valued at US$180 millionin 1978) have increased four-fold since 1970, and as noted before, in 1978,81,000 tons, representing about 28% of yarn production, were exported. Thisgrowth pattern is not expected to continue, largely on account of importrestriction imposed by the EEC.
2.18 The export of cotton woven fabrics, 2,700 tons in 1978, of whichabout one-third were grey fabrics, have been fluctuating in the 1970's at lowlevels. In 1978 only 1.5% of total Turkish fabric production was exported.Exports of woven and knitted garments and made-up goods on the other hand,have been developing quickly and grew from a very small base in the early1970's to 5,800 tons in 1978, or US$58 million. This represents about 15% ofthe Turkish garment output and about 18% of the textile sector's export value.About 80% of total Turkish textile exports go to the EEC where the share ofimports from Turkey ranges from 22% for yarn to about 1% for fabrics andgarments, the remaining 20% being distributed widely. Turkey's share of theneighboring Middle Eastern textile markets is small because of competitivelocal industry. The capability to export garments has been constrained byinadequate styling, marketing, a lack of accessories and a limited range andquality of local fabrics of acceptable prices, administrative difficulties inTurkey in importing foreign fabrics for re-export, and high prices for fabricsusing non-cotton fibers.
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F. Development Strategy for the Textile Sector
2.19 The Fourth Five Year Plan (1979-83) (Project File, Item J) emphasizesrenewal and rehabilitation of existing facilities and expansion of capacity,mainly to debottleneck and balance the various segments in the industry. ForSB the need for modernization, reorganization and specialization of productionof its textile operations is stressed; the proposed Project meets theseobjectives. Investment in spinning in both the public and private sectorsaiming at further capacity expansion will be discouraged, until the sectorapproaches full capacity utilization. On the other hand, investment inintermediate goods and auxiliary materials used as inputs in garments andknitting, now in short supply, will be fostered. Local production of textileequipment (mostly spare parts) will also be promoted. Finally, exports offinished goods, such as made-up articles, woven and knitted goods, carpets,will be supported. Though the quantitative targets are high, the Plan'sobjectives are reasonable and point in the right direction.
2.20 Sector performance can be improved through: (a) modernization inselected segments (especially dyeing, printing and finishing where there issubstantial obsolete equipment), and through (b) increased efficiency of theproductive facilities which can be furthered by the extension of technicalassistance and training. The industry's major objectives should be (i) tocontinue to expand exports because of the foreign exchange earned, the stimu-lating effect in communicating export standards of price and quality to therest of the industry, and because the most promising exporting sector (gar-ments) will expand urban employment; and (ii) to meet growing domesticdemand.
III. THE MARKET AND MARKETING OF COTTON TEXTILES IN TURKEY
A. Past Supply and Consumption of Cotton Textiles
3.01 Since 1970, domestic consumption of cotton fabrics including cottonblends, has been rising it an average annual rate of 4.5%, or 2% on a percapita basis from 21.3 m in 1970 to 23.4 m in 1978. This implies an incomedemand elasticity of 0.5 1/ as per capita income grew by 4.1% per year. Com-paring the growth of per capita income in Turkey with the actual textile con-sumption, it appears that in recent years the growth of textile demand hasbeen faster than increases in production (Annex 3-1). The stagnating domesticsupply of cotton fabrics is the result of a slowdown of expansion in weavingcapacity and the import restrictions on textiles in Turkey. Therefore, basedon recent consumption trends, it is estimated thit, in 1978, unsatisfied demandexceeded supply of fabrics by about 60 million m or 6% of domestic demand(para 3.02). Production, exports and consumption for cotton yarn and wovenfabrics are shown below:
1/ 0.6 for 1970-77: due to supply constraints, 1978 figure is lower.
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Turkey - Production, Exports and Consumption of Cotton Textiles
Annual Growth Rate1970 1973 1976 1977 1978 1970-78/ 1976-78
ProductionYarn ('000 tons) 2 167 210 290 290 288 7.0 (0.3)Woven Fabrics (million m ) 773 882 1,030 1,060 1,060 4.0 1.5
ExportsYarn ('000 tons) 2 17 33 79 58 81 21.5 1.1Woven Fabrics (million m ) /a 21 34 51 58 48 10.8 (0.3)
Apparent Domestic ConsumptionYarn ('000 tons) 152 177 212 220 220 4.8 1.7Woven Fabrics
- total (million m ) 753 848 979 1,002 1,012 3.8 1.7
- per capita (m 2) 21.3 22.3 23.9 23.8 23.4 1.3 (1.1)
/a Including fabric requirements for garment and made-up goods exports.
Sources: TSKB and IBRD.
Little information is available on garment and made up goods productionbecause of the importance of the unorganized sector; it is estimated thatin 1977, the organized sector production met only 11% of domestic demand(Project File, Item L).
B. Supply and Demand Projections of Cotton Textiles
3.02 Supply and demand projections for cotton textiles are summarizedbelow and shown in detail in Annex 3-2.
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Turkey - Supply/Demand Balance of Cotton Textiles
1978-85Annual
1978 1979 1980 1983 1985 Growth(act.) (est.)
Domestic DemandYarn ('000 tons) /a 2 220 206 210 270 295 4.3Woven Fabrics (million m ) 1,070 1,100 1,130 1,253 1,342 3.3
ProductionYarn ('000 tons) 2 288 288 293 361 391 4.5Woven Fabrics (million m ) 1,060 971 987 1,243 1,338 3.4
ExportsYarn ('000 tons) 2 81 82 83 91 96 2.5Woven Fabrics (million m ) /b 48 50 51 63 72 6.0
Available for Domestic MarketYarn ('000 tons) 2 220 206 210 270 295 4.3Woven Fabrics (million m ) 1,012 921 936 1,180 1,266 3.3
Supply Surplus/DeficitYarn ('000 tons) 2 - - - - - n.a.Woven Fabrics (million m ) (58) (179) (194) (73) (76) n.a.
Apparent Consumption Per Capita
(m /capita) 23.4 20.8 20.7 24.2 24.7 0.8
/a Including requirements for weaving of fabric and for knitting./b Including fabric requirements for garment exports (annual growth rate
7%); direct woven fabric export to grow at only 3% annually.
3.03 Demand for cotton woven fabrics is estimated to increase by 3.3%per year until 1985, and it is expected that the situation of undersupply oftextiles in Turkey will continue through the forecast period. Domestic demandprojections are based on an average per capita income growth of 2% per year(Bank estimates), a population growth rate of 2.5% per year, and an incomeelasticity of 0.5. This is lower than the average 0.7 for all developingcountries, but justified as Turkish consumption level is higher. The produc-tion estimates for fabrics are based on the assumption that existing largeprivate weaving mills will operate at about 80% of capacity during 1979-81 dueto power shortages and thereafter at a rate of 95%. For 1981-85, productionis expected to increase by an additional 1% per year as a result of increases
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in labor productivity. It is further assumed that no expansion of capacitywill occur during 1980-81 due to foreign exchange constraints and adverseeconomic conditions, and that only investment for replacement of obsoletemachinery will take place. Thereafter weaving capacity2in the organizedprivate sector is projected to increase by 40 million m per year. Productionfrom the proposed Project is included in the estimates. The projections showthat, unless a significant further investment in weaving occurs, by 1985 2demand for cotton fabrics will exceed domestic supply by about 76 million mor 6% of domestic demand.
3.04 Domestic demand for yarn, including cotton blends, is expected toincrease by 4.3% per year, as a function of yarn requirements for weaving andknitting. Knitting is expected to increase its share in yarn consumption from10% in 1978 to 16% in 1985, as a result of a continued high demand for knittedgoods. This demand would absorb expected increases in yarn production result-ing from improved efficiency and capacity utilization (increase to 391,000tons in 1985 without corresponding spinning capacity expansion, assuming thatcapacity utilization will increase to 92% by 1985). Present spinning capacityshould, therefore, be sufficient to meet the yarn requirements for the domesticmarket during 1980-85. There is need, however, for additional capacity incombed yarns, double yarns and sewing thread.
3.05 The projections of textile exports for the near future are dominatedon the one hand by trade restrictions in Turkey's principal market area (EEC),especially for yarn and to a lesser extent for garments and made up goods, andon the other hand by the growing domestic demand, particularly for wovenfabrics. Furthermore, Turkish textile producers need to upgrade efficiencyand quality to become competitive with other major textile exporters. Giventhese constraints it seems, therefore, that the expectations embodied in theFourth Five Year Plan (1979-83), that textile exports can nearly be tripled by1983, are unrealistic.
3.06 Garment production in the organized sector is expected to grow by10% per year on account of economies of scale, relatively small investmentrequirements and favorable export prospects. As a result the organized sectorpenetration of the domestic garment market is expected to increase from presently11% (para. 3.01) to about 16% in 1985. Garments and made up goods hold outthe main promise for increasing exports, since Turkey's lower wages give it aclear advantage over developed countries, as its production technology isrelatively labor intensive and provided that productivity can be improved.Furthermore, Turkey's proximity to Europe allows transit times of only 2-3days and at 5-10% of total production costs. A Government sanctioned ExportersUnion has been established recently to assist garment manufacturers in qualitycontrol, production management and export marketing. Greater availability ofa wider selection of fabrics and accessory inputs would further facilitateexport expansion. On the basis of these expectations, cotton garments (wovenand knitted) and made up goods are estimated to grow by 7.2% per year during1978-85 (Project File, Item M), i.e. to about 9,200 tons by 1985. In recogni-tion of continuing import restrictions in the EEC and a limited potential fortrade-expansion in other export markets it is estimated that yarn exports
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would only grow by 2.5% annually. Fabric production will remain geared to thelocal market to fulfill as far as possible domestic demand, and only a 3%annual export growth rate has been assumed for direct woven fabric exportsdespite the low base.
3.07 Under the proposed rationalization and modernization Project,SB's share in Turkish cotton textile production is expected to remain stable,i.e. at 16% for spinning and 19% for weaving. No significant increase inSB's spinning and weaving capacity will take place under the Project. However,due to an improvement in the utilization of existing capacities from about 50%to 70% and an increase in labor productivity by about 35%, yarn productionwill rise from 41,000 tons in 1979 to 52,000 tons in 1984.2 Likewise, productionof cotton woven fabric will rise from 207 to 250 million m in the same period.Given the general Turkish textile supply deficit and SB's improved productquality to be attained under the Project, SB should have little difficulty tomarket this increase in production at a level already substantially reached inthe early 1970s.
C. Supply of Raw Cotton
3.08 Turkish supply of raw cotton should be more than sufficient to meetthe requirements of the domestic textile industry. Cotton production, whichgrew annually by 3.5% on average since the early 1960's, is expected to growby 3% per year from 495,000 tons in 1978 to 609,000 tons in 1985. This, afterthe requirements for cotton textile production have been met, would leave anestimated export surplus of 220,000 tons of cotton in 1985. Such productionincrease should be achievable as already in 1975 a cotton production of598,000 tons was realized. Also, international price developments for cottonappear to be attractive for domestic growers to increase production. Further-more, the Turkish Government seems determined to use its raw cotton for domes-tic manufacturing rather than export. Domestic use of cotton is encouragedthrough an export levy on cotton ranging from TL 36 to TL 41 per kg. Thedomestic supply of man-made fibers is expected to be constrained for the nextfew years by a high priced domestic industry of limited capacity and importrestrictions on raw materials and finished fibers.
D. Marketing of Cotton Textiles
3.09 Fabrics produced by private sector firms generally move from thefactory to the market through large wholesalers and small regional wholesalers.Some 20-25 large wholesalers, located in Istanbul, function as first lineintermediates and keep in close contact with the design and production planningunits of the mills, thereby effectively performing the marketing function forthe manufacturer. Furthermore, the large wholesalers are in a strong financialposition and finance the working capital needs of the manufacturer. The largewholesalers sell the fabrics to small regional wholesalers, with an averagemarkup of 12%, which in turn apply the same level of mark-up. The mark-up atthe retail level is about 20-25%, indicating an overall mark-up of over 40%,as compared to one of 10-15% for SB's products. Exports of yarn are usuallyhandled by agents and only in a few instances do Turkish textile firms havetheir own office or representative in the different EEC countries.
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3.10 Textile sales are concentrated in the urban areas, and even more sofor the more expensive fabrics produced by the private sector. Three largecities -- Istanbul, Ankara and Izmir, with 20% of the population -- accountfor 36% of total textile sales, and there are indications that the concentra-tion is increasing. As part of the proposed Project, SB, initially assistedby consultants (para 5.11), will closely monitor evolving market trends toassess these buying patterns and to respond with an appropriate product mix asa basis for rationalization of SB's cotton textile production.
E. Pricing
3.11 There are no price controls on textiles produced by the privatesector nor, at least in theory, on products of the public sector. But,until recently, prices for SB textile products were subject to survey andunofficial control by the Ministry of Industry and Technology, and there wasstrong political pressure on SB not to raise its prices above levels 10-15%below private sector prices. In a recent major policy shift, however, theTurkish Government has decided that in future the Board of Directors ofthe SEE's, including SB, will set their own prices depending on market condi-tions, so as to generate enough profit, not only to cover their productioncosts, but also help contribute to their investment expenditures. Exportprices for yarn are determined by Export Unions, according to European marketprices. Exports are encouraged through a set of export incentives, includingexport tax rebates, as a percentage varying with export earnings. At present,given the attractiveness of the local market and supply constraints, the mostimportant incentive is an export retention scheme by which 50% of foreignexchange earnings by the exporting mill are retained to meet their operationalimport requirements.
IV. THE COMPANY
A. Sumerbank - Holding Company (The Beneficiary)
1. History, Objectives and Role of Sumerbank
4.01 SB was founded in 1933 as one of the first SEEs in Turkey comprisingbanking, industrial manufacturing and the marketing of its products. SB'smain emphasis has always focused on textile manufacture, cotton as well as wool.Today textiles account for about 80% of SB's total sales revenues and forabout 15% to 20% of total Turkish textile production. SB's cotton textileoperations are discussed in detail in Section B of this chapter.
4.02 The other manufacturing operations of SB (Map IBRD 14576)--leather,leather products; building materials (cement, bricks, tiles, and hardboard);ceramics, refractories; chemicals (dye stuff, tanning products); vegetable oil--have had less impact on the Turkish economy. Likewise, banking (36 branchesthroughout Turkey) is comparatively small in the national context and servesessentially to provide (i) banking facilities to SB personnel and the
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population in low density rural areas and (ii) low costs credits to SB manufac-turing facilities. SB's sales division Alim ve Satim Muessesse (ASM), with23 warehouses and about 430 retail shops throughout Turkey (Map IBRD 14577),was established to sell SB's consumer products but is now also intended to
include retailing of consumer goods purchased from outside firms.
4.03 SB has to satisfy a number of sometimes conflicting objectives(paras 2.02 and 2.10). In addition to profit-maximization, it is called uponto (i) provide mass-consumption fabrics to the rural and urban poor throughoutTurkey; (ii) stabilize prices in the domestic market; (iii) generate employment,particularly in less-developed regions; and (iv) train textile industrypersonnel beyond its own requirements. These conflicting objectives havetended to exacerbate management problems of this diversified industrialconcern and have made performance more difficult to assess.
2. Organization and Management
4.04 SB, a 100% government owned public sector enterprise, operates underthe control of the Ministry of Industry and is subject to laws and regulationsapplicable to SEEs. SB's activities and financial position are reviewed andaudited by the High Control Board which reports directly to parliament.SB's investment plans and activities are approved annually by the Ministry ofIndustry and the State Planning Organization (SPO) in consultation with theState Planning Council (representatives of various government agencies andMinistries of Finance and Industry) in accordance with the Government's budgetconstraints, development priorities, and other policies.
4.05 SB is headed by a six-member Board of Directors comprising theGeneral Director, two Deputy Directors and representatives of the Ministry ofIndustry, the Ministry of Finance and labor. The Board has limited policymaking functions; it essentially is the operational decision making organ ofSB, meeting weekly. Through its headquarter's organization (Annex 4-1) inAnkara, the Board controls operational units throughout Turkey. Manufacturingentities, as well as ASM, are legal entities called establishments. Annex 4-2shows the organization of a typical cotton textile plant and Annex 4-3 that ofASM.
4.06 SB management, both at headquarters and in the plants, was changedin December 1979. The new General Director of SB is Mr. Suku Akgungor,a capable administrator with a financial background, and formerly the GeneralManager of DYB. The new management fully supports the Project and its con-cepts and strives to provide continuity in finalizing Project preparation andin early Project implementation.
4.07 The performance of SEEs including SB has increasingly suffered froma number of deficiencies inherent in the Turkish SEE system; the most importantof which are: (i) frequent top management changes and their disruptiveeffects on operations and investments (para 4.22); (ii) inadequate managementcompensation and incentives systems in comparison with the private sector(paras 4.23 to 4.25); (iii) overstaffing coupled with relatively generouswages and lack of adequate incentive systems (paras 4.24, 4.25); (iv) an
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overly centralized organization and a lack of clearcut definitions of respon-sibility and authority (para 4.18); (v) Government's deliberate policy ofkeeping prices low (paras 4.39 and 4.40); and (vi) a rigid, cumbersome andtime-consuming annual investment approval system (Project File, Item N), aswell as misallocations of scarce financial resources and delays in executionof investments.
4.08 The new Government, which has been considering a number of waysto correct these problems, has recently decided, as a first step, that SEEswill be freed from Government intervention in pricing decisions. At the sametime, they will also gradually lose their privileged access to the Treasuryor the Central Bank for funding of their investment programs or for coveringtheir deficits. It is hoped that these new policies will eventually also leadto increased autonomy of SEEs in investment and employment policies, as wellas personnel compensation and incentive systems. The Bank will continue tomonitor the developments of SEE reforms.
3. Financial Structure and Performance
4.09 The financial structure and performance of Sumerbank as a holdingcompany is given in Annex 4-4, and key financial data is summarized in thetable below:
Sumerbank - Key Financial Data /a(TL Million)
1973 1974 1975 1976 1977 1978 1979(Preliminary)
Sales /b 5,155 7,474 8,624 11,859 12,837 18,325 26,626Gross Profit 684 1,076 947 1,475 2,007 3,149 5,661Net Profit 136 208 51 2 174 441 1,025Internal Cash Generation /_ 496 760 553 638 841 1,151 1,605
Gross Profit (as X of sales) 13.3 14.4 11.0 12.4 15.5 17.1 19.1Net Profit (as X of sales) 2.6 2.8 0.6 0.0 1.3 2.4 3.5
Total Assets 9,272 11,551 13,637 18,191 22,322 27,164 36,422
Current Ratio (times) 1.7 1.2 1.3 1.3 1.2 1.1 1.2Debt/Equity Ratio 25/75 24/76 41/59 51/49 56/44 52/48 28/72Debt/Service Coverage (times) 1.2 1.7 1.1 1.0 1.4 1.4 1.9Inventory Turnover (times) 2.6 2.5 2.3 2.6 2.5 2.9 2.8
/a Excluding seven Joint Stock Companies (JSCs). JSCs include six cottontextile plants and one non-cotton plant under SB management, with SBowning more than 80% of outstanding shares of these companies.
/b Due to the inadequate consolidation practices of financial statementsand resulting double counting of intercompany accounts, sales figures areconsiderably overstated. The net sales are estimated to be approximately60% of these amounts. The majority of intercompany transfers occursbetween individual plants and ASM.
/c Including interest expenses incurred.
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4.10 Sumerbank's sales in value terms have increased by about 5.7 timesbetween 1973-79. This increase, however, is largely on account of risingprices, since production has been stagnant despite the substantial additionsto production capacities. As a result, net profit as % of sales has decreasedfrom 2.6% in 1973 to zero in 1976, but has since recovered to 3.5% in 1979.Similarly, cash generation was barely sufficient to service debt in 1975 and1976 on account of deteriorations in the Company's financial performance andstructure. Sumerbank's debt/equity ratio has changed from 25/75 in 1973 to52/48 in 1978, mainly due to increasing long-term liabilities vis-a-vis theTreasury and the Central Bank. At the same time, the current ratio hasfallen from 1.7 to 1.1, since a large portion of SB's investments werefinanced by short-term debt.
4.11 To partly correct this situation and to improve Sumerbank's finan-cial structure, the Government has, in December 1979, increased the nominalcapital of SB from TL 2.25 billion to TL 8.0 billion. Moreover the Treasuryhas converted approximately TL 4.6 billion of outstanding SB debt to theTreasury into paid-up capital as of December 31, 1979. This has resulted ina marked improvement of current ratio, debt/equity ratio and debt servicecoverage. Of this amount, SB has allocated TL 2.49 billion in the aggregateto its cotton textile plants which already held TL 1.2 billion of paid-upcapital (para 4.45).
4.12 A grouping of SB's net profit between 1973-78 for its differentoperations is shown in the table below, with detailed background in Annex 4-5:
Sumerbank - Net Profit by Operations /a(TL Million)
1973 1974 1975 1976 1977 1978
SB-Cotton Textile Plants /b 67 174 102 (112) (64) 45SB-Woolen Textile Plants 52 52 66 68 98 147SB-Chemical Plants 29 21 (28) (11) (28) 4SB-Soils Operations (15) 18 (4) 58 47 72SB-ASM (Sales Organization) 4 (10) (41) (40) 34 102SB-Banking (1) (47) (44) 39 87 71
Total SB 136 208 51 2 174 4417 Joint Stock Comp. (JSC) 65 25 (56) (3) (70) (227)
Total SB + 7 JSCs 201 233 (5) _j) 104 214
Total CottonTextile Operations /c 131 202 80 (9) 07) )
/a 1979 data not available./b SB-Cotton Textile Plants, excluding six cotton textile Joint Stock
Companies (JSCs) under SB management but including Hemp mill at Taskopru,a non-cotton plant.
/c These include all fully owned SB cotton textile plants as well as sixJSCs forming together the cotton textile operations.
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4.13 With the exception of Woolen Textiles, all of SB's operationshave incurred losses occasionally during the past seven years. However, thecotton textile operations (both, fully owned plants and joint stock companies)have been the primary cause of SB's declining profitability; the major reasonsare explored in Section B of this chapter and appropriate measures are to betaken under the Project to improve their profitability and cash generation.
4.14 While the Banking Division has shown substantial improvements inits profitability over the last five years, it cannot, on its own be consid-ered a significant source of local funds for the proposed Project. In thefinancial sense it acts as a holding company, channeling the short-and long-term debt from the Government to SB's establishments, mostly in the form ofintercompany receivables. Only 12% of its funding sources are customerdeposits; less than 10% of its assets are outside SB with other Bank customers.
4.15 Profitability and cash generation from SB's other non-cotton opera-tions (with the exception of woolen textile operations) has been erratic.To determine SB's operational prospects and future cash-flow situation,financial projections were prepared for SB's non-cotton operations (Annex 4-5;key assumptions in Project File, Item 0). Throughout the 1980-83 period, theimplementation period of the proposed Project, the net cash flow of thenon-cotton operations is expected to improve on account of the recent priceincreases for SB products and an assumed future policy of regular priceadjustments in line with market- and production cost developments. However,due to large increases in working capital needs during the highly inflationaryperiod, that cash generation would only satisfy the financing requirements ofnon-cotton operations; thus it is not expected that SB non-cotton operationscould contribute significantly to the financial requirements of the proposedProject.
4.16 In the past, any unforeseen cash shortfall or sudden replacementinvestment could be financed through SB's easy access to low-interest Govern-ment funds. Under the new economic policy towards SEEs, SB cannot count infuture on Government financing other than equity. Unless, therefore, equitywere to be forthcoming in a timely fashion to meet SB's additional financingneeds, SB investment projects presently planned or under execution might bedelayed for want of funds, including the proposed Project. Assurances were,therefore, obtained that (i) the Government will meet the early cash equityrequirement of the Project according to an agreed timetable and (ii) SB willnot, during project execution, transfer profits, generated within cottontextile operations, to SB non-cotton investments, unless the requirements ofthe Project have been met. Provision by the Government of an initial portionof cash equity (TL 400 million) is a condition of effectiveness of the Bankloan (para. 6.08).
4.17 A major recurring cost item for SB is the payment of retirementseverance benefits. Based on Turkish tax laws, only payments during a currentyear are considered tax deductible; no reserves are being established forsubsequent years. However, due to substantial increases of the retirementbenefits during the last few years, future payments to beneficiaries will havea substantial impact on the evolving financial situation of SB. The actualpayment in 1978 amounted to TL 292 million, while accumulated future paymentswould amount to TL 3.3 billion as of December 31, 1978. To show the importanceof this item, SB will indicate in its financial statements, actual and pro-jected payments for a rolling five year period.
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B. Sumerbank Cotton Textile Operations
1. Organization and Reorganizational Concept
4.18 Sumerbank's cotton textile operations, 1/ consist of 13 fully ownedplants (establishments) and six joint-stock companies (JSCs) under SB manage-ment (MAP IBRD 14575), and are controlled by SB headquarters, whose organiza-tion chart is shown in Annex 4-1. Cotton textile operations have sufferedfrom the typical public sector problems (para 4.07) particularly given theirsize, complexity and the fact that coordination and control functions at SBheadquarters are scattered throughout the headquarters organization. Moreover,although on paper the production units are supposed to be quasi-autonomousprofit centers, they have to refer even minor issues to the headquarters fordecision, with resulting delays. Therefore, individual plant managements havecome to concern themselves almost exclusively with day-to-day operations andhesitate to take responsibilities or initiatives for medium or long-termimprovement of operations.
4.19 To provide a more cohesive organization with better coordinationbetween units and a clearer understanding of responsibility and function,consultants (provided under the project preparation facility--para 4.47)recommended consolidating and reorganizing all the functions related to cottontextile operations under a single organization. Initially, consideration wasgiven to forming a separate company under a separate law to take over textileoperations. However, this would have required lengthy legislative changes andwas moreover inconsistent with the general reforms being considered for thestate sector which envision creating sectoral holding companies. SB, there-fore, decided to form a division within the company, to be responsible forcotton textile operations, which would provide the needed consolidation butnot preclude later, more radical reorganization. This solution is a majorstep towards improving the situation. The new Cotton Textile Division (CTD)will have a structure comparable to the already existing Banking Division andwill bring under one umbrella all necessary functions and activities concernedwith cotton textile activities including certain marketing functions, finan-cial planning and control as well as general administration. Under this setup,CTD which will maintain separate accounts and will consolidate financialstatements of its 19 plants, will perform the centralized functions withrespect to investment planning, project implementation, production planning,financial planning and control, marketing, centralized purchases, personnelmanagement and administration for SB's cotton textile operations. SB willdelegate to CTD all autonomy and authority necessary to carry out thesefunctions effectively under SB's governing laws and regulations. CTD, inturn, will delegate to individual plants the powers necessary to permit themto achieve planned production targets, reduce operating costs and improvequality and mix of products in line with market demands. An outline of theagreed organizational framework and CTD's and the plants' powers and
1/ The cotton textile operations are not a legal entity (establishment),rather the individual cotton textile plants are.
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responsibilities are given in Annex 4-6. Agreements were obtained that aspart of the technical assistance provided under the Project (para. 5.11)details of CTD's and the plants' functions and powers satisfactory to the Bankwill be determined prior to December 31, 1980.
4.20 The new CTD which will control and direct all of SB's cotton textileoperations and will perform functions as described above was established atSB headquarters in Ankara by resolution of SB's Board of Directors on March14, 1980. The Managing Director of the new CTD is Mr. Fazli Emanetoglu, anexperienced textile engineer, who knows the plants of CTD well. He recentlyparticipated as a member on SB's negotiation team. The Managing Directorreports directly to the General Director of SB; he will assure that the corestaff (marketing, financial and supervisory operational) will be recruitedfor CTD under a scheme of contractual positions (para 4.24) and that suchstaff will obtain initial training in a Project Implementation Unit (PIU)(para 5.15).
4.21 Individual Plants of CTD will retain their present legal statusas independent establishments (Muessesse) or JSCs. Through the proposedreorganization they will become cost and profit centers. Their operationalautonomy will be strengthened sufficiently within the limits of the law toinclude an enlarged freedom of staffing, improved incentive systems formanagement and labor, more ready access to outside short-term financing, andincreased freedom in the purchasing of inputs. Plants will take initiative inproposing production targets, pricing of their products, as well as investmentplans for replacement or expansion which CTD would coordinate. An improvedinformation system within plants and between them will permit faster manage-ment decisions by CTD and ASM. Appropriate technical assistance (paras 5.11to 5.14) combined with certain action programs will help bring about thesechanges.
2. Management and Labor
4.22 On occasion of Government changes in Turkey, top managements ofmost SEEs are being replaced which in turn tend to change middle managementin Ankara and in the plants. For SB this has meant disruption of ongoingoperations and delays in investment projects under preparation and execution.While such changes cannot fully be avoidable, Sumerbank and CTD have agreedto appoint qualified and experienced personnel and maintain personnel employ-ment policies as shall increase and promote CTD's labor productivity, whichshould compensate for this problem.
4.23 One root of the recent management problem in SEEs is, that manage-ment's compensation is not competitive with the private sector. Since achange of the laws governing salaries in the public sector is, however, onlya distant possibility, for the purpose of the proposed Project, agreementwas reached with SB and the Government that the provision of 55 contractualpositions (which can pay substantially higher salaries) to SB's cotton textileoperations would be an acceptable short term solution to overcome the mostserious staffing problems during Project execution. Authority for 55 con-tractual positions has been provided by the Government to SB for CTD. Assur-ances were obtained that these positions will be maintained until Project
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completion. This will allow CTD to attract and recruit qualified staff on a
contractual basis with adequate compensation throughout Project implementation.If improvements in staff compensation are not coming about soon, a further 40such contractual positions might be required during 1981 and 1982 (para 5.15).Agreement was obtained from SB, that CTD will establish the staffing require-
ments for the Project implementation and CTD prior to April 30, 1981 in order
to determine whether and, if so, what type of additional positions will be
required.
4.24 However, apart from the above temporary solution, real long-term
improvements in staff compensation and particularly in management incentives
are also required. SB and CTD will have to discuss with the new Governmentrealistic incentives for the achievement of production, profit and export tar-
gets. For 1979 an export incentive existed for SB but was set unrealisticallyhigh. Also the Government should expedite the intended reform of the StatePersonnel Law to provide SEE managements with increased flexibility in staff
compensation matters.
4.25 Incentive schemes for workers will be reviewed by CTD and consultants
before December 31, 1980 (para 5.12). The review is expected to result inrecommendations to SB and Government for specific improvements. SB and CTD
agreed to prepare those recommendations prior to April 30, 1981 for review and
discussion with the Bank and will introduce steps for improvements. However,implementtion of such schemes will depend on the acceptance by SB's labor
unions, which may take some time.
4.26 The entire personnel strength of SB's cotton textile operations was
about 25,600 in 1979. During the same year, total staff at SB Headquarters
was 1,000, and in ASM about 4,100. In fact, SB's cotton textile plants and
administration are overstaffed. Labor wages are low compared to Europeancountries but high compared to the private textile sector in Turkey. Becauseof the low productivity the wage bill per unit of production is sometimes even
above European levels. Reasons for inefficiencies and overstaffing are: (i)difficulties in reducing the labor force other than by attrition; and (ii)labor compensation systems providing little motivation through incentives.
Under the Project, increased capacity utilization will absorb a significantnumber of presently redundant personnel. Moreover staffing and trainingrequirements will be reviewed on a regular basis (para 5.18 to 5.20). Agree-ments were obtained that CTD will prepare as part of recurring action programs
annual staffing and training requirements for CTD (paras 5.18 and 5.20) and
submit to the Bank the first Program prior to April 30, 1981.
3. Production Facilities, Technology and Operations
4.27 CTD controls 18 cotton textile plants, and one cotton ginnery in
Adana (Map IBRD 14575). 11 plants are fully integrated (spinning, weaving andfinishing), three are partly integrated (spinning and weaving) and four arespinning plants only. Three of the integrated plants also include printingand another four also have garment operations (Annex 4-7). The followingtable provides a summary of installed equipment and capacity utilization in1977.
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SB Cotton Textile Operations - Technical Data of Plants (1977)
Spinning Weaving Finishing Yarn Dyeing Garments
Installed 524,000 7,805 misc. mics. misc.Equipment Spindles looms
Installed 79,800 315 215 3,450 6,450Capacity tpy million lm million lm tpy pc/day
Overall CapacityUtilization /a 48% 58% 52% 44% n.a.
La Technical efficiency x capacity utilization.
4.28 In Spinning, plant sizes range from 10,000 to 55,000 spindles.Except for three relatively new plants (established in the early 1970's andlocated in Adana, Diyarbakir and Karaman) technology in spinning millsis conventional, labor intensive, relatively slow and simple to operate.About 65% of equipment is more than 10 years old and about 38% is more than20 years old. Use of man-made fibers is less than 5%, and airconditioningrequired for technical reasons is practically non existent in most plants.The widespread use of old slow cards and worn out drawframes and ringframes isan important cause of low productivity, poor quality and excessive powerconsumption. Moreover, in the three above mentioned new mills, some faultyequipment has never been commissioned and requires replacement (Prolect File,Item P). As a result, overall efficiency in all spinning mills is only about50%. Inadequate rationalization of production, poor production scheduling andoperating techniques and lately frequent powercuts are also contributing tolow efficiency and capacity utilization. Moreover, poor yarn quality, result-ing from the above deficiencies, causes further problems in downstream depart-ments.
4.29 In Weaving, plant sizes range from 240 to 1,000 looms per plant.Technology is conventional with automatic shuttle looms of mostly narrow width(90 cm). Only 28% of the looms are less than 15 years old, and about 22% aremore than 40 years old. Moreover, haphazard and piecemeal expansions withinplants have led to a large variety of looms within a given mill. Thus, thereis room for standardization through appropriate transfers of equipment betweenmills. A lack of spare parts and poor maintenance, combined with poor yarnquality, inadequate production scheduling, inappropriate product mix and alack of quality control have contributed to low efficiency, capacity utiliza-tion and low labor productivity. Consequently the fabric quality is poor withas many as one major fault per meter as compared to five faults per 100 metersas the maximum acceptable rate in export markets.
4.30 In the Finishing sections old equipment requiring slow batch process-ing is still predominant. Certain obsolete processes and equipment (prepara-tion in rope form using kiers for caustic scoring and pits for desizing andhypoclorite bleaching) require replacement. Fixing and steaming facilities
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for printed fabrics are old and energy intensive. Only 3% of equipment isless than five years old, and about 50% more than 14 years old. Given thedegree of obsolescence, it is not surprising that efficiency is low. Tradi-tionally the finishing sections permit to cover up many of the spinning andweaving faults, but inspection of finished goods for quality control andgrading of the product is inadequate and provides little feedback to operatingdepartments.
4.31 Garment production, is carried out in new plants with acceptabletechnology and equipment, but often lacks styling, acceptable job schedulingand quality control. Incentive systems are inadequate and qualification ofmanagement and supervisory personnel also needs improvement.
4.32 The increasing magnitude of operational problems is being broughtinto focus by the declining trend of production, as shown below:
SB Cotton Textile Operations - Historic Production Data (1973-79)
1973 1974 1975 1976 1977 1978 1979 /a
Yarn (tons) 2 52 49 42 45 39 38 41Grey Cloth (million m ) 2 224 214 217 209 184 200 207Finished Cloth (million m ) 154 148 150 144 130 137 152Garments (million pc.) n.a. n.a. n.a. n.a. 1.7/a 1.7/a 1.7/a
/a Estimate.
The deterioration of capacity utilization and productivity (except for garmentplants) (para 4.29) which is inherent in these figures is even more pronouncedgiven the fact that additional capacity as well as labor were added during the1970s.
4.33 From the above discussions it is evident that there is need to(i) replace obsolete machinery; (ii) modernize equipment through provisionof spares and machine assemblies; (iii) transfer equipment within andamong plants for purposes of increased standardization; and (iv) debottleneckfacilities through provision of equipment to balance operational capacities.Given the size and condition of existing facilities, the task of bringingproduction facilities to a more reasonable standard, compared to Turkishprivate industry or, e.g. West European standards, is a long-term task, forwhich the Project can provide only a good beginning. However, investment inimprovements of plant facilities must be accompanied by action programs toimprove product mix, production planning and control, operational procedures,quality control, maintenance programs as well as training, incentive systemsand management compensation.
4. Marketing and Reorganization
4.34 As shown in the table below, between 65% and 75% of SB's cottonfabric production (Product Mix in Annex 4-8) is sold to ASM, an additional
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15% is sold directly to governmental institutions, and the rest is either solddirectly to the public (5%), exported (5%) or used in own garment production(5% to 10%).
SB Cotton Textile Operations - Fabric Sales by Customer(000 lm)
1973 1975 1978
ASM 124.8 (64%) 131.2 (65%) 146.2 (72%)Public /a 27.2 (14%) 33.7 (17%) 35.9 (17%)Private /b 10.7 (6%) 15.2 (7%) 10.3 (5%)Export 14.4 (7%) 3.5 (2%) 2.6 (1%)Other SB Plants 17.2 (9%) 18.4 (9%) 9.4 (5%)
Total 194.3 (100% 202.0 204.4 (100%)
/a Public customers include institutions such as military, postalservice, hospitals, etc.
/b Mostly second quality - sold to wholesalers.
Yarn is mostly used internally and the remainder is exported or sold directlyby the plant to the private sector. Up to 50% of garments is exported and theremainder is sold through ASM stores.
4.35 ASM, headquartered in Istanbul, sells SB products on a consignmentbasis. Although ASM's large retail network should constitute a major advantageover the private sector, given its reach and its possibility to make use ofeconomies of scale in warehousing and distribution, the system has been costlyand inflexible due to a lack of planning and control of shipments and inven-tories, an inadequate market information system, and a lack of sales promotionat the retail store level. Little feedback of market trends from the storearrives at ASM Istanbul or even less at plant level and in either case islate. This has led to a decline in SB's cotton weaving market share from 30%in 1970 to 20% in 1978, 1/ as well as to relatively high inventory levels, lowturnover rates, misshipments and increasing costs of distribution and retail.
4.36 Sales to institutional customers, private wholesalers and other SBplants, as well as, though to a lesser extent, export sales of yarn and greycloth are centrally coordinated by a marketing manager at SB Ankara, who alsodeals with exports of other consumer products of SB as well as with sales ofintermediate products.
1/ SB's share in Turkey's cotton spinning fell from 30% to 13% during thesame period.
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4.37 Exports of yarn, fabrics and garments have been limited and erraticas is shown in the table below:
SB Cotton Textile Operations - Exports of Yarn, Fabrics and Garments
1973 1974 1975 1976 1977 1978 1979 /a
Yarn (tons) 2 9 3 3.8 6.6 1.4 2.2 7.3Grey Cloth (million m ) 2 14 1 1.7 4.5 1.6 1.5 2.6Finished Cloth (million m ) n.a. n.a. 1.4 1.6 1.0 0.9 3.1Garments (million pc.) n.a. n.a. 0.7 1.8 1.2 1.3 1.9
/a Preliminary
Exports have declined from the 1973 levels, although due to exchange rateadjustments results for 1979 have improved considerably over previous years.Export of finished cloth and garments have typically been the result ofinitiative of individual plants which established their own relationship withcustomers abroad. These plants have enjoyed relative freedom in pricing andsales of exports within certain constraints set by SB, but practically nointensive efforts for export are being made. In addition, no central exportpromotion has been provided by SB nor has any use been made of export agentsor export promotion offices in export markets.
4.38 Under the Project, sales planning, domestic and export sales (exceptdomestic retailing which would remain in ASM), pricing, market researchand product development will be vested in CTD to improve coordination betweenproduction and marketing. CTD production planning and control will be basedon annual sales plans to be reviewed and adjusted on a regular basis torespond flexibly to changing market conditions. Sales, including those toASM, will be based on contracts that will cover critical conditions of salessuch as quantity, quality, price, terms and timing of delivery. ASM willremain a major channel of distribution and a priority customer of CTD but,contrary to present practice, sales to ASM will be on an arms-length basis.Sales to institutional customers will remain under the plants' responsibilitywith CTD in a coordinating role. Sales to private wholesalers, coordinatedby CTD, will be emphasized in order to permit CTD and individual plants amore direct feedback on new market trends in the private sector. Executionof export sales x'i 11 remain under the responsibility of individual plants.However, apart from the direct contacts between plant and customer, exportsales promotion will be provided by CTD through active participation intrade fairs, regular canvassing of export markets, use of export promotionfacilities provided under the Private Sector Textile Project (Loans 1734/55-TU),and, if required, through an export promotion office in an EEC country. Anunderstanding has been reached with SB on these major principles, based onwhich marketing of cotton textiles will be carried out. Agreement was furtherobtained that CTD, supported by technical assistance will develop details ofimplementation of marketing principles prior to December 31, 1980, for reviewand discussion with the Bank, and subsequent implementation.
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5. Pricing
4.39 As noted previously, while, according to the SEE Law, SB is free toset its price, in actual fact its prices have been subject to indirect Govern-ment control until January 1980. At that time SEEs were once more given thefreedom to adjust their prices in accordance with production costs and marketconditions. Domestic prices are normally proposed by ASM and agreed by SBmanagement and government. Export prices on yarn and grey cloth are agreedwith Export Associations according to export market conditions and the SBmarketing manager has to abide by them with a maximum deviation of +10%.Exports of finished cloth and garments are priced either by individual plantsor the SB marketing manager, depending on the degree of autonomy each export-ing plant enjoys. The following table shows past domestic and export pricedevelopments for SB's cotton textile products.
SB Cotton Textile Operations - Average Ex-Factory Pricesfor Cotton Textile Products
(in TL)
1975 1976 1977 1978 1979
Domestic Prices
Yarn (TL/kg) 28.9 38.0 67.6 59.4 87.6Finished Cloth (TL/m) 11.4 13.2 16.7 23.5 31.9Garments (TL/piece) 47.3 46.8 72.3 139.7 143.0
Export Prices
Yarn (TL/kg) 20.7 28.8 39.5 51.3 87.8Grey Cloth (TL/m) 4.6 5.9 7.4 10.0 15.8Finished Cloth (TL/m) 7.7 8.6 10.1 17.8 24.1Garments (TL/piece) 32.9 43.0 58.8 84.5 139.0
Avg. Exchange Rate used:(US$1 = TL) 14.5 16.0 17.7 25.0 36.0
Although not strictly comparable in all categories due to some differences inproduct mix, above comparison of domestic and export prices illustrates theattractiveness of the domestic market. This has partly been due to a hightextile price level in Turkey, as compared to other countries (protectedmarket), and partly to overvalued local currency which depressed exportearnings. The new exchange rate of TL 70.0 = US$1 established in January1980 and the subsequent periodic adjustment has corrected the latter factor.
4.40 Although domestic SB cotton textile prices were adjusted fromtime to time they lagged behind inflation, and have remained about 10-20%below private sector prices. This was particularly pronounced from May 1979until February 1980 when SB prices were only about 40-50% of those in theprivate sector. At that time SB raised its cotton textile prices by about100%. In order to avoid such large jumps at long time intervals and tosecure an adequate cash generation, the SB and CTD agreed to review and adjustCTD's prices frequently as needed to meet changing cost and market conditionsand to earn a reasonable return on capital. The Government, on the other
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hand, assured that it would assist SB and CTD to meet this requirement. Anunderstanding was reached that CTD will be permited a minimum margin of 20%above and below approved prices to provide CTD with flexibility in pricingto respond quickly to changing market conditions.
6. Past Financial Performance and Future Prospects
4.41 Summaries of historical sales revenue, net income on a plant-by-plantbasis and financial statements for the whole of cotton textile operations aregiven in Annex 4-9 and an aggregated summary is given below:
SB Cotton Textile Operations - Key Historical Financial Data(in TL million)
1973 1974 1975 1976 1977 1978 1979 /a(Preliminary)
Net Sales 1,854 2,890 3,061 3,991 4,750 6,596 10,959Gross Profit 385 574 417 624 759 1,203 2,052Gross Profit as % of Net Sales 20.8 19.9 13.6 15.6 16.0 18.2 18.7Profit after tax (PAT) 131 202 80 (89) (107) (128) 96Internal Cash Generation /b 222 336 247 102 163 294 692Shareholders' Equity 1,258 1,371 1,400 1,390 1,199 895 2,387Net Fixed Assets 639 677 910 1,712 2,109 2,339 2,939
Current Ratio (times) 1.80 1.54 1.63 1.18 0.99 0.88 1.09Debt/Equity Ratio 2/98 5/95 31/69 37/63 42/58 50/50 33/67Times Interest Earned (times)/c 9.3 5.6 2.7 0.9 1.1 1.1 1.7
/a As of December 31, 1979, equity has been increased in the aggregateby the 1.39 billion through conversion of current accounts.
/b Including interest expenses incurred./c Debt service coverage ratios cannot be established because there are no
definite repayment schedules for debts owed by individual plants to SB.
4.42 Since SB's cotton textile plants (fully owned and JSC's) are legalentities each plant prepares financial statements and budgets for its ownoperations. Consolidated statement including all 19 plants are not nor-mally prepared and, therefore, were specifically made by Bank staff frominformation supplied by SB's accounting department. Under the Project, thereorganized CTD will prepare consolidated statements and will establish andmaintain financial planning, budgeting and control systems as a matter ofregular routine.
4.43 In addition to low capacity utilization, increased cost for thepension scheme, and generally low production efficiency, another factor whichdepressed profits was the fact that the tax burden of profitable plants couldnot be offset with losses of others, since each plant is an independentestablishment. Both in 1976 and 1977, cotton textile operations as a wholehad an income tax burden of TL 1.5 million while its combined income statementindicated before tax losses of TL 0.8 million. This also holds true forcotton textile operations/ASM tax payments. While the former incurred aTL 128 million loss, ASM achieved TL 101 million net profit after income taxesof TL 85 million.
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4.44 At present CTD barely generates sufficient cash to service itsdebt and, therefore, is unable to cover growing requirements for incrementalworking capital and renewal investments. Despite this constraint, SB hasinvested in new plant which has been financed by external debt (DYB, CentralBank, Treasury) mostly of short-term nature. Most of these projects wereimposed by the Government to serve as employment generators in central andeastern Anatolia (Map IBRD 14576). These investments were carried outin place of renewal and maintenance investments earmarked for existing plantswhich, as a consequence, showed deteriorating operations and decliningproduction. The new CTD will, therefore, be requested to limit non-Projectinvestments to US$3.0 million per year during execution of the proposedProject and to maintain adequate financial ratios during the life of theproposed loan (para 7.06).
4.45 The debt/equity ratio rose from 2/98 in 1973 to 50/50 in 1978.Because of the massive infusion of short-term loans, the current ratiodecreased from 1.80 in 1973 to an unsatisfactory 0.9 in 1978. Moreover,interest expenses as a percentage of sales revenue tripled from 1.3% in 1973to 4.0% in 1978 despite subsidized interest rates. It is difficult to estab-lish a debt service coverage ratio since repayment schedules for a largeproportion of government debt have not been established. However, even underthe assumption that this debt would be provided on a long-term basis (Annex4-5), the internal cash generation was barely enough to cover debt servicerequirements. Because of the increase in capital by TL 1.39 billion (para4.41) as of December 31, 1979, current ratio, debt/equity ratio and debtservice coverage have improved. Moreover SB confirmed that it increased CTD'spaid up capital in the aggregate to TL 3.75 billion and will set CTD's aggre-gate nominal capital at TL 5.0 billion, prior to December 31, 1981. Theseimprovements by themselves will, however, not be enough to restore the finan-cial viability for CTD unless they are accompanied by provision of technicalassistance and by rehabilitation of existing facilities included under theProject.
4.46 Financial projections for CTD "without the Project" are shownin Annex 4-10. They are expressed in US dollars (para 7.01), and do includethe increase in paid-up capital mentioned above, as well as the recent priceincrease of about 100% on all products. Projections show that without theProject CTD's profit after-tax are at best marginal even throughout theforecast period (until 1987). These projections are based on the assumptionof continued price adjustments in line with inflation and allow for two recentDYB financed new projects which are expected to start-up in 1981 and wouldslightly improve CTD's profitability. However, the projected cash flow wouldbe insufficient to meet rapidly growing working capital needs, and debtservice requirements let alone cover needs for plant rehabilitation. Thisunsatisfactory financial future of CTD clearly indicates the urgency of acomprehensive rehabilitation program.
7. Rationalization and Modernization Program (RMP)
4.47 SB management had realized that rationalization and modernizationof SB's plants was overdue, and had, therefore, established a physical rehab-ilitation program for textile operations under the heading of the "MACROPLAN,"
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(Project File, Item A) a technical project report prepared in 1976. In 1977,
a Bank mission reviewed this document with SB as well as consultants and
recommended that such modernization program should address not only thephysical rehabilitation aspects of SB's textile plants but also related ins-
titutional aspects of the Company to make it a success. GHERZI of Switzerlandwas appointed as the consultant to carry out an appropriate feasibility study
(Project File, Items B and C) which was partly financed by the Bank through
the Project Preparation Facility (PPF--PO13-TU). A comprehensive Rationaliza-tion and Modernization Program (Project File, Items D to G) was completed in
June 1979 and is summarized in para 5.01.
V. THE PROJECT
A. Project Objectives
5.01 The Rationalization and Modernization Program (RMP) is to be imple-mented over the period from 1980 to 1986. It is designed to (i) increaseefficiency and capacity utilization of existing plant facilities; (ii) reduceproduction costs; (iii) improve product quality; and (iv) improve the institu-tional and management framework of SB's cotton textile operations. The RMPwill cover almost CTD's entire investment needs 1/ up to the end of 1986 and
will increase CTD's production from presently about 41,000 metric t 2ns peryear (tpy) to2about 62,000 tpy of yarn and from about 207 million m to about
300 million m per year of fabric. This will be achieved without engaging inany real expansion of capacity, but rather through more economic use and
modernization of existing facilities through provision of spare parts and
modern machine assemblies. Obsolete machinery will be replaced. Through
appropriate transfer of equipment among different plants, standardization incertain plants will be increased, allowing better use of economies of scaleand spares. Maintenance will be restored to a reasonable level through
provision of spare parts and training of maintenance personnel. In addition,a technical assistance program to improve institutional efficiency and manage-ment effectiveness will include (i) reorganization of cotton textile operationsinto a functional, "quasi autonomous" division (CTD) (paras 4.19 to 4.21);(ii) improvements in incentive and recruitment systems for management andlabor (paras 4.23 to 4.25); (iii) improvements in operations, quality control,financial planning and control (paras 5.11 to 5.14); and (iv) strengthening
of marketing and pricing functions (paras 4.38 and 4.40).
5.02 The RMP will be grouped into two phases, the first of which consti-
tutes the proposed Project, with base cost investments of US$77 million forPhase I, and US$115 million (1979 terms) for Phase II. Phase I is a self-contained project that addresses the immediate needs of modernization whilePhase II addresses some of the longer term structural changes required,notably in finishing and garments.
1/ Excluding certain DYB financed projects in Izmir.
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B. Scope and Location
5.03 Phase I of the RMP--the Project--is to be implemented between 1980and 1983, and encompasses the rationalization and modernization of existingmachinery with special emphasis on certain plants (Map IBRD 14575) as wellas all the institutional improvements of CTD described in para 5.01 above.In addition to the physical rehabilitation of certain plants the Project willspecifically concentrate on the reorganization of SB's cotton textile opera-tions, the reorientation of marketing, as well as technical assistance foroperations, training, and management systems. This will provide a good basefor Phase II of RMP (from 1984 to 1986) designed to conclude the modernizationof the remaining facilities.
5.04 In view of the severe domestic and foreign financial constraints inTurkey, the project has been scaled-down to the essentials needed to achieveits objectives of balancing existing capacity to achieve the highest return.The Project is designed to optimize the output of existing spinning facilitiesthrough relatively inexpensive modernization and rehabilitation, and toutilize practically all the yarn thus spun to manufacture fabrics (80% ofwhich will then be finished). The production of garments will be increased,in view of the higher marketability and profitability of these products ascompared with yarn. As a result of the envisaged improvements of CTD underthe Project, production efficiency and capacity utilization in the variousdepartments of CTD's plants are expected to increase significantly. A com-parison of production projections for 1984 "with" and "without" the Projectis given in Annex 5-1 and summarized below:
CTD - Expected Improvements from the Project by 1984 /a
Spinning Weaving Finishing GarmentsWith Without With Without With Without With Without
(tpy) (million m') (million m ) (million pc.)
Produc- 52,000 35,500 250 210/b 207 159 6.3 4.5tion
OverallCapacity 78/c 47/c 74/c 67/c 78/c 51/d n.a. n.a.Utiliza-tion (X)
/a Excludes knitting operations at Adiyaman, not financed under the Project./b Increases over 1979 production due to DYB financed projects./c At 92% capacity utilization (6,637 hours/year, expressed as % of
theoretical maximum)./d At 85% capacity utilization.
5.05 In Spinning, production of yarn is expected to increase from pres-ently 41,000 tpy 1/ to 52,000 tpy and will provide for significantly upgradedquality and proportions of cotton blend yarns and combed yarns (from 1,200tons to 4,600 tons, and from 3,200 tons to 4,000 tons of yarn respectively).
1/ "Present" figures are preliminary data for 1979, projected figures arefor 1985.
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In weavinF, production of gEey fabrics will increase from presently 207million m to 250 million m , again, concommitant with a general increase inquality as well as increased volumes of wider fabrics, color woven materials,blended materials and terry fabrics in line with expected market trends forthose items. In Finishing, in order to balance increased production ofgrey fabrics, production of finis?ed fabrics will increase from about 152million m to about 207 million m with increased emphasis on product quality.In Garments, existing plants will be improved through technical assistancewhile one new plant will be installed in the phased out spinning section ofSB's Bakirkoy plant. Improved quality and increased output will increaseCTD's products' values, increase the potential for exports and will absorbsurplus labor resulting from the streamlining of the upstream textileoperations.
C. Machinery, Equipment and Buildings
5.06 In the Spinning sections of CTD, investments will be focused onsix plants (Map IBRD 14575), and will cover modernization of existing equip-ment (rehabilitation of some 47,000 spindles, replacement of drafting systemsat ring frames and speed frames); about 63,000 obsolete spindles will bescrapped. Certain bottlenecks will be removed through addition of newmachines (drawing, combing). Installation of overhead cleaners for the ringframes, addition of electronic yarn clearers to existing winders and the abovemodernizations are expected to remove dust and improve yarn quality in thoseplants where high quality fabrics are woven. Quality will further be upgradedthrough better use of raw materials by introducing testing instruments. InEregli plant, manufacturing equipment for about 500 tons of sewing thread willbe installed. In the new Karaman and Adana plants, certain machinery installedin 1974/75, which never became operational due to design problems, will bereplaced and the remainder of equipment rehabilitated and equipped withmissing components and spare parts (Annex 4-8).
5.07 With respect to Weaving the Project will focus on eight plants(Map IBRD 14575). Chosen technology will, again, be conventional; 1,439looms will be scrapped and 817 new looms installed. 766 looms and portionsof auxiliary machinery will be rehabilitated or replaced to allow CTD toproduce an increased volume of wider fabrics, larger quantities of colorwoven materials and terry fabrics in line with market demand for such items.Spare parts for all plants will be provided to help allow rehabilitation of anadequate level of maintenance. Weaving operations in the Bakirkoy plant willbe phased out by the time the Project is completed.
5.08 With respect to Finishing and Printing the Project will focus onfive plants (Map IBRD 14575) where obsolete dyeing, printing and finishingequipment will be either modernized or replaced. Finishing facilities inBakirkoy will be phased out by end 1983. Obsolete steam generating and waterscouring units will be replaced. The production flow in all plants will bebalanced to maximize capacity utilization and to increase the proportionof finished fabrics production as compared to grey cloth. New finishingfacilities will be considered only during Phase II of RMP.
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5.09 As noted above, the Project includes one new garment plant with acapacity of 1.7 million pieces of shirts and pyjamas per year, to be placed inthe vacated spinning section of Bakirkoy. During Phase II of the RMP anothergarment plant may be installed after phasing out and removing the weaving andfinishing facilities at Bakirkoy. In addition, technical assistance to theexisting plants in Izmir, Bergama, Manisa and Adiyaman is expected to increasequality and output of these plants to allow them to participate in a rapidlyexpanding market.
5.10 Civil works have been kept to a minimum under the Project concepton account of the severe local funds shortage in SB and the country. Thus nonew buildings are envisaged and civil works will be limited to rehabilitationand repair of floors and ceilings in the existing mills, as well as workconnected with improvements of the lighting, ventilation, humidification,steam delivery and effluent disposal systems.
D. Technical Assistance
5.11 In order to prepare and implement the detailed action programs(para 5.18) which form part of the reorganization, reorientation and rational-ization of CTD, the Project includes necessary technical assistance (about480 man-months); terms of reference for such assistance are given in Annex5-2 1/. Such assistance has been grouped into (i) operational technicalassistance (OTA) to cover aspects of organization, management systems, ope-rations, marketing and training (about 360 man-months) 1/ and (ii) financialtechnical assistance (FTA) to cover aspects of organization, managementinformation-systems, financial planning, budgeting and control, general andcost accounting (about 120 man-months). OTA and FTA will overlap to a certainextent and CTD staff will therefore have to coordinate the activities offinancial and technical consultants.
5.12 OTA is grouped into two stages: The first stage of OTA (ProjectFile, Item H) which is to be provided by the Swiss textile consultant firmGHERZI 2/ covers a period until about November 1980 (60 man-months financedby the second tranche of the Bank's PPF--P018-TU) and includes (i) assistancein finalizing project preparation, implementation schedules, procurementdocumentation, training programs and revised product mix; (ii) assistance inreorganization at headquarter (creation of CTD), reorientation of marketing andmanagement assistance to the new CTD (revision of long-term objectives, redefini-tion of management functions, tools for corporate planning, production planningand control, and cost control); and (iii) operational technical assistance inone integrated textile plant (Eregli) and one garment plant (Manisa). Assist-ance in these plants includes improvement of plant organization, improvementsin industrial engineering standards, production planning, standard costingsystem, workers' incentive systems, introduction of modern procedures for
1/ Man-month rates are discussed in para 6.05.
2/ GRERZI will reinforce its team with marketing experts from a local firmin Istanbul (Tubitak) and has arranged with four European textile manu-facturers to assure training of CTD personnel in European plants.
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machine maintenance, raw material management as well as operational, health,
and safety procedures for supervision and machine operators and quality
control. The second stage of OTA which is to be carried out between 1981 and
1983 (300 man-months to be financed under the proposed Bank loan) will shift
its attention to the plant level and will be based on the experience gained
during the first stage. OTA will also include assistance for supervision of
erection, rehabilitation and commissioning of machinery as well as direction
and supervision of CTD's training program.
5.13 The financial technical assistance (FTA) will also be grouped into
two stages. The first stage of FTA will be financed by a grant from UNDP/UNIDO
which is also going to be the executing agency, and will amount to about
20 man-months during 1980 (in parallel with OTA). It will concentrate on
(i) establishing financial and accounting systems for the new CTD; (ii)
improving financial planning and control at the plants' level; and (iii)
revising information systems between plants and CTD. Terms of reference for
this work (Project File, Item I) have been agreed upon between SB, UNDP/UNIDO
and the Bank. A firm (Whitehead, UK) has been selected. It is expected to
start work in June 1980. The second stage of FTA will be carried out between
1981 and 1983 (about 100 man-months, to be financed under the proposed Bank
loan), will focus on improvements of financial planning, control and cost
accounting in the individual plants under CTD.
5.14 With regard to improvements in the information system between ASM
and CTD and its plants, both OTA and FTA will limit themselves to help improve
inventory control systems and information flows about sales from retail shops
to CTD. SB confirmed that it will retain the services of suitable consultants
for OTA and FTA, acceptable to the Bank on the basis of terms of reference
mutually agreed with the Bank, during the implementation of the Project.
Effectiveness of a contract for the second stage of OTA is a condition of
effectiveness of the proposed loan. SB further agreed to cause CTD to engage
in a suitable contract with consultants for the second stage of FTA prior to
March 31, 1981.
E. Project Management and Implementation
1. Project Management
5.15 SB and CTD will have prime responsibility for the execution of the
Project, supported by GHERZI. However, during the recent past SB's record of
implementation of projects has been unsatisfactory. To assure satisfactory
execution of the Project SB has established an initial core (16 persons) of a
strong Project Implementation Unit (PIU), headed by a capable project manager,
Mr. Mehmet Yatkin, an experienced textile engineer with managerial experience
and supported by technical assistance. Given the large number of plants
containing one to four different production sections (spinning, weaving,
finishing, garments) it is estimated that the PIU will have to grow to about
35 highly qualified employees by mid 1980, and ultimately to 95 persons, for
both, CTD at headquarters and at the plant level, with experience in financial,
technical, marketing and engineering management (Annex 5-3). After completion
of essential reorganizational work in a given plant in production planning and
control, operations, financial planning and control, quality control andmarketing, a plant team will split up and move to other plants reinforced bynew PIU team members. Eventually team members will be assigned permanently
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to a plant where they will continue to carry out the recurring action programs(para 5.18). PIU will be supported by a team of consultants which at anygiven time will number about 10 experts hired under the OTA and FTA contracts.SB and CTD have agreed to maintain and increase PIU according to an agreedschedule, and CTD is at present actively recruiting further personnel for PIUwho will work as counterparts with the consulting firms.
5.16 Coordination of Project activities will take place at the divisionallevel in Ankara by the Project Manager of the PIU. Responsibility for, anddirection of subprojects in individual plants will be vested in a ProjectManager at the plant level who will report to the plant management, directingPIU members assigned to the plant, and closely cooperating with operationalplant departments as well as visiting consultants. The plant's ProjectManager, through plant management, will report to PIU at CTD headquarter inAnkara. Details of inter-communications and reporting will be worked out onthe basis of experience gathered during technical assistance work during thefirst half of 1980. Plant Project Managers will prepare monthly progressreports which PIU will assemble at the divisional level for SB management.
2. Implementation Schedule
5.17 The resulting overall implementation schedule for the Project isshown on the following page. It was prepared by GHERZI and SB, and is con-sidered to be realistic by the Bank, since (a) most of engineering workregarding the type and location of equipment has been completed as partof the feasibility study, and (b) no major civil works are involved. TheProject will be implemented over the period 1980-83. 1/ The consultantsresponsible for OTA are in place since March 1980, and those responsiblefor FTA are expected to start in June 1980. GHERZI will assist SB in thepreparation of the detailed design, engineering, and tender documents and theevaluation of qualifications of vendors. Procurement of foreign goods willbe advertised internationally on about June 1, 1980. Tenders will be issuedon September 1980 and contracts for machinery and equipment awarded beforeFebruary 1, 1981. Mechanical completion is estimated for June 30, 1983 andabout 90% of the potential capacity utilization of the rehabilitated andexpanded facilities is expected to be realized before the end of 1983. Thedetailed implementation schedules for each of the 19 plants will be preparedprior to December 31, 1980 by the PIU in collaboration with respectiveplant managers with the assistance of the consultants and will be phasedaccording to the overall project schedule.
3. Recurring Action Programs
5.18 SB has agreed that Recurring Action Programs will be preparedannually by each mill and will be assembled by CTD before November 30 preceding
I/ Completion of the Project is defined as the date on which rehabilitation,erection and installation of parts and machinery under the Project willhave been completed and CTD will have reached an aggregate monthlyproduction of at least 4,400 metric tons of yarn and 17 million m offinished fabric during a continuous period of 60 days.
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TURKEYSUMERBANK COTTON TEXTILE PROJECT
IMPLEMENTATION SCHEDULE
DATE 1980 1981 1982 1983 1984
0 6 12 18 24 30 36 42 48
A. MACHINERY AND BUILDINGS
Detailed Engineering& Design
Civil Works -
Procurement
Delivery of Equipment& Machinery _
Erection of Equipment& Machinery -
Trial Runs
Entry into CommercialProduction _
B. TECHNICAL ASSISTANCE Total Man Months
OPERATIONAL TECHNICAL 360 MM
ASSISTANCE (OTA)1 5M M 4 5MM 60 MM
Headquarters r _ _
40MM 401MMEregli, Manisa Garments
Other Plants 2 220MM 220MM5MM 35MM _ 40 MM
ASM
2 FINANCIAL TECHNICALASSISTANCE IFTA) 120 MM
8MM 17MM 25 MMHeadquarte rs - -
Eregli, Manisa Garments 1 OM 0M75MM 75 MM
Other Plants 2 7MM2 8MM im
ASM 10MM
wA__A First Stage. Financed by PPF and UNDP/UNIDO
Second Stage. Financed under the Project
M.M. Man Months
Industrial Projects Department
Februarv 1980 World Bank - 21376
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the following fiscal year. They will include (i) production programs; (ii)maintenance programs; (iii) technical assistance programs (OTA and FTA);(iv) staffing and training programs; (v) operational budgets with targetsfor production costs, profits, and exports; (vi) investment programs, and(vii) five-year rolling financial projections for CTD. The above programswill be reviewed and adjusted by CTD on a quarterly basis except for thefive-year projections which will be revised annually.
F. Employment and Training
5.19 Poor performance of SB's cotton textile plants has been caused,among others, by inadequate training of a portion of the labor force consideredredundant. The SB Textile Training and Research Center (STTRC) in Bursa hasnot been used to the extent possible and on-the-job training in the plants hasbeen inadequate. Therefore, a detailed staffing and training program will beestablished for the Project by CTD and the Consultants by December 31, 1980.The staffing program will call for staffing targets in each plant. Broadly,the training program will include initially training of about 50 TechnicalInstructors (for spinning, weaving, finishing, garments, for all mills) infour textile and garment plants in Western Europe to be arranged by OTA con-sultants. In a follow-up stage those instructors will attend short seminarsorganized, staffed and supervised by OTA consultants at STTRC in Bursa, todiscuss the organization of teaching techniques for the courses subsequentlyto be given in the plants. Such seminars will be repeated once every sixmonths during Project implementation to serve as a clearing house for ideasand solving of problems connected with the training program. In a thirdstage, training courses for mechanics, foremen and loom fixers will be carriedout by the Instructors on a continuous basis in their respective plants.Thus, altogether it is estimated that over 1,000 supervisors and operatorswill be retrained in textile engineering, operation and maintenance proceduresfor textile and garment machinery and equipment. In addition and subject toavailability of potential supervisory and management personnel, at least 40Turkish nationals with appropriate education, language abilities and experiencewill be selected for a special six-month training program abroad in textiletechnology and plant management, which should be followed by practical trainingprograms of three months duration in appropriate foreign textile plants.
5.20 The STTRC in Bursa will be utilized essentially for purposes ofsupervisory training, training of instructors and, possibly, for languagetraining. A crash language course may be required before the first groupof technical instructors is sent to Europe (para 5.19). The research facili-ties should be used more extensively for quality control and industry surveysof the Turkish Textile Sector (comparison of products of public and privateindustry, and with foreign products). SB and CTD agreed to provide to theBank (i) said staffing and training program prior to April 30, 1981, and(ii) progress reports on staffing and training, quality control and industrysurveys on a annual basis prior to November 30 of each year from 1981.
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5.21 Direct employment effects are small in relation to the investmentand amount to about 1,680 new jobs being provided in the garment sector,offset by an attrition of about 940 redundant jobs in spinning, weaving andprocessing or a net gain of 740 jobs. However, this ignores the very largeamount of over-employment in the present facilities and the very low produc-tivity of the present work force. The main anticipated benefit of the proposedProject is the substantially increased production from largely the same plantand labor force, achieved through a careful balance of modernizing investments,better organization and management.
G. Ecology
5.22 The main sources of pollution in cotton textile plants are (a) highalkalinity (ph above 7); (b) cellulosic waste increasing the biological oxygendemand (BOD); (c) suspended solid (SS) content of the effluent generated inprocessing operations, as well as inside the plant; (d) dust pollution fromfiber particles; and (e) noise pollution. The existing environmental standardsfor industrial effluents issued by the Government in 1973 are generally lessstringent than current Bank guidelines. Until revised standards and a time-table for compliance is published by the Government, it has been agreed withSB management that by 3 months after Project Completion CTD will operate itsdyeing, processing and finishing operations according to environmental andoccupational health standards for textile plants acceptable to the Bank.
VI. CAPITAL COSTS. FINANCING PLAN AND PROCUREMENT
A. Capital Cost Estimates
6.01 The total financing required for the Project is estimated to beUS$130.7 million including US$17.7 million financial charges during construc-tion. In addition, US$19.8 million will be required to bring up to andmaintain the working capital of existing operations at acceptable levels(para 6.04). A summary of capital costs is shown below in mid-1979 termsand detailed assumptions are given in Annex 6-1 and the Project File (Item Q).
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CTD - Summary of Capital Cost Estimates
---- TL Million /a-- ------ US$ Million-----Local Foreign Total Local Foreign Total %
Machinery & EquipmentSpinning 49 1,281 1,330 0.7 18.3 19.0 24Weaving 196 917 1,113 2.8 13.1 15.9 21Processing - 329 329 - 4.7 4.7 6Garment 7 196 203 0.1 2.8 2.9 4Spare & Components /b - 756 756 - 10.8 10.8 14
Sub-total 252 3,479 3,731 3.6 49.7 53.3 69
Freight & Insurance 7 280 287 0.1 4.0 4.1 5Civil Works 560 105 /c 665 8.0 1.5 /c 9.5 13Erection 7 105 112 0.1 1.5 1.6 2Consultancy & Training Id 119 476 595 1.7 6.8 8.5 11
Base Cost 945 4,445 5,390 13.5 63.5 77.0 100Physical Contingency (6%) 70 259 329 1.0 3.7 4.7 6Price Contingency (32%) 245 1,456 1,701 3.5 20.8 24.3 32
Total 1,260 6,160 7,420 18.0 88.0 106.0/f 138of Which Taxes (161) (0) (161) (2.3) (0.0) (2.3) -
Financial Charges duringConstruction 245 994 1,239 3.5 14.2 17.7 23
Incremental WorkingCapital fe 364 126 490 5.2 1.8 7.0 9
Financing Required forthe Project 1,869 7,280 9,149 26.7 104.0 130.7 170
Additional W.C. forExisting Operations /g 1,246 140 1,386 17.8 2.0 19.8 25
Total Financing Required 3,115 7,420 10,535 44.5 106.0 150.5 195
/a The costs expressed in TL have been calculated from the US$ costs usingan exchange rate of US$1.00 - TL 70 and are therefore only notional, aschanges in the exchange rate are expected (para 6.03).
/b Foreign spare parts and machine components for existing productionfacilities.
/c Represent costs for water and effluent treatment facilities amounting toUS$1.5 million, all in foreign exchange.
/d Includes US$1 million already financed through PPF, i.e., US$0.4 millionfor feasibility study and and US$0.6 million for consultancy servicesduring early implementation period.
/e Working capital incremental for the Project. Includes relevant priceincreases due to inflation.
/f Includes US$1.0 million indirect foreign exchange./A Incremental working capital required for existing operations. Includes
relevant price increases due to inflation.
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6.02 Equipment costs expressed in mid-1979 terms have been estimated byGHERZI based on price quotations obtained from textile machinery suppliersin April 1979, and have been revised by the Bank to reflect certain changesin scope. Imported equipment costs are based on FOB plus transportation andinsurance costs, excluding Turkish customs duties of which SB is exemptedas is practiced with all SB investments. Local taxes included in the costestimates are estimated at US$2.3 million. The base cost includes estimatedcosts of foreign spare parts and machine components for the existing equipment,adequate to reinstate in CTD a reasonable level of maintenance. Restitutionof maintenance through the supply of spare parts as well as technical assist-ance services (para 6.05) constitute major cost items in this rehabilitationProject. Civil works costs are estimated based on the preliminary designprepared by GHERZI, and price information received from local contractors inApril 1)79. Existing buildings and structures are to be used with minimummodif!zation under the Project, for the purpose of minimizing local currencycost'.
6.03 The total Project cost includes provisions for overall contingenciesof about 38% on base costs, including 6% for physical contingencies 1/ and32% for price contingencies. Price escalation for foreign costs is calculatedon the basis of projected international inflation rates of 12%, 10.5%, 9%, 8%,7% per year for 1979 through 1983. The same international price inflationrates have also been used for local supplies and services expressed in USdollars on the assumption that the differences in domestic and the inter-national inflation rates will be accounted for by adjustments in foreignexchange rates. This assumption is based on the new economic policy packageannounced on January 25, 1980. Given the well defined project scope and smallproportion of civil construction costs, the project cost estimates includingcontingency provisions are considered realistic.
6.04 Permanent incremental working capital for the Project is estimatedat US$7.0 million, including US$1.8 million in foreign exchange necessary tofinance additional raw material inventories of man-made fibers, chemicals anddye stuffs which have to be imported. Details for working capital require-ments are given in Annex 6-1. In order to improve CTD's financial structureSB converted TL 2.49 billion of its short-term debt into equity. Furthermorean additional working capital of US$19.8 million for the existing productionfacilities is included in the above financing requirements in order to main-tain CTD's current ratio at a level of at least 1.2 during implementation ofthe Project.
6.05 The feasibility study for the entire RMP (Phases I and II) and theProject (Phase I) was carried out by GHERZI and financed by PPF at the rateof US$10,800 per man-month. For technical and financial consulting servicesduring the implementation period, the same man-month rate (US$10,800 in
1/ 7% on all items except for spares and components for existing machinery,for which no physical contingency is provided.
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mid-1979 terms) has been assumed. In addition, costs of US$3,700 per man-month to cover expenditures for international travel, subsistence as wellas local transportation, local office operating expenses, and miscellaneousitems, have been included, resulting in a man-month cost of US$14,500.
B. Financing Plan
6.06 Annual financing requirements and a proposed annual financing planare shown in Annex 6-2. The financing plan is summarized below:
CTD - Proposed Financing Plan
----TL Million a --]-- - -- US$ Million…----Local Foreign Total Local Foreign Total
Equity:
Additional Equity Contribution 1,260 - 1,260 18.0 - 18.0Internally Generated Funds 1,855 1,260 3,115 26.5 18.0 44.5
Debt:
IBRD Loan - 5,810 5,810 - 83.0 83.0Suppliers' Credit - 350 350 - 5.0 5.0
Total 3,115 7,420 10,535 44.5 106.0 150.5
/a The figure expressed in TL have been calculated using the exchange rateof US$1.00 = TL 70 and are therefore only notional, as changes in theexchange rate are expected.
/b The agreed equity contribution by the Government is TL 1,700 millionequivalent to US$18 million at expected exchange rate adjustments(footnote a).
6.07 Under the new economic policy, which was accompanied by substantialprice increases of SEE products and elimination of most of the SEE productsfrom the price-controlled Basic Goods category, SEEs are, as already noted,allowed to set their product prices in line with market conditions, so asto generate enough funds not only to cover their operating needs, but alsogenerate funds for investments. The above financing plan takes this newpolicy into account, and therefore relies heavily on internally generatedfunds for project financing. For projection purposes prices are increased inline with anticipated international inflation during the project implementa-tion period (para 7.03). This requires, however, a change in SB's pricingpolicy and strengthening of CTD's marketing and financial management. It isassumed that SB product prices will be reviewed and adjusted in line withmarket prices. SB management has agreed that the prices will be reviewedand adjusted frequently as needed taking into account competitive marketconditions, production cost increases due to inflation and the objectiveof CTD to earn a reasonable return on capital under conditions of efficientoperations. The Government undertakes to enable SB to carry out such pricingpolicy. Rehabilitation measures under the Project in terms of equipment,
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action programs, technical assistance and training, are designed to boostproduction, reduce unit cost of production and improve quality. Given thosemeasures, it is reasonable to expect that CTD will generate enough funds from1981 to contribute about US$44.5 1/ million equivalent to the financing of theProject during its implementation.
6.08 In addition to internally generated funds, the Project requireslocal funds of TL 1.7 billion to be provided in the form of equity contribu-tion by the Government. These funds are required early in the Project execu-tion when the cash generation of CTD is not yet sufficient to cover financingneeds of the Project. This additional equity is necessary to maintain areasonable debt/equity ratio throughout the implementation period, and toprovide a cushion against the risk of insufficient cash generation arisingfrom (i) unforseen delays in project implementation and (ii) failure toincrease prices in line with cost increases. The initial cash equity contri-bution of TL 400 million is a condition of effectiveness. The Government hasalso agreed to provide an additional TL 800 million prior to December 31, 1981and the remaining TL 500 million of equity by December 31, 1982.
6.09 SB attaches high priority to the Project in its investment plansand has agreed that CTD will not make investment outside the Project exceedingUS$3 million equivalent in any year prior to the completion of the Project.SB has agreed not to transfer funds from CTD to its other operations unlessCTD meet a minimum current ratio of 1.5 during Project implementation. Ifneeded, SB will also provide the necessary funds to complete the Project.
6.10 As for foreign financing, the Bank loan will cover 94% of theforeign cost components or 80% of total costs of equipment, civil works,consultancy and training, net of local taxes. The Bank loan of US$83 millionwould be made to the Government (Borrower) at an interest rate of 8.25%p.a. for 17 years including four years grace. The entire amount would beon-lent to SB (Beneficiary) at an interest rate of 10.5% p.a. for 12 yearsincluding four years of grace, the spread between the Bank interest and10.5% p.a. payable to the Government being charged as administration andguarantee fee. The foreign exchange risk will be borne by SB. Effectivenessof the Subsidiary Loan Agreement between the Government and SB is a conditionof effectiveness of the Bank loan. SB agreed to contract suppliers creditsamounting to US$5 million equivalent to assist in financing the Project unlessadequate funds are demonstrated to be available from other sources, prior toDecember 31, 1981. 2/ Foreign exchange required for interest during con-struction and working capital will be obtained through internally generatedforeign exchange under the foreign exchange retention scheme for exports, or
1/ The total surplus cash flow during the implementation period is estimatedat approximately US$50 million equivalent, including US$44.5 millionfor Project financing.
2/ For purposes of financial projections, those suppliers credits wereassumed to be obtainable at 8% p.a. interest rate, for 6 years including1 year of grace period.
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through special conversion by the Government of local funds internally gen-erated by CTD. The export earnings in 1979 were US$29 million; this levelof export earnings, as a minimum, is expected to be sustained throughout theProject implementation period. Therefore, CTD should be able to generatesufficient foreign exchange to cover its operating needs and interest duringconstruction. Should there be any shortage of foreign exchange, however, theGovernment has agreed to convert SB's local funds into foreign currency. TheGovernment has also assured to provide funds (both local and foreign), ifrequired to complete the Project.
C. Procurement
6.11 Services financed by the Bank will be procured in accordance withprocedures established by the Bank for such procurement. Goods costing aboutUS$52 million financed by the Bank will be procured through internationalcompetitive bidding in accordance with the Bank's Guidelines. Items costingless than US$100,000 equivalent but not exceeding the aggregate amount of US$4million will be purchased through limited international shopping on the basisof suitability, availability and price considerations following approval bythe Bank of a list of items involved. In view of the rehabilitation natureof the Project (provision of spares and machine assemblies for existingequipment) as well as the need for commissioning certain existing equipmentwhich presently is idle because of lack of spares and machine assemblies,proprietary items totalling US$17 million will be procured on the basis of alist of goods satisfactory to the Bank pursuant to such competitive proceduresas are appropriate under the circumstances.
6.12 Certain equipment to be procured through international competitivebidding or shopping is also available in Turkey in suitable quality (mostlylooms and overhead cleaners). For the purpose of bid comparison for suchequipment, local eligible manufacturers will be allowed a preference margin of15% or the actual custom duty, whichever is lower. Assurances were obtainedthat, if local suppliers should win contracts through international bidding,the Government would allocate foreign exchange to finance the local suppliers'requirements for imported parts or components required under their contracts.Procurement will be advertised internationally on about June 1, 1980. Tenderswill be issued about September 1, 1980 and the first equipment orders areexpected to be placed in January 1981. Procurement of local goods and servicesfinanced by SB will be carried out by local tendering procedures applicable inall SEEs. These procurement steps and their schedule are considered reasonable.
D. Allocation of Bank Loan and Disbursement
6.13 Allocation of the proposed Bank loan of US$83 million is as follows:
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CTD ProJect - Allocation of Bank Funds
Amount Application(US$ million) (Foreign Expenditure)
1. Plant, Equipment, Machinery 68.0 100% of foreign& Spare Parts (FOB); expenditures or 100%Freight & Insurance; of local expendituresForeign Erection Services ex-factory
2. Consultancy & Training 7.8 100% of foreignexpenditures
3. Refunding of Project Preparation 1.0 Amounts dueAdvance
4. Unallocated 6.2 100% of foreignexpenditures
Total 83.0
The Bank loan is estimated to be disbursed according to the schedule presentedin Annex 6-3. Up to 10% of the Bank loan might be used for local currencyexpenditures (para 6.12). Any surplus funds remaining in the loan accountafter the Project completion will be cancelled.
VII. FINANCIAL ANALYSIS
7.01 Domestic inflation in Turkey is estimated to have been 64% in 1979and is expected to remain high during the Project implementation period. Withinflation rates such as this, financial projections based on local currencywould present a distorted picture of the financial position of the Company.Under the circumstances, and given the Government's new foreign exchangepolicy which includes frequent adjustment of exchange rates, financial pro-jections have been prepared in US dollars. The price base is early 1980, andtherefore all the base input and output prices are converted at the rate ofUS$1.00 = TL 70.0, unless otherwise stated.
A. Projected Production Build-up and Sales
7.02 For each cotton textile plant, a production build-up has been pro-jected based on the market potentials, production facilities and proposedcapital investments. Trends of expected production for spinning, weaving,processing and garments are given in Annex 5-1 and are summarized below:
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CTD - Production Build-up
% increase1979 1981 1983 1986 1986 over 1979
(Prelim.)
Spinning (thousand tons) 41 41 44 54 32%Weaving (million sq. m) 207 214 233 250 21%Processing (million sq. m) 152 165 205 207 36%Garment (million pcs.) /a 1.7 2.6 5.6 6.3 270%
/a Includes the production of the DYB financed Izmir plant which is notpart of the Project. The net increase due to the Project is 0.4, 1.4,1.7 million pieces respectively for 1981, 1983 and 1986.
The analysis, details of which are provided in the Project File (Item G), isbased on realistic assumptions with regard to capacity utilization and produc-tion efficiency, and is considered achievable, particularly in the light ofproduction levels of 1973 very close to the levels assumed for 1986.
7.03 On the basis of the above, and assuming that intermediate goods suchas yarn and woven fabrics are used internally as long as there are capacitiesfor further processing within CTD, sales forecasts have been made for eachcategory of products. Fabrics for garments are assumed to be purchasedentirely from outside to provide the flexibility in garment manufacturing.Details of sales volume for each category of products during Project implemen-tation are given in Annex 7-1. The early 1980 prices, including the latestprice increase of January 31, 1980, are used as the basis for unit priceswhich are then inflated in line with international inflation. Consideringthe high inflation in Turkey it will be necessary for SB to review pricesfrequently and adjust them as required to account for market conditions andinflation (para 6.07). Under these assumptions operating profit would growfrom 3.7% of net sales in 1980 to 7.4% in 1984. It is expected, however, thatsuch price increases would still not narrow the traditional price differentialof 10-15% between SB and private sector textile products because the cottontextile product prices in Turkey are in fact expected to increase, at least,in line with inflation, due to the strong demand for cotton textiles antici-pated during the coming years. Improved quality due to the provision ofmodernized equipment and technical assistance, should also give SB managementan option to achieve real price increases over and above inflation, which,for projection purposes have, however, conservatively been disregarded.
B. Operating Cost Estimates
7.04 Assumptions used in the financial projections are listed in Annex 7-2.Production costs are based on current costs of raw materials (except forcotton), and other inputs such as dyes and chemicals, maintenance materialsand labor (labor costs projections in Project File, Item R). The cost of rawcotton is, among others, determined by international prices, exchange ratesapplicable to Turkey's cotton exports and the country's price stabilization
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levy. After the devaluation of the Turkish Lira in January 1980, the exchangerate applicable to cotton export became equal to the general exchange rate ofUS$1.00 - TL 70 from the US$1.00 - TL 35 which had been applied specificallyto agricultural commodities. Instead, the Government introduced a pricestabilization levy ranging from TL 36 to TL 41 per kg of raw cotton. Onthe average this would mean a price differential of TL 38/kg or US$0.54/kgin favor of domestic cotton users. 1/ Given the early 1980 FOB price ofUS$1.80/kg for short staple Turkish cotton, the delivered price of raw cotton(at the textile plant) is estimated at US$1.26/kg. It is assumed that thelevy will remain at the present level in future, while the internationalcotton price will rise as projected in the Bank's commodity price forecast.Most of the operating costs are inflated in line with estimated annual inter-national inflation rates of 12%, 10.5%, 9%, 8%, and 7% during the 1979 through1983 period; thereafter no inflation is assumed. Real price increases areassumed, however, for utility expenses (4% p.a.), man-made fiber prices (2%p.a.), and wage and salary expenses (1.5% p.a.).
C. Financial Projections and Financial Covenants
7.05 Financial projections for CTD "with the Project" are given inAnnex 7-3. Key financial indicators are summarized below, in current USdollars until project completion in late 1983 and constant US dollars there-after. In order to make year to year comparisons easier, the conversion ofCTD's short term debt into equity is assumed to have taken place at end-1979, rather than in early 1980.
CTD - Key Financial Indicators With the Project(US$ Million)
1980 1981 1982 1983 1984 11987
Sales 241.0 283.6 343.7 404.2 441.2 455.1Profit After Tax (PAT) 3.4 (0.5) 3.9 1.1 13.1 19.7Internal Cash Generation/a 11.4 10.6 22.2 24.1 37.0 38.5Annual Cash Surplus 3.4 (3.5) 4.3 (1.7) 14.7 21.2
PAT as % of Sales 1.4 (0.2) 1.1 0.3 3.0 4.3Current Ratio /b 1.22/c 1.22 1.28 1.29 1.34 1.66Debt Service Coverage 1.87 1.33 1.93 1.80 1.87 2.23Debt/Equity Ratio 21/79 42/58 52/48 52/48 44/56 20/80
/a Including interest expenses to be paid for long-term debt./b Including surplus cash balance./c Including conversion of short term debt of TL 2,490 million or US$35.6
million into equity made early 1980.
1/ This is compensated for by a production tax (35% included in ex-factory price) on yarn, which amounts to TL 47 per kg of raw cottonused for the production of yarn.
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7.06 In 1980, there will be no installation of new equipment nor deliveryof spare parts for rehabilitation of existing equipment.; the Stage I.OTA andFTA consulting services are the only Project component to be implementedduring this year. It is expected therefore that there will be no differencein the production to the case "without the Project". Provision of spareparts, components, and technical assistance are expected to yield some limitedresults in 1981 and 1982 because of resulting improvements in efficiency.However, the full impact of Project benefits would only be realized in 1983when the product mix is expected to be fully adjusted and garment manufactur-ing will be operating profitably. Sales in 1983 are expected to be 60% overthe 1979 level in real terms. The financial ratios are expected to remainwithin acceptable limits throughout the implementation except for the debtservice coverage in 1980 as described above. SB and CTD have assured that CTDwill maintain from 1980 throughout the life of the loan a current ratio of noless than 1.2 times, a debt/equity ratio of no more than 60/40 and will notincur any debt, if as ; result of that debt, the debt service coverage ratiowould fall below 1.5. Other financial covenants are contained in paras 4.17,4.19, 4.40, 4.42, 4.44, 6.09, 6.10 and 7.10.
7.07 Incremental financial projections are shown in Annex 7-4 key finan-cial indicators are summarized below.
CTD - Key Financial Indicator Incremental for the Project /a(US$ Million)
1981 1982 1983 1984 1987
Sales 2.2 18.1 55.9 92.5 114.6Operating Profit (OP) (1.4) 5.3 13.5 31.6 41.0Profit After Tax (PAT) (2.5) (0.5) 4.2 13.1 21.4Internal Cash Generation /b 0.7 10.0 20.2 30.7 35.4
OP as % of Sales (63.6)/c 29.3 24.2 34.2 35.8PAT as % of Sales (113.6)/_c (2.8)/c 7.5 14.2 18.7
/a The incremental effect in 1980 is insignificant, and therefore notshown in the table.
/b Including interest expenses for long-term debt.Tc Due to loss of production for some items during Project implementation
and increased financial charges, the incremental effects of the Projecton OP and PAT are expected to be negative.
Incremental sales revenue due to the Project would account for 14% and 21%of total revenue in 1983 and 1984 respectively. This would mean that theProject will enjoy high leverage when rehabilitation work achieves its objec-tives, which is demonstrated in high incremental PAT as % of sales of approxi-mately 14% to 18% after 1983.
7.08 A comparison of these projections with those of cotton textileoperation "without the Project" (details of which are given in the ProjectFile), shows the marked difference in CTD's financial scenario between thetwo cases. In order to highlight these differences, a comparison of somefinancial indicators is listed below for 1984:
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CTD - Comparison of Key Financial Data in 1984(US$ Million in 1983 Terms)
Without the Project With the Project
Sales 348.7 441.2Profit After Tax (PAT) 0.0 13.1Internal Cash Generation 6.3 37.0
PAT as % of Sale 0.0 3.0Current Ratio /a 1.3 1.3Debt Service Coverage 1.4 1.9Debt/Equity Ratio 7/93 44/56
/a Includes surplus cash balance.
D. Financial Rate of Return
7.09 The financial rate of return before tax is calculated on the incre-mental basis, and summarized below, while details are given in Annex 7-5.
CTD - Financial Rate of Return before Taxes
1. Base Case 25.12. Capital Cost Increase 10% 23.23. Operating Cost Increase 10% 21.64. Sales Revenue Decrease 10% 19.05. 1 year Delay of Incremental Production 20.3
The Base Case return is estimated at 25.1%. The return is most sensitiveto changes in the sales price; thus a 10% and 15% decrease in sales revenuewould drop the return to 19.0 and 15.7% respectively, underlining the impor-tance of regular price adjustments. As is usually the case for rehabilitationprojects, the return is not overly sensitive to capital costs increases. A10%-increase in total operating cost would yield a return of 21.6%. While a10% increase in cotton prices would result in a 22.9% return, the return isquite insensitive to utility price changes and labor wages, due to the rela-tively insignificant amount of incremental utility costs and labor bill. Oneyear delay in project implementation would yield a return of 20.3%.
E. Audit and Reporting
7.10 In order to improve financial planning and control within CTD, thefinancial consultants to be appointed under the Project will assist CTD todevelop and implement improved financial planning and control and managementreporting procedures, including five year rolling projections. During projectimplementation the presence of these financial consultants would also servein an internal auditing function. Semi-annual financial statements will be
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prepared by CTD and submitted to the Bank within 60 days after the end of eachquarter, whereas annual audited reports will be submitted within six monthsafter the end of each fiscal year and five year projections, making allowancefor severance pay, before November 30 of each year. Those five year projec-tions will form the basis for determining outside financing requirements.Consultants will also assist in preparing quarterly progress reports, and aftercompletion of the Project, a completion report on the progress and resultsachieved under the Project and the management and operating assistance. SBagreed to submit these reports to the Bank no later than 30 days after the endof each calendar quarter and 6 months after the Project completion respectively.
F. Ma;or Risks
7.11 Under normal circumstances the proposed Project which consists ofrationalization and modernization of well established facilities run by fairlyexperienced personnel, would only face small risks. The main technical risksarise from the need to carefully coordinate the relocation and rehabilitationof existing equipment in 18 widely dispersed plants, so as to minimize thedisruption of current operations. The technical risks are acceptable, in viewof: (a) the amount of expatriate technical assistance provided by the Project;(b) the allowance already made for production losses due to dismantling,transport and erection of the equipment; (c) a special physical contingencyprovided for new machinery to replace existing equipment damaged duringrelocation or rehabilitation; and (d) the fact that production levels antici-pated after completion of the Project are estimated to be only marginallyhigher than those already achieved in 1973. Projected production levels by1984 are only marginally higher than those already achieved in 1973, high-lighting the rehabilitation aspect. However, given (i) the present politicaland economic situation in Turkey; (ii) the specific problems of SEEs, as wellas (iii) SB related problems, several risks need to be considered.
7.12 In recognition of the country's difficult financial situation,the Project relies, to the extent possible, on internally generated fundsto finance local currency requirements and foreign exchange needs over andabove the proposed Bank loan and proposed supplier's credits. It thereforerequires frequent price adjustments in line with cost increases and marketconditions to maintain a healthy cash flow. This is in line with the recentGovernment policy of January 25, 1980. However, if inflation continuesunabated, this pricing policy could be reversed again, with consequences ofProject delays, increased costs and reduced cash generation. Initially, localfund requirements for the Project, although relatively small, must come fromequity. If equity injections, required during 1980-81, were delayed becauseof a shortage of Government funds, the Project's implementation would bedelayed, again with a concommitant increase in Project costs and resultingin reduced cash generation. The shortage of energy in Turkey could furtherdisrupt operations, and prevent CTD from achieving its production targets,thereby again reducing cash generation and increasing the risk of delays.Finally, labor unrest or strikes and resulting disruptions in plants couldseriously reduce capacity utilization and even endanger physical assets.
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7.13 The deficiencies of Turkish SEEs (para 4.07), particularly lackof management continuity, inadequate personnel, compensation and lack ofincentives would also threaten the success of the Project. Special agree-ments were obtained with regard to these problems to reduce their impact(employment policies, para 4.22; incentives, para 4.24 and 4.25; pricing,para 4.39; investment, para 4.16). Moreover, intentions of the new Government,as expressed in the new economic policies, are to provide more managementautonomy to SEEs and have them emphasize the objective of profitability andfinancial soundness.
7.14 The third group of major potential risks is under the control of SBmanagement. The success of the Project will depend to a large degree on thesupport SB management is willing to provide to the Project. SB has repeatedlyemphasized the priority which it accords to the rehabilitation of CTD and,therefore, expressed its commitment to (i) the introduction of organizationalchanges (paras. 4.20 and 4.21); (ii) the carrying out of action programs(paras 5.11 and 5.17); and (iii) the cooperation with expatriate technicalassistance. Particularly important will be management's commitment to (i)delegate adequate authority to individual plants; (ii) take responsibilitywith regard to controlling costs in plants and ASM, and monitoring and adjust-ing prices on a regular basis; (iii) provide CTD with the necessary funds forProject excecution; and (iv) refrain from draining CTD of its cash generation,both foreign and local, required for the Project as well as renewal investmentsrequired throughout the life of the loan. While the risks in the aggregateare not insignificant, care has been taken to design the Project in a waywhich will minimize their effects. Moreover, the major goal of the Project--to restore a level of production already attained in the early 1970ies--hasbeen set at a modest level. The aggregate of risks is therefore deemedacceptable.
VIII. ECONOMIC ANALYSIS
A. Economic Costs and Benefits
8.01 In calculating the economic rate of return of the Project, borderprices based on international prices expressed in constant early 1980 termshave been used for all tradeable goods and services; domestic prices were usedfor all nontradable goods with some appropriate adjustments as described below.All conversions have been made at US$1.00 = TL 70, the official exchange rateat the beginning of 1980. Imported raw materials are valued at c.i.f. borderprices, while local raw materials, unless otherwise specified, are priced atf.o.b. border prices. Cotton prices are based on the Bank commodity priceforecasts of US$2.25, c.i.f. North Europe, for Mexican SM 1-1/16", whichhistorically has demonstrated the same price trend as Turkish Adana and Izmirvarieties. International transportation and handling costs are estimated atUS$0.13/kg, resulting in the long-term f.o.b. price of US$2.12/kg for rawcotton. The current price of polyester fiber of about US$1.60/kg f.o.b. NorthEurope, is below the expected long-term price due to the temporary oversupplyin the international market and is therefore adjusted upward to arrive at the
- 49 -
long-term c.i.f. price of US$2.17/kg (in 1980 terms). Adding transportationand handling charges, the long-term delivered price of polyester is estimatedat US$2.36/kg. The costs of utility has been adjusted upward by 57% on theaverage. Based on a comparison between public and private sector wages, 80%of the financial labor costs are used as economic cost of labor. No adjustmentsare made for salaried personnel.
8.02 The product prices are based on the most recent SB export price list.For the products sold only domestically at present, a comparison was made withthe prices of similar private sector products which are internationally traded,with appropriate adjustments for quality differences. This has led to a reduc-tion of about 10% to 15% in SB prices in the case of fabrics and 19% in thecase of garments. For blended fabrics intended for domestic market, the c.i.f.border prices were established based on the current international prices andadding transportation aad insurance costs. In the absence of comprehensivehistorical cost accounting data, it is difficult to evaluate CTD's competitivesituation in the Turkish domestic as well as international market. However, acomparison of production costs of selected product items after completion ofthe Project shows that CTD will be cost competitive, both locally and interna-tionally, in yarn, fabrics and garments at the lower end of the market spec-trum which SB produces. A comparison of financial and economic prices ofproducts used is given below.
CTD - Financial and Economic Product Prices(Constant 1980 US$)
Financial Prices Economic Prices
Yarn (kg) 3.15 /a 3.15Sewing Thread ikg) 6.62 6.29Grey Fabric (m ) 2 0.78 0.66Printed Fabric (mn) 2 0.89 0.80Dyed/Bleached Fabric im ) 1.20 1.08Color Woven Fabri5 (m ) 1.42 1.26Blended Fabric (m ) 1.57 1.34Garment (pcs) 7.54 6.11
/a Net of export levy. All yarn sales are for export markets.
B. Economic Rate of Return
8.03 The economic rate of return is calculated, on an incremental basis.Using above prices and assumptions, the economic rate of return of the Projectis estimated at 23.6% (Annex 8.1). The high economic rate of return resultsfrom the following reasons: (i) the low capital investment due to therehabilitation nature of the Project; (ii) the supply of spare parts andtechnical assistance to update the maintenance program which has been longoverdue, will generate some noticeable effects as early as in the second yearof the Project implementation; (iii) the sharp rise in labor productivity tobe achieved by more efficient utilization of the existing labor force throughtechnical assistance; (iv) the structural shortage in supply of textile goodsin Turkey is expected to prevail for some time which will allow SB's incre-mental production to enter into the market without major difficulties.
- 50 -
8.04 The results of the sensitivity analysis are summarized below:
CTD - Economic Rate of Return (X)
1. Base Case 23.62. Capital Cost Increase 10% 21.83. Operating Cost Increase 10% 20.24. Sales Revenue Decrease 10% 17.65. Combination of 2 and 5 16.16. Combination of 4 and 5 13.97. 1 year Delay of Incremental Production 19.5
The return is hardly sensitive to changes in capital costs. The return ismore sensitive, however, to changes in operating cost, with a 10% and 15%increase resulting in the return to drop to 20.2% and 18.4% respectively. Thereturn is most sensitive to changes in sales revenue. A 10% and 15% drop ofsales would yield returns of 17.6% and 14.4% respectively, confirming againthe importance of a rational pricing policy.
8.05 When the Project achieves stable operations (expected in 1986), itis estimated that SB's incremental foreign exchange earnings would be US$22million while the incremental foreign exchange operating costs including debtservices would be US$17 million, resulting in a net foreign exchange inflow ofUS$15 million for 1986.
C. Other Benefits
8.06 The Project constitutes the first phase of the RMP scheme. Althoughthe Project is financially and economically viable in itself, it is designedin a way to establish an institutional framework in CTD to be relied uponas foundations for the second phase. Sizeable efforts and investment will bemade for such purposes through OTA and FTA, totalling 11% of the Base Invest-ment Cost. Much attention will be paid to organizational issues throughoutProject implementation. If successful, the Project is expected to fullyprepare CTD's organizational structure as well as its technical and financialcapabilities for the second phase of RMP.
IX. AGREEMENTS
9.01 Agreement was obtained:
From the Government that it will:
(i) provide cash equity for the Project according to an agreedcalendar (para 4.16 and 6.08);
(ii) assist SB to set adequate prices (para 4.40);
- 51 -
(iii) convert, as required, SB's local funds into foreign currencyand provide funds (local and foreign), if required to completethe Project (para 6.10);
(iv) allocate foreign exchange for imported parts or importedcomponents required by local suppliers who have been awardedcontracts to be financed under the proposed loan (para 6.12).
From Sumerbank that it will:
(i) not transfer CTD's profit to SB non-cotton operations duringProject execution until CTD's investment needs are met andonly if after such transfer the current ratio will be at least1.5 (paras 4.16 and 6.09);
(ii) cause CTD to prepare proposals satisfactory to the Bank on thedetailed responsibilities and functions of CTD at headquarters andin the plants (para 4.19), as well as on details of implementationof marketing arrangements (para 4.38) prior to December 31, 1980and implement them;
(iii) cause CTD to prepare consolidated financial statements (paras4.19 and 4.42) including actual and projected (5 year period)retirement severance payments (para 4.17);
(iv) cause CTD to improve and maintain personnel employment policies(para 4.22);
(v) cause CTD to prepare annual staffing and training requirementsincluding staff for the Project implementation, and submit thefirst program to the Bank prior to April 30, 1981 (paras 4.23,4.26, 5.18 to 5.20) and to complete prior to April 30, 1981recommendations regarding worker's incentive schemes for reviewand dicusssion with the Bank and introduce steps for improve-ments (para 4.25);
(vi) frequently review with CTD cotton textile prices and adjust themas necessary (para 4.40);
(vii) limit non-Project investments by CTD during Project executionto US$3.0 million equivalent per year and maintain certain finan-cial ratios during the life of the loan (paras 4.44 and 6.09);
(viii) allocate prior to December 31, 1981 an aggregate nominalcapital for CTD of at least TL 5.0 billion (para 4.45);
(xi) cause CTD to engage in a suitable contract with consultantsacceptable to the Bank for provision of FTA during Projectexecution prior to March 31, 1981 (para 5.14);
- 52 -
(x) contract suppliers credits amounting to US$5 million equivalentnot later than December 31, 1981, unless adequate funds forthe Project are available from other sources (para 6.10);
From CTD that it will:*
(i) maintain during Project execution a Project Implementation Unit(PIU) (para 5.15);
(ii) prepare, prior to December 31, 1980 detailed Project implementa-tion schedules for each plant of CTD (para 5.17);
(iii) establish and prepare on an annual basis certain RecurringAction Programs (para 5.18);
(iv) operate its plants under appropriate environmental and occupa-tional health standards (para 5.22).
From Sumerbank and CTD on major principles under which CTD had beenestablished including major principles for reorganization of marketingfunction (paras 4.19 and 4.38).
9.02 Conditions of loan effectiveness are agreed to be:
(i) provision of an initial portion of equity of at least TL 400million (paras 4.16 and 6.08);
(ii) effectiveness of Stage II of a Technical Assistance contractfor OTA (para 5.14);
(iii) effectiveness of the Subsidiary Loan Agreement between theGovernment and SB (para 6.10).
9.03 On the basis of above agreements, the proposed Project is suitablefor a loan of US$83 million (including US$1.0 million for the refunding of thePPF Advance) to the Government at an interest rate of 8.25% p.a. for 17 yearsincluding 4 years grace and onlending terms to Sumerbank as described in para6.10 of this report.
Industrial Projects DepartmentApril 1980
TuRKEY - SUIERBANK COTTON TEXTILE RATIONALIZATION PROJECT
.Textile Fiber Consumption in Turkey 1970-78
('000 tons)Average
1970 1971 1972 1973 1974 1975 1976 1977 1978 annual growth(M)
Domestic Consumption a/(Tons of Fiber Equivalent)
Cotton c/ 156.8 154.7 161.3 173.1 167.0 215.9 196.9 219.0 195.9 2.8
Wool d/ 26.4 27.2 28.9 28.0 28.1 28.8 29.5 30.3 31.0 2.0
Flax 1.6 1.7 1.8 - - - - - - n.a.
Artificial(Cellulose Fibers) 11.7 15.3 19.1 16.6 25.1 19.1 15.1 9.7 6.8 (7.0)
Synthetic(Non-Cellulose Fibers) 26.4 33.1 36.8 39.6 58.9 65.8 100.1 109.4 98.4 17.9
Total 222.3 232.0 247.9 257.3 279.1 329.6 341.6 368.4 332.1 5.1
Population(Millions) 35.6 36.6 37.1 38.1 39.0 40.0 41.0 42.1 43.1 2.5
PerCapita Fiber Consumption(kg. of fiber)
Cotton 4.4 4.2 4.3 4.5 4.3 5.4 4.8 5.2 4-5 0.3
Other 1.9 2.1 2.4 2.3 2.9 2.8 3.5 3.6 3.2 6.7
Total 6.3 6.3 6.7 6.8 7.2 8.2 8.3 8.8 7.7 2.5
aJ Available for home use: Domestic fiber production less exports plus imports.Consumption of cotton in domestic yarn production minus fiber equivalent of cotton manufacture exports.
c/ For 1975-78 based on 1974 per capita consumption of 0.72 kg.
Sources: Cotton - based on domestic consumption data by ISKB, Istanbul.
1970-73 - FAO "per caput fiber consumption," various years, except for cotton.
1974-78 - Wool for 1970-74 FAO data, for 1975-78, see footnote c/.
Artificial and synthetic - GTO and T.S.K.B., Istanbul.
Inwustrial Projects Dcpartment
January, 1;8u
TURIM
SUMERBANK COTTON TEXTILE 3ATIONALIZATION PROJECT
TURKEY - NUMBER OF SPINDLES AND LOOMS: DPF SECTOR: CAPACITY AND PRODUCTION a/
A. Number of Spindles in the Cotton Spinning Sector, 1972-77
1972 1977
Plants PlantsIntegrated Plants Not Integrated Integrated Plants Not Integrated
Number Total Number Total Number Total Number TotalPlants Spindles Plants Spindles Plants Spindles Plants Spindles
Public Sector 14 361,222 3 63,970 15 428,765 3 95,088Private Sector 22 573,578 15 164,960 22 903,227 45 1,459,642Others b/ - n.a. 148,112 _ - n-a. 63,356
Total 36 934,800 18 377,042 37 1,331,992 48 1,618,086
B. Number of Looms in the Cotton Weaving Sector, 1972-77
1972 177Narrow'/ Wide&/ Total Narrows' Wide/' Total
Public 6,961 799 7,760 6,483 1,619 8,l02Private 8,075 2,047 10,122 6,359 4,648 11,007
Sub-total 15,036 2,846 17,882 12,215 6,953 19,168
Unor .tzed Sector 2380 - 23,800 25,000 25,000
Total 38,836 2,846 41,682 37,215 6,953 44,109
C. DPF Sector: Capacity and Production, 1976
Capacity (million Im) Production (million 1m) Capacity Ut. Rate (1)
Registered Yrn Dyeing
Firms Total % Printing Z Finishing % Total % Printing % Finishing 7 (tons) Total Printing Finishing
Public 11 206.1 16 107.0 21 99.1 13 161.1 18 85.2 25 75.9 13 10,000 e/ 78 80 77Private 190 1,097.0 84 412.5 79 684.5 87 747.5 82 258.4 75 489.1 87 47,451 68 63 71
Total 201 1,303.1 100 519.5 100 783.6 100 908.6 100 343.6 100 565.1 100 57,451 70 66 72
a/ DPF = Dyeing, Printing & Finishing for Cotton Woven and Synthetic Knit fabricsb/ Privately owned plants, less than 6,000 spindles eachc/ Average card width - 100 cm.d/ Card width - more than 140 cm.e/ Estimate.SOURCES: TSKB, Cherzi Textile Organization
Industrial Projects Dep;,rtmentJanuary 1980
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
COTTON WOVEN FABRICS: PRODUCTION, EXPORTS AND DOMESTIC CONSUMPTION IN TURKEY,A' 1970-78
(MM)-
AverageAnnualGrowth
1970 1971 1972 1973 1974 1975 1976 1977 1978 1970-78Production cotton woven fabrics' (%)of which: 773.1 776.0 828.0 882.3 890.3 1,087.4 1,030.3 1,060 1,060 4.0
SB d/ (235.2) (236.3) (229.0) (223.5) (214.4) (216.9) (209.1) (183.8) (198.7) (2.1)Private Sector- (537.9) (539.7) (599.0) (658.8) (675.9) (870.5) (821.2) (941.3) (793.2) 5.0SB as % of total (30.4) (30.5) (27.7) (25.3) (24.1) (19.9) (20.3) (16.3) (20.0)
Exports f/ 20.5 28.0 34.3 34.3 26.9 28.0 51.4 580 48.0 10.8of which:
SB (%) g/ (42.3) (36.1) (42.7) (44.2) (5.1) (15.2) (20.0) (10.7) (14.1)Apparent domestic consumption h/ 752.6 748.0 793.7 848.0 863.4 1,059.4 978.9 1,002.0 1,012.0 3.8of which:
Cotton blends (%) i/ (12.1) (15.4) (19.3) (21.4) (33.8) (22.3) (29.6) (30.9) (25,4) n.a.Population (million persons
per year) 35.3 36.2 37.1 38.1 39.0 40.0 41.0 42.1 43.1 2.5Per capita consumption (Sq.m.) 21.3 20.7 21.4 22 .3 22.1 26.5 23.9 23.8 23.4 1.3GNP per capita increase (%)j/ n.a. 7.5 2.8 4.7 5.3 5.3 5.0 1.4 0.9 4.1Income elasticity of demand n.a. -0.2 1.0 1.5 -0.5 4.1 -1.8 -0.3 -3.0 0. 7/
-~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~05
a/ Including cotton blends.b/ Converted at 175 grams per square meter.c/ Based on yarn consumption in weaving (see table 3.5).d/ SB production of cotton woven fabrics before processing.e/ Balance of total production and CTD production.f/ Including fabrics for garment export and made-up goods export; assumed only 100% cotton exports./ As % of cotton woven fabric exports only.h/ Apparent domestic consumption = production minus exports. Imports of cotton woven fabrics were prohibited during period.i/ Consumption of cotton blends based on domestic supply of cotton blended yarn (see table 3.5).j/ At constant pricesk/ For 1970-77: 0.6
Sources: TSKB, Gherzi Textile Organization and Turkish Trade Statistics. K W
Industrial Projects DepartmentJanuary, 1980
TURKEY - SUiERBANK COTTON TEXTILE RAT1ONALIZATION PROJECI
COTTON YARN: PRODUCTION. EXPORTS AND DOMESTIC CONSUMPTION IN TU'RKEY. -/ 107,.784I,rJU(J tons) ~
AverageAnnualGrowth
1970 1971 1972 1973 1974 1975 1976 1977 1978 1970-78K'
Production cotton yarn 168.7 174.4 187.8 210.0 214.0 255.2 290.4 290.6 288.3 7.0
of which:SB (51.4) (48.3) (52.8) (51.7) (49.3) (42.3) (45.2) (38.1) (37.9) (3-9)
Private sector b/ (117.3) (126.1) (135.0) (158.3) (164.7) (212.9) (245.2) (252.2) (250.4) 9.8
SB as % of total (30.5) (27.7) (28.1) (24.6) (23.0) (16.6) (15.6) (13.1) (13.1) n.a.
Cotton blends (%') c/ (10.0) (12.2) (15.2) (16.1) (25.4) (17.2) (18.6) (19.9) (1 6.6) n.a.
Exports dl 16.8 20.9 23.6 32.7 33.3 35.8 78.6 58.1 81.3 21.5
of which:SB (%) (44.6) (31.6) (41.1) (27.2) (7.5) (10.6) (8.4) (2.4) (2.7) n.a.
Apparent domestic- consumption e/ 151.9 153.5 164.2 177.3 180.7 219.4 211.8 220.0! 220.0 / 4.8
of which used in:weaving (143.9) (144.5) (154.2) (164.3) (165.7) (202.4) (191.8) (197.0) (197.0) 4.0
knitting (8.0) (9.0) (10.0) (13.0) (15.0) (17.0) (20.0) (23.0) (23.0) 14.0 0
a/ Including cotton blends.b/ Balance of total production and SB production.c/ Assumptions: (i) Use of domestic supply in cotton spinning: Polyester staple: 82%
Viscose staple: 75%Acrylic: 5%
(ii) 50% by weight of man-made fiber in cotton blended yarn.
d/ Including yarn requirements for exports of cotton knitted goods.
e/ Imports of cotton yarn neglibible. Apparent domestic consumption = production, minus exports.f/ Domestic consumption for 1977/78 has been adjusted for assumed yarn stock levels.
Sources: Gherzi Textile Organization, TSKB, and Turkish Trade Statistics.
Industrial Projects DepartmentFebruary 19d0
- 57 -
TURKEY ANNEX 3 - 2
SUMERBANK OOTTON TEXIILE RATIONALIZATION PROJECT
SUPPLY/DEMAND BALANCE OF COTTON TEXTILE PRODUCTS IN TURKEY, 1978-85-/
Average Annual1978 1979 1980 1981 1982 1983 1984 1985 Growth 1978-85(Act.) (Est.)
Domestic Demand-/Woven Fabrics M2 1,070 1,097 1,130 1,170 1,210 1,253 1,297 1,342 3.3Yarn '000 tons- 220 206 210 212 256 270 282 295 4.3
Production 2 d/Woven Fabrics N7 - 1,060 971 987 1,006 1,182 1,243 1,290 1,338 3.4Yarn '000 tons- 288 288 293 298 344 361 376 391 4.5
Exports 2 f/Woven Fabrics
2- 48 50 51 55 59 63 67 72 6.0
Yarn '000 tons8
81 82 83 86 88 91 94 96 2.5
Available for Domestic Market-h/Woven Fabrics Nm 1,012 921 936 951 1,123 1,180 1,223 1,266 3.3Yarn '000 tons 220 206 210 212 256 270 282 295 4.3
ifSupply Surplus/Deficit-
Woven Fabrics Mm (58) (176) (194) (213) (87) (73) (74) (76) 4.0Yarn '000 tons - - - - - - - - n.a.
Appare(t Domestic Consumption per capita(m /capita) 23.4 20.8 20.7 20.5 23.6 24.2 24.5 24.7 0.8
a/ including cotton/man-made blendsb/ assumption domestic demand: (i) 1978 base year, based on trend analysis of consumption 1970-78.
(ii) income demand elasticity: woven fabrics: 78-80 - 0.680-85 - 0.5
(iii) GNP growth per capita: 1978 = 0.9%1979 - 0.0%1980 - 1.0%1981-85 = 2.0%
c/ yarn requirement for domestic cotton weaving and knitting, including requirements for fabric and knit exports.d/ capacity weaving sector: expansion 1978 and 1979 based on certificates of encouragement - no capacity expansion
assumed for 1989-81 due to foreign exchange restrictions and adverse economic conditions. Thereafter an expansionof 40 million m /year. Assumed capacity utilization in private sector 80% during 1979-81 due to power shortages.Thereafter 95% in organized private sector. For 1981-85, an addition in increase of 1% per year assumed in privateorganized sector due to increases in labor productivity. The production of the proposed Project is included.
e/ based on yarn requirements for domestic weaving and knitting production and exports.fi including woven fabrics requirements for exports of cotton garments and made-up goods.g/ including yarn requirements for exports of cotton knitted goods.h/ production minimum exports, imports assumed negligible.i/ "available for domestic market 'minus' domestic demand".
Iniustrial Projects DepartmentApril 1980
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
ORGANIZATION CHART: SUMERBANK HOLDING
EXECUTIVE COMMITTEC
SALES (EXPORT RAINS TEXTILE CHEMICAL DECOMMITNSE
ILANNING & WOOL~~~~~ENCHNOICAL CREAITSILNBLI RELASTIONST .. LOFC OPERCHSN LATIONA
i .~~
ASI UVISORY RESEARCH CEEAALME TOR lGENERALDIRECTOR C ECRDITSCOMMAITTEE COMMITYEE tCECNKTAL ADAINISTRATION CITTEE
1:1 NIIIOI 11 CTOR DIRECTOH COTON TEXIECTOTHRNDSTIANSLE STPRCHASINGMPI,AINTS Tt)IFtk ~~'GRMNTPLNT PANS SA.LSMN
NO~~~~~~~~~CM
N _lo, Irna I, _CII Ii on en 0niro,0 sIndPSIOloiti
co| ,RA ONAL,E pVSN 16 IREaRCE & flNANlCE AFdA IRn VE TE , 01 CIVLEFENSE
| RLI 85 p 1 vruTIO~~~~~NANgSRIE CHEM CAL llrAN"
S-qoar S LIIBNI. NGLJSTRIAL PHOJ(ER6;| CRDTSIl|UiLICREATIOS CITMLNELTY
Jarrirn PROJE CTS B20 * 220|
PLANNINGWYOOLE_ IND t)STHY _: ]z;-iz - JACCOU0 RNSTlO EGNEING PL.. FHEAT8SIOS|
COODINTIO 14 14 N44K4NG
INI:USTRY~~~~~~ COTNJETLEA/||OHEEVDRAL HOUSEKEEPING FLEAL ASSTAT
CNNt
E rfel lo nunibel oI PosIto4s 111a1 1sa beln Selled (n j = nurXs 1-1 valab4e~FFI9 1 ENG
Soute SUt}4ANK NOI)TRIINDSR PHJCSlltozTM
Iml_s+lol~~~~~~~~~~~~~~~~~~~~~~~~~~- PLANTS "STALISME
Jal 198 1TA .11- A b2jz1
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
ORGANIZATION CHART: TYPICAL SUMERBANK COTTON TEXTILE MILL1 /
r------------------------- ----------- _
I EXECUTIVE COMMITTEE/ |
I l PLANT MANAGER I
I ... _ w . II * ILtAADIO
I l | I I L IPLANNING ASSISTANT TANT
DEPARTMENT I TECHNICAL MANAGER ADMINISTRATIVE MANAGER | CIVIL DEFENSE
OFFICIAL
:..PLANNING;'-
MECHANICAL & U
PHYSICAL . . | MANUFACTURING ELECTRICAL ACCOUNTING COMMERCIAL PERSONNEL SERVICES
.,, TESTING.> :'. :':!, DEPARTMENT ENGINEERING DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT0 ~~~~~~~~~~~DEPARTMENT
:'::LABORATORY
TIESTUDY":-'' "' f
WORK STUDY B MANUFACTURING MAUACTURN ENERGY 2$' GENERAL PURCHASING PERSONNELRED TDEPAPROCEDURES
S INNI | MEDICALEREPARATION' :ACCOUNTING... ' , RES7 E SERVICES
<PLANNING .WREHOUSING COMUNICATION
1/ Chari basll d o ADANA Cotton Tentiew Mill (old & ne-l _'MARKETING2V ExeLutive Conmmnriee also irecludes Representative of Labor E, SERVICES
N 1B >X
O Indicate sections which xin to be strengthened by Action Plograms and p.
Technical Assistance under the Protect 1.,
Nerw Under Prolecl
Source SUMERBANK,GHERZI TEXIILE ORGANIZATION. INDUSTRIAL PROJECTS DEPARTMENTWorld Bank - 21210
Ind.rmal Protects DepatmentJanc.rvr 1980
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION P1OJEC'
ORGANIZATION CHART: SALES & PURCHASING ESTABLISHMENT fASM- ISTANBUL)
EXECUTIVE COMMITTEE1
E
MANAGING DIRECTOR.
_1 PLANNING IISECRETARY
-1 LEGAL AOVISOR|ADVISORS CIVIL DEfENSE
OF FICIA L |
ASSISTANT DIRECTOR ASSISTANT DIRECTOR ASSISTANT DIRECTOR AUIII MARKETING I ADMINISTRATION I I INVEST;ENTS ITH
COTTON PRODUCTS PURCHASING ACCOUNTING PERSONNEL CISTOMS& CONSTRUCTION.I TRANSPORTATIO REAL ESTATE
ansi a RIrsnaieo ao
WOOLEN PODUC0 CHASING PESONNEL
IPORCELAIN & II EP | FOOTWARE r nLBRTRE |SAITC I TANN
|GARMENTS|--BUGTN|-|SHIE
|SALES|--INUAC| IOMNATO
|ISTRICT MANAGERS( 23)
STORE MANAGEHS(4301
I/ E.CC.lwe Co.mille. c..,imt of Managing 13rector, Assisan Di,KIo,s Mo,keting. AdJminimstrion and In-simrols
a.d a Rop-asenalw. ol Labo, 5
S..,". SUMEHSANKX
jdllua{V 15{80 WorlId El..k -221211
TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SB - STATEMENTS OF INCOME FOR 1973 TO 1979
(TL 'lillion)
Preliminary1973 1974 1975 1976 1977 1978 1979
NET SALES 5,155 7,472 8,624 11,859 12,837 18,325 29,626
COST OF SALES (4,471) (6,396) (7,677) (10,384) (10,830) (15,176) (23,965)
Gross Profit 684 1,076 947 1,475 2,007 3,149 5,661
GCNERAL AD ADMITTISTRATIVE EXPENSES (158) (186) (258) (307) (553) (814) (1,338)
SELLING aP*--ITSES (116) (167) (254) (315) (433) (651) (1,093)
INTEREST EXPENSESOn Short-Terin Debt and
Long-Term Debt (259) (401) (361) (485) (492) (489) (344)Inter-Company Interest Expense - - - - - - -
DEPRECIATION (101) (151) (141) (151) (175) (223) (236)
OTHER INCOME (EXPrE1SE) 197 213 289 (63) 25 (70) (718)
Inco~me(Loss)Before Taxation 247 384 222 154 374 902 1,932
TAXATION (111) (176) (171) (152) (200) (461) (907)
Net Income (Loss) 136 208 51 2 174 441 1,025
= __=
- 62 -ANNEX 4-4
zUaMY Page 2
S IKU ODTTOB TRZTLl U3IOALIZ4TION PSIOJECT
SB. - BALANCE SEETS FOR TEE YEARS 1973 TO 1979
(TL Million)
PreliminaryAssets =1 1974 197S 1976 1977 .1978 1979
CURR3FT ASSETS
Cash 176 204 270 562 1,484 886 1,826
Receivables of SBA ^/ 501 634 682 1,301 1,738 1,891 2,346
Receivables - inter-oampany 3,218 4,231 5,148 6,616 7,987 9,013 7,750
- government 246 504 354 686 562 1,728 2,518
- notes reoeivable 103 144 181 216 324 451 662
- forsian customers 22 4 16 17 10 49 80
- domestio tustomers 165 139 240 290 417 150 129
- other 99 95 121 168 219 226 572
- provision for bad debts (28) (27) (26) (27) (27) (27) (52)
Total Net Reoeivables 3,825 5,090 6,034 70966 9,492 11,590 11,650
Deposits Civen 508 346 359 505 153 705 1,639
Inventories - raw miterials and supplies 801 856 1,031 1,521 1,712 2,095 3,550- work-in-progress 293 413 534 599 852 1,125 1,759
- finished goods 823 1,686 2,036 2,216 2,297 2,798 4,376
- other 54 60 79 147 ?58 324 728
Total Inventories 1971 3,015 3,680 4,483 5,119 6,342 10,413
Total Current Assets 6,981 9,289 11,025 14,817 17,986 21,414 27,883
INVEST¶EFTSBonds 57 55 54 52 64 53 62
Associated Compentes (net) 775 795 814 873 901 927 997
LONG-TERM RECEIVABLES 149 50 76 348 397 260 316
PROPERTY PLANT AID 1)QUIP INTCost 2,110 2,311 2,758 3,342 4,390 6,149 9,056
Leass Aooumulated Depreciation J18) 492) (1,090) (1,241) (1.416) (1.69) (1,892)Net Property,Plant end Eqaipment t,312 1.362 1.668 2,101 2.974 4,510 7-164
Total Assets 9,272 11,551 13,637 18,191 22,322 27,164 36,422
lJigfilttiesM1T= IMIXITItIIlS
Short-Tern Borrowings a/ 997 1.417 53i 1.535 2.710 3.167 6.295'.vines Deposits of SBA- 173 167 261 R12 991 1.350 1.747Payablesinter-company 3.217 4v231 5.140 6.616 7.907 9.813 T.750
-government 253 346 134 544 645 1.166 1.602-notes payable 3 - 6 - 7 - --foreign suppliers - - - - R 4 -
-domestic suppliers 303 323 593 792 272 350 591-others 223 1S57 410 550 3.2 409 654
TotSl Accounts Payable 4.004 5.057 6.291 S.502 9.300 10.942 10.597
Advances Received 39. 31 34 30 289 -- 302 908
Taxation Payable 310 739 920 546 716 1.152 1.965
Accruals 102 270 147 148 305 - 556 1.432
Ourrent Portion cf Log-Term Debt 33 161 104 113 1 1.50 521Total Curreat idabilities 5.667 7.842 SO360 =166 14.642 19.065 23.468
IcNG-TERi DLETTreasury and Central BThnk 261 257 1.410 2.166 3.091 3.819 853DYB (State Investment Lank) 516 63 783 868 1.127 1.167 2.095Union Bank of Switzerland - - _ 11 21 505 89Other 163 616 157 82 371 303 _
Sub Total ,0 1053 2 350 3 7 5.794 4.Less Current Portion ( 30) (161) ;-S4) ( 113) ( 331) ( 1.58C) ( 521)Total Net Long-Teru Debt 902 T97 27 66 3 27j 4_206 .6
SHARHOLDER UVSENTLTShare Capital _1.34 1.907 2.140 2.213 2,224 2.250 6.840Retained Earnings 069 905 63 __7 1177 1,643 22
TotaI Shareholders Investment 2.703 i2ffi_ 11L_ 3 3 .93 9.263Total Liebilities 9.272 11551 13.637 18.191 22,322 27.164 36,422
a/ SBA refers to SB Banking Division
- 63 -
TURKEY ANNEX 4-4Page 3
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SB - DECEN3ER 31, 1978 BALANCE SHEETS BY DIVISION(TL Million)
Bak5lnt Dtiv ASM TOTAL
.ndAssets Cotton Wool Chemical & C... Dir-to-e-t
CWURRT ASSETS Textile Textile SoilC&ah 60 22 37 731 36 886
le.ei'ables - Int.r-eopaony 130 68 34 8.667 114 9.013- o e.n.ent 159 12 2 4 79 1,204 1,720- noces receio-ble - 9 46 - 396 451- foreign tuatoner. 28 21 - - - 49
- donentlc cntaorer. 20 6 7S 2 44 150- Other 1i 23 31 51 103 226
- pronislo. for bad debts (4) (1) (2) (7) (13) (27)
Icatnable of the 3nkinig lcsiana - - - 1,891 - 1.891
laventortS. - rag -aterials and*.*pplia 1,006 485 586 2 16 2,095
- uork in prog r.s 562 387 176 - - 1,125- 15n:.had goada 800 317 177 _ 1.504 2,798- other 1Z0 67 15 - 122 324
Deposits Cin.. 211 243 17' 21 56 705
Total C.rrent A.Sats 3,110 1.659 1.626 11,437 3,582 21,414
lSVCS IENTS6on.d 6 5 2 58 2 53,easlctatd Coele (net) - - - 927 - 927
LOSGC TEOfI RCCEIVA8lES 5 - 123 217 25 260
PROPZXTY, PLANT AtlD EQUIPMLNTCoat 2,465 305 2.421 600 3t1 6,149LA.e 4cc.aolatnd Deprecieclo. (736) (163) (670) (13) (57) (1.639)
Met Property. Plant ;nd Iqutpent n .i29 .182 1,751 587 261 4,510
Total Am" to 4.*50 2.846 .392 13,20a 3.A70 27,164
-_= a _ = =
LiabilitiesCUILIT LIABS ILTIES
Short-T. r- bnk Dorronings 376 28 108 2.655 - 3,167
Saning. Deposits of SA - - - 1,358 - 1,358
Payables - nter-copany 2,474 936 2.064 209 3,330 9.013- gover-n*nt 561 246 264 85 30 1,166- note. payable - - - -
f- oisn aoPPllerq d- .do Cgii auPPllaCS 31 21 37 255 6 350
- ath.r 26, 66 59 126 132 409
Advan-es Rocal-d I I 1 8 202 17 302
TS*tlon Pty.bla 459 226 201 155 101 1.152
ACCr,aAl 288 aS 107 34 39 556
Total C.rreot Llehilities 4,216 1,622 2.905 5,079 3.455 17,477
L02rOTER.1 DESTR..k B.,ro-.ang 688 14 557 746 - 2,325Other 5 _8 3.225 2 3,240Tiea DepOaSte of SSA - - - 229 - 229
Total .on8-re Debt 69) 14 865 4,220 2 5.794
SW£A1IIOLOERS' L4VESSE3NT
Share Capital - - - 2.230 - 2.250
Rat -nd ..nnn (AcocesatodtofIC1Si (59) 210 (379) 1.657 213 1,643
T 1tal Share4hldter' IVt,easaot
Total L.oohlitet 4,850 1,146 3.292 13,206 3.870 27,164
Industrial Projects DepartmentJanuary 1980
TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SB-FUIDS O' STATEEENT
- - (Tl l.;lLION) PreliminarySCURCES OFUIFS 1973 1974t 1975 1976 1977 197C 1979
Income from operations after taxationand before interst 395 609 412 437 666 930 1369
Depreciation(net of retirements) lol '51 141 151 175 223 236Funds Provided From Operations 496 760 553 634 1.153 1605
Decrease In Investments :Bonds 3 2 1 2 - 11 _Associated Companiesznet - - -
Decrease in Long-Term Receivables 1399 9 S - - 137Increase in Share Capital 63 73 233 73 11 26 4590Increase in Iong-Term Debts - 156 1.453 ;.261 1.296 1.515Other Sources - - 7 25 25 -
Total Dhunds Provided 696 1.090 2.247 1. 9C377 2.73 2.367
USES CF FUIMSTransfer of FuIn.ds to General DirectorateLoss on Operations - _ _ _ _ _Additions to Pixed Assets (net of
retirements) 272 201 447 584 1,048 1.759 2907Debt Service Payments
Interest 259 401 361 435 492 4;89 344Repayments of Principal 121 30 161 134 113 331 515
Increase in Long-Term Receivables - - 26 272 49 - 56Increase in Investments
Bonds - - - 12 - 9Associated Companies,net 26 22 19 59 28 26 70
Accumulated Deficit of ITevwly EstablishedCompanies - 163 - .
Cther Uses of Funds 6 9 - - - -
Total Funds Used 6£-4 834 1,-34 1.742 2.605 390
Increase (Decrease) in Vorking Capital 32 256 1.253 403 431 262 2294
= 4
TURKEY - SUMERBAK4K COTTON TEXTILE RATIONALIZATION PROJECT
SB - PROJECTED INCOME STATEMENTS NON-COTTON OPERATIONS-2(TL MXillion)
1979 1980 1981 1982 1983 1984 1985 1986
Net Sales 17,058 31,767 55,042 81,993 108,678 109,163 109,281 109,332
Cost of Sales 14,437 27,468 47,846 71,552 94,989 95,398 95.462 95.48
Gross Profit 2,621 4,299 7,196 10,441 13,689 13,765 13,810 13,851
General & Admin. Expense 621 1,190 2,035 2,939 3,861 3,864 3,865 3,865 1
Selling Expenses 724 1,365 2,403 3,658 4,875 4,904 4,908 4,908 n
Depreciation 180 215 383 413 413 413 414 414
Interest Expenses 272 557 760 769 747 660 619 579
Other Expenses 113 165 256 358 402 443 A74 510
Income Before Tax 711 807 1,359 2,304 3,391 3,481 3,531 3,575
Income Tax 275 317 532 933 1.388 1.419 1,438 1.450
Net Profit 436 490 827 1,371 2,003 2,062 2,093 2,125
a/ Details and assumptions in the Project File.
Industrial Projects DepartmentJanuary 1980
- 66 -
ANNEX 4-5
Pag 2TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SB - PJECTED UND FLOW STATSE1£S NON-anTON OPERATIONS!/CTm Million)
1979 1980 1981 1982 1983 1984 1985 1986
Saurces of Funds
Profit After Tax before Interest 708 1,047 1,587 2,140 2,750 2,722 2,712 2,704Depreciation 180 215 383 413 413 413 414 414Internal Cash Generation 888 1,262 1,970 2,553 3,163 3,135 3,126 3,118
Equity Capital IncreaseLong Term Debt
Ongoing Loans 8 -New Loans 1,371 2,642 1,100 1,335 1,440 1,500 1,560 1,620Total Long Term Debt 1,379 2,642 1,100 1,335 1,440 1,500 1,560 1,620
Decrease in Working Capital - - - -
Total Sources 2.267 3.904 3.070 3.888 4.603 4.635 4.686 4,74
Application of Funds
Fixed Assets 771 1,832 50 45 - - -Other Assets
Increase Working Capital 1,743 2,398 2,598 2,925 3,976 246 215 210Long Term Debt Repayment
Ongoing Loans 780 519 293 72 89 89 89 57New Loans - - 834 1,043 1,320 1,559 1,710 1,769Total Long Term Debt Repaymnts 780 519 1,420 1,115 1,409 1,648 1,799 1,826
Interest PaymentsOngoing Loans 77 69 61 54 48 -New Loans 195 488 699 715 699 660 619 579T'otal Interest Peyants 272 557 760 769 747 660 619 579Total Debt Service 1,052 1,076 1,887 1,899 2,156 2,308 2,418 2,405
Total Applications 3.566 5,306 4,526 4,869 7,541 4,202 2,633 2.615
Annual Cash Surplus (Deficit) (1,299) (1,402) (1,456) (981) (2,938) (433) (2,053) 2,129
Surplus Cash Balance (1,299) (2,701) (4,157) (5,138) (8.076) (7,643) (5.590) (3,461)
a/ Details and assumptions in the Project File.
Industrial Projects DepartmentFebruary 1980
- 67 -
ANNEX 4-6Page 1
TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
PRINCIPAL FEATURES OF SUMERBANK PROPOSAL FOR
OPERATION OF COTTON TEXTILE DIVISION (CTD)
Sumerbank (SB) shall operate its Cotton Textile Division (CTD) on the basisof the following principles:
1. General: CTD shall be granted as much autonomy as permitted under theexisting laws of the Borrower. For this purpose, SB will, where possible,delegate its powers to CTD and, as required to individual plants includedin CTD.
2. Scope: SB will establish the management of CTD at SB Headquarters inAnkara. CTD management shall direct, coordinate and control the activitiesof all the cotton textile plants included in CTD. Through thereorganization, the operational autonomy of plants included in CTD shallbe strengthened sufficiently to permit them to (i) effectively reduce andcontrol operating costs, (ii) improve quality, and (iii) efficiently achieveproduction targets.
3. Functions: CTD, on the divisional as well as on the plant level, willhave all departments and functions necessary to carry out its businesspurpose independently and sufficiently and, in particular, shall includedepartments with respect to manufacturing, marketing (including productdevelopment), financial planning and control, investment planning, newprojects' implementation, personnel management and administration.Particularly on the plant level the functions of investment planning,financial planning and control, quality control, purchasing as well asmarketing shall be improved.
4. Staffing: SB will delegate its powers with respect to personnel mattersto CTD, and, as required, to individual plants to the extent permittedby law.
68 - ANNEX 4-6Page 2
CTD shall be headed by a Director who will report directly to theGeneral Director of SB. CTD and its plants shall employ and retainregular staff in sufficient numbers. Such staff shall be suitablyqualified and competent and in particular shall possess relevanttechnical and other experience and, where necessary, adequate foreignlanguage abilities.
Staff on contract positions within CTD shall be selected at thediscretion of CTD's Director. Staff on contract positions withinplants shall be selected by the Director of CTD in consultation withmanagement of the plants.
5. Sales and Marketing Activities: Responsibility for marketing CTD'sproducts including sales and product development, shall be vestedin CTD. Alim ve Satim (ASM) shall function as CTD's priority customerand provide CTD with market information from its network.
Coordinated by CTD, the individual plants will be empowered tosell their products directly to (i) foreign customers (exports);(ii) customers inthe public sector (postal service, hospitals, etc);(iii) garment manufacturers (within and outside CTD); (iv) ASM; and(v) wholesale customers. CTD will develop a market informationsystem which will link CTD, individual plants and ASM. CTD shallreview its product mix on a regular basis and determine the numberof products items to achieve more efficient production andeconomies of scale.
6. Accounting and Management Information System: CTD will, with theassistance of consultants, assure that its plants will (i) developa standard-costing system to control costs in individual plantdepartments, including the revaluation of their assets to reflectreplacement costs for purposes of product costing; and (ii) developan efficient and timely management information system.
7. Investment: CTD shall (i) carry out, for each investment project,technical, economical and financial analyses; (ii) establish thefeasibility of projects it proposes for approval by SB. SB willpromptly and favorably consider such projects. The initiativefor maintenance and replacement investments shall be with theindividual plants. SB and CTD will promptly and favorably considersuch proposals.
8. Debts: SB will authorize each individual plant to maintain lines ofcredits with a financial institution up to a maximum which shalladequately cover its working capital requirements. In the case ofother financing a plant proposes to contract, SB shall not unreasonablywithhold or delay its approval.
- 69 - ANNEX 4-6Page 3
9. Purchase Contracts: The individual plants will be empowered to enterinto purchase contracts for domestically produced current inputs andspare parts. For imports and machinery contracts SB shall notunreasonably withhold or delay its approval of the plant's proposedaward. CTD shall have priority to use the portion of the aggregateof plants' export earnings permitted by the laws of the Borrower forthe purpose of purchasing their imported operational requirementsand service their debt.
Industrial Projects DepartmentApril 1980
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
ORGANIZATION CHART: NEW SUMERBANK COTTON TEXTILE DIVISION (CTD)
SUMERBANK |BOARD OF DIRECTORS
SUMlERBANK GENERAL|DIRECTOR
r~|SALES PURCHASING D IRECTOR | DIRECTOR r-*1|ESTABLISHMENT (ASM) | | bANK ING C T O | _ --
| IIUIISA l l ORGANIZATION l CONTROOLLER | UCTION PLANNI DUALITY CONT LEGAL SERVICIES
TECHNICAL TECHNICAL
MANAGEMENT MANAGEMENT PURCHASING FINANCE ADUINISTRATION ENGINEERING & INVESTENT ARKETING
TEXTILES GARMENTS
TEXTILE PLANTSaI GARMENT>4
' FINANCIAL ACCOUNTINGARET17 DEVLOPMNT
(181 PLANTS |SI SERVICES RESEARCH
ACCONT OESTICSALES EXPORT SALES
t1 Fo. bteakdovn o1 Commilltees s e ul. anum
V Other Opea.tio-nl and Adnrmi-nrstra S-iions per anne. numba.,T Teatila plant nmes UNmi, Eskiseh, Nailli. E0li. Atltays. ergan., IAnisa. Kevysri,
De-il, Adan.. Erai,an. Malay..e KM., Adivnn, Kern, N-hir, Dtyrbkei,
Ada- Cotton Ginning4/ Garmentj plant n-mes larg-a. Mansta. aNir, lmir triwl. Bakiakoy
Sou-ce SUMERBANK. GHERZI TEXTILE ORGANIZATION, INDUSTRIAL PROJECTS DEPARTMENT
Industrial Projects DOpartment
January 1980 World B nlk-21212 X
0'-
- 71 -
ANNEX 4-7
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
LIST OF COTTON TEXTILE PLANTS AND ACTIVITIES
S W B 0 P F R G Y/D K Gi
1 IZMIR R -0t<
2 ESKISEHIR =
3 NAZILLI
4 EREGLI =__
5 ANTALYA
6 BERGAMA _ _ ___=
7 MANISA B
8 KAYSERI ____=
9 BAKIRKOY - - -
10 DENIZLI
1t ADANA (Old)
ADANA (New)
12 ERZINCAN13 MALATYA
14 K. MARAS
15 ADIYAMAN .
16 KARAMAN (Old)
KARAMAN (New)
.17 NEVSEHIR
18 DIYARBAKIR
19 ADANA GINNING
S - Spinning F Finishing K - KnittingW = Weaving R - Raising Gi - GinningB - Bleaching G - Garments0 - Dyeing Y/D - Yam OyeingP - Printing
Source: Gherzi Textile Organization
Industrial Projects DepartmentJanuary 1980
World Bank - 21375
- 72 -
ANNEX 4-8TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SUMERBANK COTTON TEXTILE PRODUCT MIX, 1977
Production XProduct Group ('000 im) of total
1. Printed Fabrics (Basma) 30,628.3 16.6
2. Printed Fabrics (Emprime) 8,399.0 4.6
3. Raised and Printed Fabrics (Pazen) 18,128.0 9.8
4. Matress Fabrics (Kutil) 4,567.4 2.5
5. Jaquard (Jakar) 2,302.2 1.3
6. Drill (Drill) 255.8 0.2
7. Twill (Diagonal) 4,324.3 2.3
8. Finished Fabrics (Hasse) 41,450.4 22.5
9. Grey Cloth (Hambez) 47,738.4 25.1
10. Yarn Dyed Fabrics (Ekose) 1,182.9 0.6
11. Group M 578.8 0.3
12. Suitings 6,143.7 3.3
13. Others 18,937.0 10.3
Total 184,636.0 100.0
Source: Gherzi Textile Organization
Industrial Projects DepartmentFebruary 1980
TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SUMERBANK COTTON TEXTILE OPERATIONS - INCOME STATEMENTS(TL Million)
Preliminary
1973 1974 1975 1976 1977 1978 1979
NET SALES
Yarn 403 269 469 539 561 767 1.611
Fabric 1,272 2,285 2,321 3,170 3,625 5,087 7,509Ready . ear 59 140 118 148 268 473 1,261Other 120 196 153 134 296 269 578
Total Net Sales 1,854 2,890 3,061 3,991 4,750 6,596 10,959
COST OF SALES (1,469) (2,316) (2,644) (3,367) (3,991) (5,393) (8,907) W
Gross Profit 385 574 417 624 759 1,203 2,052
GENERAL AIJD ADiMINISTRATIVE FJXP:ISES ( 95) (108) (147) (169) (333) (468) (769)
SELLING EXPEITSES ( 17) ( 13) ( 26) ( 38) ( 50) ( 79 (131)
NET INTEREST EXPENSE ( 24) ( 60) ( 90) (115) (151) (262) (405)
DEPRECIATION ( 67) (74) ( 77) ( 76) (119) (160) (191)
OTHER INCOME (EXPENSE) 4 6 132 (253) (145) (219) (136)
Income (Loss) Before Taxation 190 321 209 (27) (39) 15 420
TAXATION (59) (119) (129) (62) (68) (143) (324) ,
Net Income (Loss) 131 202 80 (89) (107) (128) 96 9 >
- 74 -ANNEX 4-9Page 2
TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SUMERBANK COTTON TEXTILE OPERATIONS - BALANCE SHEET(TL Million)
AS AT 31ST DECEMBER-ASSETS
CurrenOy - million TLPreliminary
CURRENT ASSETS 1973 1974 1975 1976 1977 1978 1979Cash 22 113 120 73 162 224 90Receivables-inter-company 196 224 304 141 173 130 417
-government 21 37 48 63 66 217 556-other 80 11 10 24 21 120 191
Total Receiv3bles 297 272 362 228 260 467 1.164
Deposite Given 68 179 425 138 68 223 616Inventories 1,112 1,559 1,918 2,712 2,790 3,084 5,223
Total Current Assets 1,499 2,123 2,825 3,151 3,280 3,998 7,093
INVEST'MENTS 14 13 12 12 12 10 9LONG TERH RECEIVABLES 5 7 7 8 10 9 7PRCPZRTY PLALTT AND EOTXTPMENT
Cost 1,200 1,315 1,614 2,486 2,988 3,376 4,165Less: Accumulated Depreciation (561) (638) (704) (774) (879) (1,037) (1,226)
Net Property, Plant and Equipment 639 677 910 1,712 2,109 2,339 2,939
Total Assets 2,157 2,820 3,754 4,883 5,411 6,356 10,048
CURRENT LIABILITIES
Short-Term Borrowings 70 75 95 351 744 1,465 958
Payables - inter-company 431 514 708 1,609 1,687 1,348 2,018-government 9 10 58 229 158 751 1,293- other 51 30 50 50 65 87 177
Total Payables 491 554 816 1,888 1,910 2,186 3,488
Advances Received 1 2 2 2 5 1 2Taxation Payable 225 583 718 323 447 560 1.,017Accruals 45 168 98 111 223 359 1,038
Total Current Liabilities 832 1,382 1,729 2,675 3,329 4,571 6,503
LONG-TER f DEBTBank Borrowings 67 66 625 818 877 885 1,175Other - 1 - - 6 5 3
Total Long-Termn Debt 67 67 625 818 883 890 1,178
SHAREHOLD eRS' IIVESTME2CT
Share Capital 1,005 1,005 1,095 1,260 1,260 1,260 2,650Retained Earnings (Accumulated Deficit) 253 366 305 130 (61) (365) (283)
Total Shareholders' Investment 1,258 1,371 1,400 1,390 1,199 895 2,367
Total Liabilities 2,157 2,820 3,754 4,883 5,411 6,356 10,048
TURKEY
SUAERBANK COTTON TEXTILE RATIONALIZATION PROJECT
SUMERBANK COTTON TEXTILE OPERATIONS - FUNDS FLOW STATEMENTS(TL Million)
.1973 1974 1975 1976 1977 1978 1PreSOURCES OF FUNTDS
Income from Operations, after Taxaticn 155 262 170 26 44 134 501Depreciation 67 74 77 76 1'9 160 191
Funds Provided from Operations 222 336 247 102 163 294Increase in Long-Term Debt 20 - 558 193 65 7 288Increase in Share Capital - 90 165 - - 1,390Decrease in Investments 1 1 - - 2 1Decrease in Long-Tqrm Receivables - - - - - 1 2
Total Funds Provided 242 337 896 460 228 304 2,373
USES OF lT DS
Net Additions to Fixed Assets 90 112 310 878 516 390 789Interest Expenses 24 60 90 115 151 262 405Increase in Investmaents 1 - - - - - -
Increase in Long-T-3rn Receivabler 1 2 - 1 2 - -Profit Allocation
Paymaents to SBE (Fully Owned) ) - 84 128 58 63 162 341Dividends to SBH (.ajority Cvned) ) 25 15 25 14 16 23 45Other ) (10) (12) 14 5 (9)
Total Profit Allocation 25 89 141 86 84 176 386
Total Funds Used 141 263 541 1,080 753 828 1,580
INCREASE (DECREASE) IN WORKING CAPITAL 101 74 355 (620) (525) (524) 793
Industrial Projects Department xApril 1980 1
- 76 -
TURXEY
SUNERBANK COTTON TEIILE RATITONALIZATION PROJECT Ass 1
!,AI ES.: W111ADUll.T' PR:IEWEE,T
(U5$ MILLION)
1 9i't80 9131 1 '9132 1,983 1.9134 1905 1,906 1907
SAl.S 113 LUME:.
YARN TONS) " '8f WIN13 THREAD (I'tON';) lf130- tO,0 1l0.0 1830.0C) 130* OO. 100-0 tE10.0 t0 100(IE::Y l''ADli'I' (MILI.ION/ M) 55.2 57,2 54.1 50.2 49.1 46.3 44. 7 44.7I' ]:N l!illt 'AEtFi' C MI...I I 1N/M'2)
r1IEINI:I L:U 66.6 69.4 71.S, 72.0 71.4 70.5 70.0 70.0EIYF'll/DI E ACIt:l 11 63,7 66. 4 68. 4 68. 9 68. 3 67.5 67.0 67*0COLOR WOVEN 14,5 t5.1 1t5.6 15.7 15.5 15.3 15.2 15.2B{l E Nll:l EEI 6.0 6-0 6.0 6.0 6.0 6.0 6.0 6.0
GARMINS N'I' THUS ANIJ PI E l t ') 3.40'?. 0 3,925.0 5,005.()0 6, 155 .) 6, 155-0 6dt. 5. 0 6 155 . 0 6. 155 * 0ixNrT.':lNIC ECRT hNI:l' TIE:UlA S) 1.,900 . 0 4,550.0 8,050.0 12. 0'O. 0 14.051 .0 * 4C) 4, 051 .0 14.051.0 14. 051 - 0
WASThE' (TONS') .2 * 2tI.7 S,172.4 5,05-; * 3 4,P930. 3 4,8126- 6 4,721 .5 4,62)0.4 4,620()4
LNI'T F'lIC1:S L I:llFiLRENI' V (15)
YARN (KG) 3. 15 3.46 3.75 3..83 3.(33 3.133 3.(t3 3.03SLWINIi 'lIRFhAD (KI) 6. 62 7.26 7,.18 13.05 8 .05 8.05 8.0S.i 8.05(GfRElY FABllL(E C M2) C)0* 783 0.835 C),93 0.95 0.95 5 t)I? 95 0.95F'I:N:E),III'1 FfABRiC (M2)
'RI N'I'('D 0 * 1 ).?9Et 1.06 1.08 1t .013 1 .08 1.08 1 .08DYI I E'.AI(:WEI. 11 1 .20 1. 32 1 . 43 1 .46 1 .46 1.46 1 .46 1.46(.OL (IR WOVIEN 1 .42 1.5, 6 1 ,70 1 .73 1 .73 1 .73 1.73 1. 73RE iL N DI E 111 .57 1.72 1.8'7 1.91 1 .91 1.91 1 . 91t 1.91
(3ARMl:N ' (IS " 1E(I:I ) 2.54 t.03 '9.01 92.213 9.21 9.28 9.'213 9.28KNI'TlTNS (IT lF'I) 1i.60 1 .68 1 .E73 1.130 1 .(C) 1 .00 1.00 1.80WAS'TE (KG) 0. 43 0.56 0.64 0.66 0.66 0.66 0.66 0.66
A L ES RI.: VE NtI: (J L L IL I tN US$
YARNSEWIN(G THREAI RlAhrJ 1,2 1.3 1.4 1.4 1.4 1.4 1.4 1.4(31;:1Y FADEI 1 LI: 43.1 4EI.6 50.3 47.7 46.6 44.0 42.5 42. 5
XNIE SHEll AFN IAF R; N'l' 13 59. 3 68.0 7 5.3 77.13 77,1 76.1 75.6 7-.6flY-llfEI hlAC: l l'C E 76.4 87.6 '97. E 100.6 9'. 2 9E; .6 97. a 97.0(L:(12OR WO'9I:N 20.6 23. 6 26. 27.2 26. (3 26.5 26.3 26.3Bl E NDE II ' 9.4 O.3 t1 2 11 .5 11.5 11.5 t1 I .5
(ihARMI N l; 25.L 3t.5 * 45. 1 .1 57.1. 57.1 57.1 57.1KNTT'ING 3 C)6 14.3 21.7 25.3 25.3 25.3 25.3WATIE 3 29 3.2 3.3 3.2 3.1 3.0 3.0
T( It Al :241 0 2131 .4 ',5. 6 .340.3 341.;' 343.f6 340.5 340.5
1 NIV1J A '11 Tll l I. (:'1! DEF ARTME':N 1FTL:: i '11;1' 'liRI' l1liL11:0 04Ei IL1/lCO
- 77 -
TURKEY
SUERBANK COTTON TEXTILE RATIONALIZATION PROJECTAS3X 4-10
INCOME STATEMENT WITHOUT PROJECT Pa 2
(US$ MILLION)
1980 1981 1982 1983 1984 1985 1986 1987
SAI ES REVENUE 241.0 281.4 325,6 348,3 348.7 343.6 340.5 340.5OPERATING COSTS
COTTON 55.5 69.5 77.0 82.6 80.6 78.8 77.1 77.1MAN-MADE FIBERS 2,7 3.0 3.3 3.7 3.7 3.7 3.7 3.7COTTON YARN 2.4 9.2 14.2 17.0 18.0 17.7 18.4 18.4CLOTH 14.9 18.4 26.2 34.7 34.7 34.7 34.7 34.7DYES & CHEMICALS 8.6 1(0.0 11,4 12.5 12.4 12.3 12.2 12.2UTILITlIES 11.2 13.1 14.9 16.6 16.4 16.1 16.0 16,0WAGES . 81.2 91.8 103,1 112.8 112.8 112.8 112,8 112.8F'RODUCTION TAX 22.2 23.8 25.2 26.5 25,9 25.3 24.8 24.8MAINTENANC1E 4.7 5.1 5.6 6.0 6.0 6.0 6.0 6.0SALARIES b,8 7.5 8.3 9.1 9.1 9.1 9.1 9.1DEPRFR:CIATION 5.1 5.6 5.8 5.4 5.1 4.9 4.8 4.7SUBCONTRACTING 1.3 1.5 1.6 1.7 1.7 1,7 1.7 1.7,E'LLING I DISTRIB. EXP. 2,4 2.8 3.3 3.5 3.5 3.4 3.4 3.4GEN. ADMIN. OVERHEADS 6.8 7.5 8.3 9.1 9.1 9.1 9.1 9,1INT. FOR S'T' LOAN 2.3 2.7 3.1. 3.4 3.4 3.4 3.3 3.3OTHER OPERATING EXPENSE'S 3.4 4.1. 4.7 5.2 5.1 5.1 5.1 5.1
TOTAL OPERATING COSTS 231t5 275.6 316.0 349.8 347.5 344.1 342.2 342.1
OFPERATING PROF'I'T' 9.5 5.8 9.6 (1.5) 1.2 (0.5) (1*7) (1.6)
FINANCIAL CHARGES. 2.5 2.3 2.0 1, 6 1.2 0.8 . 0.4 0O1
PROF'IT BEF-ORE 'T'AX 7.0 3.5 7.6 (3.1) (1.3) (2.1) (1.7)
INCOME TAX 2.9 1.5 3.2
PROFIT AFTER 'TAX 4.1 2.0 4.4 (3.1) (1.3) (2,1) (1.7)
R A *r I 0 )S
OFPER. IPROF. AS; % OF" SALES 3.9 2.1 2.9 (0.4) 0.3 (0.1) (0.5) (0.5)PROF-. AFT. *'AX AS X OF SAL7ES 1.7 0.7 1.4 ((.9) (0,4) (0.6) (0,5)
PROFI T BREAK EVEN.............. ......... ..... ... ..... .. ....... . . . . .. . . . .. .
BY CAPACIT'Y r LI'rILIZATION 0.94 0.97 0.94 1.02 I .00 1.0 l 1.02 1.01DY SALES PRICLE ().97 0.99 0.98 t .01 i.00 1.00 1i.01 1t.00
CASH BREAK E VEN.... .... ... .... ... .. .... .. .... .... .... .... ...........
BY CAPACITY UTILIZATION 0,8"I 0.92 0.90 0.98 0.96 0.97 0.98 0.98DY SALES PRICE 0.95 0.97 0.96 0.99 0.99 0.99 0.99 0.99
I NDUSI R [AL. PRO,JE l'-T'l' DS lE:l ARTME N 'tRE:PORT PREFARED104,' 1l/80
TU= - 78 -
$%SOU MOTTOII IL2 ATIOAlZZATIOI PROJECT
BALABCE SHEET WITHOUT PROJECT
(US$ MILLION) 4v10
1980 1981 1982 1983 1984 1985 1986 1987
ASSETS
CURRENT ASSETSCASH 11.3 13.5 15.5 17,2 17.1 17.0 16.9 16.9ACCOUNTS RECEIVABLE 24,1 25.3 26.0 24,4 24.4 24.1 23.8 23.8INVENIORY 105.0 118.0 127.9 127,2 126.3 124.9 124,1 124,0OTHER CURRENT ASSETS 7,2 7.0 6.5 5.2 5.2 5.2 5.1 5.1
TOTAL CURRENT ASSETS 147.6 163.8 175,9 174.0 173.0 171.2 169.9 169,8
'URPLlJS CASH BALANCE 6.7 6,2 7,3 (0.6) t.1 1.6 1.5 4.3GROSS FIXED ASSETS 77.5 79.7 79.7 79.7 79,7 79,7 79.7 79*7ACCUMULATED DEfRECIATION 31.3 36.9 42.7 48.1 53.2 58.1 62.9 67,6
NET FIXED ASSETI'' 46.2 42.8 37,0 316 26.5 21.6 16.8 12.1
OTHER ASSET'S 0.4 .0.4 0,4 0,4 0,4 0,4 0,4 0.4
TOTAL ASSE'T'S 200.9 213.2 220.6 205.4 201,0 194.8 188.6 186.6
LIABILITIES
CURREN'T LIABILIITIESACCOUNTS F'AYABLE 83.8 86.4 86,9 86.1 85.6 84.8 84.4 84.4
CURRENT FPOF;I'ION Li.NG-TERM DEBTON--GOINt3 LOANS 3.1 3.3 3.3 3.3 3.3 3.3 0,3 -IBRD LOAN - -- - -OTHER LOANS - - - - - -- -
OTHER CtURRENI' LIABILITIES 38.4 47,0 52,8 44.8 44,2 43,4 43.0 43.0
TOTAL CURRENT LIABILITIES 125,3 136.7 143.0 134.2 t33.1 131.5 127.7 127.4
L ONt; TE FRM DEBITON-GOING LOANS 15.5 14,4 11.1 7,8 4.5 1.2 0.9 0.9IBRD LOAN O'T'HER LOANS
TOrAL. L.ON3-'rERM DEBT 15.5 14,4 11.1 7.8 4.5 1.2 0.9 0.9
EIQUITYSHARE CAPIT'AL 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5RETAI:NED EARNINGS (2.3) (0.3) 4,1 1,0 10. (0.3) (2.4) (4,1)
TOTAL EQUI)ITY 60.2 62.2 66.6 63.5 63.5 62,2 60.1 58,4
TOTAL llIABILITIES AND EQUITY 201.0 213.3 220.7 205.5 201.1 194.9 188.7 186.7
R A T I 0 S.. _. .... . ........
CURRENT RATIO INC. SURF CASH 1.23 1.24 1.28 1.29 1.31 1.32 1.35 1.36QUICK RAT'IO 0.34 0.34 0.34 0.35 0.35 0.35 0.36 0.36DEBT/EQUITY RATIO 0.20 019 0.14 0.11 0.07 0.02 .001 0.02
INDUSTI' RAL PROJECTIS DEPAR'TMENTREFPORT F'REFARED :04/18/80
- 79 -
TurMEY ANNCX 4-10
SUMERIBA: CrTON TEXTIL9 RATIONALIZATION P1OJECr
FUNDS FL.OW STATEMENT WI'T'HOUT F'ROJE:CT
(US$ MIlLI..AION)
1980 1981 1982 1983 1984 1985 1986 1987
SOURCES OF FUNDS
PROFI' AFTER TAX BEFORE INTEREST 6.6 4.3 6.4 (1.5) 1.2 (0.5) (1.7) (1.6)DEPRECIATION 5.1 5.6 5.8 5.4 5.1 4.9 4.8 4.7
:NTE.RNAL. CASH GENERATION :L1.7 9.9 12.2 3.9 6.3 4.4 3.1 3.1
E.:1:11J]TY l:CAlP ITAL INNCREASE - - - - - - -IONG-TERM DEBT
ON-O1ING LOANS 2 2 l 2 .2IBRD LO..ONOTHER L-OANS
'T1OTrAL. L-ONG-TERM D:EBT - 22 - - - -2
DECREASE IN WCORKING3 CAPITALEXISI'ING OPERATIONS - - - 0.2 0.5 0.1PROJ EC -1 F : R (:] .1E C1' __ _ _ _ _. ...... _-._- ----~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . .. ..
TOTAL- DE:CREASE: IN WORKTING CAP. 0.2 0.5 0.1
TOIAL.. SOJURCES 11.7 1.2.1 1.2.2 3.9 6.3 4.6 3.6 3.2
APPL-ICATIONS OF FUNDiS
F1IXE.:i ASSET: - 2.2 -- - - - - -OTHER ASSETS . ... _. .... _ _ _
INCREASE IN WOR1NIN: CAP:ITALEXIS'1':N( OPE'RAT I ONS 2.1 5.O 5.8 6.9 0.1 - - -FROJECI- -
TOTAL., INCREASE: :N WORKIN(.G CAP. 2. : .,.0 5.8 6.9 0.1
ILONG TERM lIETB'1' REPF:'AYME:.:NT'SON-GOIN(i L.OANS 3.2 3.1. 3.3 3.3 3.3 3.3 3.3 0.3I'HR LOAN - - - - - -OTHER8 LOANS .. -. . -
'TO'AL.. LI' DIEBT l REPAYMF:NT'3 3.2 3,1 3. 3,3 3.3 3.3 3.3 0.3INT EREST PAYMENTS
ON-GOI)]:N(:, l ....IOANS 2.5 2.3 2.0 1.6 1.2 0.8 0.4 0.11T1F) L.OAN _O'T' HER LOANS 'i _- _ _. _ ..
701AL. INTE:REST FAYME:NTS 2.5 2.3 2.0 1 .6 1.2 0(.8 0.4 0.1
'TCOTIALI.. IJEB'1' SERV VIC E. 5.7 5.4 5.3 4.9 4.5 4.1 3.7 0.4
TOTAL APPLICATIONS 7. Ei 12.6 1:I. t 1 11.(3 4.6 4.1 3.7 0.4
ANNUAL (CAS:;H SlJRF:'LS........ (DEFICIT) 3. 9 (0.5) IL. (7.9) 1.7 0.5 (0.1) 2.8
SURPLUS CASH BALAN C 1::' 6. 7 6.2 7.3 (0.6) 1.I 1.6 1.5 4.3
R A T I 0 s
DEEi SfERVI CE: UOVERA(GE 2.05 1. 83 2.30 0.80 1.40 1. 07 0.84 7.75
:1 NDLTJS 1 Al... I FRO.JECTS PARTMl::NTR:' F()RI F";R 1: F.AR:R E: 104 / 1 8/G0
- -80-~ - 80 -
TURUY - 1MERBANK COTTON TEXTILE ERAIONALIZATIOH Pl03jXCT PA$E I
CTD - SPINNING YAM PRODUCTION VPYEOUT AND WITH THE PROJECT (tpy)
A. WIdITQUT TH PWI!JCT
HELL 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986Actual Actual Ptreal - - _
Izmir 3,713 3,639 3,700 3,700 3,630 3,560 3,490 3,420 3,350 3,280Esrisehir 1,532 2,075 2,000 2,000 7,960 1,920 1,880 1,840 1,840 1,800Nazilli 2,474 2,513 2,513 2,425 2,350 2,280 2,210 2,150 2,080 2,020
Eregli 1,875 1,817 1,817 1,780 1,750 1,710 1,670 1,620 1,590 1,560Antalya 1,526 1,207 1,436 1,390 1,350 1,310 1,270 1,230 1,190 1,160Bergama 937 906 1,000 880 860 850 830 810 800 780Manisa 947 722 950 870 850 820 800 770 75C 730Kayseri 2,685 2,936 2,500 2,690 2,580 2,480 2,380 2,280 2,190 2,100Bakirkoy 924 583 400 350 300 250 200 200 200 200Denizli 3,723 3,348 3,350 3,400 3,300 3,200 3,100 3,000 2,910 2,830Adana Old 1,952 - 2,288 2,150 2,110 2,070 2,030 1,990 1,950 1,910
Adana New 1,945 4,952 1,950 1,950 1,950 1,950 1,950 1,950 1,950 1,950Erzincan 2,307 2,762 2,800 2,650 2,590 2,540 2,490 2,440 2,390 2,340
Malatya 2,185 1,558 2,600 2,060 2,020 1,980 1,940 1,900 1,860 1,820Madas 908 1,267 2,380 2,330 2,280 2,240 2,190 2,150 2,100 2,060Adiyaman 2,718 2,380 2,800 2,650 2,600 2,540 2,490 2,440 2,390 2,340
Keraman Old 2,874 - - 2,940 2,880 2,820 2,770 2,710 2,660 2,600Karasgan New 764 2,650 3,500 1,000 1,000 1,000 1,000 1,000 1,000 1,000Neysehir 2,834 2,605 2,538 2,550 2,490 2,450 2,400 2,350 2,300 2,260Diyarbakir _0 0 0 0 0 0 0 0
'Total Prod. without .~the project 38,123 37,920 40,522 39,765 38,890 38,010 37,130 36,290 35,500 34,740
B. jITH THE Pw8JrCO
Hill 1977 1979 1979 1980 1981 19B2 1983 1984 1985 1986 jIActual Actual Prelim E
Tzmir 3,717 3,639 3,700 3,700 3,905 4,110 4,170 4,170 4,206 4,206 85
Eskisehir 1,532 2,075 2,000 2,000 2,000 2,000 2,000 2,600 2,728 2,728 85
Nazilli 2,474 2,513 2,513 2,425 2,213 2,000 2,000 2,400 2,736 2,736 85
Eregli 1,876 1,817 1,817 1,780 1,890 2,000 2,000 1,800 1,800 1.800 85
Antalya 1,526 1,207 1,436 1,390 1,413 1,436 1,200 1,400 1,623 1,623 85
8Bergama 937 906 1,000 880 940 1,000 1,000 1.200 1,27n 1,270 85
Manisa 947 722 950 870 910 950 950 1,200 1,600 1,775 85
Kayseri 2,685 2,936 2,500 2,690 2,595 2,500 2,500 3,000 3,000 4,650 80
Bakirkoy 924 583 400 350 175 -
Denizli 3,723 3,348 3,350 3,400 3,375 3,350 3,350 3,885 3,885 3,885 77
Adana - Old 1,952 ( 2,288 2,150 1,075 - -(4,9 52
Adana New 1,945 ( 1,950 1,950 2,850 3,750 4,500 6,880 6,880 6,880 85
Erzincan 2,307 2,762 2,800 2,650 2,725 2,800 3,000 3,000 3,000 3,000 85
Malatya 2,185 1,558 2,600 2,060 2,330 2,600 3,254 3,254 3,674 3,781 85-
K-Maras 808 1,267 2,380 2,330 2,415 2,500 2,500 2,600 2,818 2,818 85
Ad iyaman 2,718 2,380 2,800 2,650 2,725 2,800 2,800 2,800 2,053 2,053 88
Karaman - Old 2,874 ( 2,940 3,023 3,106 3,106 3,106 3,106 3,106 88(2,650 (3,500
Karamn - New 164 ( ( 1,000 1,750 2,500 3,200 4,756 4,756 4,756
Nevaehir 2,834 2,605 2,538 2,550 2,544 2,538 2,538 2,741 2,741 2,741 91
Diyarbakir - - - - - - - - - - -
38.123 37.920 40.522 39,765 40,853 ,940 44,068 50,995 51,875 HTi94
A/ Efficiency 1 - 1968.
Industrial Projects DepartmentApril 1980
- 81 - ANNEX 5-1Page 2
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
CTD - WEAVING PRODUCTION WITHOUT AND WITH THE PROJECT(Thousand Square Meter)
A. WIlTOUT THE PROJECT
Mill 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986Actual Actual Prelim.
Izmir 26,414 26,347 25,270 25,270 24,940 24,610 24,290 23,960 23,630 23,300
Eskisehir 11,445 16,033 15,910 15,910 15,690 15,690 15,470 15,470 15,240 15,240
Nazilli 21,291 19,347 20,920 20,920 28,120 27,720 27,320 26,910 26,510 26,110
Eregli 9,102 8,784 10,690 10,690 10,510 10,510 10,330 10,330 10,160 10,160
Antalya 7,192 6,801 6,700 6,700 6,620 6,620 6,540 6,540 6,450 6,450
Bergama 5,018 5,456 5,080 5,080 5,000 5,000 4,910 4,910 4,030 4,750
Manisa 6,238 6,605 6,950 6,950 6,840 6,840 6.730 6,730 6,610 6,610
Kayseri 23,650 27,496 30,220 29,790 28,920 28,490 27,630 27,200 26,330 25,000
Bakirkoy 9,485 12,831 13,190 13,000 12,820 12,630 12,440 12,060 11,690 11,310
Denizli 13,807 15,499 15,140 14,960 14,780 14,600 14,420 14,060 13,690 13,330
Adana 11,126 13,022 13,650 13,650 13,450 13,240 13,030 12,830 12,620 12,410
Erzincan 11,426 11,679 11,110 11,110 10,080 10,980 10,850 10,850 10,720 10,720
Malatya 16,524 17,127 16,790 16,250 15,710 15,160 14,620 14,080 13,540 13,000
K. Maras 11,054 11,633 15,000 20,240 24,290 28,340 29,180 29,140 28,340 28,340
Total 183,772 198,660 206,620 210,520 218,670 220,430 217,720 215,070 210,360 207,630
B. WITH THE PROJECT
Hill 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 E
Actual Actual Prelim.
Izmir 26,414 26,347 25,270 25,270 25,705 2b,140 26,140 26,140 26,140 26,140 85
Eskisehir 11,445 16,033 15,910 15,910 16,435 16,960 17,493 17,493 17,493 17,493 85
Nazilli 21,291 19,347 20,920 20.920 25,690 30,460 35,540 38,070 38,070 38,070 80
Eregli 9,102 8,784 10,690 10,690 12,145 13,600 13,600 14,570 14,000 14,570 85
Antalya 7,192 6,801 6,700 6,700 6,790 6,880 6,880 6,880 6,810 6,660 83
Bergama 5,018 5,456 5,080 5,080 4,335 3,590 4,800 8,500 7,200 8,500 85
Manisa 6,238 6,605 6,950 6,950 7,625 8,300 12,700 13,832 13,832 13,832 Ps
Kayseri 23,650 27,496 30,220 29,790 22,385 14,980 17,800 25,500 30,500 30,500 80,
Bakirkoy 9,485 12,831 13,190 13,000 11,980 10,960 10,640 5,640 - -
Denizli 13,807 15,499 15,140 14,960 16,580 18,200 1,20)0 l,200 16,200 18,200 80
Adana 11,126 13,022 13,650 13,650 13,650 13,650 12,690 15,920 16,870 16,870 85
Erzincan 11,426 11,679 11,110 11,110 11,240 11,370 11,370 11,370 11,370 10,720 87
Malatya 16,524 17,127 16,790 16,250 16,725 17,200 16,700 17,300 17,400, 17,600 80
K-Maras 11,054 11,633 15,000 20,240 22,265 24,290 28,340 29,000 29,500 30,360 80
TOTAL 183.772 198.660 206,620210,520 213.550 216,580 232,893 247,513 249,255 249,515
a/ Efficiency % - 1986
Industrial Projects DepartmentApril 1980
TDRKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
CTD - PROJEC7;10N OF 61ROCLSSED FABRIC WIThOUIT AND WITh THE PROJECt(MillIon Linear Meter. Million Square Meter)
'1977 1978 1979 1980 1981 1982 1983 1984 1985 1986
Actual Actual Prelim'nary
Plant ML M2 L M2 ML M2 ML M2 ML 2 ML 2 L 2 L 2 L 2 L 2
Izmir 35.2 30.0 35.2 29.9 34.5 29.3 35.2 30.0 35.2 30.0 35.2 30.0 35.2 30.0 34.4 29.2 33.8 28.7 33.1 28.1
Eskisehir 14.9 11.9 18.8 15.1 19.7 15.8 18.8 15.1 18.8 15.1 18.8 15.1 18.8 15.1 18.4 14.8 18.0 14.5 17.6 14.2
Nazilli 31.2 23.0 31.2 23.0 31.2 23.0 31.2 23.0 30.5 22.5 29.9 22.0 29.3 21.6 28.7 21.1 28.1 20.6 27.5 20.2
Eregli 7.5 10.5 7.9 11.0 8.3 11.6 7.7 10.9 7.8 11.0 7.9 11.2 8.0 11.4 8.1 11.6 8.2 11.8 8.4 12.0
Antalya 8.6 7.7 8.6 7.7 8.2 7.4 8.6 7.7 8.6 7.7 8.6 7.7 8.6 7.7 8.4 7.5 8.3 7.3 8.1 7.1
Berganm 6.5 5.2 6.8 5.4 7.1 5,7 7.4 5.9 7.8 6.2 7.8 6.2 7.8 6.2 7.8 6.2 7.8 6.2 7.8 6.2
Manisa 4.9 6.9 5.1 7.1 5.3 7.4 5.6 7.8 6.7 9.4 7.1 9.9 7.1 9.9 7.1 9.9 7.1 9.9 7.1 9.9
Kayseri 11.5 10.4 12.0 10.8 12.6 11.3 12.1 11.0 12.3 11.2 12.5 11.4 12.7 11.6 12.7 11.6 12.7 11.6 12.7 11.6
Bakirkoy 10.1 7.5 10.6 7.9 11.1 8.3 10.7 7.8 10.9 7.9 11.1 8.0 11.3 8.1 11.3 8.1 11.3 8.1 11.3 8.1
Malatya 7.8 11.0 8.2 11.5 8.6 12.0 8.1 11.6 8.3 11.8 8.4 12.0 8.6 12.2 8.8 12.4 8.9 12.6 9.0 12.8
K. Mara. 2.5 6.0 3.2 8.0 8.0 20.0 8.3 20.0 10.0 24.0 11.7 28.0 12.0 28.8 12.0 28.8 11.7 28.0 11.7 28.0
Total 140.7 130.1 147.6 137.4 nSLi jjj 153.7 150.8 156.9 156.8 159.0 161.5 159.4 162.6 1.57.7 161.2 155.9 159.3 154.3 158.2
1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 Average
Actual Actual Preliniar NSNNwidth
Mill L14 SM N M SM L M SM LM SM LM SM LM SM SM SN L-4 SM Ll SM
Existing Facilities
l1-ir 35.2 30.0 35.2 29.9 34.5 29.3 35.2 30.0 34.2 29.1 33.1 28.1 35.9 30.0 35.9 30.0 35.9 30.0 35.9 30.0 86
Eskisehir 14.9 11.9 18.8 15.1 19.7 15.8 18.8 15.1 20.7 18.9 22.6 22.6 26.0 29.0 29.4 33.5 29.4 33.5 29.4 33.5 80
Nazilli 31.2 23.0 31.2 23.0 31.2 23.0 31.2 23.0 31.3 23.0 31.5 23.0 40.0 33.3 45.0 33.3 45.0 33.3 45.0 33.3 75
Eregli 7.5 10.5 7.9 11.0 8.3 11.6 7.7 10.9 8.2 11.7 8.6 12.4 8.6 12.4 8.6 12.4 8.6 12.4 8.6 12.4 140
Antalya 8.6 7.7 8.6 7.7 8.2 7.4 8.6 7.7 8.3 7.5 8.1 7.3 8.1 7.3 8.6 7.7 8.6 7.7 8.6 7.7 90
bergar,a 6.5 5.2 6.8 5.4 7.1 5.7 7.4 5.9 7.0 6.3 6.7 6.7 6.7 6.7 6.7 6.7 6.: 6.7 6.7 6.7 -
Manisa 4.9 6.9 5.1 7.1 5.3 7.4 5.6 7.8 6.6 9.1 8.5 10.4 8.4 11.6 9.0 12.6 9.0 12.6 9.0 12.6
Kayseri 11.5 10.4 12.0 10.8 12.6 11.3 12.1 11.0 15.2 13.6 18.4 16.5 22.0 19.8 22.0 19.8 22.9 19.8 22.0 19.8 .1Y9g
Bakirkoy 10.1 7.5 10.6 7.9 11.1 8.3 10.7 7.8 12.0 8.8 13.3 9.9 10.0 7.5 - - - - - - -
?falatya 7.8 11.0 8.2 11.5 8.6 12.0 8.1 11.6 10.2 14.4 12.3 17.2 15.2 21.3 16.2 22.7 16.2 22.7 16.2 22.7 140
K. Maras 2.5 6.0 3.2 8.0 8.0 20.0 8.3 20.0 9.0 2a.1 9.7 24.2 10.4 26.t 11.4 28.5 11.4 28.5 11.4 28.5 230
Sub-T.t.1 140.7 130.1 147.6 137.4 154.6 151.8 153.7 150.8 3a2-7 U64,j 171.8, 178.3 191.3 204.9 192.8 20-132 12&L 2lU 19228 207.2
Indcctrial Pr.jects Dop-et-eetApril 1980
- 83 -
ANNEX 5-1TURKEY-- SUMhRBANK COTTOIN TEXTILE RAlAIUNALUZATlON PROJECT Page 4
CTD - PROJECTION OF PRODUCTION OF WOVEN GARMENTS WITHOUT AND WITH THE PROJECT a'(1000 pieces)
A. WITHOUT THE PROJECT 1979 1980 1981 1982 1983 1984 1985
Izmir (Est.)Work dresses 854 854 900 980 1,050 1,050 1,050Ladies dresses - - 200 700 950 1,050 1,050Pyjamas - - 150 350 550 600 600Blouses - - 120 300 490 540 540Jackets - - - 60 110 180 180Trousers - - - 60 110 180 180
Total 854 854 1,370 2,450 3,260 3,600 3,600
BergamaShirts 495 495 495 495 495 495 495
ManisaTrousers 300 300 300 300 300 300 300Trenchcoats 60 60 60 60 60 60 60
Total 360 360 360 360 360 360 360
Grand Total 1,709 1,709 2,225 3,305 4,115 4,455 4,455
B. WITH THE PROJECT
IzmirWork dresses 854 854 900 980 1,050 1,050 1,050Ladies' dresses - - 200 700 950 1,050 1,050Pyjamas - - 150 350 550 600 600Blouses - - 120 300 490 540 540Jackets - - - 60 110 180 180Trousers - - - 60 110 180 180
Total 854 854 1,370 2,450 3,260 3,600 3,600
BergamaShirts 495 495 600 600 600 600 600
ManisaTrousers 300 300 360 360 360 360 360Trenchcoats 60 60 75 75 75 75 75
Total 360 360 435 435 435 435 435
BakirkoyShirts - - 158 630 945 1,124 1,260Pyjamas - - 53 210 315 378 420
Total - - 211 840 1,260 1,502 1,680
Grand Total 1,709 1,709 2,616 4,325 5,555 6,137 6,315
al Excludes knitted garment production in Adiyaman, expected to start production in 1980 and ofwhich production is expected to grow to 14.1 million pieces (2.810 tons) in 1984. Excludessub-contracted production of about 1.7 million pieces which is assumed to remain stableduring 1979-86.
Industrial Projects DepartmentMarch 1980
- 84 - ANNEX 5-2Page 1
TURKEY - SUNERBANK COTTON TEXTILE RATIONALIZATION PROJECT
TERMS OF REFERENCE FOR TECHNICAL ASSISTANCE
A. OPERATIONAL TECHNICAL ASSISTANCE (OTA)
1. General
1. The Project includes an estimated 360 man-months of Operational TechnicalAssistance (OTA), which is grouped into two stages. The first stage (Stage I)covers the period of March to October 1980 with about 60 man-months; the secondstage (Stage II) covers the period of November 1980 to December 1983 with about300 man-months.
2. Stage I
2. For Stage I a contract has been agreed between Sumerbank (SB) and GHERZIConsultants of Switzerland and work started on March 15. 1980. Itsterms of reference include assistance in: (i) Project Preparation; (ii) ProjectSupervision; (iii) Reorganization of SB's Cotton Textile Operations at head-quarters' level; (iv) Creation of the new Cotton Textile Division (CTD);(v) Operational Improvements in one Fully Integrated Cotton Textile Plant(Eregli); (vi) Operational Improvements in one Garment Plant (Manisa).
3. Under the heading of Project Preparation, consultants will assist SB'stechnical staff to;
(i) elaborate project implementation timetables for individual plants,including procurement schedules for new machinery, equipment andservice schedules of transfers between plants for certain existingequipment, execution schedules for civil works and erection schedulesfor machinery and equipment;
(ii) prepare detailed tender documents for goods and services;(iii) evaluate offers in a systematic fashion and based on agreed criteria
according to Bank Procurement guideline4. Under the heading of Project Supervision, consultants will provide duringStage I comprehensive supervision of organizational measures for CTD taken at Headquarterslevel as well as supervision of operational measures on the Plant level. MonthlyProgress Reports will be prepared for SB management and the Bank.
5. Under the heading of Reorganization of SB's cotton textile operationsat the headquarters level, consultants will mainly assist SB and cotton textileoperations management to;
(i) design and start implementing an career development program;(ii) establish job descriptions, job profiles, lines of authority and
responsibility for senior and middle management of CTD;(iii) revise the design of the corporate planning system, (production
planning and control system, cost control system, management iaformationsvstem);
(iv) develop and improve product design and development function, productassessment function;
- 85 - ANNFX 5-2Page 2
(vr) improve existing capabilities of designing and evaluating investmentprojects;
(vi) set up the central marketing concept for CTD including developmentof, or revision of the functions of general sales, marketing services,product design and development;
(vii) develop market research and analysis capabilities in CTD fordomestic and foreign markets;
(viii) modify and adapt ASM's regional and district sales organizationto plant's area grouping concept;
(ix) modify product policy (pricing policy, product range)
6. Under the heading of Operational Improvements in an Integrated Plant,consultants will assist personnel in the Eregli plant to;
(i) devise an improved operational control through establishment ofperformance measures and parameters at each operational department;
(ii) develop the detailed action programs for operational improvementsand corrective measures in each department;
(iii) review and reorganize quality control and testing systems;(iv) irntroduce a waste control system in spinning;(v) establish procedures for control of seconds and damaged cloth;(vi) revise procedures for use of dyes and chemicals to reduce consumption
and improve product quality;(vii) set industrial engineering standards for- workloads of operatives;-
machine production rates and efficiencies;-operational parameters;-quality standards;-waste standards;-product standardization;
(viii) improve standards of health, safety and housekeeping;(ix) improve training of supervisors and operative trainers;(x) reorganize the machine maintenance system (preventive maintenance);(xi) reorgarjize the sparepart raanagement system,(xii) design and start introducing a standard costing system and improve
plant incentive systems;(xiii) design and start introducing a production planning and control system.
7. Under the heading of Operational Improvements in a Garment Plant, consultantswill assist personnel in Manisa to;
(i) improve work organization through establishment of standard timerequirements for standard work procedures;
(ii) improve quality standard specifications and control programs;(iii) improve training of supervisors and operative trainers;(iv) design and start introduction of a standard costing system and improve
plant incentive systems;(v) design and start introducting a production planning and control system.
8. Assistance in Eregli and Manisa is considered "Dilot work" which willestablish the standards and detailed requirements for technical assistance on theoperational side in other plants during the second stage.
3. Stage II
9. During Stage II consultantswill provide to the other plants of CTD thetype of technical assistance provided to Eregli and Manisa during Stage I andapplving the standards and systems established there, adiusted for the specificrequirements of each plant. Thus work, as described in paras 6 to 8 will be carried
- 86 - ANNEX 5-2Page 3
out in the other plants in a sequence, to be established as a function of the detailedproject implementation program. In addition, consultants will continue to providecomprehensive project supervision at the CTD level as well as in the plants,including quarterly project progress reports to SB management and the Bank. AtCTD, consultants will continue to assist in implementing the revised productionplanning and control systems, cost control systems and management information systems.They will also help to introduce and operate the new marketing functions of CTDand to adjust ASM's distribution and retail function.
10. While no detailed terms of reference for Stage II exist as yet, and nodraft contract has been drawn up, it is expected that Stage I will provide thenecessary guidance for their establishment. It is expected that GHERZI would continueto provide technical assistance during Stage II subject to acceptable performancein Stage I and reasonable contractual conditions. A considerable degree of cooperationwith the financial technical assistance (FTA) is required in overlapping areas suchas rana2erent information systems, standard costir.g, prcject supervision ar.d r?7rting.
B. FINANCIAL TECHNICAL ASSISTANCE (FTA)
1. General
11. The Project includes an estimated 120 man-months of financial technicalassistance (FTA) which is also grouped into two stages, in parallel with OTA.Stage I would run from about May to October 1980 including about 20 man-months,whereas Stage II, from November 1980 to end of 1983 would involve about 100 man-months.
2. Stage I
12. Stage I is being financed by a grant from UNDP/UNIDO who has invited offersfor services under Stage I based on terms of reference agreed between SB, UNIDOand Bank. The financial consultant would assist SB personnel at the headquarters, inthe integrated Eregli Plant in the Manisa Garment plant and, to a limited extent, inASM, as described below:
13. In the new CTD at the headquarters, a financial consultant would assist SBstaff to:
(i) prepare detailed outlines for organizational form, staffing requirements,job description and personnel profiles for the division's accountingdepartment and controlling department (involving cost accounting,financial planning, budgeting and control);
(ii) improve the financial reporting system, establish and assist inimplementation consolidated financial statements for cotton textileopeVationg; lmn
(iii) design and implement a financial planning and budgeting system.andan investment planning system for the new Division;
(iv) design and implement a quarterly project cost reporting system;(v) design and implement an annually updated five year-rolling-financial
projection system.
14. On the Individual Plant Level (Eregli and Manisa), the financial consultantswould assist SB staff to;
(i) critically review and strengthen accounting department and financialplanning department on the individual plant level, wit. aro,riateoreDaration of job descriptions, Dersonnel ornfiles and oneratt4^n:l
- 87 - ANNEX 5-2Page 4
improve present financial reporting system and cost accounting system;within individual plants operational department including establishmentof a standard costing system and replacement costs for fixed assets;close cooperation with the technical consultant (GHERZI TEXTILEORGANIZATION, Zurich, Switzerland) will be required;
(iii) improve the basic financial planning, budgeting and control system;this work will concentrate initially on immediate possible improvementsand will subsequently incorporate the new standard costing systemof item (ii) above;
(iv) establish and introduce a meaningful system for financial ratios andtargets for improved control purpose;
(v) improve the investment planning system on the plant level;(vi) establish and introduce a project cost reporting systems;
15. On the ASM level the financial consultant would assist SB staff to;
(i) improve the present financial reporting system (both, intra-ASM andto plants and SB headquarters. Emphasis will be on more speedyfeedback to plants and CTD);
(ii) design a more market-oriented budgeting system for ASM, which willinvolve, both at the preparation time and during subsequent budgetcontrol, CTD and individual plants;
(iii) improve the present inventory control systems at ASM warehouses andin retail stores.
3. Stage II
16. During Stage II, which will be financed by the IBRD loan, the financialconsultants will assist SB staff to introduce the systems developed for Eregliand Manisa, in the other SB plants,adjusted for specific requirements there.They will train SB personnel in the use of the revised systems and would providea supervisory function for PIU staff, which will help introduce the revised systems.Similarly financial assistance will be provided in CTD to implement the revisedfinancial7management systems , including an improved investment planning and contrclsystem.
17. Detailed terms of reference for Stage II will be similar to those forStage I with a detailed plan indicating the sequence of assistance in individual.plants. These terms of reference will be drafted by the financial consultants forreview and approval by SB and Bank. A financial consultant is presently beingselected by UNDP/UNIDO, through international selection procedures, acceptable tothe Bank. Provided the selected firm's performance during Stage I is satisfactory,the firms would continue to provide its services during Stage II.
Industrial Projects DepartmentFebruary 1980
- 88 -
ANNEX 5-3
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
STAFFING OF PROJECT IMPLEMENTATION UNITal
Textile Mills Garment Plants Headquarters ASM Total
FINANCIAL
Accountants 1 ( 5) 1 (1) 2 (2) 1 (1) 5 ( 9)
Financial Planners 1 ( 5) 1 (1) 1 ()3 7)
Standard Costing 2 ( 5) 2 (1) 6)
TEC}INICAL
Spinning 2 (17) - - - (1) _ _ 2 (18)
Weaving 2 (13) - - - (1) _ - 2 (14)
Processing 2 (10) - - - (1)2 (11)
Garments - - 2 (4) -(1) _ _ 2(5)
ORGANIZATIONAL
Senior Management - - - - 2 (5) - - 2 ( 5)
Project Preparation - - - - 2 (2) - - 2 ( 2)
Marketing - ( 4) - (2) 2 (2) 2 (2) 4 t10)
Production Planning 2 ( 2) 2 (2) 2 (2) - - 6 (6)
Procurement - - - - 2 (2) - 2 (2)
Total 12 (61) 6 (11) 13 (20) 3 (3) 34 (95)
a/ For the period 1980-83.
Industrial Projects DepartmentApril 1980
ANNEX 6-1- 89 - Page 1
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
CTD - ESTIMATES OF CAPITAL COST AND WORKING CAPITAL REQUIREMENTS
A. Assumptions for Capital Cost Estimates
1. The Base Cost Estimate (BCE) reflects estimated equipment prices pre-vailing in April 1979. The detailed list of machinery and equipment and theirunit prices, and construction and engineering works are given in the ProjectFile.
2. The following assumptions have been the basis of estimating the BCE.Machinery and Equipment costs: include 2 years supply of spare parts; Freightand Insurance: Estimated to be 4% of local and 8% of foreign FOB price;Erection: 2% on local and 4% on foreign FOB prices. Physical contingenciesare 7% on the BCE. No physical contingency for spares and,components forexisting facilities are included.
Following rates of inflation are assumed to calculate price contingencies.
1979 1980 1981 1982 1983
12% 10.5% 9% 8% 7%
The same rates are applied both to foreign and local components, based on theassumption that the differences in domestic and international inflation rateswill be accounted for by adjustments in foreign exchange rates.
3. Interest during construction for IBRD loan and suppliers credit iscalculated based on the expected schedule of expenditure (Project File, Item Q),and at 10.5% p.a. and 8% p.a. respectively.B. Assumptions for Working Capital Requirements
4. In the estimates of Working Capital requirements certain assumptionshave been made, which would provide a current ratio of 1.2 of above during theProject period. These assumptions, which are explained below, depart from themost recent historical data, but are modified in order to reflect the expected
ANNEX 6-1- 90 - Page 2
improvement due to the technical assistance. Furthermore, a gradual build-upof working capital has been assumed to avoid undue financial strains.
(i) Current Assets
(a) Cash
5% of cash operating costs is considered to be sufficient.Any excess or deficit cash will be shown in the cash surplusbalance account.
(b) Accounts Receivable
25 days or 7% of the sales volume is accounted.
(c) Inventory
Raw Materials: 34% of yearly requirements or 122 days ofsupply is used.Work in Process: Inventory of work in process is assumedto be 7% of total operating costs.Finished Goods: The finished goods inventory is estimatedto be 11% of total operating costs.Spare Parts: One year supply of spare parts is assumed.Others: Other inventories include goods in transit andconsigned goods, accounting for 2% of total operating costs.
(ii) Current Liabilities
(a) Accounts Payable
Accounts payable is approximately 25% of total cashoperating costs.
(b) Other Current Liabilities
Other current liabilities represent short term borrowing,advances received and tax payables, all of which accountfor about 29% of total sales. At the end of March, 1980,however, TL 2,490 million of CTD's short term was convertedto equity. Due to this paper transaction, CTD's othercurrent liabilities are reduced by this amount throughoutthe projection period.
Industrial Projects DepartmentApril 1980
- 91 - ANNEX 6-1Page 3
TURKEY - SIMERRANIW COTTN TErTILE RATIONALIZATIONJ PROJECTWURKING CAFPIIAL RELUIREMLNIS
(US$ MILLION)
1980 1981 1982 1983 1984 1985 1986 1987
WITHOtU T'HE FPROJECT
CURRENI' ASSETSCASI4 11.3 13.5 15.5 17.2 17.1 17.0 16.9 16.9ACCl)UNTS IRECEIVABLE 24.1 25.3 26.0 24.4 24.4 24.1 23.8 23.8I NVENTlORY
RAW MATERIALS 32.0 38.5 44.9 51.2 50.8 50.0 49.7 49.7WORK-IN-FPROCESS 23.2 24.8 25.3 24.5 24.3 24.1 24.0 23.9FINISHED GOODS 37.0 41.3 44.2 38.5 38.2 37.9 37.6 37.6';PARE FARTS 4.7 5.1 5.6 6.0 6.0 6.0 6.0 6.0OTHERS 8.1 8.3 7.9 7.0 7.0 6.9 6.8 6.8
TOTAL INVENTORY 105.0 118.0 127.9 127.2 126.3 124.9 124.1 124.0
U'HERS 7.2 7.0 6.5 5.2 5.2 5.2 5.1 5.1_ _~~~~~~~~~~~~~~~~. _._.__.._..__........___._,___ .._._.. _........ ......
I'T'OALl CURRENT ASSETS 147.6 163.8 175.9 174.0 173.0 171.2 169.9 169.0
CURIRE-NIT L IABIL I TlIESACCOUNTS PAYABL.E 83.8 86.4 86.9 86.1 85.6 84.8 84.4 B4.4I'THE-R CURRENT L-IABILITIES 38.4 47.0 52.8 44.8 44.2 43.4 43.0 43.0
Il)ALA CURRENT L.IABILITIES 122.2 133.4 139.7 130.9 129.8 1218.2 127.4 127.4
WORKING CAPITAL 25.4 30.4 36.2 43.1 43.2 43.0 42.5 42.4
CHANGES IN WORKING CAPITAL. 2.1 5.0 5.8 6.9 0.1 E0.2) (0.5) (0.1)
WIT?HI THiE F'ROJEC'I'
CURRENT ASSES-I'CASH 11.4 13.7 15.9 19.0 139.7 19.9 20.1 20.1ACCOUNTS RECEIVABLE 24.1 25.5 27.5 28.3 30.9 31.4 31.9 31.9INVENIORY
RAW MATERIALS 32.0 38.2 45.5 5(3.3 61.3 62.3 63.0 63.0WORK- IN-PROCESS 23.2 25.1 26.3 27.5 28.6 28.8 29.1 29.1FINISHED GOOIDS 37.2 41.9 46.0 43.1 44.9 45.3 45.7 45.7SF'ARES 4.7 6.2 7.3 9.3 9.3 9.3 9.3 9.3OTHERS 8.1 8.4 0.2 7.8 8.2 8.2 8.3 8.3
TOTAL INVENTORY 105.2 119.8 133.3 1.46.0 152.3 153.9 155.4 155.4
OTHlER CURREN'T ASSETS - 7.2 7.1 6.9 6.1 6.6 6.7 6.8 6.8
TOTAL.. CURRENT ASSETS 147.9 166.1 1033.6 1'99.4 209.5 211.9 214.: 214.2
CUJRRENT L.IAIBLI TIESACCOUNTS PAYABLE 84.0 87.4 89.2 94.18 98.7 99.7 100.6 100.6OTHER CURRENI' LIABILI'TIES 38.6 48.1 56.4 54.5 58.2 59.1 59.9 59.9
T'O(TAL CURRENT LIABILITIES 122.6 135.5 145.6 149.3 156.9 158.8E1 160.5 160.5
WORKING CAPITAL 25.3 30.6 38.0 50.1 52.6 53.1 53.7 53.7
CHANGE IN WORKING CAF'ITAL 2.0 5.3 7.4 :12.1 2.5 0.5 0.6
INCREMENTAL REQUlIREMENTS
WITH SFARE PARTS (0.1) 0.3 t.6 5.'2 2.4 0.7 1.1 0.1
WITHTOUT SF'ARE PARTS (0.1) (0.8) 1.0 3.6 2.4 0.7 1.1 0.1
R A I ] 0 S
CURRtINT RATIO WITHOUI I'THE FRtJECT 1.2 1.2 1.3 1.3 1.3 1.3 t.3 1.3OUI'CK RATI'O - WITHOUtT THE PROJECT 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4CLJRRIEN'I RATIO - WITH THE PROJECT 1.2 1t.2 1.3 1.3 1.3 L.3 1.3 1 .;3n uI C;K RATItl - WIT'H TIHE FPROJE'C'T 0.3 0.3 0.3 0(.4 0,4 0,4 0.4 U.4
T[NDISLI TRI A F PROJEC (S TDIE:FPARTMENTRI;tP(RT FRE PARE D:04/1t8/(0
- 92 - ANNEX 6-2
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
CTD - ANNUAL FINANCING REQUIREMENTS AND FINANCING PLAN(US$ Million)
A. Annual Financing Requirements
1980 1981 1982 1983 Total
Fixed Assets 6.9 46.3 40.1 12.7 106.0Interest During Const. 0.4 2.6 6.2 8.5 17.7Working Capital 2.0 5.3 7.4 12.1 26.6Total 9.3 54.2 53.7 33.3 150.5
B. Annual Financing Plan
1980 1981 1982 1983 TotalEquity:Additional Equity 5.4 8.5 4.1 - 18.0Internally Generated Funds 2.3 8.7 12.6 20.9 44.5
Debt:IBRD Loan 1.6 37.0 37.0 7.4 83.0Suppliers' Credit - - - 5.0 5u0
9.3 54.2 53.7 33.3 150.5
Industrial Projects DepartmentApril 1980
- 93 ANNEX 63
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATIU14 PmuJLCT
IBRD LOAN DISBURSEMENT SCHEDULE
(US$ million)
Calendar Year Amount Undisbursedand Quarter Disbursement Outstanding Amount
1980 Q3 0 0 83.0Q4 1.0 1.0 82.0
1981 Ql 4.0 5.0 78.0Q2 8.0 13.0 70.0Q3 10.0 23.0 60.0Q4 14.0 37.0 46.0
1982 Ql 12.0 49.0 34.0Q2 11.0 60.0 23.0Q3 8.0 68.0 15.0Q4 7.0 75.0 8.0
1983 Ql 2.0 77.0 6.0Q2 2.0 79.0 4.0Q3 2.0 81.0 2.0Q4 2.0 83.0 0.0
Industrial Projects Department
April 1980
- 94 -
TUKI - SflUITK CrTO T1ITILE LATI>aLIZATICH PROJECT ANNX 7-1
SAL.E S WITH PROJECT Page I
(US$ MILLION)
1980 1981 19U2 1983 1904 1985 1986 1987
'jALES VOLUME
YARN f'rt1N.';) 34.0 3,531.0 4v502.0 6,282.0 6,282.0SEWING THREAD (TONS) 180.0 180.0 180.0 500.0 500.0 500.0 5(0.0 500.0GREY FABRIC (MILLION/M2) 55.2 44.1 33.0 21.9 34.1 35.9 36.1 36.1FIINISHED FABRIC IMILLION/M2)
F-RINTED 66.6 71.3 72.1 79.9 78.9 78.9 78.39 78.9DYED/BLEACHED 63.7 63.8 64.4 71.4 70.5 70.5 70.5 70.*5COLOR WOVEN 14.5 16.7 16.9 18.7 1L.5 18.5 18.5 L8.5BLENDE'D 6.0 12.8 24.9 34.0 39.4 39.4 39.4 39.4GARMENTS (THOUSANID PIECES) 3o409.0 4,316.0 6v025.0 7,595.0 7,B37.0 8,015.0 8,015,0 E10L5.)0
KNII'TING (rHOUSAND PIECES) 1,900.0 4,550.0 8,050.0 120O50.0 14t051.0 14,051.0 14,051.0 14,051.0WASTE (TONS) 5,288.7 5,433.4 5,578.0 5vB61).0 6,782.3 6,899.4 7,156.5 79156.5
JN IT PR I CES C CURRENT USS)........ ..... .. .. ............. ........ .... . . - ... .... .... ... 0
YARN (KG) 3.15 3.46 3.75 3.83 3.83 3.83 3.B3 3.f3'SE:'WING THREAD (KG) 6.62 7.26 7.88 8.05 8.05 8.05 8.05 8. 05GREY FABRIC IM2) 0.7El 0.85 0.93 0-95 0.95 0.95 0.95 0.95I-INISHED FABRIC IM2)PFR3 I NTE D 0.19 0.98 1.06 1.08 1.08 1 . Oi 1.08 1.OL8IrYEI'I/BL E ACHED 1 .20 1.32 1.43 1.46 1.46 1.46 1.46 1.46COLOR WOVEN 1.42 1.56 1.70 1.73 1.73 1.73 1.73 1.73BLENDED 1.57 1.72 1.87 1.91 1.91 1.91 1.91 1.91GARMENTS (PIECE) 7.54 7.41 8.27 8.48 8.43 8.40 8f40 8.40KNITTING (PIECE) 1.60 1.68 1.78 1.80 1.80 1.80 1.8() .80(WASTE (KG) 0.43 0.56 0.64 0.66 0.66 0.66 0.66 0).66
SALES REVENIJE (MILLION US$)
YARN 0 - O- 13.5 17.2 24.1 24.1SEWING THREAD 1.2 1.3 1.4 4.0) 4.0 4.0 4.0 4.0GREY FABRIC 43.1 37.5 30.7 20.8 32.4 34.1 34.3 34.3FINISHED FABRIC
PRINTED 59.3 69.9 76.4 86.3 85.2 85.2 135.2 85.2DYED/BLEACHED 76.4 84.2 92.1 104.2 102.9 102.9 10)2.9 102.9COLOR WOVEN 20.6 26.1 28.7 32.4 32.0 32.0 32.0 32.0BLENDED 9.4 22.0 46.6 66.5 75.3 75.3 75.3 75.3GARMENIS 25.7 32.0 49.f 64.4 66.1 67.3 67.3 67.3KNITTING 3.0 7.6 14.3 21.7 25.3 25.3 25.3 25.3WASTE 2.3 3.0 3.6 3.9 4.5 4.6 4.7 4,7
I'O'TAL 241.0 283.6 343.7 404;2 441.2 447.9 455;1 455.1
INDUSTRIAL PROJECTS DEPARTMENTREF'OFT PREPARED:04/18/0O
- 95 -
tURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJE(;T
ANNEX 7-1SALES I NCREMENTAL FOR FROJEC:T Page 2
(US$ MILLION)
1l980 1981 1982 1983 1984 1985 1.986 1987
SA L..ES: VO Jl:L.UME:
YA RN (TO -NS 34.0 --- 3 53 10 4Y502.0 6Y282.0 6Y202.0SEW I: N 'I IRE:AD (TON 1 1320.0 320. 0 320. 0 320.0 320 .0GREEY F1ABRIC (MILL.ION/M2) 113.5.) (21.1) (28.3) (15.0) (1.0.4) (0.6) (8. 6)I'N ISIIE D FABRIC (MILL-ION/M2)
E RIWNTL:I)11 1.9 0.6 7.9 7.5 f.4 B.9 f3.i)ULiYEI'/DL E.ACHEI.:: (2.6) (4.0) 2.5 2.2 3.0 3,5 3.5CO10OR WOVE::N .. : 1.6 1.3 3.0 3.0 3.2 3.3 3.3B1 I::NI:DE:1) 6.f3 18.IlI 28.8 33.54 33.4 3.3.4 33.4
GARMENT1S ( ft-TOUSAND PIECES> 391.0 )1020.) 1 * 440.0 1 682. C 1.8060 .0 1. y 6().06 1.8fb60. )K1N[I'IT' IN(i HOUS(T)ESANIIES T1:WAS.'l. (I1 N:,) 261 .0 522.7 922.7 .1.,955.7 2,177.9 2'536.1 2.536. 1
S REVE::NUl (MI.L.LION L')$)
YARN 0.1. :1.3.5 1.7.2 24.1. 24.1S:EWING ITHREAD - 2.6 2.6 2.6 2. 6 2.6GRLEY FADRIC- (11,1) (19.6) (26.9) (14.2) (9.9) (8.2) (0.2): :NI SHEL1l FABR I C
F: :1: NTI'f 1: 1.9 0.6 8.5 83.1. 9. 1 9.6 9.6:1YE:I.,/t..EACHED (1 3,4) (5.7> 3.6 3. 2 4.3 5, :1. 5. 1C11LOR WOVEN 2. 5 2.2 5. 2 5.2 S. 5 5.7 5. 7
I ELE: N II ELt.7 135.4 5. . 0 63 .8 63. 3 63.f8 63.8G ARMENTS 0,5 4.7 .3 9.0 10.2 I0.:! 10.2KNIrTT1IN(,WAS t? 0,1. 0.4 0.6 1 3 1. 5 1.2 1.7
TOT ALI 2.2 1.3.:L 55. 9 92,5 :1.04 .3 1.14.6 1.14.6
:Nl'USTI RI A... RO FJE(IT 1S IE:: [ARME .N'TDATE: R.FORT 1RE.AR1::1 :04/18/80
ANNEX 7-2- 96 - Page 1
TURKEY
SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
Assumptions Made for Financial Projection
A. Sales Price
1. Beginning 1980 prices are used as the basis of price projection andconverted into US dollars at the rate of US$1.00 - TL 70. Then the prices areinflated in line with international inflation during 1980 through 1982 period.In 1983, the price is increased by 2.1% which is about one third of the expectedlevel of international inflation in the year so that SB's long term profit marginreach the industry norm (3.0 - 4.0% on sales). There is no real increase in-cluded in the price projections throughout the project period despite of projectedimprovements in quality. The improved profitability is almost exclusively dueto improved operations and for the remainder, due to expansion in certainspecialty areas (blended fabric, sewing thread, garments).
Constant 1980 unit prices used for the projection are listed below:
In TL In US$
cotton yarn/kg TL 221 US$3.15
sewing thread/kg TL 463 US$6.62
grey fabric/square meter TL 55 US$0.78
finished fabric
printed/square meter TL 62 US$0.89
dyed/bleached/square meter TL 84 US$1.20
color woven/square meter TL 99 US$1.42
blended fabric TL 110 Us$1.57
garments a/ pcs TL 528 uS$7.54
a/ Garment price per piece is the weighted average and adjustedeach year to reflect the changes in product mix. In determiningsales prices of garments, it is assumed that fabric costs represents60% of the garments sales prices.
- 97 - ANNEX 7-2Page 2
B. Operating Costs
2. During the past year, repeated devaluation together with variousprice stabilization mechanism affected the local cotton price. After June 1979devaluation exchange rates applicable for agricultural commodities includingcotton are set at US$1.00 = TL 35, compared with the general exchange rate ofTL 47.1. This would effectively mean approximately US 43 cents of pricedifferential per kilo of raw cotton in favor of local cotton users. AfterJanuary 1980 devaluation, the exchange rate applicable to cotton export isadjusted to TL 70, which is also the general exchange rate. The governmentof Turkey, however introduced a new price stabilization levy averagingTL 38 or US 54 cents per kilo of raw cotton. International price of MexicanS.M. 1-1/6'variety projected by the Bank is used as the basis of raw cottonand adjusted for transportation costs and the price stabilization levy. Itis assumed that the amount of levy would remain unchanged through the projectionperiod..
3. Historically raw materials accounts for about 35 to 43% of productioncosts as compared with 14 to 17% for labor, 11% for yarn production taxes, and4% for maintenance. Among the raw materials the main cost item is cotton whichrepresenting aroung 25 to 30% of the total production cost. All of the fabricsneeded for garment manufacturing are assumed to be purchased from outside atUS$1.49/square meter. Dyes amd chemicals costs are assumed to be US 5.5 centsper square meter of processed fabric based on historical data. Current priceof US$298/kg for polyester fiber is used. All of these are beginning 1980prices and inflated by international inflation rate, except for polyesterfiber, dyes and chemicals and utilities, to which a real annual price increaseof 2% is added.
4. The actual wages and salary payments during the first 3 quarters of1979 are used as the base labor rates. The change in labor requirements weretaken into account. Based on the historical data during 1973-1979 period,salary and wage rates are assumed to add 1.5% real increase on and aboveinflation each year.
5. Production Tax on Yarn is called for under Turkish law. Tax rateincluded in yarn ex-works price is 35%. When used internally, production costsplus 10% profit is used in place of ex-factory price. The production tax onyarn, in fact, eliminates the favorable price differential of raw cotton fordomestic cotton users.
Utilities
6. Based on SB cotton textile operations historical data, following usagefactor is established and used for projections.
Spinning: 1.8 kwh per kg of yarn (Ne 20)Weaving: 0.5 kwh per square meter of fabricProcessing: 200 liter of water per kg of processed fabric
25 kg of steam per kg of processed fabric1.5 kwh per kg of processed fabric.
Based on these coefficients, utility prices for each stage of production isestimated as follows all in constant 1980 terms;
Yarn: US 5.7 cents per kg of yarnWoven Fabric: US 1.4 cents per square meter of woven fabricProcessed Fabric: US 3.5/cents per square meter of processed fabric
Utility expenses are assumed to increase 4% in real terms each year.
- 98 - ANNEX 7-2Page 3
7. Financial charges assume an interest rate of (i) 10.5% p.a., 17 yearsmaturity, including 4 years of grace for IBRD loan, and (ii) 8% p.a., 6 yearsmaturity, including 1 year of grace for suppliers credits.
8. The depreciation rate for textile machinery is 7-10% p.a., and forcivil works 2-6% p.a. Weighted average of 8% is used.
Maintenance
9. Annual maintenance requirements (materials) have been estimated byGHERZI/SB staff and inflated using international inflation rates.
Other Major Operating Costs
10. Short-term interest is estimated to be 1% of operating costs in theearly years of the project. However, this is gradually increased to 1.5% ofthe operating costs despite the gradual reduction in short term debt throughfinancial restructuring as CTD starts financing its needs increasingly by short-term loans based on market terms for interest.
11. Tax rate of 41.7% is used for projection purposes to account forincome tax, financial equilization tax and mandatory contribution to industrialinstitutions such as Turkish Productivity Center, etc.
Industrial Projects DepartmentApril 1980
- 99 -
TURKEY -SUNERBANK COTTON TEXTILE RATIONALIZATION PROJECTANNEX 7-3
INCOME' STA'TE:MENT WITH ROEC Page 1
(U8$ MILLION)
1980 1981 1-982 1.983 1984 1985 1986 1987
SAL.E:S; RE_-VE:,N1JE 241 . 0 283.6 343.7 404.*2 441 . 2 447.*9 455. 1 455. 1O PE R ATI NG C'OSTS'
COTTO*ri(:N 55.5 74.4 835.*5 .1.0'2 .8 1.11.9 1.14 ,2 116.3 11.6.3MAN-MADE:. FIDE:RS 2.7 4.3 '7.0 10,3 11.9 11.9 :1 .1.9 11.9C"OTT'ON YARN 2 . 4 1.3 3.3
01.1) TIl ~~~~~ ~~~~~~14.9 18,6 28.9 39.4 40.4 41.0 41,0 41 .0D1YE'S & CHE.MICAL-S 8.6 1.0,*"5 12,5 15.8 1 6.0 16.() 1.6 .0 16,0UJTI1...'ITIE S J.11.2 13.4 1.6.0 19.8: 20.8C 21.0 21..1. 21.1.WAGE'S 81 t. 2 912 101. 6 1.10.9 110.9 1.1C).9 I11 0.9 110. 9PR.fff)DLJf.' TnO.N 1T AX 22' 2 1 ,8 7 -i 3* 31,4 :3,7.0 38.4 38.44MAI NTE'NANCE.,:_ 4.7 6o 7.13 9.3 9.3 9.3 9,3 9,3S AL..ARI E.S 6.8I 7. 8 . 3 9,1. 9. I 9.1t 9.1 9.1.D:E:PRE.CI'Al"E(:N "5 ,1. 62 10( 1 1.2.9 1.3.6 1.3.4 13.3 13.2S O. DCO0NTR A CI'lN G 1.3 1.2 1.4 1.5 1..I.5. 1.5 1. o5 1.5S3E L.L..I NG & ElIISTR I B E X P 2.4 4.3 52 6.1 6.6 6.7 6.8 6.8GEM ,.N A'IM IN. O)VERZHEADS: 7. 5 8l * 3 9.1. :10 . 0 :1.0. 0 IC)* 1.04 I 1 C) 0IMNPl. F"O R $3T L.O )A N 23 -. 7 3.2 3, 4,0 4.0) 4.1 4.1.OT lIE:R% OPERAT INMG E'XP1ENSES3 3.*4 4 *1. 4.*9 5,8E 6.0 6.*1. 6.1 6 , 1.
TOTAL.. OPFRAT IN MGCOSTS) 232.2 2)7 9 . 2 3'280.0 392.2 408. 4 4 12. 1 4 15.8 4:15.7
OPERATING RF F-0IT' 8 8 4.4 :1.4 .9 1.2.0 32 * 8 35,0 8 39.*3 39.,4
FINANCIAL- CHr-ARG-E:S 2.9 4.9 8, 2 1C),1 1.0.3 8,.7 7.1 5.6
PROF IT B13EFO.RE: T AX 5.*9 C 0.5 ) 6.*7 1 .9 2 2 .5 27 . 1 32.2 33.8
INi C NC TA X 2.5 2.8G 08 9.4 11. 3 1.3.4 14.1
PROFIT AFTE.R.'AX 3.4 (0.5) 3.9 1. .1. 1.3.1. 15. B 18.81 1.9.7
R A IT I 0 S,
OPE: R * PRO0F , AS, Z' OF SALE:S) 3. '7 1.*6 4 ,3 3.0 7.,4 8 S * 6 8. 7PIROF * AF.* TAX AS Z/ OF S)Al ES 1 .4 C 0,2 ) :1 . 1. 0.3 3. 0 3.*5 4 * 1 4.*3
PROF1.T BR E:A K E'V E N
BY CAPAC TrY UIii I.. I ZA'T' I ON "I .5 1. * 00 C)+ .9 0 , 99 0 . 87 0. 5 C) 82 0 81BY ',,AL..E.S F"R]I CE: 0 * 98 :1 . 00 0 . 98E 14, 0 0 .95 0. 94 C) *93 0.93
CASH-f- FsRE.AIK EVE:N
BY CAP'ACITY L01 L:LIZAT I ON 0 *9() 0.95 0: El 88 90 C) 80( C) 77 C) ,75 0+,74DfY S AIE: 1S FRI CE 0 95 C) 95 0 , 95 04*96 C).92 0. 91 0.*9() 0 *90
I1 N D:'t.i STrRI (AL F' PROJE: C: 1' DF i:'A-RTmI MEN*T
- 100 -
TURKEY SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
P AL AN CC SHELF ill] PR,.) F CTANNEX 7-3...... ... . ..... ... .. .. .. ... ... P a g e 2
LUIES; M'I:L..L.. ION)
1.98 1980. 1 961 18::? :1. 98: '3 1.984 1 985 1986 198?
El,A S3I.I 1:1,4 :13.7 .15,"9 1.9.0 ' 19. 19.9 20.1 ::.20.1ACCOLUNVES REEVE .. 24, 1. 2 5 . 5' 27. 28.3 530.9 251. .4 31. 9 31. .9J.'N VENTO RY :1. 0I5 .2 11. 9.-8 1253.25 146.0 :152.o3 1.53.9 1 .4 1 55 .4OTHER CURRE::NT ASSETSF; 7.2 I 6. 9 6.1 6. 6 6.? 6.8 6.8S
TOTAlI(.I..JCRR1E'NT :S;.;1.47. 9 :166.1. 13M. 6 :1.99. 4 209. 5 211.. 9 214. 2 214.2
(SLJRPI..US CA EI 16...A A NC 6 * 2.2.. 7. 0 51" * 23 2( 0 34 ,0 5(3* 8 n2 o(JRUF;S ri: xTr AC;%F.S ~~~~~84. 4 .1. 32 9 :1.723.0 :185,V: 7 1.85,7 1 B5.7 1.85 * 7 1B5k7
ACCItI M UIIJ.AVFD DEP'FRECI3.ATf i. )N 3.1 . 3.5 47. 6 6 0 .5 74.1. 8 7. o 1. 00.E 1.14.0
NF.T' 1E'I'X1:ED AF;S E.5T 53 1. 95 .4 1. 25,-i 4 1 25.2111 . 6 98 ,2 84, 9 71 .7
OITHE'R ASE0,4 0.4 0.4 0.4 0.4 0.4 0,4 0.4
1[OVAL.ASTF 207 * 6 264 .6 2516. 4 3 30 35241 * 5 :344. * 5 350 * 3 358, 3
I: A 131: L :i: r :1 ~~~~~~~~~~~~~~~~~~~~~~~M ::::::: S:::
(211lFER EN'T V .. 'AI A ITI:1.11]CS'f C (2 UNTG 15 AYABL.E 84. * 87 .4 89. 2 94. * B.8 7 99.*7 100. 6 100 * 6
CURE E%I" :.N I' PT.ON I.. 0N (3... 'IE:: RM 1N E B'I(O.N ONiLOANS 25.1. 3.3 23.3 25.2 23.25 3.3 0.25I1 RO 1... (J)A N .. 5.. . ."j2? 1.0.4 :10,4 10.4 10.4OTHEFR I1.. (A NE 1. 1.0 1,0 1.0 1 .0
OTHE..R CURRE:.N'T I.. A-Sif EH25 ,6 48 .t1. 56.4 54 * ,5 58 .2 59 1. 59 ,9 59. 9
(OV IALI . .) C IJERENT FIIAR F Ilii 'E ::S 1. 257 :1.253 , 1. 483.9 158.8 1.71.6 17 3. 1.72.2 1 71 .9
I.(N(3T'ERM DlEEBT0N(JN 0OI.NVS' LO)ANS' 11..5.'5 1.4.4 :I.1. 1. 7. 83 45 1. 2 0.9 0.91ID RD1 I... 0 A N 16 38. 7 5 .6 77.8G 67.4 5`j7. 0 46, 6 25.i6.2(Jill1 El.R I C. A N S 4.0 250 2010
VO.)T'AL. IL ON ; TE1:R M liD V.1- :17 :1. ".53 .0 86 7 89 *6 .'4 * 9 6 0 *2 4 8 * 5 327 1.
1 U Ii.Yr SH IIAREd' .LJ:AIP .T6n. f I 26,4 805 (30.5 80. 15 80(.5 80 . E 805
1EVA f NED .' ESEN I NtS (5, I:I.:s . 0.4 :1. !:: 1. 4.6 250.4 4 9.*2 68.9
HTOTAL fAoHi:) ('' 64.9 2, 80.~9 82.0 9.1. 1.10. 9 1.29.7 149.4
TO VA I.. L I." DR II. 'IL: S,1: At' ED1. UV 1T'Y 207 ', .) 264 * '7 25 1.6 33 220.*4 2541 * 6 344.*6 255`;0 * 4 2558. 4
1211 T' F NV TD :1: 0 tN C. Si..iH1 P lI- 'I .2: :1. . '22:: 1. ,:.?8 I. * 9 :1. 324 :1. * 4 2 J. * 5.j4 1.*.66PUIu.I (C1,,fl1T I) 214 0.225 3.4 0.254 (3.252 0).23 0.34 0.234D EVI; Ti VF JU I V Y RH pi(1~ 0 0 * :?( 12 0 * 5 2 0 . 52 0.*44 (3 . 235. ' 7 0.*20
t Nt I WSI F.. j I F... (CO.)F (.' T 1.1 FECVF E. PA . F:% M '.N'V
- 101 -
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
FUNDrS FLOW STATEMENT WITH F'ROJECIT ANNEX 7-3. . - .- ---.- ---- Page 3
13;5$ M1L.LION)
1980 1 981 :.1982 1983 1.984 1985 1986 1.987
S OUR C'E,-C O1 F (UND S
'ROE:F- IT AFTE.R TAX EF'OI:E O L NTIEREST 6.3 4.4 12. 1 11 .2 23.4 24 * 5 25.9 25.23
:LI:Rl':-RCI'ATI ON 5.1. 6.2 10).1 12.9 123. 6 13.4 13. 3 13.2
IN 'EVRNAL. CA:SMH GENERATION 11.4 1)0.6 22.2 24 1 37.0 37.9 39.2 38.5
O 1Z1TU Y C'QA.: 1FAL I NCREASE 5.4 8. 5 4. 1 - -
L0N(i3-rTEtRM DET-DTON ( NC I NO ...(JANS 2.2 - - --
IBRD L .. OAN 1.6 37.0 37. 0 7.4
OTHE R LOANS ... ... .... 5.0
rT O TAL.. I. L0N(. .lT::RM DEBTT 1.6 239.2 37.0 1l2.2 -
DEC'RE.ASE- 'IN WORK I NO CAP I TAL.EXTIST ING OPE:RATI ONS - 0.2 0.5 0, 1
PRFOJE 1. 0.1 -- - - -
TO:TAI DECREASE: IN WC)RKING CA:. 0. 1. - 0.2 0.5 0.1
TOTA'L.. SORC1.1RC.E; 18.5 58.3 63.3 36.5 37.0 38. 1 39.7 :38.6
, PPL. I CAT I ONS O F 1: UND1S...... ~~~~~~~~~~~~~~~~~~~... .... ..... .. ..........
E1 X'1D ASS.;EETS S 6.9 48. 5 40. 1 12.7 - -
OTHEIR A;SSEIG - .... . .... .
:INCREASEE IN WO1RKhI NG CAJ IT ALEX rSTI NG C:1PEl RAT- O1)NS 2.1 5.0 5.8 6.9 0 . 1 - - --
PROJECT -1. 0.3 1.6 5.2 2.4 0.7 1.1 0.1
orTAL I NC'REA''.,SE IN WORK I NO CAl::,. 2.1 5.2 7.4 12.1 2.5 0.7 1 O.1 01
I.. ONC:, TS (lMR DE It REF -A YM1 NTSTON GO1:ING3 LO..A:)ANS 2. 23.1 2. 3 2.1 3 3.25 3,3 3.13 30.2
1 BER L.OAN - -N- 5.2 10.4 1)0.4 10).4
oT 1itLR LCOANS - - 1 . 1 .0 1 *0 1 . 0
'ITOTAL .. L. V: B[T RE P AY ME:NTS .25. 2 .2 1 3. 2 3.,3 9.5 14.7 14.7 1t . 7
ILNTIRERE:S r iAYhE:NI SO1N GiO 1 N1G 1 OANS 2t5 2. 3 2.0 1. . 6 1. 2? O8 0.4 (.1
ID ROFD LOAN -,4 2.6 6.2 3.23 8.7 7.6 6.5 5.4
Of(-EIR- LOANS) - 0.2 0.4 0)*3 0.2 0. 1
( ITALL : N TER.;EST PAYME NTS 2.9 4.9 (8.2 1t0.1 10.23 8.7 7.1 5.6
(OVAL DEBT SER'.RV:ICE:C. 6.:1. (3,0 1.1.5 13.4 19. 8 23.4 21 .8 17.23
TOT AL) . API. ( NAT I (INS 1'. 1 61. 0 S9.0 38.2 22. 3 24. 1 22.9 17- 4
ANNIJAL CAH SURPI UJ' (DEF1(I'C1.) 3.4 (23.5) 4.3 (1. 7) :14.7 14.0 :16* 8 21 .2
SURPi. L[3 CAS:-1 BAL..AN:'L 6.2 2. Ž, 7.0 53 20. 0 34.0 0.08 72. 0
R A V 1. t{T S
'II B1 ';11;VICE OVERAGE :1. .8/ 1.. K 8-3 J. 93 :19 .1.80 :1. 87 1.62 1.80 2.223
1ND!' N D 3 1 AL.. PR F;Ai: .3J EC ViS DI'E 3:A R TEM N VV F (:) 1 (13: (4 3/fltl. l V 0;l. ll+o4,' 13f ),133:3(
- 102 -
TURKEY - SUTIER.BANK COTTON TEXlILE RATIONALIZATION PROJECt,
::i.iL:~.i(i tK: R. hi. N I, Ii 0H I.I `1i1..A I (1... I (."k' l'RJJ.[L.CI ANNEX 7-4
(USS') MILLION)
1980 1.9381. 1. 98 2 .1 9 B3 :1.98G4 1.98:5 1.986 198:7
S3AL-ES RE VENUE: 2 . 2 18.1 55.9 9 2,*L5 104. 3 1.14,6 114.6OPIERATrI NG COS)TS
(201.CTON 4.9 B.5 20,::.?2 31.*3 35. 4 39. 2 39'2MAN MADE: FIBERS 1.3 3. 7 6.o6 8:. 2 B8.2 8.*2 8. 2C2OTTON YARN (7.9) (1.4.2) (13.7) (1.8.0) (1.7,7) (18.4) (18.4)CL.OTH 0,2 2.7 4.7 5.7 6.3 6.3 6.3DYESf I C.H EM I CAS 0 ,) 5 1* 1. 3 *3 3.,6 3 ,7 3. * 3.8
UJT' I.'l.IE:I 0.3 1.1 3.2 4.4 4.9 5,1 5.1.WAGE:S (0.6) (1.5) (1.9) (1.9) (1.9) (1.49) (1.9)PRODUCTION 'TAX. I.1.2 2.6 4.9 10,5 1.1. 7 13,6 1:3.6MAINTENANCE .1.1 1.7 3,3 3.3 3.3 3.3 3.3DEPRECIATION* 0.6 4.3 79 85 8. 5 B*5 a8,5 8,5SUBCONTRACTING (0,3) (0.2) (0.2) (0.2) (0*2) (0.:;) (0.2)S E L L ING D EIIS-TR I B. EXE. 1..5 1. 9 2.6 3.1. 3.3 3.4 :3.4GE:N. AlIMIN. OVERHIEADS (07 O0,8 0, 04 .9 0,.09 0.9 0,9INT4 FOR ST1 LOAN 0.J1 0.4 0. 6 0.6 0. B 0 ,8:OTHER COPE:RZAT I NO.,r EXPENSE::S 0.2 0 *6 0 *9 1 * 1. *0 1.*
TOTAL COPERAT INCG COS1TS 0.*7 3.*6 1.2.0 42.*4 6() *9 681: * 0 73.*6 73. 6
OPERATING3 P:ROfI'rT (0.7) (1.4) 5.3 1.3.65 31.6 :36.3 41..0 41..0
F INANC I Al CI IA RGC)E S 0.4 26 6.2 8. 5 9 1. 7.9 6.7 5.
PIROFIT EOR (TAX1.1).l (4. 0) (0.9) .0 225 28. 4 :34.3 35.5
I NClOM E TIAX (0,4) (1.5 (0.4) 0.30 9.4 :11.43 13,4 1.4,1
P:ROFIT AFTER TAX- ((06) 2 (,5 4.2 1.3. 1 17.1 20. 9 21.4
RA T I 0 5
OPER * PROF! *ASl %. O.F SAL..E'S ( 63.6) 29 *3 24 *2 :34. 2 34 * 8 35. * 8 35. * P'ROF. AFT. V'AX AS) " OF S3ALES) (1. 1 3.6) (2.8 75 14.2 :1.6 .4 18.:? 18.El.7
PROF7IT B)REAK- [YEN
BjY C.APACIITY UTIL[IZATION (56) .1 .75 0.42 035 0.9 0.27IEl.Y SALES' PR]:`TCE:2*01 1*0 9:1 0.*76 0.*73 0 *70 0.*69
C ASH B3REAK -EVEN
BY C"AFAC2 1 TY UT I LILAT I ON ( 4.*67 ) 0 . 62. 0 * 38 C) 2:1 0 * :1.6 0.*1.2 0. * 0B Y S3ALES. Pf I C E t:1.55' 0 .801. E). 0,66 0 .65-- C) .3 0+ 6 2
I N [D. tS 'IT.1 A I.. PROJE.J C:I S ) D1CJ APT ME..NTV
- 103 -
TU'RKEY - SUMERBANJK COTTON TEXTILE RATIONALIZATION PROJECT
D.AL.ANC'E SHEET' :I.NCRE:MEN'AL. F'OR PROJECT' ANNEX 7-4--- . ---------- ~~~~~~~~~----- Page 2
CUSS MILLION)
1960 1961 1962 1963 1.984 1965 1,966 1.967
CIFE'ASSETSS
CASH 0.1 0.2 0.4 1.6 2.6 2.9 3.2 3.2ACCOUNT'S RECET EVAEil-E -- C).2 1.5 3.*9 6.,5 7.3 6, 1 8. 1INVENT-ORY 0.2 :1.6. 5.4 161.68 26.0 29.0 31.3 $31.4OTHER CLURRlI N'T AS1I-3."TS' 0. 1. 0.*4 0.9 1.*4 1.* 5 1 .7 1 .7
TOT'AL. CLIRRE .NT' ASS)ETS 0.3 2.3 7. 7 25.4 36.5 40,7 44.$3 44.4
SBURPlLUS CASH1, HAI.ANCE. (05) (3.5 (043) 5.9 16).9 32.4 49 .3 67.7GROSS F IXED' ASSET'S 6.9 53.2 93.3 1.06.0C 1.06.0 106, C 106.0 106.0ACCUMLUL.ATE)11 DEP-RECl ATTI(N - 0. 6 4.9 1.2.4 20.9 29 .4 :37.9 46. 4
NET' FI-XE-D AS)SE.5 6.95 52".6 68. 4 923.6 6,5. 1 76.6 66.1 59.6
OTHEF:R ASSETS1 -- ~ - -
T O'ALI AS SET S 6.*7 ',51. 4 95, 6 124.9 1 40.'5 1.49.7 161.7 :1 71 .7
.I ADII LI Tl I,ES
CURR'EN'T U..I ABl' IL. IT' LE ACCOUNTS P'AYAB3LE 0.2 1,0 2.3 6.?7 1.3.1. :1.49 1.6.2 16,$2
CURRENT PORT0'01 I ON lON T'ERM [I'EDT1UN--GOING I(TANS --- - - - --I RO L IOAN - - .2 :10, 4 :10. 4 10.4 1.0.4OT HEFR L O ANS 1. C 1.. 1. . 0 1,0
OTHER CURRE:NT' I.. .AITII -1I1ES 0.2 1.1 3. 6 9.7 :14. 0 15."j7 1.6.9 [6.9
'TOTAL- CU)RRE'NT' I 1 Aidif I.I 1 ' CS 0.4 2. 1 5.9 24.6 $36..5 42.0 44.5 44.5
I- ONH T-ERM DESTON-GO'INGI LOA NS -. - -
fLED R L.O A N 1 .6 36 .6 715 .6 77.6 67.4 57.0 46.6 36.2OTI-IEIR l OANS - - - 4*0C :3.0 2.0 1 * C
TOT1AL- LUNU N DEEI'ER V: I 1,6 3131.6 7,5. 6 61 . * 70.4 59 .0 47.6 $36.2:
EU U4 ITl YSHARE: CAL i': T AI. 5).4 13.9 :19,0 i16,) 10 181 .S.0 18.0 18.0
BE.AINED EARNINGS ~~~~~~~~~~(0.7'I) (3.2) ($3. 7) 0. 13.6 $30. 7 5:1 .6 73.0
TOU [Al., E4UI.H I Y 4? 7 1.0.7 :14, 3 16,1 .5 3:1 .6 46. 69.6 91 * C
TOTAL. l. TADILIA''TI.ES ANTD EQUITJlY 6.).7 51.4 95.61. 1.24.9 1 4 0 ,5 149.7 :1.61 .7 171.7
S A 7 'I VT S
TUR RENT4 R'ATIO INC- SURP CASH 07`.75 1t . 1 C)1. . 31 1 .,03 0. 95 C) *97 1. * 00 1. * QUI1CK RATIO 0 ".25 0.24 C).39 0.27 0.27 0.26 0.29 0).29DE'ETT/EOPUITY RATIO0 C. 25'- 0.76 0).64 C). 62 C).69 0.5 C) .4:1 C) 26
1 NTi US 7TR IA L. PROJECJTS DPRMNUAE REPORT PRE:PARED :04 /18/00
- 104 -
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
FUNDIS FLo.'W STATE.MENT' I NCRE2MENTAL F:-OR FROJECT ANE-a 7-4
CUSMILLIO1N) Pg
1.980 :3981 1982 1983 1984 1985 :1986 1987
SOURCES` OF FUNDS
PROFIT'1 AF.:R T AX DEF"ORE- :INTE':REST CO.2D 0. 1 5. 7 12.*7 22.*2 25.0 27.6 26.9
D1EPREC,IAT ION 0.6 4.3 7.5',' 8.5 8.5 8.5 8.5
I NTERNAL CAS3H G)ENERATU 32 N0O.3) C).7 1.0 *0 20 .2 30.7 33.5 361.1 35. 4
EGO J1.Y CAP ITAL. I NCREASIE 5,i. -4 8 * 5 4.*:1 - -
LO.NG---TERM D[EBTION-GOING LOANS -
IBRD' LOAN 1, 6 37.C) 37.0 7.4 - -
O THER L.OANS'. - - S5 * C) -
TOTAL LONG---TE:-RM DEBT17 :1.6 37.0 37.0 12.4
DECREASE I:N WORK INCO CAFPITAL.fEX1.I.3T1 NC.) C)FERAT IONS - -. -3
'TO'TAL- DECRIEASE F, iN WiiJNO CAIP * C), :3. .
TOTAL SOURCES. 6. * 46.,2 '51 1.2326 *.30.*7 2533.5 36.* 13,5 * 4
22L ICA T CO0N S3 OF' 30UNI:DS
F IXEI) ASSEVTS 6.9 46 +3 40) *1 12.7 .. .. ..123TFIER A.SSE.T S
INCRASEJN WORKI:NGJ CAF2[.Al.lE X2125 V '1 NO OP F :RATI22ON S-F'R 0J E35 C - C).3 :1. 6 . 2 2.4 C).7 :1.1. C).1
TO'VAL '.IN12:RE'ASE .12N WO)RK[[N(.'.CAF,. 0 .3 1.*6 3.2 2.4 C) *7 1.*1 C) *1
I O N 124 TE..RM 12.Y' 5 REP:AY MEENTS
f1 12'R 12' C LA N *. *. 5 .2 :1.0. 4 JC),.4 :10.4O)TH ER I... A NS l.) 1. C)0:1 :1. .0 1.C)TO)TAL. LT 12EJ'ET R EiA Y M EN YS )6.2:11. *4 :. :[ .4 1:1.4
2I N'TFE RF C3 3S P AY ME WNTS
J2BR1 LOAN 0 ,4 2.6 6 .2 8 .2 8.3.7 7.6 6 .. j:.5 5.4OTHERm LOAN.S -0.2 C).4 C).3 C) .2 C) *
TOTAL 2I21NTN EREAST P:AY ME:NTSI C).4 2?. 6) 6 .2 .5 9, 1. 7.9 6. 55
TO)TAL. IDEFT fSERYJ2CE C) 0.4 2.?,6 6,:; 8,.5 1,5 .23 :19. 3 18.3.1. I6.9
T(24 VAL. A PF' I .322AT ([[ N S 2 7.23 49.2 47.9 26.4 1.7. 7 20.0C) J. 9. 2 17,C
ANNUAl. (CASH SUiU DC2EF232I].AT) CC),5) C 3.C) 23.2 62 ,2:[3 * C) ' :3 .,5 .16.9 .1.-3. 4
IS UF) PI..U$2 c.5. - i2'44N2E C) 5)-0 CJ 23)CO.23 59 18.9 232.4 49,23 6 7,
R A T I C 5
DEBT SERVILE [200ERAOE (~~~~~~0, 2'S C).27' :1 [.6:1 2,238 2. C): 1 .74 1..?? 2?.0C9
[[NIf'U SIRJ12A ... PROJ.1PC12 TS 1' ASM JE:4fCl:1J2.3 <VP A l' )412, C
- 105 -Annex -
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
CTD - FINANCIAL RATE OF RETURN
A. Financial Cost and Benefit Streams (in constant January 1980 US$ million)
---Operating Costs---Fixed Working Cotton Other Financial Value Net
Capital Capital Costs Costs of Output BenefitCosts Costs
(1980) 6.5 1.9 - 0.6 - (9.0)39.3 4.6 4.2 (1.6) 1.9 (44.6)31.5 5.9 6.8 0 14.5 (29.7)9.3 9.0 15.1 10.9 41.7 (2.6)
- 1.9 23.2 15.7 68.9 28.0
(1985) - 0.4 26.4 17.9 77.6 32.9- 0.4 29.2 19.3 85.3 36.4- - 29.2 19.3 85.3 36.4- - 29.2 19.3 85.3 36.4- - 29.2 19.3 35.3 36.4
29.2 19.3 85.3 36.4(1990) - - 29.2 19,3 85.3 36.4
- - 29.2 19.3 85.3 36.4- - 29.2 19.3 35.3 36.4- - 29.2 19.3 85.3 36.4- - 29.2 19.3 85.3 36.4
11995) (4.3) (24.1) 29.2 19.3 85.3 65.2
B. Sensitivity Analysis
-15% -10% -5% Base Case +5% +10% +15%
(a) Fixed CapitalCosts 28.3 77.2 26.5 25.1 24.1 23.2 27.3
(b) Working CapitalCosts 25.7 25.5 25.3 25.1 24.8 24.6 24.4
(c) Cotton Costs 28.2 27.1 26.1 25.1 24.0 22.9 21.8
(d) Other OperatingCosts 26.9 26.3 25.6 2j.1 24.4 23.8 23.2
(e) Total OperatingCosts 29.9 28.3 26.7 25.1 23.4 21.6 19.9
(f) Financial Valueof Output 15.7 19.0 22.1 25.1 27.9 30.6 33.2
(g) One Year delay inincremental pro-duction - - - 20.3 - - -
(h) Fixed CapitalUp 10% - - - 17.4 - - -
Value of OutputDown 10%
(i) Operating Costs
Up lO% 15.2 - - -Value of OutputDown 10%
a/ Scrap value estimated to be 5% of original investment.b/ Recovery of Working Capital.Industrial Projects DepartmentApril 1980
- 106 -Annex 8
TURKEY - SUMERBANK COTTON TEXTILE RATIONALIZATION PROJECT
CTD - ECONOMIC RATE OF RETURN
A. Economic Cost and Benefit Streams (in constant January 1980 US$ million)
Fixed Working ---Operating Costs--Capital Capital Cotton Other Economic Value NetCosts Costs Costs Costs of Output Benefit
(1980) 5.8 1.9 - 0.7 - (8.4)38.3 4.6 5.9 (3.4) 1.6 (43.8)31.2 5.9 9.1 (7.0) 12.1 (27.1)9.3 9.0 20.2 5.2 36.1 (5.6)- 1.9 31.2 5.5 67.5 25.2
(1985) - 0.4 35.3 7.1 72.2 29.4- 0.4 39.1 7.1 79.9 33.3- - 39.1 7.1 79.9 33.7- - 39.1 7.1 79.9 33.7- - 39.1 7.1 79.9 33.7
39.1 7.1 79.9 33.7(1990) - - 39.1 7.1 79.9 33.7
- - 39.1 7.1 79.9 33.7- - 39.1 7.1 79.9 33.7- - 39.1 7.1 79.9 33.7- - 39.1 7.1 79.9 33.7
(1995) (4,2) (24.1) 39.1 7.1 79.9 62.0
B. Sensitivity Analysis
-15Y -10% -5% Base Case +5% +10% +15%
(a) Fixed Capital Costs 26.8 25.6 24.6 23.6 22.7 21.8 21.0
(b) Working Capital Costs 24.3 24.0 23.8 23.6 23.4 23.2 22.9
(c) Cotton Costs 28.0 26.5 25.1 23.6 22.1 20.6 19.0
(d) Other Operating Costs 24.0 23.9 23.7 23.6 23.4 23.3 23.1
(e) Total Operating Costs 28.3 26.8 25.2 23.6 21.9 20.2 18.4
(f) Economic Value of Output 14.4 17.6 20.7 23.6 26.3 29.0 31.5
(g) One Year DelayIncremental Production - - - 19.5 - - -
(h) Fixed Capital Cost Up 10%Value of Output down 10% - - - 16.1 - - -
(i) Operating Costs Up 10%Value of Output down 10% - - - 13.9 - - -
a/ Scrap value estimated to be 5%Xof original investment.b/ Recovery of Working Capital
Industrial Projects DepartmentApril 1980
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