16.

PROFILE ON SOCKS AND STOCKINGS

 16-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 16-3

II. PRODUCT DESCRIPTION AND APPLICATION 16-3

III. MARKET STUDY AND PLANT CAPACITY 16-3

A. MARKET STUDY 16-3
B. PLANT CAPACITY AND PRODUCTION PROGRAMME 16-6

IV. MATERIALS AND INPUTS 16-6

A. MATERIALS 16-6
B. UTILITIES 16-6

V. TECHNOLOGY AND ENGINEERING 16-7

A. TECHNOLOGY 16-7
B. ENGINEERING 16-7

VI. MANPOWER AND TRAINING REQUIREMENT 16-8

A. MANPOWER REQUIREMENT 16-8
B. TRAINING REQUIREMENT 16-9

VII. FINANCIAL ANALYSIS 16-9

A. INVESTMENT 16-10
B. PRODUCTION COSTS 16-11
C. FINANCIAL EVALUATION 16-11
D. ECONOMIC BENEFITS 16-12
 16-3

I. SUMMARY

The project envisages the manufacturing of socks and stockings.

The total investment outlay required by the project is estimated at Birr 5,885,000 of which Birr
3,372,000 is planned to finance the fixed investment cost comprising land, building, plant and
machinery, office equipment while the remaining balance is earmarked for pre-production capital
expenditure and initial working capital requirement of the project.

The demand for the proposed output is expected to emanate mainly from the Public. Currently the
demand for this product is met both from local production and import.

The unit requires a total land area of 430 m2. The built-up area will be 260 m2.

At commissioning the project is expected to generate gainful employment of about 79 persons.

The internal rate of return (IRR) of the project is estimated at 48%. This indicates the financial
viability of the project.

On the basis of the above financial results and expected economic gains the project is found to be
viable.

II. PRODUCT DESCRIPTION AND APPLICATION

Socks are protective knit wear for the foot which exhibit elastic and plastic characteristic. Socks
could be knitted from natural fiber (cotton,wool), textured yarn of nylon, mixed spun yarn of
synthetic fiber and natural fiber, and mixed knit of synthetic filament textured yarn and spun yarn
of natural fiber. Socks are mostly used by men of all age.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Present Supply and Demand

Hitherto, the demand for socks and stockings in Ethiopia has been largely met from foreign sources
through import. Although there is no apparent trend in the growth of imports, imports of stocking
and socks has continuously been appearing in import statistics (see Table 3.1).
 16-4

Table 3.1

IMPORT OF STOCKING AND SOCKS

(1984 - 1993)

Year Quantity (Dozen) Value (Birr)

1984 24,480 280,055
1985 62,615 643,604
1986 25,445 256,812
1987 19,374 264,607
1988 19,993 163,785
1989 21,885 229,485
1990 32,536 268,020
1991 34,168 543,194
1992 339,801 2,854,206
1993 36,466 1,014,090

Source:- (MOF) Annual External Trade Statistics 1984 - 1993.

As can be seen from the above table in certain years the official import figure reached a value of 2.9
million Birr.

On the other hand, it has also been observed that a considerable volume of socks and stockings have
been entering the country through unofficial channels or illicit trade. It was learnt that this
unofficial import according to knowledgeable persons in the field is about ten times higher than the
legal imports. Taking the average official import figure for socks and stocking between 1984-1993,
i.e., 61,676 dozens the illicit import of these items is estimated to be 616,760 dozens giving the total
volume of imports to be 678,436 dozens or 8,141,232 pairs of socks and stockings.

Moreover, as far as local production and marketing of socks is concerned there are few privately
owned knitting factories that knit socks as subsidiary output to their underwear garments.
However, the share of these factories altogether is assumed to account 5% of the total supply.
Accordingly, the current supply is estimated to be 712,358 dozens or 8,548,294 socks and
stockings.

In the absence of consumer survey on the consumption of socks in Ethiopia, some reasonable
assumptions are used to reach at a crude estimate of demand for the proposed product. The
assumptions are:

- 60% of the urban population, i.e., 6,370,434 consume 2 socks per annum.

- 10% of the rural population, i.e., 5,500,000 consume 1 sock per annum.

16-5
Accordingly, the aggregate demand for socks in 1996 is estimated to be about 1,520,072 dozens or
18,240,868 socks.

Stocking which is relatively a luxury item in less developed countries is usually consumed by urban
women. For the purpose of this project, the feasible age is taken to be 15 years and above.
According to the data obtained from Central Statistical Authority this segment of the population
was estimated to be 2.8 million in 1995. Assuming that 40% of the urban women have a demand
for the items and consume 5 stockings / annum, the current effective demand for the product is
estimated to be about 5,824,000 pairs of stockings.

2. Demand Forecast

Assuming that the demand for socks and stockings increases in line with the urban population
growth rate, i.e., 4% the likely future demand for the proposed product is projected as shown below
in Table 3.2.

Table 3.2

DEMAND FORECAST FOR SOCKS AND STOCKINGS

'dozen'
Year Socks Stockings Total
1996 1420072 485,333 1,905,405
1997 1580875 504,746 2,085,621
1998 1644110 524,986 2,169,096
1999 1709874 545,934 2,255,808
2000 1778269 567,771 2,346,040
2001 1849400 590,482 2,439,882
2002 1923376 6l4,l0l 2,537,447
2003 2000311 638,665 2,638,976
2004 2080323 664,2l2 2,744,535
2005 2163536 690,780 2,854,316
2006 2250077 7l8,4ll 2,968,488
2007 2340080 747,l48 3,087,228
2008 2433683 777,034 3,210,717
2009 2531031 808,ll5 3,339,146
2010 2632272 840,440 3,472,712
20ll 2,737,562 874,057 3,611,619

3. Price

The financial viability of a given project depends partly on unit selling price of its output. The
current market price for socks and stockings ranges from Birr 10 to 25. However, the proposed
project is planned to market its product at Birr 10/pair of socks and stockings.
 16-6

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

The envisaged plant would have a capacity to produce 972,000 pairs (81,000 doz.) of socks per
year working 24 hours a day/and 270 days per year. Even if the proposed capacity seems small
when compared to the demand, the demand could be met by installing additional plants later on
after achieving experience and quality.

2. Production Programme

The plant is expected to start at 75% of its capacity during the first year of operation and reach
85% and 100% capacity during its second and third years of operation.

IV. MATERIALS AND INPUTS

A. MATERIALS

The major raw materials for the production of socks are dyed nylon stretch and acrylic yarn. The
other major input is rubber trend latex. The raw material consumptions and their respective cost per
year is depicted in Table 4.1. Additional materials such as lubricating oil and packaging materials
at a cost of Birr 14,000 per annum would also be required.

Table 4.1

ANNUAL RAW MATERIAL CONSUMPTION AND COST

(BIRR 'OOO)

Qty.
No. Description (ton) FC LC TC

1 Nylon stretch (nylon 110/2 denier) 38.9 2l63 -

2 Acrylic yarn 38.9 2l63 -
3 Latex (Rubber thread) 2.4 l8l -

Total 80.2 4507 523 5030

Grand Total 4507 523 5030

B. UTILITIES

The total electrical power consumption is estimated to be 34,020 kWh the cost of which is
about Birr 9,526 per annum.
 16-7

The annual water consumption is estimated to be 8100m3 costing Birr 13,365.

The annual fuel oil consumption of the plant is estimated to be 35,000 and its cost is estimated at
about Birr 35,000.

The annual telephone bill is estimated to be Birr 2,000.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

The manufacturing process begins with winding of the principal raw materials, i.e., yarns into
cones. Some oiling while winding will make the yarn slide easily. The yarn is then set on the
designated sock knitting machine and is knitted into the shape of a sock. The open part of the
socks coming out from the knitting machine is then linked in a linking machine.

Socks which have gone through the various processes will have oil stains and dust. Hence to begin
with they are washed to get rid of oil stains and dust. Then they are dyed. The dyed socks
subsequently undergo the setting and finishing process in order to assume their final shape and good
link.

Finally, the socks which pass final inspection are arranged in to pairs by matching their size, colour
and pattern and then packed in boxes.

B. ENGINEERING

1. Machinery and Equipment

The major machines in socks manufacturing are the knitting machines. The list of and cost of
machinery and equipment is presented in Table 5.1.
 16-8

Table 5.1

LIST OF MACHINERY AND EQUIPMENT

No. Description Qty. FC LC TC

1 Single cylinder double welt socks knitting m/c, 4- 12 658,000 - 658,000

14 pairs/hr each
2 Double cylinder sock knitting machine 4 -8 12 564,000 - 564,000
pairs/hr each
3 Cone winder 1 141,000 - 141,000
4 Linking machine, 2-20 pairs/hr each 6 211,500 - 211,500
5 Setting machine/240 pairs/hr 1 423,000 - 423,000
6 Dying machine, 50kg/operation 1 117,500 - 117,500
7 Steam iron 2 400 - 400
8 Boiler for Steam 1 211,500 - 211,500

Total 2,326,900 2,326,900

Freight, Insurance and inland transport(15%) 349,035

Grand Total 2,326,900 349,035 2,675,935

2. Building and Civil Works

The envisaged plant requires a total land area of 430m 2. The cost of building including civil works
is estimated to be Birr 5l6,000.

VI. MANPOWER AND TRAINING REQUIREMENTS

A. MANPOWER REQUIREMENT

The plant will employ a total of 75 workers. Of the 75 workers, 69 would be involved in direct
production activities while the remaining 6 would be administrative staff. The list of manpower
and annual cost of salary is presented in Table 6.1.
 16-9

Table 6.1

LIST OF MANPOWER AND ANNUAL SALARY

(IN BIRR)

No. Post No. of Monthly Annual

Persons Salary Salary
1 Plant Manager 1 2000 24000
2 Technical Head 1 1200 14400
3 Secretary 1 700 8400
4 Sales and Purchase 1 1200 14400
5 Finance head 1 1200 14400
6 Production Foreman 1 1000 12000
7 Store keeper 1 500 6000
8 Winder 3 600 7200
9 Knitting machine operator 12 2400 28800
10 Linking section operator 18 3600 43200
11 inspectors, menders 12 2400 28800
12 dying room operators 6 1200 14400
13 Setting room operators 6 1200 14400
14 Packers 6 900 10800
15 Boiler operators 3 750 9000
16 Maintenance 6 2000 24000
Total 79 274,200

B. TRAINING REQUIREMENT

The technical head and the operators (particularly knitting machine operators) should have some
industrial experience and some vocational training in knitting, prior to their employment. On-the-
job training in the operation and maintenance of the machines should be given by an expert from
the supplier of the machinery and equipment during the erection and trial-run period. The total cost
of the expert is estimated to be Birr 10,000. In addition to the above, the workers benefit is
assumed to be 25% of the wages and salaries.

VII. FINANCIAL ANALYSIS

The financial analysis of this project was carried out for production of 972,000 pairs of socks and
stockings per annum. The project is assumed to start production at 75% in year 1, 85% in year 2
and l00% in year 3 and thereafter.
 16-10

A. INVESTMENT COST

The total initial investment cost of the unit is estimated to be about Birr 5.9 million Birr. Of which
4.1 million Birr (70%) will be in foreign currency. The cost of land, building and civil works,
machinery and equipment is estimated at Birr 3.4 million Birr. The unit will require an initial
inventory of about Birr l,393,000 for the start up stock and spare parts for machinery.

Table 7.l

TOTAL INITIAL INVESTMENT COST SUMMARY

(OOO 'BIRR)
Item F.C L.C T.C
Land 37 3 40
Building and civil works l72 344 5l6
Machinery & Equipment 2275 40l 2676
Office furniture & equip. - l0 l0
Pre-production capital 784 336 ll20
Vehicles l30 - l30
Initial Inventory 975 4l8 l393
Total 5885

The working capital requirement for different level of production capacities is specified in Table
7.2 below.

Table 7.2

NET WORKING CAPITAL SUMMARY ('OOO BIRR)

Item l 2 3 4-l5
Current Assets
Cash in hand 38.667 38.667 38667 38.667
Accounts receivable 76.438 80.787 87333 87.333
Inventory of material and spare l,l59.438 l,3l3.7ll l,5459l7 l,545.9l7
parts
Work - in progress 5l.6l0 58.l47 67986 67.986
Finished products 122.585 l38.0l3 l6l233 l6l.233

Current Liabilities
Accounts payable 55.77l 60.l20 66667 66.667
Net working capital 1,392.967 l,569.204 l,834469 l,834.469
 16-11

B. PRODUCTION COSTS

The summary of the production costs at full capacity is shown in Table 7.3.

The total production cost including depreciation will amount to Birr 6,493,082 indicating a
corresponding unit cost of production of Birr 668.

Of the total production cost, materials, inputs and utilities will account for 78%, the manpower l%
and the remaining expense items 21%.

Table 7.3

PRODUCTION COST SUMMARY ('OOO BIRR)

Item Birr
Material and inputs 5030
Utilities 6l
Manpower 87
Repair and Maintenance 147
Overheads 298
Depreciation 544
Cost of finance 326
Total 6,493

C) FINANCIAL EVALUATION

1) Profitability

The summary of the annual income statement is given in Table 7.A.1.

2) Break-even Analysis

The breakeven point (BEP) of this project was calculated as follows:

BEP = Fixed Cost = 1,3l5,000 = 396,084

Contribution Margin 3.32

The project will break even at a production volume of 396,084 or at 41% capacity utilization.
 16-12

3) Pay-Back Period

The Initial investment will be recovered before the end of the third year operation.

4) Cash flow Statement and Internal Rate of Return

The net accumulated cash balance by the end of the l5th year operation will be 29 million Birr.

The discounting of the initial cash outflow and the annual inflows resulted in viable rate of return of
48%. (See Table 7.A.2)

The project is also anticipated to have a net present value of Birr 326,720 when discounted at 16%
discounting factor.

D. ECONOMIC BENEFITS

The project can create employment opportunity for 75 people. In addition to increasing the supply
of good to the domestic market, it will generate revenue in terms of tax. The project can also save
substantial foreign exchange.
 Appendix 7.A

FINANCIAL ANALYSIS SUPPORTING TABLES