135.

PROFILE ON PRODUCTION OF
SOCKS & STOCKING
 135-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 135-3

II. PRODUCT DESCRIPTION & APPLICATION 135-3

III. MARKET STUDY AND PLANT CAPACITY 135-4

A. MARKET STUDY 135-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 135-6

IV. RAW MATERIALS AND INPUTS 135-7

A. RAW & AUXILIARY MATERIALS 135-7
B. UTILITIES 135-8

V. TECHNOLOGY & ENGINEERING 135-9

A. TECHNOLOGY 135-9
B. ENGINEERING 135-11

VI. MANPOWER & TRAINING REQUIREMENT 135-12

A. MANPOWER REQUIREMENT 135-12
B. TRAINING REQUIREMENT 135-12

VII. FINANCIAL ANALYSIS 135-14

A. TOTAL INITIAL INVESTMENT COST 135-14
B. PRODUCTION COST 135-15
C. FINANCIAL EVALUATION 135-16
D. ECONOMIC BENEFITS 135-17
 135-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of socks and
stockings with a capacity of 100 tonnes ( 1.2 million pairs ) per annum.

The present demand for the proposed product is estimated at 954 tonnes per annum.
The demand is expected to reach at 1,798 tonnes by the year 2020.

The plant will create employment opportunities for 62 persons.

The total investment requirement is estimated at about Birr 6.21 million, out of which
Birr 3.45 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 23 % and a net
present value (NPV) of Birr 3.67 million discounted at 8.5%.

II. PRODUCT DESCRIPTION & APPLICATION

Socks are protective knitwear for the foot which are exhibited by elastic and plastic
characteristics. 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 ages.

Stockings are long knitted coverings for leg and foot, usually worn by women of all ages.
They can be produced from nylon wool, silk, etc. As the technology of knitted fabrics is
improving from time to time the quality of socks and stockings is also improving. This
has given rise to the growth in demand of the knitted items.
 135-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Present Demand and Supply

The local demand for socks and stockings is met through imports. The amount of imports
of the products during 2000 – 2006 is shown in Table 3.1. As can be seen from Table 3.1,
the level of imports was erratic. During the period under reference, imports varied from
259.28 tones in 2000 to 1028.82 tones in 2005. Imports averaged 748 tones during the
period the period under consideration.

Table 3.1
IMPORT OF SOCKS AND STOCKINGS (TONES)

Year import
2000 259.28
2001 628.32
2002 596.07
2003 891.55
2004 821.43
2005 1028.82
2006 1,011.02

Source; External Trade Statistics

In estimating the demand for the products the supply of the product, which constitutes
imports is considered as a proxy for demand. However, due to the erratic nature import
data the last three years average import is assumed to fairly approximate present ( 2007)
demand for the product. Accordingly, the current effective demand for socks and
stockings is estimated to be 954 tones.
 135-5

2. Demand Projection

The demand for socks and stockings is mainly influenced by urban population growth
and income rise. Hence, an annual average growth rate of 5% is taken to forecast the
future demand (see Table 3.2)

Table 3.2
DEMAND PROJECTION ( TONNE)

Year Projected Demand

2008 1,001
2009 1,052
2010 1,104
2011 1,159
2012 1,217
2013 1,278
2014 1,342
2015 1,409
2016 1,480
2017 1,554
2018 1,631
2019 1,713
2020 1,798
 135-6

3. Pricing and Distribution

The price of socks and stockings varies according to their material. Cotton socks and
stockings to be produced could be either plain, colored printed etc. For the purpose of
this project average price Birr 7 per pair is adopted.

Currently distribution of fabrics is undertaken by long established whole sellers, most of

them located in Markoto area of Addis Ababa and other big towns. The envisaged plant
can also adopt the existing distribution system.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

The market study indicates that demand of socks and stockings in 2008 will be 1001
tonnes. This figure will grow to 1409 tonnes and 1798 tonnes in 2015 and 2020,
respectively. Based on demand projection (Table ) and economy of scale of socks and
stockings production, it is proposed that the envisaged plant will have annual production
capacity of 100 tonnes or 1211970 pairs or about 101,000 dozens. The plant will operate
single shift 8 hours a day and for 300 days a year.

2. Production Programme

In order to provide adequate time for production skill development and establish market
outlets, the plant will be made to operate at lower capacity (75%) during the first year of
operation. Then production build-up will be 85% and 100% during the 2nd year, the 3rd
year and thenafter, respectively.

Table 3.3 below shows production build-up programme.

 135-7

Table 3.3
PRODUCTION PROGRAMME

Year 1 2 3 and above

Capacity utilization 75 85 100
(%)
Production (dozens) 75750 85850 101,000

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The major raw materials required for the production of socks and stockings are dyed
nylon stretch (nylon 110/2 denier), acrylic yarn and rubber thread latex. These materials
are not produced locally and will have to be imported from countries like Korea, Taiwan,
China, India, etc. Annual consumption of these materials at full capacity operation and
related costs are shown in Table 4.1 below.

Auxiliary materials required for the production of socks and stockings include sewing
thread, lubricating oil for production equipment, labels, packing materials, etc. Annual
requirement of these items at full capacity production is given in Table 4.1 below.
 135-8

Table 4.1
ANNUAL REQUIREMENT OF RAW AND AUXILIARY MATERIALS
(AT FULL CAPACITY)

No. Description Qty Unit Cost (‘000 Birr)

(ton) Price LC FC TC
A. Raw materials
1 Nylon stretch (nylon 110/2 49.5 56,000 - 2772 2772
denier)
2 Acrylic yarn 49.5 56,000 - 2772 2772
3 Latex (Rubber thread) 3.0 75,000 - 226.25 226.25
Sub total 102.0 - 5770.25 5770.25
B. Auxiliary materials
1 Sewing thread Reqd - 5.0 - 5.0
2 Lubricating oil Reqd - 5.0 - 5.0
3 Labels Reqd - 6.0 - 6.0
4 Packing materials (pp sheets, Reqd - 10.0 - 10.0
carton, hard paper, etc)
Sub total - 26.0 - 26.0
Total - 26.0 5770.25 5796.25

B. UTILITIES

Utilities required in the process of stocks and stockings production consist of electricity,
water, steam, fuel oil and lubricating oils. Electricity is required to operate production
equipment, for power sockets and lighting points. Water is required for drinking,
sanitation and for steam production. Fuel oil is used as source of energy in the operation
of boiler. The boiler generates steam required by the plant. Lubricating oil is applied on
yarn winding machine to facilitate easy sliding of the yarn. Annual requirement of
utilities with related costs is given in Table 4.2 below.
 135-9

Table 4.2
ANNUAL REQUIREMENT OF UTILITIES

No. Description Qty Cost (Birr)

1 Electricity (kWh) 10,000 4740
2 Water (M3) 8,000 80,000
3 Fuel Oil (litres) 6,000 32460
4 Lubricating oil (kg) As reqd 2,000
Total - 119200

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The production process of socks and stockings consist of the following operations:

a) Raw material preparation

b) Winding of raw material into cones
c) Knitting operation on a knitting machine
d) Linking operation
e) Cleaning products from stains and dust
f) Dyeing
g) Setting and finishing
h) Inspection
i) Matching size, color and pattern (design)
j) Attaching, labeling and packing
k) Dispatching to market.
 135-10

The manufacturing process begins with raw material preparation, and then winding of the
raw materials, yarn into cone will take place. In order to make the yarn slide easily it is
necessary to apply oils during winding operation. The yarn is then set on the designated
sock knitting machine and is knitted into either sock or stocking shape. The open part of
the stock that come out of 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 the process
of dyeing takes place. The dyed socks (stockings) subsequently undergo the setting and
finishing process inorder to assume their final shape and good link.

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

2. Source of Technology

Knitting machines are widely manufactured and supplied by companies in Korea, Japan,
China, Taiwan and India. Address of one such machinery supplier in China is given
below.

Jiangsu victor machinery Co. Ltd

No. 33 Nanjing Road, Tangqiao
Zhangjiagang
Jiangsu
China 215611
Tel. (86512) 5844 1397
(86 512) 5844 1018
Fax: (86 512) 58 44 1012
(86 512) 5844 1980
 135-11

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment required to produce socks and stockings is given in
Table 6.1 below.

Table 6.1
LIST OF PLANT MACHINERY AND EQUIPMENT

No. Description Qty Cost (‘000 Birr)

LC FC TC
1 Single cylinder double welt - 770 770
socks knitting machine 4-14 14
pairs/hr each
2 Double cylinder sock 14 - 700 700
knitting machine, 4-8
pairs/hr each
3 Cone winder 1 - 240 240
4 Linking machine, 2-20 8 - 280 280
pairs/hr each
5 Setting machine, 240 pairs/hr 2 - 840 840
6 Dyeing machine, 50 1 - 120 120
kg/operation
7 Steam Iron 4 - 0.80 0.80
8 Boiler for steam generation 1 unit - 200 800
FOB price - - 3150.80 3150.80
Freight, insurance, bank, - 300 - 300
customs, material handling
CIF landed cost 300 3150.80 3450.80
 135-12

2. Land, Building and Civil Works

Land is required for factory buildings, administration building, internal road and
pathways, and for future expansion. Accordingly the total land requirement for socks and
stockings producing plant is estimated to be 1000 m2. At the rate of Birr 1.0 per m2 and
for a period of 80 years, the total land lease value will be Birr 80,000. Of the total area of
land the built-up area will be 400 m2. At the rate of Birr 2000 per m2, the building cost
will be Birr 800,000. Therefore, the investment on land, building and civil works will
then be Birr 880,000.

3. Proposed Location

Location is determined on the basis of proximity to raw materials, availability of

infrastructure and distance of plant from potential market outlets. Moreover, considering
fair distribution of the projects among the SNNPRS woredas, three woredas have been
identified. Of these Wonago woreda is selected. Therefore, the envisaged plant will be
located in Dilla town.

VI. MANPOWER AND TRAINING REQUIREMENTS

A. MANPOWER REQUIREMENT

The plant will employ both production workers and administrative staff. Production
workers will consist of skilled and unskilled workers. The details of manpower and
related monthly and annual salaries are given in Table 6.1 below.

B. TRAINING REQUIREMENT

The production head and machinery operators will have to be trained on knitted and
dyeing technology. It is proposed that an expert from machinery supplier will provide
the training programme during erection and commissioning of the plant. A total of Birr
 135-13

10,000 is allotted to execute the training programme. It is proposed that the training
programme will be included in contractual agreement for the supply of machinery.

Table 6.1
MANPOWER REQUIREMENT

No. Job Title Nos Monthly Annual Wages

Salary
A. Administration
1 Plant manager 1 2,000 24,000
2 Secretary 1 600 7,200
3 Personnel 1 1,000 12,000
4 Sales man 1 800 9,600
Store man 1 600 7,200
5 Cashier 1 600 7,200
6 Clerk 1 400 4800
7 General services 4 250 12,000
Sub total 11 84000
B. Production
1 Production head 1 1200 14,400
2 Skilled workers 40 600 288000
3 Unskilled workers 10 250 30,000
Sub total 51 - 332400
Workers’ benefit (25% BS) - 104100
Total 62 520500
 135-14

VII. FINANCIAL ANALYSIS

The financial analysis of the socks and stocking project is based on the data presented
in the previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Raw material, import 90 days
Work in progress 5 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
6.21 million, of which 53 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 135-15

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 80.0
2 Building and Civil Work 800.0
3 Plant Machinery and Equipment 3,450.8
4 Office Furniture and Equipment 125.0
5 Vehicle 200.0
6 Pre-production Expenditure* 482.5
7 Working Capital 1,078.8
Total Investment cost 6,217.1
Foreign Share 53

* N.B Pre-production expenditure includes interest during construction ( Birr 332.52 thousand )
training (Birr 10 thousand ) and Birr 140 thousand costs of registration, licensing and formation of
the company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 7.44
million (see Table 7.2). The material and utility cost accounts for 79.48 per cent,
while repair and maintenance take 2.42 per cent of the production cost.
 135-16

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 5,796.25 77.88
Utilities 119.2 1.60
Maintenance and repair 180 2.42
Labour direct 436.5 5.86
Factory overheads 94.18 1.27
Administration Costs 84 1.13
Total Operating Costs 6,710.13 90.15
Depreciation 467.58 6.28
Cost of Finance 265.28 3.56
Total Production Cost 7,442.99 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is
viable.
 135-17

2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 57 %
Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 23 % and the net
present value at 8.5% discount rate is Birr 3.67 million.

D. ECONOMIC BENEFITS

The project can create employment for 62 persons. In addition to supply of the
domestic needs, the project will generate Birr 2.56 million in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.