26.

PROFILE ON HATS AND HEADGEARS

26-2

TABLE OF CONTENTS
PAGE
I.

SUMMARY

26-3

II.

PRODUCT DESCRIPTION & APPLICATION

26-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

26-4
26-4
26-6

IV.

MATERIALS AND INPUTS

A. RAW MATERIALS
B. UTILITIES

26-7
26-7
26-8

V.

TECHNOLOGY & ENGINEERING

26-8

A. TECHNOLOGY
B. ENGINEERING

26-8
26-11

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

26-14
26-14
26-14

VII.

FINANCIAL ANLYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

26-15
26-16
26-17
26-18
26-20

I.

SUMMARY

This profile envisages the establishment of a plant for the production of hats and other
headgears with a capacity of

400 tonnes per annum.

The major raw materials required are woolen fabrics, HDPE and fiber glass which have
to be imported.

26-3
The present demand for the proposed product is estimated at 331 tonnes per annum.
The demand is expected to reach at 540 tonnes

by the year 2018.

The total investment requirement is estimated at Birr 6.03 million, out of which Birr
373.31 thousand is required for plant and machinery. The plant will create employment
opportunities for 26 persons.
The project is financially viable with an internal rate of return (IRR) of 21.01 % and a
net present value (NPV) of Birr 3.69 million, discounted at 8.5%.
The establishment of such factory will have a foreign exchange saving effect to the
Country by substituting the current imports.

II.

PRODUCT DESCRIPTION AND APPLICATION

Hats and other headgears are worn on the head to protect weather and other conditions by
both male and female. It is used by police, defense personnel, youth and kids during
summer and winter seasons.
The hats and other headgears are worn for different purposes by men and women, often
as part of uniform and to protect the user from injury.
III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Hats and headgears are coverings for the head, worn for protection from the weather or as
a fashion accessory. Like all head dresses, hats serve several purposes-as ornaments, for

26-4
protection, or to indicate status. The products are highly demanded by the civil society
(male and female) and the army, police and industrial workers. The demand is met both
through local production and imports. However, there is no statistical data with regard to
the quantity of domestic production. Hence, the import statistics obtained from the
Customs Authority is utilized to indicate the current unsatisfied demand. Import of hats
and other headgears made of textiles is shown in Table 3.1.
Table 3.1
IMPORT OF HATS & OTHER HEADGEARS (KG)
Year

Import

Growth Rate (%)

Year
2000
16,274
2001
33,037
103.0
2002
87,791
165.05
2003
260,917
196.4
2004
270,917
4.2
2005
330,024
21.8
2006
331,632
0.5
Source: - Compiled From Customs Authority.
Note: - The data does not include the following products

Firemen or mines helmet,

Safety headgears, and

Hats and other headgears of plastic or rubber.

According to the information collected from the Customs Authority, Ethiopia imports a
variety of hats and other headgears of textiles. The types of hats and other headgears
imported include:

Hand made hats and other headgears , plaited;

Hats and other headgears, plaited or assembled by strips

Hair nets; and

Hats and headgears, knitted or crocheted made from lace.

26-5

Table 3.1 reveals that import of hats and headgears of textiles has grown tremendously
during the period 2000-2006. The imported quantity which was 16,274 kg during year
2000 has increased to 87,719 by the year 2002. A sharp increase of import is registered
during year 2003 and thereafter. By the year 2003 and 2004 the quantity imported was
260,017 kg and 270,917 kg. During the last recent two years the amount has increased to
more than 330 thousand kilograms. Income rise and population growth are believed to be
the main factors for the increase of import of the product.
Since the trend was rising and allowing for some stock the imported quantity during year
2006, which is 331,632 kg, is assumed to fairly reflect the current (2008) demand.
2.

Projected Demand

The demand for hats and headgears is mainly influenced by population growth and
income. Population growth of Ethiopia is around 3% while GDP has been growing by
more than 8% in the past few years. Considering the above two factors demand for hats
and headgears is assumed to grow by about 5% per annum (see Table 3.2.).

26-6
Table 3.2
PROJECTED UNSATISFIED DEMAND FOR HATS AND HEADGEARS (KG)
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
3.

Projected Demand
348,214
365,624
383,905
403,100
423,256
444,418
466,639
489,971
514,470
540,194

Pricing and Distribution

The price of hats and headgears varies according to the design and type of raw materials
used and ranges from Birr 10 to 25 per pieces. For the purpose of this project Birr 10 per
one hat is taken as a factory gate price. The product will find its market outlet through
the existing garment distributing enterprises.
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

Based on the market study, the envisaged hats and head gears plant will have a
production capacity of 400 tonnes per year or assuming on average one hat weights 350
gm 1,142,857 pieces.

2.

Production Programme

26-7
The plant will work in three shifts, 8 hrs per shift and 300 days per annum. The plant is
assumed to start production at 75% of its capacity in the first year, 85% in the second
year, and at 100% in the third year and thereafter.
IV.

MATERIALS AND INPUT

A.

RAW MATERIALS

The main raw materials of hat and other headgears production plant are woolen fabrics,
HDPE, fiber glass, etc.
The annual raw materials costs at full capacity operation are estimated at Birr 4.5 million.
These materials are procured from foreign markets. The details of annual raw and
auxiliary materials at full capacity production are presented in Table 4.1.
Table 4.1
RAW MATERIALS REQUIREMENT AND ESTIMATED COST
Sr.
No.
1
2
3
4

B.

Qty.
Description
Woolen fabrics
HDPE
Fiber Glass
Miscellaneous
Total

(tonnes)
120
200
15
L.S
-

Unit
Cost
(Birr)
25,000
7,410
1,118
-

LC

Total cost (000 Birr)

FC
TC

600
300.00
5.0
10
915.0

2,400
1,182.0
11.775
3,593.80

3,000
1482
16.775
10
4,508.80

UTILITIES

The major utilities required by the plant are electricity and water. The estimated annual
requirement of utilities of the plant at 100% capacity utilization rate and their estimated
costs are given in Table 4.2.

26-8
Table 4.2
UTILITIES REQUIREMENT AND ESTIMATED COST
Cost 000
Description
Electricity, kWh
Water, m3
Total
V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Qty.
94,000

Birr
44.52

1000
-

3.25
47.77

The production process of hats and other head gears plant involves the following major
manufacturing operations.
A-Production Process of Hat
1.

First, the hair tip is cut from the rest of the wool- its not used in hat making.

2.

The key to hat making is forming the cone and this is done in the forming machine.

3.

The fragile felt is then wrapped in cloth and placed between rollers for shrinking.

4.

Each machine can only reduce the size of the hats.

5.

The dying is carried out in large vats, each holding about 200 hats.

6.

Now the body is completed, the hats are tip-stretched and blocked.

7.

After the blocking and brimming, the hats come to the last of the wet processesstoving

8.

The brim needs to be stretched flat so the body of the hat is pulled over a wooden
black.

9.

After this, hast are automatically ironed.

10.

Pouncing is the first of the finishing process.

26-9
11.

One of the final processes is to place the hat in a frame to give the brim its ultimate
shape called flanging.

12.

Finally, the hats are sanded once more, achieving the best possible finish on each
hat produced.

B-Production process of Headgears:

1. The appropriate shell mold for the model being produced is selected.
2. High-density polyethylene pellets are pulled from a supply hopper by a vacuum
system. Pellets of colorant are mixed with HDPE pellets in a ratio of 4% to 96%. The
vacuum system then transfers the pellet mixture in to the injection molding press.
3. With in the press, the pellets are heated to melt them. The molten plastic is injected
into the mold to form the head gear. The press opens the mold and ejects the shell
onto a conveyor belt.
4. Picks the shell (head gear) up and cuts off the spruce (a lump formed where the molten
plastic entered the mold).
5. Component parts of the suspension system are produced. Injection molding machines
form head bands, plastic keys that will be used to attach the suspension system to
the shell, and nylon strips and gears for the ratchet mechanism that will head-banc
size adjustment to fit the headgear user.
6. Threads on end of a webbing strap through a slot in the end of a key. The worker folds
the strap end back and sews it to the strap with a buttonhole machine, securing the
key in a loop of the strap. The same process is repeated on the other end of the strap.
7. Inserts both ends of the head-hand strip into the ratchet mechanism.
8. Attaches a brow pad to the front of the head band strip by folding its tabs over the
headband and hooking slots in the brow pad over nodules protruding from the beadband.
9. Attaches webbing strips to the head band by mating slots on the keys with nodules on
the headband. On a six-point suspension system, only four keys are attached to the
headband; the other two keys will attach only to the hardhat shell.

26-10
10. Finally instruction booklet and the suspension assemble are placed inside the hat, and
these components are placed into a plastic bag and box for dispatch.
The process does not have any adverse impact on environment
2.

Source of Technology

The technology and machinery for hats and other headgears plant can be obtained form
the following company.
Gujarat Ion Exchange & Chemical Ltd.
T-14,Balaji Center, Opp. Gurukul Tower Drive-In Road, Manager
Ahmedabad-380052 Gujarat, INDIA
Tel. +91 79 27461006/27447237
Fax: +91 79 27411006
e-mail: gieclad1@sancharnet.in

26-11
B.

ENGINEERING

1.

Machinery and Equipment

Plant machinery and equipment required for hats and headgears plant is presented in
Table. 5.1. The total investment cost of plant machinery and equipment is estimated at
Birr 373,312.50
Table 5.1
LIST OF MACHINERY AND EQUIPMENT FOR HATS AND OTHER
HEADGEARS PLANT
Sr.
No.
1
2
3
4
5
6
7

Description
Qty.
Blowing machine
2
Dryer & sprayer
1 Set
Apron machine
2
Iron
10
Sewing machine
5
Trimming Machine
2
Moulds, Sand papers etc,
L.S
Total
Insurance, Customs Duty, Inland Transport, Band
Charge, Etc.
Grand Total
2.

LC

74,662.50

Cost (Birr)
FC
80.0
40.0
80.0
2.0
50.0
25.0
21.65
298,650.0
-

74,662.50. 298,650.00

Total
80.0
40.0
80.0
2.0
50.0
25.0
21.65
298,650.0
74,662.5
373,312.50

Land, Building and Civil Works

The envisaged plant will require a total land area of 1,000m 2. The floor space required for
the building and other facilities will be about 750m2. This will consist of production hall
(450 sq. meters), offices (150 sq. meters), stores and other general purpose buildings (150
sq. meters). The total estimated cost of building and civil works at the Birr 2,300 per m 2
is about Birr 1,725,000.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,

26-12
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention

measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However,
if the land request is above 5,000 m 2 the request is evaluated by the Citys Investment

26-13
Authority and passed

with recommendation to the Land Development and

Administration Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the citys Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for the
this profile since it is a manufacturing project a land lease rate of Birr 346 per m 2 is
adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.2 shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
Period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Payment
10%
10%
10%

For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years .

26-14
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 20.76 million of which 10% or Birr 2,076,000 will be paid in advance.
The remaining Birr 18.68 million will be paid in equal installments with in 28 years i.e.
Birr 667,286 annually.
VI.

MANPOWER & TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The hats and other headgears plant will require manpower both for administration and
production activities. The total number of manpower is 26, of which 8 are administration
staff and 18 are involved in production activities.
The total number of labor cost is Birr 318,000. The detail manpower requirement and
estimated annual salaries are presented in Table 6.1.
B.

TRAINING REQUIREMENTS

The production head, the production workers and technician will have to be given two
weeks training during erection and commissioning of the project. The training cost is
estimated to be Birr 20,000.

26-15
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOR COST
Sr.
No.
Position
A. Administration
1
General Manager
2
Executive Secretary
3
Finance and Administration Head
4
Accountant
5
Store Man
6
Clerk
7
General Service
Sub-Total
B. Production
8
Production & Technical Manger
9
Supervisor
10
Skilled Workers
11
Non-Skilled Workers
Sub-Total
Workers Benefit (25% of basic salary)
Grand Total

VII.

Req.
No.

Monthly
Salary (Birr)

Annual
Salary (Birr)

1
1
1
1
1
1
2
8

3,500
1,000
3000
1,500
650
500
700

42,000
12,000
36,000
18000
7,800
6,000
8,400
94,800

1
1
6
10
18
26

3000
1,200
3600
4000

21,000
12,000
43,200
48,000
124,200
63600
318,000

FINANCIAL ANALYSIS

The financial analysis of the hats and other head gears 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

2 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

26-16
Raw material import

90 days

Work in progress

1 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5 % of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at

Birr

6.03 million, of which 5 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.

Cost Items

Local
Cost

Foreign
Cost

Total
Cost

Land lease value

2,076.00

2,076.00

Building and Civil Work

1,725.00

1,725.00

Plant Machinery and Equipment

74.66

298.65

373.31

Office Furniture and Equipment

100.00

100.00

Vehicle

450.00

450.00

Pre-production Expenditure*

405.9

405.90

Working Capital

906.27

906.27

298.65

6,036.48

Total Investment cost

5,737.83

* N.B Pre-production expenditure includes interest during construction ( Birr 255.90

thousand, training (Birr 20 thousand ) and Birr

130 thousand costs of registration,

licensing and formation of the company including legal fees, commissioning expenses,
etc.

26-17

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 5.31
million (see Table 7.2).

The raw material cost accounts for 84.89 per cent of the

production cost. The other major components of the production cost are depreciation,
financial cost and direct labour which account for

6.73 %, 4.21% and 1.40 %

respectively. The remaining 2.77 % is the share of utility, repair and maintenance, labour
overhead and other administration cost.
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

Cost

4,508.80
47.77

84.89
0.90

18.67
74.52

0.35
1.40

31.05
49.68

0.58
0.94

4,730.49
357.38

89.06

223.51

4.21

5,311.38

100

6.73

Total Production Cost

C.

FINANCIAL EVALUATION

26-18
1.

Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 684.11 thousand to
Birr 1.17 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 9.18 million.
2.

Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.
3.

Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, 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
Sales Variable Cost

4.

Payback Period

22 %

26-19
The pay back period, also called pay off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
projects initial investment will be fully recovered within 5 years.
5.

Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this porject is computed to be 21.01 %
indicating the vaiability of the project.
6.

Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value.

It is a

standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 3.69 million which is acceptable.

D.

ECONOMIC BENEFITS

26-20
The project can create employment for 26 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.78 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.