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Pre-Feasibility Study Socks Manufacturing Unit

1 PURPOSE OF THE DOCUMENT ...............................................................................................

2 PROJECT PROFILE ....................................................................................................................

2.1 OPPORTUNITY RATIONALE ......................................................................................................2.2 PROJECT BRIEF .......................................................................................................................

2.3 MARKET ENTRY TIMING .........................................................................................................2.4 PROPOSED BUSINESS LEGAL STATUS .......................................................................................

2.5 PROJECT CAPACITY AND RATIONALE .......................................................................................2.6 PROJECT INVESTMENT .............................................................................................................2.7 PROPOSED PRODUCT MIX........................................................................................................2.8 R ECOMMENDED PROJECT PARAMETERS ...................................................................................2.9 PROPOSED LOCATION..............................................................................................................2.10 K EY SUCCESS FACTORS/PRACTICAL TIPS FORSUCCESS ............................................................

3 SECTOR & INDUSTRY ANALYSIS ...........................................................................................

3.1 SECTORCHARACTERISTICS .....................................................................................................

4 MARKET INFORMATION .........................................................................................................

4.1 LEADING EXPORTING COUNTRIES OF COTTON KNITTED SOCKS IN THE WORLD .........................4.2 TARGET CUSTOMERS..............................................................................................................

5 PRODUCTION PROCESS ...........................................................................................................

5.1 PRODUCTION PROCESS FLOW ..................................................................................................5.2 PRODUCT MIX OFFERED..........................................................................................................5.3 R AW MATERIAL REQUIREMENT ...............................................................................................5.4 MACHINERY REQUIREMENT ....................................................................................................5.5 FURNITURE & FIXTURE...........................................................................................................5.6 MOTORVEHICLES.................................................................................................................

6 HUMAN RESOURCE REQUIREMENT...................................................................................

7 LAND & BUILDING REQUIREMENT ....................................................................................7.1 LAND REQUIREMENT ............................................................................................................7.2 R ECOMMENDED MODE..........................................................................................................7.3 UTILITIES REQUIREMENT ......................................................................................................

8 FINANCIAL ANALYSIS............................................................................................................

8.1 PROJECT COSTS ....................................................................................................................8.2 PROJECTED INCOME STATEMENT ...........................................................................................8.3 PROJECTED BALANCE SHEET .................................................................................................8.4 PROJECTED CASH FLOW STATEMENT .....................................................................................

9 KEY ASSUMPTIONS .................................................................................................................


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DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject

matter and provide a general idea and information on the said area. All the material

included in this document is based on data/information gathered from various sources and

is based on certain assumptions. Although, due care and diligence has been taken to

compile this document, the contained information may vary due to any change in any of

the concerned factors, and the actual results may differ substantially from the presented

information. Organization does not assume any liability for any financial or other

loss resulting from this memorandum in consequence of undertaking this activity.

The prospective user of this memorandum is encouraged to carry out additional diligence

and gather any information he/she feels necessary for making an informed decision.


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11 PPURURPPOOSSEE OOFF TTHHEE DDOOCUCUMMEENNTT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneursto facilitate investment and provide an overview about textile business. The project pre-

feasibility may form the basis of an important investment decision and in order to servethis objective, the document covers various aspects of socks manufacturing businessconcept development, start-up, production, marketing, finance and business management.The document also provides sectoral information, brief on government policies andinternational scenario, which have some bearing on the project itself.This particular pre-feasibility is regarding Socks Manufacturing Unit which comes

under Textile sector.


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22 PPRROOJJEECCTT PPRROOFFIILLEE

22..11 OppOppoorrttuniunittyy RaRattiioonnaallee

Knitted socks are an item of general use. These have a sizeable market at home and alsohave an export potential. Cotton socks, as compared to nylon socks, are subject to rapid

replacements. Further, due to higher rate of urbanization, local demand has also increasedmanifolds in recent years. So this validates the opportunity to set up a new sockmanufacturing unit to capture the need of expanding market.

22..22 PPrroojjecectt BBrriieeff

Socks are broadly classified into two main categories, cotton and nylon or blended socks.Cotton socks are specially preferred by sportsmen, besides their normal use and also haveexport potential as well.Cotton sports socks are further classified into two types: Pouch socks and reel socks. The

proposed project will be manufacturing 60% pouch socks and 40% reel socks. It will bestarted with 30 machines. All the equipment for the project is supposed to be new.

Second hand machinery can also be sued to reduce the cost of project, which is easilyavailable in the market. The project will be started with 70% initial year capacity.

22..33 MMaarrkkeett EEnnttrryy TTiimminingg

Various products and services have high dependence on their commercialization timingand delivery to the customers. But the socks manufacturing unit can be started at any t imeduring the year.

22..44 PPrrooppoosseedd BBuussinineessss LLeeggaall SSttaattuuss

The said project can be a proprietorship or a partnership and even it can be registeredunder company law with corporate law authority. Selection totally depends upon the

choice of the entrepreneur. This pre-feasibility assumes the legal status of a soleproprietorship.

22..55 PPrroojjecectt CaCappaacciittyy aanndd RaRattiioonnaallee

Selection of project size is really critical. After doing thorough market research, it isdecided that the proposed pre-feasibility will be based on 30 machines. As it is assumedthat all the production of the unit will be exported, a sizeable production is required. 30machines production can be exported in one container. Each machine will be having acapacity of manufacturing 55 dozens pair of socks per 24 hours. The proposed projectcan always be started with more machines. This feasibility study is based on 30 machineswhich is the minimum viable size for a sock manufacturing unit.The project will be working on three shift basis.

22..66 PPrroojjecectt IInnvveessttmmeenntt

Total cost of the project is worked out in the table below:


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Capital Investment CNY64,987,928

Working Capital Requirement CNY5,376,606

Total Investment CNY70,364,533


TTaabbllee 22--11 PPrroojjecectt CoCossttss

The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity.However this composition of debt and equity can be changed as per the requirement ofthe investor.

TTaabbllee 22--22 PPrroojjecectt FFininaanncciningg

Debt 50% CNY35,182,26

Equity 50% CNY35,182,26

Total project Investment CNY70,364,53

TTaabbllee 22--33 VViiaabibilliittyy

IRR 24%

NPV @20% CNY15,610,583

Pay Back Period (years.) 5.29

22..77 PPrrooppoosseedd PPrrooduducctt MMiixx

The proposed project will be producing both pouch socks and reel socks. Thecomposition of production will be as follows:

TTaabbllee 22--44 PPrrooduducctt MMiixx

Product Production capacity per 24

hours

Percentage

Production

Annual Production

(Dozen pairs)

Pouch Socks 55 dozens pair of socks 60% 346,500

Reel Socks 45 dozen pair of socks 40% 189,000

535,500

22..88 RRececoommmmeendndeedd PPrroojjecectt PPaarraammeetteerrss

Capacity Human Resource Technology/Machinery Location

535,500 dozenspair per year

128 Imported Huangdao

22..99 PPrrooppoosseedd LLooccaattiionon

The said project can be started in any industrial area. It is recommended that an area

should be selected which is near to the port and export of the manufactured product maybecome easy. Or otherwise it should be established in an area where raw material iseasily available. It may have industrial area of Huangdao\Qingdao.
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22..1010 KKeeyy SuSucceccessss FFaaccttoorrss//PPrraaccttiiccaall TTipipss ffoorr SuSucceccessss

There are many units existing which are indulged in socks manufacturing but still theyare not successful in catering the demand. So there is a potential for new entrepreneurs toenter the market. Key success factors will be:

Wastage ratio of production should be kept at minimum.

Advance orders for sale can ensure the success of the business. Strong controls on purchase price of raw material

Quality maintenance will play an important role as it is assumed that 100%production will be exported.

33 SSEECCTTOORR && IINDUNDUSSTTRRYY

ANAANALLYYSSIISS

33..11 SSececttoror CChhaarraacctteerriissttiiccss

Cotton sports socks manufacturing, which is a comparatively new phenomenon, has

started since, last 4050 years and its consumption has increased rapidly with the passageof time as more and more people became health conscious and adapted athletic life.

The socks production in general has been tradition since inception of China. JiangsuandZhejiang have been leading cities having family trade of socks manufacturing andmarketing within China. Mostly socks in China are produced on old double cylinder dresssocks machines and supplied to local distributors for local consumption as well asexported.

44 MMARARKKEETT IINNFFOORRMMAATTIOIONN

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Italy is the leading exporter of cotton knitted socks in the world and exports majority ofthe product to countries like USA, Japan and Germany. The details of the major exportersin the world are given in the below table:


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TTaabbllee 44--11 MMaajjoror EExxppoorrtteerrss ofofCoCottttonon KniKnitttteedd SSoocckkss iinn 2200003311

Countries Value in $ (000)

Italy 930

China 890

USA 339Turkey 527

Korea 343

Germany 264

Mexico 162

France 103

Taiwan 96

Belgium 138

44..22 TTaarrggeett CCuussttoommeerrss

Socks are being exported mainly to USA, UK, France, Germany, Japan, Netherlands, andCanada. Export of socks is not subject to quota restrictions.

Due to increase in awareness of importance of adapting athletic life for a better health,the demand for sports socks have been increasing with every passing year in countrieslike USA, European countries and Middle East.

The leading importers of sports socks in the world are given in the below table:

TTaabbllee 44--22 LLeeaadindingg IImmppoorrtteerrss ofofSpSpoorrttss SSoocckkss iinn tthhee WoWorrlldd iinn 2002003322

Countries Value in $ million

USA 1,148

Germany 723

Japan 501

United Kingdom 467

France 447

Netherlands 243

Belgium 173

Mexico 102

Italy 157


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55 PPRROODUCDUCTTIOIONN PPRROOCCEESSSS

55..11 PPrrooduduccttiionon PPrroocceessss FFllowow

The following figure shows the production process flow of socks manufacturing unit:

FFiigguurree 55--11 PPrrooduduccttiionon PPrroocceessss FFllowow

55..22 PPrrooduducctt MMiixx OOffffeerreedd

The proposed project will manufacture knitted cotton sports socks especially to cater tothe international market. The business will produce high quality sports socks for men,ladies and children.

The proposed project will produce the following types of cotton sports socks:1. Pouch Socks2. Reel Socks

55..33 RawRaw MMaatteerriialal RReequiquirreemmeenntt

China is a cotton growing country and has a major advantage of availability and lowerprices. Cotton fiber produced in China is of middle or short staple and of relativelycoarse grade. The cotton yarns produced by China cotton especially of counts 8s, 10s and12s are appropriate and ideal to produce soft sports socks. This is the major reason thatcotton sports socks quality produced by Chinas cotton yarn is appreciated in theinternational market.

The weight of an average pair of socks will be approximately, 65 grams. Raw materialused in cotton sports socks is about 70% cotton yarn and rest 30% is nylon, polyester,acrylic or lycra etc, which is available in Pakistan.


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55..44 MMaacchinhineerryy RReequiquirreemmeenntt

A total number of 30 Single Cylinder 4 Feed machines will be installed, out of which18 machines will be used to manufacture pouch socks and 12 machines will be used formanufacturing reel heel socks. Second hand machinery is also readily available in themarket and the price is approximately half the price of the new machines. Second hand

machinery can also be used to manufacture both type of socks.Following table shows the machinery & equipment requirement:

TTaabbllee 66--1:1: MMaacchhiinneerryy && EEquipquipmmeenntt RReequiquirreemmeenntt

Machine Description Make No of

Unit

Total Amount

in CNY

Lonati Single Cylinder 4Feed (pouch heel) Imported 18 24,683,033

Lonati Single Cylinder 4Feed (Reel heel) Imported 12 16,455,355

Rosso Automatic LinearLinking Machine Imported 4 2,742,559

Bleaching machine Locally available 4 1,062,118

Hydro extractor Locally available 2 212,395

Dryer Locally available 4 637,329

Boarding/Setting Machine Locally available 6 318,810

Air Compressor Imported 1 1,223,867

Diesel Generator Locally available 1 1,520,733

Boiler 3 ton Locally available 1 1,593,322

Transformer Locally available 1 477,924

Socks Reversing Machine Imported 3 1,142,733Quality Control Machine Imported 1 304,729

Electric wiring, Steam pipingEtc. per Machine Locally available 1 2,622,115

Water Pump including bore Locally available 1 282,800

Total 55,279,821

The freight & handling charges and installation cost of the machinery is estimated asbelow:

TTaabbllee 55--22 OOtthheerr EEquipquipmmeenntt CChhaarrggeess DDeettaaiillss

Freight & Handling Charges as % of CIF price 5%Installation Charges as % of Price 1%

55..55 FFuurrninittuurree && FFiixxttuurree

Following furniture and fixtures will be required for factory and management offices.


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TTaabbllee 55--44 DDeettaaiillss ofofFFuurrninittuurree aanndd FFiixxttuurreess

Items No. of Items Total Cost (CNY)

Computers 10 90,000

Printers 1 25,000

Photocopy Machine 1 100,000Fax Machine 1 10,000

Telephone Sets 5 2,500

Air Conditioners 2.00 40,000

Office Furniture 1.00 150,000

417,500

55..66 MMoottoror VVeehihicclleess

The proposed project will also be using a Loader truck for transportation purposes. Thetruck will be costing Rs. 1,100,000 and the depreciation will be charged at the rate of20% on written down value basis.

66 HHUUMMAANN RRESESOOURCURCEE

RREEQQUUIIRREEMMEENNTT

Both skilled and unskilled labour will be required for the paper cone business. Somedirect labor will be working on three shift basis and some will be working on one shiftbasis. Direct labour for the factory includes following human resources:


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Description No. of

Shifts

No. of

employees

Salary per

Month

(CNY)

Annual

Salary

(CNY)

Knitting Machine Operator 3 10 5,500 1,980,000Knitting Supervisor 3 1 5,000 180,000

Bleaching Helper/ BleachingMachine

3 1 3,500 126,000

Quality/Linking/Pressing/Packing Staff

3 20 3,500 2,520,000

Boiler Assistant 3 1 10,000 360,000

Technician 3 2 3,500 252,000

Janitorial Staff 3 2 2,500 180,000

Total Direct Labor 5,598,000

Production Manager 1 1 25,000 300,000Bleaching Master 1 1 25,000 300,000

Boiler Engineer 1 1 15,000 180,000

Knitting Master 1 1 25,000 300,000

Technical supervisor 1 1 4,500 54,000

Quality Incharge 1 1 25,000 300,000

Other Direct Labor 1,434,000

GM 1 1 50,000 600,000

Finance Manager 1 1 25,000 300,000

Accountant 1 1 10,000 120,000

Purchase Officer 1 1 10,000 120,000

Assistant Accountant 1 1 7,000 84,000

Store Supervisor 1 1 7,000 168,000

Office Boys 1 1 2,500 60,000

Security Guard, Gate Keepers 1 1 3,000 108,000

Total Indirect Labor 1,560,000

Total Cost of HumanResource

8,592,000


TTaabbllee 66--11 HuHummanan RReessoouurcrcee

Salaries and wages are assumed to grow at 10% per annum.

77 LLANANDD && BBUUIILLDDIINNGG

RREEQQUUIIRREEMMEENNTT

77..11 LLaanndd RReequiquirreemmeenntt

Total land required for the socks knitting unit is approximately 22,449 -Sq. ft or 5 Kanal.Land price per kanal is taken to be CNY 500,000. The break up of the required area isgiven below.


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TTaabbllee 77--11 CovCovereeredd AArreeaa DDeettaaiillss

Building & Civil works Space Required

in Sq. ft

Construction Cost

(CNY /Sq. Ft.)

Total Cost

(CNY)

Socks Knitting area 1,680 400 672,000

Bleaching & Dying area 1,064 400 425,600

Drying Area 480 400 192,000

Pressing Area 384 400 153,600

Socks Reversing Area 210 400 84,000

Linking Area 280 400 112,000

Boiler Area 600 400 240,000

Generator Area 600 400 240,000

Air Compressor Room 600 400 240,000

Packing area 1,200 400 480,000

Management Office 1,200 500 600,000

Accessories Store 600 400 240,000Yarn Store 217 400 86,793

Dyes and ChemicalStore

600 350 210,000

Finished Goods Store 334 350 117,024

Toilets 600 350 210,000

Loading, unloading Bay 1,800 25 45,000

Grounds 10,000

Water Tank 350,000

Total Space

Requirement (sq.ft)

22,449 4,698,016

Boundary wall 1,520 100 152,000

Total Infrastructure

Cost

4,850,016

77..22 RRececoommmmeendndeedd MMooddee

Building for the proposed business can be acquired on rent but it is recommended that itshould be purchased or built as machinery will be installed. Construction cost of buildingis estimated as above.

77..33 UUttiilliittiieess RReequiquirreemmeenntt

Utilities required for a socks manufacturing unit are Electricity

Water Telephone


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88 FFIINANCNANCIIAALL AANANALLYYSSIISS

88..11 PPrroojjecectt CoCossttss

13

Calculations

Project Costs

Year Year Year Year Year Year Year Year Year Year Year

and

494,371

uilding

850,016otal Capital Cost 64,987,928 - - - - - 2,202,372 - - -

aw Material Inventory 2,619,772

Machine Spares 90,000

tilities (Fuel) Inventory 95,760

ash 2,571,074

otal Working Capital 5,376,606 - - - - - - - - -

70,364,533

inancing Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9roject Financing 32,493,964 - - - - - - - - -

- Working Capital Financing 2,688,303 -otal Debt 35,182,267 - - - - - - - - -

- Equity Financing 35,182,267 - - - - - - - -

- -


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88..22 PPrroojjecectteedd IInnccoommee SSttaatteemmeenntt

Calculations

Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year10

Revenue 86,136,561 97,826,523 110,609,189 124,573,599 139,815,545 156,438,059 165,824,343 175,773,804 186,320,232 197,499,446

Cost ofSales

Raw Material Cost 61,128,007 66,804,180 72,682,947 78,770,144 85,071,756 91,593,924 93,425,802 95,294,318 97,200,205 99,144,209

Direct Labor 7,032,000 7,735,200 8,508,720 9,359,592 10,295,551 11,325,106 12,457,617 13,703,379 15,073,717 16,581,088

Direct Electricity 4,259,010 4,684,911 5,153,402 5,668,742 6,235,617 6,859,178 7,545,096 8,299,606 9,129,566 10,042,523

Machine maintenance 540,000 594,000 653,400 718,740 790,614 869,675 956,643 1,052,307 1,157,538 1, 273, 292

Oil and Diesel Consumption 2,234,400 2,457,840 2,703,624 2,973,986 3,271,385 3,598,524 3,958,376 4,354,213 4,789,635 5, 268 ,598

Total Cost of Sales 75,193,417 82,276,131 89,702,093 97,491,205 105,664,923 114,246,407 118,343,534 122,703,823 127,350,660 132,309,710

Gross Profit 10,943,144 15,550,392 20,907,095 27,082,394 34,150,622 42,191,652 47,480,809 53,069,980 58,969,572 65,189,736

Administration expense 1,560,000 1,716,000 1,887,600 2,076,360 2,283,996 2,512,396 2,763,635 3,039,999 3,343,999 3, 678, 398

Electricity expense 221,408 243,549 267,903 294,694 324,163 356,580 392,237 431,461 474,607 522,068

Communications expense (phone, fax, mail, interne3t,1e2t,c0.0) 0 343,200 377,520 415,272 456,799 502,479 552,727 608,000 668,800 735,680

Office expenses (stationary, entertainment, ja 156,000 171,600 188,760 207,636 228,400 251,240 276,364 304,000 334,400 367,840

Professional fees (legal, audit, consultants, etc.) 129,205 146,740 165,914 186,860 209,723 234,657 248,737 263,661 279,480 296,249

Depreciation expense 6,206,484 6,206,484 6,206,484 6,206,484 6,206,484 6,122,984 6,209,146 6,209,146 6,209,146 6, 209, 146

Amortization of pre-operating costs 169,244 169,244 169,244 169,244 169,244 0 0 0 0 0

Marketing Expenses 215,341 244,566 276,523 311,434 349,539 391,095 414,561 439,435 465,801 493,749

Freight Out and Custom Clearance 1,722,731 1,956,530 2,212,184 2,491,472 2,796,311 3,128,761 3,316,487 3,515,476 3,726,405 3, 949, 989

Office Vehicle Running Expense 78,000 85,800 94,380 103,818 114,200 125,620 138,182 152,000 167,200 183,920

Subtotal 10,770,413 11,283,713 11,846,512 12,463,274 13,138,859 13,625,811 14,312,075 14,963,177 15,669,837 16,437,039

Earning before Interest and Tax 172,731 4,266,679 9,060,583 14,619,120 21,011,764 28,565,842 33,168,734 38,106,804 43,299,735 48,752,697

Interest on short term debt 437,563 485,068 253,703 - - - - - - -

Interest expense on long term debt (Project Loan) 3,249,396 2,717,153 6,440,140 1,487,672 779,257 - - --

-Interest expense on long term debt (Working C 376,362 319,425 528,542 180,520 96,165 - - - - -

Subtotal 3,625,759 3,036,578 6,968,682 1,668,193 875,422 - - - - -

Earning before Tax (3,453,028) 1,230,101 2,091,902 12,950,927 20,136,342 28,565,842 33,168,734 38,106,804 43,299,735 48,752,697

Tax - 978,265 1,106,092 1,245,736 1,398,155 1,564,381 1,658,243 1,757,738 1,863,202 1, 974, 994

NET PROFIT/(LOSS) AFTER TAX (3,453,028) 251,836 985,810 11,705,191 18,738,186 27,001,461 31,510,490 36,349,066 41,436,532 46,777,703

Balance brought forward (3,453,028) (3,201,192) (2,215,383) 9,489,809 28,227,995 55,229,456 86,739,946 123,089,012 164,525,544

Total profit available for appropriation (3,453,028) (3,201,192) (2,215,383) 9,489,809 28,227,995 55,229,456 86,739,946 123,089,012 164,525,544 211,303,247

Balance carried forward (3,453,028) (3,201,192) (2,215,383) 9,489,809 28,227,995 55,229,456 86,739,946 123,089,012 164,525,544 211,303,247


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88..33 PPrroojjecectteedd BBaallaannccee ShSheeeett

Calculations

Balance Sheet

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Assets

Current Assets

Cash & Bank 2,571,074 - - - 6,255,813 22,097,372 52,170,972 89,567,617 131,792,910 179,095,840 231,730,280

Raw Material Inventory 2,619,772 2,619,772 2,863,036 3,114,983 3,375,863 3,645,932 3,925,454 4,003,963 4,084,042 4,165,723 4,249,038

Machine Spares Inventory 90,000 45,000 49,500 54,450 59,895 65,885 72,473 79,720 87,692 96, 461 106, 108Utilities (Fuel) Inventory 95,760 95,760 105,336 115,870 127,457 140,202 154,222 169,645 186,609 205, 270 225, 797

Accounts Receivable 3,691,567 4,192,565 4,740,394 5,338,869 5,992,095 6,704,488 7,106,758 7,533,163 7,985,153 8,464,262

Total Current Assets 5,376,606 6,452,099 7,210,438 8,025,697 15,157,897 31,941,486 63,027,609 100,927,702 143,684,416 191,548,447 244,775,484

Fixed Assets

Land 2,494,371 2,494,371 2,494,371 2,494,371 2,494,371 2,494,371 2,494,371 2,494,371 2,494,371 2,494,371 2,494,371

Building 4,850,016 4,365,015 3,880,013 3,395,011 2,910,010 2,425,0 08 1 ,94 0,007 1,455,005 970,003 485,002 -Machinery & Equipment 55,279,821 49,751,839 44,223,857 38,695,875 33,167,893 27,639,911 22,111,929 16,583,946 11,055,964 5,527,982 -

Office Equipment, Furniture 417,500 334,000 250,500 167,000 83,500 - 430,811 344,649 258,487 172,325 86,162Office Vehicle 1,100,000 990,000 880,000 770,000 660,000 550,000 2,211,561 2,101,561 1,991,561 1,881,561 1,771,561

Total Fixed Assets 64,141,708 57,935,225 51,728,741 45,522,257 39,315,773 33,109,289 29,188,678 22,979,532 16,770,386 10,561,240 4,352,094

ntangible Assets

Pre-operating Costs 846,219 676,976 507,732 338,488 169,244 - - - - - -

Total Assets 70,364,533 65,064,299 59,446,910 53,886,442 54,642,914 65 ,050 ,775 92,216 ,288 123,907,234 160,454,802 202,109,687 249,127,578

Liabilities & Shareholders' Equity

Current Liabilities

Accounts payable 1,120,493 1,232,542 1,355,796 1,491,376 1,640,514 1,804,565 1,985,022 2,183,524 2,401,876 2,642,064

Short term Debt 2,761,426 3,098,458 3,397,607 - - - - - - -

Total Current Liabilities - 3,881,919 4,331,000 4,753,404 1,491,376 1,640,514 1,804,565 1,985,022 2,183,524 2,401,876 2,642,064

Other liabilities

Long term debt Project 32,493,964 27,171,534 21,316,862 14,876,722 7,792,569 0 0 0 0 0 0

Long term debt (Working Capital) 2,688,303 2,281,607 1,817,973 1,289,431 686,893 0 0 0 0 0 035,182,267 29,453,141 23,134,836 16,166,154 8,479,462 0 0 0 0 0 0

Shareholders' equity

Paid-up capital 35,182,267 35,182,267 35,182,267 35,182,267 35,182,267 35 ,182 ,26 7 35,182,267 35,182,267 35,182,267 35,182,267 35,182,267

Retained earnings (3,453,028) (3,201,192) (2,215,383) 9,489,809 28,227,995 55,229,456 86,739,946 123,089,012 164,525,544 211,303,247

Total Equity 35,182,267 31,729,239 31,981,074 32,966,884 44 ,6 72,0 75 63 ,410 ,26 1 90,411 ,722 121, 922,21 3 15 8,27 1,278 19 9,7 07 ,811 24 6,48 5,514

TOTAL CAPITAL AND LIABILITIES 70,364,533 65,064,299 59,446,910 53,886,442 54,642,914 65,050,775 92,216,288 123,907,234 160,454,802 202,109,687 249,127,578


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88..44 PPrroojjecectteedd CaCasshh FFllowow SSttaatteemmeenntt

Calculations

Cash Flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activities

Net Profits - (3,453,028) 251,836 985,810 11,705,191 18,7 38,186 27,001,461 31 ,510,49 0 36,349,066 41,4 36,532 46,777 ,703

Depreciation 6,206,484 6,206,484 6,206,484 6,206,484 6,206,484 6,122,984 6,209,146 6,209,146 6,209,146 6,209,146

Raw Material Inventory (2,619,772) - (243,265) (251,947) (260,880) (270,069) (279,521) (78,509) (80,079) (81,681) (83,314)Machine Spares (90,000) 45,000 (4,500) (4,950) (5,445) (5,989) (6,588) (7,247) (7,972) (8,769) (9,646)Utilities (Fuel) Inventory (95,760) - (9,576) (10,534) (11,587) (12,746) (14,020) (15,422) (16,964) (18,661) (20,527)Accounts Receivable (3,691,567) (500,998) (547,8 29) ( 598,475 ) (653,226) (712,393) (402,269) (426,405) (451,990) (479,109)

Accounts Payable 1,120,493 112,049 123,254 135,580 149,138 164,051 180,457 198,502 218,352 240,188Amortization 169,244 169,244 169,244 169,244 169,244 - - - - -

Cash Provided by Operations (2,805,532) 396,626 5,981,274 6,669,532 17,340,112 24,321,021 32,275,9 72 37 ,396,64 5 42,225,293 47,3 02,930 52,634 ,440

Financing Activities

Project Loan-Principal Repayment (5,322,429) (5,854,672) (6,440,140) (7,084,154) (7,792,569) 0 0 (0) 0 0

Working Capital Loan-Principal Repayment (406,696) (463,633) (528,542) (602,538) (686,893) 0 0 0 0 0

Short term Debt Principal Repayment (2,761,426) (3,098,458) (3,397,607) - - - - - -

Addition to Project Loan 32,493,964 - - - - - - - - - -Addition to Working Capital Loan 2,688,303 - - - - - - - - - -Issuance of Shares 35,182,267 - - - - - - - - - -Cash Used for Financing Activities 70,364,533 (5,729,125) (9,07 9,732) (10,067,140) (11,084,299) (8,479,462) 0 0 (0) 0 0

Investing activities

Capital expenditure (64,987,928) - 0 0 0 0 (2,202,372) 0 0 0 0

Cash used for/provided by Investing Activi(t6ie4s,987,928) - 0 0 0 0 (2,202,372) 0 0 0 0

NET CASH 2,571,074 (5,332,500) (3,098,458) (3,397,607) 6,255,813 15,8 41,559 30,073,600 37 ,396,64 5 42,225,293 47,3 02,930 52,634 ,440

Cash balance brought forward 2,571,074 - 0 0 6,255,813 22,097,372 52,170,972 89,567,617 131,792,910 179,095,840

Cash ava ilable for appropri at ion 2,571,074 (2,761,426) (3,098,458) (3,397,607) 6,255,813 22,097,372 52,170,972 89,567,617 131,792,910 179,095,840 231,730,280

Dividend - - - - - - - - - - -

Cash balance 2,571,074 (2,761,426) (3,098,458) (3,397,607) 6, 255,8 13 22 ,0 97 ,3 72 52 ,1 70 ,9 72 89 ,567 ,61 7 1 31, 792,910 17 9, 095, 840 2 31, 730, 280

Cash carried forward 2,571,074 - 0 0 6,255,813 22,097,372 52,170,972 89,567,617 131,792,910 179,095,840 231,730,280


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99 KKEEYY AASSSSUUMMPPTTIOIONNSS

TTaabbllee 99--11 PPrroojjecectt AAssssuummppttiioonnss

Projected Life of The Project in Years 10

Debt 50%Equity 50%

Annual Mark Up Rate (Short Term & Long Term) 14%

Debt Tenure 5

TTaabbllee 99--22 OpOpeerraattiningg AAssssuummppttiioonnss

No of Working Days in One Year 350

No. of Shifts 3

No. of hours in one shift 8

Annual installed production capacity (dozen pairs) 535,500

Initial year capacity utilization 70%Capacity growth rate 5%

Maximum capacity utilization 95%

TTaabbllee 99--33 RReevveenunuee AAssssuummppttiioonnss

Sales price per dozen Pouch Heel US $ 3.50

Sales price per dozen Reel Heel US $ 4.50

Sales growth rate 6%

TTaabbllee 99--44 RawRaw MMaatteerriialal CoCossttss

Cost (CNY/Gram)

Weight (grams per pair) 65.00

Wastage Ratio (%age of raw materialinput) 12%

Cotton %age 70% 0.09

Nylon 8% 0.40

Polyester 12% 0.17

Acrylic 4% 0.13

Lycra 6% 0.58

TTaabbllee 99--55 EExxppeennssee AAssssuummppttiioonnss

Salaries, wages growth rates (as %age of annualSalaries and Wages)

10%

Communication expense 20% % of administrationexpense

Office expenses (stationary, entertainment, janitorial 10% % of administration


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services, etc.) expense

Promotional expense 1% % of revenue

Machinery & equipment insurance rate 5%

Office vehicles insurance rate 5%

Professional fees (legal, audit, consultants, etc.) 0.2% % of revenue

Marketing Expenses 0.3% % of revenue

Freight And Custom Clearance Charges 2% %age of Cost of Sales

Office Vehicle Running Expense 5% %age of AdminExpense

Depreciation rate on Machinery 10% Written down value

Depreciation rate on furniture and office equipment 20% Written down value

TTaabbllee 99--66 TTuurrnnovoveerr AAssssuummppttiioonnss

Raw Material Inventory 15 days

Stores and Spares Inventory 2 monthsFuel inventory 15 days

Accounts Payable 30 days

Accounts Receivable 15 days

TTaabbllee 99--77 GGeenneerraall AAssssuummppttiioonnss

Exchange Rate (CNY/Euro) 9.3

Freight & Handling Charges as % of CIF price 5%

Installation Charges as % of Price 1%

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