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TABLE OF CONTENTS 1 2 EXECUTIVE SUMMARY ...................................................................................... 2 PROJECT DESCRIPTION..................................................................................... 2 2.1 2.2 2.3 3 3.1 3.2 3.3 3.4 4 4.1 4.2 4.3 5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6 7 FACILITIES AND INITIAL INVESTMENT .................................................................. 2 PRODUCTION PROCESS ......................................................................................... 3 STAFFING STRUCTURE ......................................................................................... 3 PERCEIVED NEEDS ............................................................................................... 5 MAIN COMPETITION ............................................................................................. 6 TARGET MARKET ................................................................................................. 6 SWOT ANALYSIS ................................................................................................ 6 MARKETING STRATEGY ....................................................................................... 7 PRICING ............................................................................................................... 7 SALES CHANNEL.................................................................................................. 7 MAJOR ASSUMPTIONS .......................................................................................... 8 PROJECTED INCOME STATEMENT ......................................................................... 9 PROJECTED BALANCE SHEET .............................................................................. 10 PROJECTED CASH FLOWS.................................................................................... 11 PROJECTED RATIO ANALYSIS ............................................................................. 12 BREAK- EVEN ANALYSIS ..................................................................................... 13 SENSITIVITY ANALYSIS ..................................................................................... 13
MARKETING PLAN............................................................................................... 7
FINANCIAL PLAN.................................................................................................. 8
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Executive Summary
The proposed project consists in establishing a concrete hollow block factory in Marjeyoun town. Large areas of Lebanon and specifically in the South region lie in ruin following the recent Israeli air, sea and land assaults. Therefore, it would be beneficial to invest ventures producing building materials such as a hollow block concrete factory as this type of block is one of the most basic elements in construction. The initial investment is estimated at $123,419, which includes $57,500 for the required equipment and $54,919 for working capital. The projections are taken over a period of 7 years. The plant provides average annual profitability of $31,941. The average return on investment (ROI) is 106%. The concrete hollow block factory provides an internal rate of return (IRR) of 23% and a payback period of 5 years 4 months. These results show that the project is feasible and provides good returns for its shareholders. The concrete hollow block plant will offer 15 job opportunities. As a result, the plant will contribute to the general enhancement of the economic environment in Marjeyoun.
Project description
The project consists in developing a concrete hollow block factory in Marjeyoun caza. The plant will be able to supply concrete hollow blocks to Marjeyoun as well as Bint Jbeil, Hasbaya and Nabatieh regions.
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
The following table shows the projected equipment and initial investment requirements. The total investment required includes the cost of equipment, vehicles, as well as working capital requirements and amounts to $123,398.
Initial Investment Cost Items Quantity Unit cost Total cost Semi-automatic block factory 1 30,000 30,000 Dumper 1 15,000 15,000 Pallets 50 30 1,500 Total equipment 46,500 Pick up (used) 1 5,000 5,000 Furniture & Fixtures 12,000 Computer & Office Equipment 3,000 Establishment Costs 2,000 Total fixed assets 68,500 Working capital needs 54,919 Total initial investment 123,419
Source: Tony Abi Antoun, Best Concrete
STAFF STRUCTURE Management & Sales Plant Manager Assistant and accountant Drivers Total administrative staff Foreman Daily Workers Total production staff TOTAL
Number of employees
1 1 2 4 1 10 11 15
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Market Analysis
The construction blocks market has been on an increasing trend, mainly driven by the reconstruction efforts in the country. Large areas of Lebanon lie in ruin following the recent Israeli air, sea, and land assaults. Homes and businesses in a number of Lebanese rural and urban villages and towns in South Lebanon are in need of reconstruction. According to the Government assessments, the war has set back the countrys infrastructure for at least 15 years with reconstruction and rehabilitation to be carried out on a large scale basis. There are 15 small concrete hollow block factories in Marjeyoun and 7 small concrete hollow block factories in Hasbaya. Therefore investing in a technically advanced factory producing building materials of high quality and same price would be beneficial for the region. A hollow concrete block factory operating at full capacity would be sufficient in meeting the needs for reconstruction in the Cazas of Marjeyoun, Hasbaya, and Bint Jbeil. Price-wise, the trend has been going upward, especially with the increase in the costs of raw materials including sand, aggregates, etc In fact, the costs of aggregates and sand have increased substantially since the forced shut down of a number of illegal quarries in Lebanon. In addition, the price of cement is quite high because of the duopoly in the cement sector (only 2 companies operate in this sector). More recently, the increased demand created by the reconstruction activities following the July 2006 war has led to cement price hikes by 20% to 25%. The high costs of raw materials are reflected in the selling price. Generally, demand is seasonal, where winter is considered a low season.
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Approximate Area to be constructed in m2 60,000 6,000 25,000 20,000 5,000 35,000 4,500 4,500 45,000 3,000 208,000 Bint Jbeil Bint Jbeil 400,000 Ayatroun 34,000 Aynata 105,000 Maroun el Ras 47,000 Blida 22,000 Baraachite 38,000 Ain Ebel 7,500 Rmeich 3,700 Kouneen 28,000 Tebnine 15,700 Shakra 2,700 703,600 Hasbaya Kfarshouba 25,000 Kfaraman 3,000 Rashaya Fokhar 1,500 Hibariyeh 2,000 31,500 Total in need 943,100 District Marjeyoun Town El-Khiyam Kfar Kila Houla Meis el Jabal Jdeidat Debine Blat Kantara Taybee Deirmimas
Estimated Concrete needed in m3 20,000 5,700 24,200 19,000 4,700 34,200 4,200 4,370 42,700 2,800 161,870 370,000 32,750 102,000 45,200 21,300 36,700 7,200 3,500 26,900 15,000 2,500 663,050 24,200 2,800 1,400 1,920 30,320 855,240
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Moreover, the towns of the three mentioned districts have regular and continuous needs arising from population growth. Data on building permits allocated by the Office of Urbanization below is a clear indication.
Bint Jbeil Bldg Permits Surface in m2 N/A N/A 550 390 388 430
Marjeyoun & Hasbaya Bldg Permits Surface in m3 122 52,000 271 110,000 339 135,000 234 95,000 232 93,000 240 94,679
Furthermore, unforeseen needs may arise due to the large number of UNIFIL troops that are residing in the South region specifically Bint Jbeil, Marjeyoun, and Hasbaya.
THREATS Environmental threats include the economic recession in the country and the regions closeness to Israel and the fear of another war. The increase in the cost of labor following the war and the political instabilities. Fluctuations in the prices of raw materials and cements.
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Marketing Plan
The marketing objectives of the concrete hollow block plant consist in capitalizing on its competitive advantages. High quality products. Competitive and attracting prices due to lower transportation costs to neighboring construction sites. Existence of a solid demand for reconstruction efforts specifically post the July 2006 war.
4.2 Pricing
The prices of the concrete hollow blocks will essentially be determined by market conditions. For the study, we assumed the following average pricing structure based on current market prices.
The factory will apply differentiated pricing and discounts according to the quantity of blocks purchased and to the client loyalty.
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Financial Plan
This section details the calculations, assumptions and methodology used as a basis for the projections of the expected financial performance of the concrete hollow block plant.
Sales growth
The sales growth assumptions are based on plant capacity that starts with 80% of its capacity in the first year and then gradually increases to reach its full capacity by year 7. The following table summarizes the income statement assumptions. The cost of sales and operating charges are mainly based on market levels.
Income Statement Assumptions Cost of materials Average sales price USD Blocks production capacity Maintenance & Repairs Fuel Annual increase in general expenses Increase in salaries Increase in rental expenses Income Tax Rate
of sales per block per day on sales on sales annually annually every 3 years
The plant capacity is assumed to be at 3,500 blocks per day; work days are around 300 days per year. The sales price per block varies depending on the size of the block as displayed in the below table.
Length 10 cm 15 cm 20 cm
Therefore, average sales price accounts for the average of the block sizes that the plant will offer. General expenses are assumed to increase by 4% annually. Salaries are assumed to increase by 2% annually. The income tax rate is estimated at 2% (individual establishment).
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Accounts receivable are estimated at 2 months of sales. Inventories are estimated at 2 months of cost of materials. The accounts payable are based on 1 month of cost of materials.
Balance Sheet Assumptions Accounts receivable Inventories Accounts payable Expenses payable
2 2 1 5%
The depreciation rates are based on International accounting standards as shown in the below table.
Depreciation rates Plant machinery Fixtures & furniture Vehicles computer & office eqpt Establishment Costs
5.2
Sales
Total Revenues Cost of sales
Year 1 294,000 294,000 188,160 40,800 4,998 5,000 1,470 4,350 244,778 49,222 17%
Year 2 323,400 323,400 206,976 41,616 5,498 5,000 1,617 4,350 265,057 58,343 18% 624 1,248 24,480 3,666 1,040 31,058 27,285 546 26,739 8%
Year 3 339,570 339,570 217,325 42,448 5,773 5,000 1,698 4,350 276,594 62,976 19% 649 1,298 24,970 3,668 1,082 31,666 31,310 626 30,684 9%
Year 4 356,549 356,549 228,191 43,297 6,061 5,250 1,783 4,350 288,932 67,616 19% 675 1,350 25,469 3,200 1,125 31,819 35,797 716 35,082 10%
Year 5 367,245 367,245 235,037 44,163 6,243 5,250 1,836 4,350 296,879 70,366 19% 702 1,404 25,978 3,200 1,170 32,454 37,912 758 37,153 10%
Year 6 374,590 374,590 239,738 45,046 6,368 5,250 1,873 4,350 302,625 71,965 19% 730 1,460 26,498 2,600 1,217 32,505 39,460 789 38,671 10%
Year 7 374,590 374,590 239,738 45,947 6,368 5,513 1,873 4,350 303,788 70,801 19% 759 1,518 27,028 2,600 1,265 33,171 37,631 753 36,878 10%
Cost of sales-materials Wages-production Fuel Rent Maintenance & repairs-equipment Depreciation machines & vehicles Total cost of sales
Gross margin Gross profit margin% GENERAL & ADMINISTRATIVE EXPENSES
Electricity charges 600 Telephone charges 1,200 Salaries & Social Security Charges-Administrative 24,000
Depreciation expenses Other expenses Total General & Administrative Exp Earnings Before Tax Tax expenses Net Income Net profit Margin 3,666 1,000 30,466 18,756 375 18,381 6%
The projected income statement shows an increase in net profit margins that reach 10% in the 7th year of operations. These levels are expected to be reached through a gradual increase in sales. The increase in volume of sales is expected to allow higher net earnings, which are projected to reach $36,878 by year 7.
LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Concrete Hollow Block Plant BALANCE SHEET Cash & banks Accounts receivable Inventory Total current assets Plant machinery Fixtures & furniture Vehicles Computer & Office Equipment Establishment expenses Accumulated depreciation Net fixed assets TOTAL ASSETS LIABILITIES & OWNERS EQUITY Liabilities Accounts payable Expenses Payable Current Liabilities Total liabilities Invested capital Owner's equity Total owners' equity TOTAL LIAB.& OWNERS EQUITY
Year 1 20,265 49,000 31,360 100,625 31,500 12,000 20,000 3,000 2,000 8,016 60,484 161,109
Year 2 24,558 53,900 34,496 112,954 31,500 12,000 20,000 3,000 2,000 16,032 52,468 165,422
Year 3 32,159 56,595 36,221 124,974 31,500 12,000 20,000 3,000 2,000 24,050 44,450 169,424
Year 4 38,568 59,425 38,032 136,024 31,500 12,000 20,000 4,000 2,000 31,600 37,900 173,924
Year 5 47,555 61,207 39,173 147,935 31,500 12,000 20,000 4,000 2,000 39,150 30,350 178,285
Year 6 56,833 62,432 39,956 159,221 31,500 12,000 20,000 4,000 2,000 46,100 23,400 182,621
Year 7 66,562 62,432 39,956 168,950 31,500 12,000 20,000 5,000 2,000 53,050 17,450 186,400
Owner's equity Begin. Owner's equity Net income Owners' Withdrawals Ending owner's equity
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LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Year 1 18,381
Year 2 26,739
Year 3 30,684
Year 4 35,082
Year 5 37,153
Year 6 38,671
Year 7 36,878
(68,500) (68,500)
(1,000) (1,000)
(1,000) (1,000)
The projected statement of cash flows shows the initial net investment in fixed assets and the capital expenditures of the projected years. The cash flow statement also shows the net invested capital by the owners. The statement shows the owners withdrawals that start in year 2.
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LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
The current ratio, which is computed by dividing current assets by current liabilities, witnesses a major increase over the years led by higher levels of inventories. The quick ratio, which is the same as the current ratio except that it excludes inventories increases rapidly over the years as accounts receivable increase. The current and quick ratios demonstrate the capability of the company to quickly meet its short term liabilities. The return on average assets, which is computed by dividing net profits by total assets, shows how much profit the company is able to achieve from the use of its assets. This ratio fluctuates around an average of 18%. The total assets turnover shows how well the management is making use of its assets. The assets turnover is computed by dividing sales over total assets. It is expected to increase with the growth in sales to reach 201% in year 7. The gross profit margin improves over the years with the growth in sales. The operating margins and the net profit margins improve as well. The return on average equity shows healthy levels fueled by the growth in profitability. Also the return on investment shows increasingly high levels that reach 211% in year 7. The internal rate of return is 22.6% and the payback period, which is the period necessary to pay back the investment, is 5 years 4 months.
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LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
Break-even Analysis Total Revenues Total Variable Costs Total Fixed Costs Break-even Revenues
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
The above table shows the break even revenues required in each year to cover operating expenses. Revenues exceeding these levels start producing net income. Thus, in year 1, revenues of $ 238,509 are needed to break even.
Worst-case 329,940
Most-likely 347,135
Best-case 352,464
Average Net Income Average Net profit margin Internal rate of return Payback period in years
26,246 8%
31,941 9%
33,706 9%
These results show that the project is feasible, especially if it is well-managed providing quality at affordable prices and if the marketing and distribution activities are well developed.
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LBN/B7-4100/IB/99/0225/JC20/0105
AFC
Consultants
International
The market for construction materials has been growing over the years. Currently, a major opportunity appeared for faster growth following the war of July 2006 and the reconstruction efforts. In order to achieve good results, there are some essential success factors, which include: A key success ingredient in this sector and especially in the region is the ability to produce concrete hollow blocks of high quality at same prices. The ability to deliver on time good quality products coupled with good servicing is also an important factor for success. The plant should capitalize on its major advantages of proximity to all the cazas in the South where most of the reconstruction activities are taking place.
The concrete hollow block plant in itself will create 15 jobs in Marjeyoun. A hollow concrete block factory operating at full capacity would be sufficient in meeting the needs for reconstruction in the Cazas of Marjeyoun, Hasbaya, and Bint Jbeil where most of the urgent reconstruction activities are. The concrete hollow block is expected to have a positive effect on the whole socio-economic environment of the caza.
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