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Institut Libanais de Dveloppement conomique & Social

Etude finance par l'Union Europenne


Study financed by the European Union

Lebanese Institute for Economic & Social Development

Concrete blocks

Feasibility study prepared by


Elias Abou Fadel, Economist.

June 2001- Jal el Dib - Lebanon

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Concrete blocks 1

Table of contents
Summary

1- Project Description
1-1 Nature of work

2- Market analysis
2-1 Industry analysis and trends
2-2 Market opportunities and limitations
2-3 Target market
2-4 Competition

3- Description of the production process


3-1 Procurement
3-2 Concrete mixing
3-2-1 Mix ingredients and properties
3-2-2 Making the mix
3-3 Placing the concrete
3-4 Curing

4- Marketing and selling techniques


4-1 Selling techniques
4-2 Pricing

4
5

5- Financial plan
5-1 Loan repayment schedule
5-2 Projected income statement
5-2-1 Statement of retained earning
5-3 Projected balance sheet
5-4 Projected cash flow
5-5 Break even analysis
5-6 Sensitivity analysis

8
11
12

6- Key success factors and recommendations

15

7- Conclusion

15

13
14

The points of vu expressed in this study reflect the author opinion.


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Summary
The following feasibility study represents a concrete plant operating and its
financial plan for the coming five years.
We assumed that the minimum space required would amount to 2 000 m of
which 400 m would need to be covered to protect wet concrete blocks. We also
assumed that the plant would be producing up to 750 blocks per day.
Raw material needed for the making of concrete include sand, portland cement,
coarse aggregates or gravel, and water. The availability of nearby suppliers of raw
material is an advantage to the block making plant as it can avoid transportation costs;
if suppliers of raw materials are situated in remote areas, the plant owner should
negotiate a special deal with a truck owner. In addition the availability of a well in the
plant also constitutes an advantage over other plants, as the plant owner would not
need to buy water.
Concrete block making activities is affected by the construction activity. When
construction activity increases, block deliveries increase. The first two months of the
year reported an improvement in construction activity manifested by a rise in permits,
and cement deliveries in comparison to the corresponding period of the previous year.
Cement deliveries increased by 23,3% percent amounting to 31 7928 tons, source:
Lebanon Opportunities-March 2001.
Concrete plants are also affected by weather conditions. Many concrete plants
work only during summer and springtime in order not to incur overhead costs due to
lower construction activity during winter.
The financing requirements are 16 231 $US of which 9 000 $US will be taken as
a loan and reimbursed over a period of two years in equal monthly installments with
an interest rate of 8,5% per year. The remaining 7 231 $US will represent the
contribution of the owner. The total investment in the first year will be used to buyout
the equipment necessary to startup the business. Working capital needs amounted to 6
356 $US.
Total sales are expected to be 55 952 $US in the first year of operation and
increase gradually to reach 83 571 $US in the fifth year. The gross profit margin
increases from 54% in year 1 to 55% in the fifth year. The net profit will increase from
7 779 $US in the first year to 19 874 $US in the fifth year; the resulting net profit
margin is 14% in the first year and it increases over the years reaching 24% in the fifth
year.
The overall performance of the concrete plant is subject to the realization of the
projected sales. In addition, the project performance is sensitive to changes in some
cost some components such as rent, water, or sand. Assuming that the owner owns the
land and does not pay rent, this will increase the first year net income by 33%.

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1- Project description
1-1 Nature of work
Concrete is the most widely used construction material in the world. The two
major components of concrete are a cement paste and inert materials. The cement
paste consists of portland cement, water, and some air. The inert materials are usually
composed of fine aggregates, which is a material such as sand, and coarse aggregates,
which is a material such as gravel, crushed stone, or slag.
The character of the concrete is largely determined by a water-to-cement ratio.
The lower the water content, all else being equal, the stronger the concrete. The
mixture must have just enough water to ensure that each aggregate particle is
completely surrounded by the cement paste, that the spaces between the aggregates are
filled, and that the concrete is liquid enough to be poured and spread effectively.
Another durability factor is the amount of cement in relation to the aggregate,
expressed as a three-part ratio-cement to fine aggregate to coarse aggregate. Where
especially strong concrete is needed, there will be relatively less aggregate.
New types of concrete masonry, such as split and slump block, are being used as
facing in homes, commercial buildings, schools, churches, and municipal facilities.
The size of the masonry unit most commonly used for walls, both below and above
ground, is 20 by 20 by 40 cm. Block sizes are referred to by their first number that is
10 cm, 15 cm or 20 cm. The size of the blocks depends on their use. A 20 by 20 by 40
cm is a block used for external decoration, whereas a 20 by 15 by 40 can be used
interchangeably.
Most of the concrete plants face problems with the quality of the manufactured
concrete block. The reason behind such a low quality could be due to the lack of know
how in the preparation of the mixture, or the treatment of the concrete blocks once
made, or even the method of stocking out the blocks. Another reason could be
reducing costs, thus reducing costly ingredients in the production of the block. All
these reasons can result in a high percentage of craked blocks.
The full automation in this industry is still underdeveloped due to the availability
of cheap labor. Low labor costs is discouraging the plant owners to substitute manual
equipment with rather expensive automatic equipment. Another reason for such a
behavior is that most investors in concrete plants have medium term objectives, thus
they avoid heavy investments. They usually set up their plant in a region under
construction just to benefit from the situation and they later dismantle their plant to
transform it into another business. Investors are also looking for flexibility.

2- Market analysis
2-1 Industry analysis and trends
Pre-cast concrete, is cast and hardened before being used in construction. It is
mostly used for home buildings, bridges, roads, apartment buildings and skyscrapers.
Concrete blocks are of many types, hourdi block, insulate block, interlocking
block, and lightweight blocks among others.
Concrete blocks have been used extensively in building construction in the form
of partition walls or hourdi filler blocks in slabs. Their characteristics however are
becoming less attractive to people seeking specific characteristics such as waterproof,
heatproof or noise proof building blocks. Currently many builders are looking for
ways to cut on the cost of foundation and structural supporting elements, which cannot
be achieved by regular blocks.
Concrete plants work is highly seasonal, many plants close down their plant
during the winter and open up their plants during summer as construction activities
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increase during summer. Plants who open up during winter need to incur additional
costs, which involves mixtures that need to be added to the mixture in order to
accelerate dryness.
Concrete block sales vary in the same direction as construction activity; the same
goes for all suppliers of raw materials used in the making of concrete blocks.
According to Lebanon Opportunities, the first two months of the year reported
an improvement in construction activity manifested by a rise in permits, cement
deliveries and tame increase in prices in comparison to the corresponding period of the
previous year. Cement deliveries increased by 23,3% percent amounting to 317 928
tons.
2-2 Market opportunities and limitations
The existence of nearby construction sites within the same area as the concrete
plant creates an advantage to both the seller and the buyer :
The seller from one end can afford to charge higher price per block due to
savings done on transportation costs. The buyer on the other hand can lower some of
his costs by avoiding some transportation costs.
Concrete block making plants can start diversifying their portfolio of products by
creating new decorative blocks. Many new types of decorative concrete blocks are
being used to decorate homes and side walks. Some of these types include stamped
and stenciled concrete.

Another opportunity lies with the builders desire to save on construction


elements costs without affecting the safety desired. Builders would then be willing to
buy concrete providing such qualities, especially with material becoming more and
more expensive year after year. Blocks made of lightweight aggregate can cut down
the volume of concrete in all slabs by at least 24%. Although sales volume would
decrease, however the plant owner will develop a niche market of his own that would
differentiate him from other plants.
The choice of construction blocks is price sensitive due to the large number of
blocks needed for construction. Nowadays the oversupply of regular hourdi concrete
blocks and peoples urge to sell at whatever price to cover their overhead expenses is
leading suppliers to cut off their prices in order to sell their stock.
Concrete block making is becoming an oligopolistic market. Competitors are
being forced to match their competitors prices just to be able to survive. Larger plants
are being able to achieve a better profit margin and give higher discounts, as they can
produce a larger volume at lower unit cost. Whereas small plants with a smaller scale
of production and higher overhead costs might not be able to match competitors
prices for two main reasons :
Some plants located in areas where the rental of land or the price of the land is
much cheaper than another area, or others need not to incur additional costs of buying
water as they already have a well.
Another limitation that could face concrete plant owners is the unavailability or
lack of workers. Most workers in such plants work on day by day basis. A day of
absence might cause the plant a deal loss as they would be unable to fill the builders
demand and unskilled labor might cause a lot of breakage.
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Also the unavailability of a large storage place makes blocks subject to breakage
especially when they are placed one on top of the other over a non-flat surface.
In addition to all of the above, some cement sellers are monopolizing the market
as they are offering silos if all the cement is bought from their plant. Thus they have
the capacities of controlling or increasing cement prices. Although this offers a great
opportunity of cutting down cost on investment and getting cement for lower prices
due to batch purchases of cement, still there is one limitation which is the plant owner
might be forced to buy the cement even if its price is higher than other suppliers.
2-3 Target market
Hardened concrete is primarily used for the foundation and internal walls of
building. They come in different sizes, colors and texture. The size of the block is
usually a function of the mold dimensions, the color is usually dependent on the sand
used and the texture depends on the mix ratio of the cement, water, sand and coarse
aggregates.
The most commonly used blocks are 10 cm, 15 cm, and 20 cm size blocks.
10 cm blocks are used internally, 15 cm blocks can be used either internally or
externally and 20 cm blocks are used mostly externally. Regular blocks are used for
home buildings, and apartment buildings. Concrete masonry is used for load bearing
and non-load bearing walls; piers; partitions; firewalls; backup for walls of bricks.
Thus the target markets of concrete block producers are all construction
undertakers, builders and villages and cities under construction.
Competition
Competitors of regular block producers are larger plants who are able to produce
cheaper blocks due to their highly automated plant or high efficiency plant. Those who
have better facilities such as large storage facilities, wells, surfaced lands and their
own delivery trucks and those whose plants are located in remote area such as Baalbek
and Hermel who are able to save large sums of money due to inexistence of water and
electricity charges as well as the availability of cheap labor and the accessibility to
cheaper material from other countries are able to reduce their prices while still
achieving high profit.
Another kind of competition are blocks with different specifications such as
waterproof blocks, noise proof blocks, insulite blocks, interlocking blocks and other
kinds of block that could minimize the cost of other elements of construction.
3- Description of the production process
3-1 Procurement
Concrete tools
Concrete equipment

Forms
Hand tools
Concrete block presser
Weights
Silos
Trucks
Mixers
Water tank and mazout tanks
Bucket
Trail
Trolley or carts
Generator

3-2 Concrete mixing


3-2-1 Mix ingredients and properties

Concrete mixtures are usually specified in terms of the dry-volume ratios of


cement, sand, and coarse aggregates used. Depending on the applications, the
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proportions of the ingredients in the concrete can be altered to produce specific


changes in its properties, particularly strength and durability. The ratios can vary from
1:2:3 to 1:2:4 and 1:3:5.
The amount of water added to these mixtures is about 1 to 1,5 times the volume
of the cement. For high-strength concrete, the water content is kept low. The ideal mix
is as follows:

Portland cement has different properties. The types of cement used depend on the
type and strength of the block required. Some types of cement could be used for alkali
soils, other types can be used for soils with moderate amounts to sulfate. There are 8
types of portland cement.
The strength of concrete is measured in pounds per square inch or kilograms per
square centimeter of force needed to crush a sample of a given age or hardness.
Concrete's strength is affected by environmental factors, especially temperature and
moisture. If it is allowed to dry prematurely, it can experience unequal tensile stresses
that in an imperfectly hardened state cannot be resisted.
Sometimes the mix is changed to adapt for high and low temperatures. This is
done by the addition of chemical or mineral admixtures whose main responsibility is
to change the properties of the mix to withstand heat, or to accelerate its dryness
Chemical admixtures are mostly used to improve the quality of concrete during
mixing, transporting, placement and curing. They fall into the following categories: air
entrainers, water reducers, set retarders, set accelerators, superplasticizers and
specialty admixtures: which include corrosion inhibitors, shrinkage control, alkalisilica reactivity inhibitors, and coloring.
Mineral admixtures make mixtures more economical, reduce permeability,
increase strength, and influence other concrete properties they include fly ash and
silica fume.
Whether mineral or chemical, each admixture has its own properties and effects
on the concrete mix by itself.
Accelerating admixture-accelerators are added to concrete to reduce setting time
of the concrete and to accelerate early strength.
Retarding admixtures-Are often used in hot weather conditions to delay setting
time.
Fly Ash- is a by-product of coal burning plants. Fly ash can replace 15%-30% of
the cement in the mix. Fly ash improves workability, it is easier to finish, it reduces the
heat generated by the concrete, and it costs to the amount of the cement it
replaces
Air Entraining Admixtures- must be used whenever concrete is exposed to
freezing and thawing, and to deicing salts.
Water reducing admixtures-reduces the amount of water needed in the concrete
mix.
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3-2-2 Making the mix

Portland cement is usually placed in a silo, which transfer the portland cement
onto the mixer. The sand once obtained is cleaned and then put into the sand cart and
transferred manually into the bucket, which automatically release the sand into the
mixer. The coarse aggregates are then transferred manually to the mixer and water is
added by using a bucket. The mixer automatically mixes the ingredients.
3-3 Placing the Concrete
Concrete is then poured directly from the chute of the ready mixing machine,
into the mix cart, which is transferred near the pressing machine. The worker pours
some of the mix into the mold of the pressing machine and presses the arm of the
pressing machine to create the block form.

Then he takes out the mold from the machine and puts the wet block on the
ground and covers it with the weight.

The wet blocks are to be laid horizontally one next to another under a surfaced
area. After one day once the block has dried, it is transferred to open air by using a
trolley to transfer the blocks. Then the curing process begins.
3-4 Curing
Curing has a strong influence on properties of hardened concrete such as
durability, strength, watertightness, wear resistance, volume stability and resistance to
freezing and thawing. When portland cement is mixed with water, a chemical reaction
called hydration takes place. The extent to which this reaction is completed determines
the strength, durability and density of the concrete. The objects of curing, is to prevent
or replenish the loss of moisture and to control the concrete temperature for a definite
time.
With proper curing, the concrete will become stronger and more resistant to
stress, abrasion and frost. The improvement is rapid at early ages but continues more
slowly for an indefinite period. The most effective method for curing concrete depends
upon the circumstances. For most jobs, normal curing is adequate but in some cases,
such as in hot and cold weather, special care is needed.
Loss of water will also cause the concrete to shrink, thus creating tensile stresses
at the drying surface. Concrete can be kept moist by three curing methods:
Methods that maintain the presence of mixing water in the concrete during the
early hardening period. These include ponding or immersion, spraying or
fogging and saturated wet coverings. Such methods afford some cooling
through evaporation, which is beneficial in hot weather.
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Methods that prevent loss of mixing water from the concrete by sealing the
surface. This can be done by covering with impervious paper or plastic sheets,
or by applying membrane-forming curing compounds.
Methods that accelerate strength gain by supplying heat and moisture to the
concrete. This is usually accomplished with live steam, heating coils, or
electrically heated forms or pads.
The method or combination of methods chosen depend on factors such as
availability of curing materials, shape and size of concrete surface, esthetic appearance
and economics.
The most commonly used method is ponding concrete blocks with water during a
week time.

4- Marketing and selling techniques


4-1 Selling techniques
A concrete block factory should use all types of selling techniques possible
including:
Giving commission for each middle man who is able to get a block delivery
order
Creating arrangements with dealers of cement sand and gravel for indicating
the construction sites in need of blocks in a favor to favor arrangement.
Creating a special arrangement with a transportation company to get the best
and lowest prices possible.
Look for new building sites in the neighboring villages.
4-2 Pricing
Pricing of concrete blocks is approximately the same for all producers. Prices of
concrete per block change with the change in distance needed to deliver the blocks.
The transportation charges ranges from 40 $US-75 $US depending on the distance
between the supplier and the buyer.
Also prices differ for customized orders, such as block needed for a high alkali
soil, as the type of Portland cement would differ and thus the costs of the ingredients
are changing.

5- Financial Plan
This section along with the parameter table explains the calculations and
assumptions on which we based our projections. Our assumptions consist of dollar
amounts, time and percentages.
We developed our projections over a five years period. All figures are
expressed in US$.
The operating data provided in this document was provided by Mr. Kaissar
Homsi, Mr. Kahlil Abdel Baki Insulite blocks, Mr Youssef Ghandour
(Sand), Sabako (equipment), Cimenterie Nationale.
The calculation of the 10 cm cost per block was derived from the production
costs of a batch of 1 000 blocks of 10 cm size except for the cost of water.
We used 1,5 and 2 as multipliers for the conversion of the 10 cm cost per
block to a 15 and 20 cm block, except for the cost of water, which was
considered the same for all types of blocks due to the unavailability of
information regarding the exact amount of water needed per block.
The ingredients cost for the production of 10 cm concrete block was divided
into 3 categories, Portland cement, sand and coarse aggregates and water :
- The cost of one ton of portland cement, assuming an agreement has been
reached between the plant owner and the cement supplier to get a silo in
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return of dealing only with one cement supplier is 72 $US. Each ton
amounts to 20 bags of 50 kg of cement. Thus the cost per bag amounts to
3,6 $US.
- The number of bags needed for the production of 1 000 blocks of 10 cm
amounts to 12,5 bags. Thus the cost of 12,5 bags of portland cement, which
is necessary for the production of 1 000 blocks amounts to 45 $US.
- Sand and coarse aggregates are sold by m3. We estimated that 1 000 blocks
of 10 cm, will need 2 m3 of sand and coarse aggregates. Thus, the cost of
sand and coarse aggregates per 1 000 blocks amounts to 14 $US.
- The cost of water was calculated based on the yearly need of water, which
includes water used directly in the mix and water used for curing. The cost
of water was calculated as cost of water needed per year divided by the
total production of blocks regardless of the block type. We estimated that
the plant owner would need 3 m3 for the production of 216 000 blocks. The
cost per m3 was estimated at 133 $US and thus the cost of water per block
and per 1 000 blocks was calculated accordingly.
10 cm block ingredients costs per 1 000 blocks, in USD
Year
Portland cement
One Ton of Sand
Number of bags
Cost per bag (50 kg)
Number of bags needed per 1000 block (10 cm)
Cost per 1 000 block
Sand and coarse aggregates
Cost per 1m3
Number needed for the production of 1 000 block
Cost per 1 000 block
Water
Cost per 1m3
Number of meters needed
Total cost per year
Cost per block
Cost per 1 000 block

72,00000
20,00000
3,60000
12,50000
45,00000

73,44000
20,00000
3,67200
12,50000
45,90000

74,90900
20,00000
3,74500
12,5000
46,81800

76,40700
20,00000
3,820000
12,50000
47,75400

77,93500
20,00000
3,89700
12,50000
48,70900

7,00000
2,00000
14,00000

7,14000
2,10000
14,99400

7,28300
2,20500
16,05900

7,42800
2,31500
17,19900

7,57700
2,43100
18,42000

133,33300
3,00000
400,00000
0,00185
1,85200

136,000
3,00000
408,00000
0,00189
1,88900

138,720000
3,00000
416,16000
0,00183
1,82900

141,49400
3,00000
424,48300
0,00173
1,73400

144,32400
3,00000
432,97300
0,00167
1,67000

The starting point for estimating the cost per 15 and 20 cm block was the unit

cost of a 10-cm block. We used 1,5 and 2 as multipliers for the conversion of
costs, except for water costs.
Products cost sheet, in USD
Year
10 cm block
Portland cement
Sand and coarse aggregates
Water
Cost of 1000 blocks
Cost per 10 cm block
15 cm block
Portland cement
Sand and coarse aggregates
Water
Cost of 1000 blocks
Cost per 15 cm block
20 cm block
Portland cement
Sand and coarse aggregates
Water
Cost of 1000 blocks
Cost per 20 cm block

45,000
14,000
1,852
60,852
0,061

45,900
14,994
1,889
62,783
0,063

46,818
16,059
1,829
64,706
0,065

47,754
17,199
1,734
66,687
0,067

48,709
18,420
1,670
68,799
0,069

67,500
21,000
1,852
90,352
0,090

68,850
22,491
1,889
93,230
0,093

70,227
24,088
1,829
96,144
0,096

71,632
25,798
1,734
99,164
0,099

73,064
27,630
1,670
102,364
0,102

90,000
28,000
1,852
119,852
0,120

91,800
29,988
1,889
123,677
0,124

93,636
32,117
1,829
127,582
0,128

95,509
34,397
1,734
131,640
0,132

97,419
36,840
1,670
135,929
0,136

The selling price per block changes with its size. It also changes if the blocks
need to be transported to the buyers premises or not.
Products sales prices, in USD
Year
10 cm block
Sale Price including delivery
Sale price without delivery
15 cm block
Sale Price including delivery
Sale price without delivery
20 cm block
Sale Price including delivery
Sale price without delivery

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0,200
0,170

0,206
0,175

0,212
0,177

0,214
0,179

0,216
0,180

0,300
0,255

0,309
0,263

0,318
0,265

0,321
0,268

0,325
0,271

0,400
0,340

0,412
0,350

0,424
0,354

0,429
0,357

0,433
0,361

Concrete blocks 10

We estimated that 85% of the sold blocks will be delivered to the buyers
premises, while only 15% will be delivered on the sellers premises.
We assumed that the production mix and sales mix is the same.
Production and sales mix, in USD
Year
10 cm block
15 cm block
20 cm block
Total I

1
50%
35%
15%
100%

2
50%
35%
15%
100%

3
50%
35%
15%
100%

4
45%
35%
20%
100%

5
45%
35%
20%
100%

We estimated that the plant will be producing 750 blocks in the first year over
288 days a year, which takes into consideration weekends and holidays. Also
we estimated that 10 cm blocks sale will amount to 50% of total sales, 15 cm
blocks sale will amount to 35% of total sales, and 20 cm blocks sale will
amount to 15% of total sales.
Sales mix, in USD
Year
Total Sales In Unit
10 cm block
10 cm block delivered
10 cm block without delivery
15 cm block
15 cm block delivered
15 cm block without delivery
20 cm block
20 cm block delivered
20 cm block without delivery
Total I

1
216 000
50%
85%
15%
35%
85%
15%
15%
85%
15%
100%

2
227 520
50%
85%
15%
35%
85%
15%
15%
85%
15%
100%

3
244 800
50%
85%
15%
35%
85%
15%
15%
85%
15%
100%

4
259 200
45%
85%
15%
35%
85%
15%
20%
85%
15%
100%

5
288 000
45%
85%
15%
35%
85%
15%
20%
85%
15%
100%

General and administrative expenses were estimated as follows:


General & Administrative Expenses, in USD
Year

Location rental (2000 m2)


Electricity
Mazout
Salaries
Maintenance of equipment
Molds
Molds, number of molds needed per year
Cost per mold
Miscellaneous expenses

3 000
600
8 400
2 400
1 000
2 400
30
80
500

3%
2%
3%
3%
5%
2%

3%
3%
3%
3%
5%
3%

3%
3%
3%
3%
5%
3%

3%
3%
3%
3%
5%
3%

2%

3%

3%

3%

The general and administrative expenses will increase over the years
according to the pattern shown in the table above.
Other variable costs
We assumed that some salaries will be considered as variable since these
workers will be hired if there is production. They take their fees daily. During
high season, the plant owner might hire extra workers to increase the supply of
blocks.
Two workers will be responsible for the block making and the mixing of
concrete.
Usually workers responsible for the block making take 17,5 $US-20 $US a
day, while the one responsible for the mixing takes 10 $US a day. We
assumed that the number of working days amount to 288 days taking into
consideration the weekends (52) and holidays (25) and we assumed that on
average the day rate amounts to 15 $US, and that the plant owner would need
two employees.
Other variable costs, in USD
Salaries
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5%

5%

5%

5%
Concrete blocks 11

Balance sheet parameters, in USD


Year
A/R, days sales outstanding
Accounts Payable, days in payables
Inventory

1
30
60
30

30
60
30

30
60
30

30
60
30

30
60
30

Other
We assumed that the owner will be taking dividend instead of a salary.
Year
Tax
Dividends paid

2
15%
30%

3
70%

4
70%

5
90%

100%

Equipment, license and installations:


Cost of equipment, license and installation, in USD
Year
Mixer
Block semiautomatic presser
Block weight
Generator
Water tank
Mazout tank
Total cost of equipment, license and installation
Useful life, years
5
Annual Depreciation

1
2 700
2 000
100
3 000
500
500
9 875

Year
Bucket
Rail for bucket
Sand cart
Mix cart
Flat cart
License

1
50
75
50
100
300
500

1 975

We estimated that 9 000 $US will be taken as a loan, and the remainder will
be injected by the owner.
Total Investment, in USD
Year
Working capital needs
Accounts receivable
Inventory
Accounts payable
Working capital needs (I)
Total cost of equipment & installation (II)
Total investment US$ (I)+(II)
Owners capital contribution
Loan Amount
Interest
8,5%
Period, number of years
2
Number of annuities
24
Monthly payment

1
4 599
4 599
2 842
6 356
9 875
16 231
7 231
9 000

409

5-1 Loan Repayment Schedule, in USD


This table illustrates the reimbursement of the loan in equal payments, which are
calculated on the basis of equal payments and constant interest rate. The loan amounts
to 9 000 $US. It will be repaid within two years in monthly equal payments.
Month
0
1
2
3
4
5
6
7
8
9
10
11
12

Equal
Payments

Monthly
Interest

Repayment of
principal

409
409
409
409
409
409
409
409
409
409
409
409

64
61
59
56
54
51
49
46
44
41
38
36

345
348
350
353
355
358
360
363
365
368
371
373

Summary
Interest Expense
Repayment of Principal

ILDES

Outstanding
Balance
9 000
8 655
8 307
7 957
7 604
7 249
6 891
6 531
6 168
5 803
5 435
5 064
4 691

Month

Year 1
599
4 310

13
14
15
16
17
18
19
20
21
22
23
24

Equal
Payments
409
409
409
409
409
409
409
409
409
409
409
409
9 816

Year 2
217
4 690

Monthly
Interest
33
30
28
25
22
20
17
14
11
8
6
3
816

Repayment Outstanding
of principal
Balance
376
4 315
379
3 936
381
3 555
384
3 171
387
2 784
389
2 395
392
2 003
395
1 608
398
1 210
401
809
403
406
406
0
9 000

Total
816
9 000

Concrete blocks 12

5-2 Projected Income Statement


Sales Revenues relate to the sales of 10 cm, 15 cm and 20 cm blocks. We
estimated that 750 blocks per day are being produced in the first year.
Table no 3- Projected Income Statement, in USD
Year
Sales Revenues
10 cm block
15 cm block
20 cm block
Total Sales Revenues
% Increase in Sales
Direct Variable Costs
10 cm block
15 cm block
20 cm block
Salaries
Total cost of goods sold=VC
Gross Profit Margin =S-VC
Profit Margin
General and Administrative expenses
Rent
Electricity
Mazout
Salaries
Depreciation
Maintenance
Molds
Other expenses
Total Fixed Costs
as a % of Total Revenue
Interest Expenses
Earnings Before Income Tax
Increase Net Income before Tax
Tax
Net Income
Net Profit Margin
Increase Net Income after Tax

21 114
22 170
12 668
55 952

22 907
24 053
13 744
60 704
8%

25 322
26 588
15 193
67 103
11%

24 372
28 434
21 664
74 470
11%

27 351
31 909
24 312
83 572
12%

6 572
6 831
3 883
8 640
25 926
30 026
54%

7 142
7 424
4 221
9 072
27 859
32 845
54%

7 920
8 238
4 685
9 526
30 369
36 734
55%

7 778
8 996
6 824
10 002
33 600
40 870
55%

8 916
10 318
7 830
10 502
37 566
46 006
55%

3 000
600
8 400
2 400
1 975
1 000
2 400
500
20 275
36%
600
9 151

3 090
612
8 652
2 472
1 975
1 050
2 448
510
20 809
34%
219
11 817
29%
1 773
10 044
17%
29%

3 183
630
8 912
2 546
1 975
1 103
2 521
525
21 395
32%

3 278
649
9 179
2 623
1 975
1 158
2 597
541
22 000
30%

3 377
669
9 454
2 701
1 975
1 216
2 675
557
22 624
27%

15 339
30%
2 301
13 038
19%
30%

18 870
23%
2 830
16 040
22%
23%

23 382
24%
3 507
19 875
24%
24%

1 373
7 778
14%

5-2-1 Statement of Retained Earning

Statement of Retained earning includes the beginning retained earnings, net


income and dividends paid. They were calculated based on table 3-1 and table 1.
Table 3-1 Statement of Retained Earnings, in USD
Year
Beginning Retained Earnings
Net income
Adjustment
Dividends Paid
Ending Retained Earnings

0
7 779

5445
1 0045

8 459
13 040

4
12 371
16 039

5
13 974
19 874

2 334
5 445

7 031
8 459

9 128
12 371

14 435
13 975

19 874
13 974

5-3 Projected Balance Sheet


Inventories, accounts receivable and accounts payable were calculated using the
number of days outstanding :
We estimated days sales in accounts receivable (A/R) and inventory amount to
30 days.
Outstanding A/R = (Total Annual Sales) x (Days Sales Outstanding/365)

Days sales in accounts payable (A/P) were estimated at 60 days in the first year,
which represent the time necessary for the plant owner to settle his accounts.
Outstanding A/P = (Cost of Goods Sold Direct Labor Costs) x (Days in Payables/365)

Capital injected was estimated at 7 231 $US.


Ending cash balance was derived as follow:
Cash =Total Assets A/R Inventory Net Fixed Assets
ILDES

Concrete blocks 13

Cash at year-end represents cash that could be used to finance any replacement
of defected equipment or additions to equipment.
The recorded amount of 4 691 under the loan caption at the end of the first
year represents the outstanding amount after the repayment of 12 annuities.
The outstanding amount at the end of the second year is 0 due to the total
reimbursement of the loan by that date.
Table 4- Projected Balance Sheet
Year
Assets
Cash
Accounts Receivable
Inventories
Net Fixed Assets
Equipment, license and installations
Accumulated depreciation
Total Assets
Liabilities
Accounts Payable
Loan
Total Liabilities
Owners' equity
Capital
Retained Earning
Total Owners Equity & Liabilities

3 111 2 874 8 047 10 868 11 917


4 599 4 989 5 515 6 121 6 869
4 599 4 989 5 515 6 121 6 869
7 900 5 925 3 950 1 975
0
9 875 9 875 9 875 9 875 9 875
1 975 3 950 5 925 7 900 9 875
20 209 18 778 23 028 25 085 25 654
2 842
4 691
7 533

3 088
0
3 088

3 426
0
3 426

3 879
0
3 879

4 449
0
4 449

7 231 7 231 7 231 7 231 7 231


5 445 8 459 12 371 13 975 13 974
20 209 18 778 23 028 25 085 25 654

5-4 Projected Cash Flow


Projected cash flow was calculated over a five years basis. We used the indirect
method, which adds all non-cash basis items to net income.
First, to Net Income has been added back those expenses, previously deducted to
arrive at Net Income, that did not require an outlay of cash in that year. These include
depreciation which is simply a write-down of the book value of the related assets.
Operating activities included net income, depreciation, accounts receivable,
accounts payable, and inventory.
Investing activities includes the cost of equipment purchased
Financing activities included cash contribution made by investors, the loan
amount, the reimbursement of the loan and dividends paid.
Table 5- projected Cash flow, in USD
Year
Net Income
Add : Depreciation
Changes in Accounts Receivables
Changes in Accounts Payable (A/P)
Changes in Inventory
Total Cash from Operating Activities
Capital Expenditure
Total Cash from Investing Activities
Capital Injection
Loan
Loan Reimbursement
Dividends Paid
Total Cash from Financing Activities
Cash at beginning of year
Changes in Cash
Cash at end of Year

1
7 779
1 975
-4 599
2 842
-4599
3 398
-9 875
-9 875
7 231
9 000
-4 309
2 334
9 588
0
3 111
3 111

2
10 045
1 975
391
247
-391
11 485

3
13 040
1 975
-526
338
-526
14 301

4
16 039
1 975
-605
453
-605
17 256

5
19 874
1 975
-748
570
-748
20 923

-4 691
-7 031
-11 722
3 111
-236
2 875

0
-9 128
-9 128
2 875
5 173
8 048

0
-14 435
-14 435
8 048
2 821
10 869

0
-19 874
-19 874
10 869
1 048
11 917

5-5 Break Even Analysis


This table assists us in predicting the effect of changes in costs and -sales
revenue- on profitability.
Total units to breakeven were obtained by applying the breakeven formula:
(Total Fixed costs + Interest expense) / weighted contribution margin
ILDES

Concrete blocks 14

Weighted contribution margin = Sum (weight of each item x contribution


margin).
Contribution margin = Sales Price - Cost.
Weight = number of units sold / total units sold.
The resulting breakeven units constitute the number of unit that should be sold
to cover all costs. Should sales be lower than the breakeven point, a loss would
be incurred.
Table 6-1- Break-even analysis, in USD
Year
Total Sales
Total Variable costs
Total Fixed costs (G&A)
Breakeven sales volume FC/(S-VC)/S
Contribution Margin & Weight per product
10 cm block
Units
Weight
Contribution Margin
15 cm block
Units
Weight
Contribution Margin
20 cm block
Units
Weight
Contribution Margin
Total Units
Composite Contribution Margin
Composite Units to Breakeven

1
55 952,00
25 926,00
20 275,00
38 899,00

2
60 704,00
27 859,00
20 809,00
38 863,00

3
67 104,00
30 368,00
21 395,00
39 081,00

4
74 470,00
33 601,00
22 000,00
40 087,00

5
83 571,00
37 566,00
22 624,00
41 097,00

108 000,00
50%
0,13

108 000,00
50%
0,14

113 760,00
50%
0,14

110 160,00
45%
0,14

116 640,00
45%
0,14

75600
35%
0,20

75 600,00
35%
0,20

79 632,00
35%
0,21

85 680,00
35%
0,21

90 720,00
35%
0,21

32400,00
15%
0,27
216 000,00
0,18
114 250,00

32 400,00
15%
0,28
216 000,00
0,18
113 937,00

34 128,00
15%
0,29
227 520,00
0,19
114 213,00

48 960,00
20%
0,29
244 800,00
0,19
113 076,00

51 840,00
20%
0,29
259 200,00
0,19
116 350,00

Units to Breakeven, in USD


Year
10 cm block
15 cm block
20 cm block

1
57 125
39 987
17 137

2
56 968
39 878
17 090

3
57 106
39 975
17 132

4
50 884
39 577
22 615

5
52 358
40 723
23 270

5-6 Sensitivity Analysis


Our Sensitivity Analysis projects multiple scenarios : an optimistic, best case,
scenario, the budgeted, most likely, scenario and a pessimistic, worst case, scenario.
We effected the outcome of the projections by the percentages of changes in the
Services Revenues in the first scenario, in the second scenario we effected the outcome
of the projections by deducting the rental expense.
The first scenario shows an increase of 33% in net income at 110% increase of
sales revenue, and a decrease of 33% at 90% of sale revenues.
The second scenario shows an increase of 25% in net income assuming sales
revenues increased to 110%, and a decrease of 25% when sales revenue decrease to
90% of sales.
Table 7- Sensitivity Analysis, in USD

Sales Revenues
Total cost of goods sold=VC
Gross Profit Margin =S-VC
Total Fixed Costs
Interest Expenses
Net Income before Tax
Tax
Net Income after Taxes

ILDES

Scenario 1
Year 1
90%
100%
50 357
55 952
23 333
25 926
27 024
30 026
20 275
20 275
600
600
6 149
9 152
922
1 373
5 227
7 779
-33%

110%
61 547
28 518
33 029
20 275
600
12 154
1 823
10 331
33%

90%
50 357
23 333
27 024
17 275
600
9 149
1 372
7 777
-25%

Scenario 2
Year 1
100%
55 952
25 926
30 026
17 275
600
12 152
1 823
10 329

110%
61 547
28 518
33 029
17 275
600
15 154
2 273
12 881
25%

Concrete blocks 15

6- Key success factors and recommendations


In order to achieve the projected results, the concrete block owner should focus on:
Emphasizing sales where greater profit margins, shorter payment delays and
greater opportunities are achievable.
Creating alliances with several subcontractors in order to expand its market
and achieve higher returns.
Counting on family members for labor resources.
Setting aside funds for replacements and additions of equipment.
Defining a pricing method so that each unit produced can be properly
measured.

7- Conclusion
Success in the concrete marketplace can only be achieved by cutting down costs
in order to achieve higher profit margins. The ownership of a land will help increase
net income of the first scenario of 7 779 $US to 10 329 $US in the second scenario,
which represents an increase of 33%. On the other hand the location is critical to the
success of the project, as it would have greater chances for success if it was located
within a region under construction. This will ensure openings with lesser efforts.
However, the seller may suffer from collection problems, as most of the buyers are
somehow relatives, friends, or acquaintances. Actually, this is very common in our
context, and most often discourages people from undertaking business, involving
credit sales, within their locality.

ILDES

Concrete blocks 16

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