Business plan of investment project “Production of hardwood sawn veneer”
APPROVE:
Sole Entrepreneur
A.V. Koriagin
2016
Copy No.
of copies
BUSINESS PLAN
OF INVESTMENT PROJECT
“Production of hardwood sawn veneer”
TABLE OF CONTENTS
1 SUMMARY
2 BRIEF DESCRIPTION OF THE SITE
2.1 Project concept
2.2 Construction site specification
2.3 Technology solutions
2.4 Production equipment
2.5 Energy supplies
2.6 Environment site assessment
2.7 Capital investments estimate
3 PRODUCT SPECIFICATION
3.1 Roundwood
3.2 Key sawn veneer specifications
3.3 Quality assurance
4 MARKET ANALYSIS
4.1 Belarusian forestry overview
4.2 General overview of global hardwood sawn veneer market
5 PRODUCTION SCHEDULE
5.1 Production procurement
5.2 Production and sales schedule
5.3 Production and sales costs
6 ORGANIZATION PLAN
6.1 Staff
7 INVESTMENT SCHEDULE
7.1 Project investments
7.2 Project funding sources
8 FINANCIAL AND ECONOMIC FORECAST
8.2 Tax environment
8.3 Financial and economic performance
9 PROJECT EFFICIENCY INDICATORS
9.1 Investment performance indicators
9.2 Project sensitivity analysis
9.3 Company internal and external environment analysis
1 SUMMARY
Project objectives
This business project is intended to establish production of hardwood sawn veneer.
Expected annual output – 240000 m2 of sawn veneer.
The future production facility is to occupy an existing building on a client’s industrial site in Lel’chitsy town.
Technology features
Sawn veneer is to be made of whole section hardwood timber (oak, ash, hornbeam, etc.), Ø25cm and bigger.
Roundwood is to be purchased at forestry enterprises of Gomel State Forestry Association and to be delivered to the production facility by own transport. Average shipment distance is 30km.
Prime materials consumption is estimated for a production plan of 300m3 monthly (3600m3 yearly).
Hardwood production process is a serial production of a single product type in significant volume and in high-production environment.
Market analysis
Belarus is rich in forest resources with 108m3of forest stand per capita. It is manyfold as much as almost everywhere in Europe. Therefore, it is quite natural to have mature woodworking industry here. Most of Belarusian woodworking products are exported, i.e. the industry is evidently export-oriented.
Global sawn veneer market in physical terms is dominated by hardwood (48%). Softwood sawn veneer takes about one-third (33%) of the market, while tropical wood – only 19%.
Hardwood sawn veneer import exceeds export in Germany by 25-30% in physical terms. In 2015 sawn veneer export amounted to 32.6 thousand tons (+17.2% against 2014) for 147.6 mln USD (-10.5% against 2014), while sawn veneer import amounted to 40.6 thousand tons (+19.2% against 2014) for 122.5 mln USD (-1.3% against 2014). Belarusian export to Germany dropped drastically from 115.8 tons (0.3% of total German import in physical terms) in 2014 to 2.3 tons (0.006%of total German import in physical terms) in 2015.
Hardwood sawn veneer import exceeds export in Austria, as well, 2-2.2 times in physical terms. In 2014sawn veneer export amounted to 8.6 thousand tons (-14.2% against 2013) for 44.7 mln USD (-5.4% against 2013), while sawn veneer import amounted to 19.3 thousand tons (-2.2% against 2013) for 79.8 mln USD (+2.9% against 2013). In 2014 Belarus exported insignificant 0.7 tons of hardwood sawn veneer to Austria (0.004% of total Austrian import in physical terms).
This project implies sawn veneer export to Germany and Austria through a German intermediary capable of selling over 1200000 m2 of sawn veneer annually. Annual sales volume under the project shall be 240000 m2 since 2018, i.e. approximately 20% of actual intermediary’s sales capacity, or 1304.8 tons that is about 2.2% of total hardwood sawn veneer import into Germany and Austria. Consequently, the project is feasible and promising.
Input data for the project
Financial performance indicators of the hardwood sawn veneer production project were calculated with regard to the current economic conditions of Belarus, applicable laws, currency and price control, tax environment, investment consumption, funding sources and terms of raising thereof.
Financial and economic performance estimate is given in Annex 1 hereto.
See business plan input data in Table 1.1.
Table 1.1 – Input data for the project
Input data / Value1. Estimate scope / 4years (2016-2019)
2. Estimate table data spacing / 1 year
4. Project calculation unit / USD
5. National currency (Br) exchange rate set by the National Bank of Belarus on 09.08.2016 / 1 USD = 1.9662 BYN
1 EUR = 2.1831 BYN
6. Estimate date / 09.08.2016
Project investment outlay
Total project investment outlay amounts to 1557207.5 USD. It is the total of capital investments including VAT for the project implementation period (see Table 1.2).
Table 1.2 – Total project investments
Investment item / Unit / Total / 2016 / 20171. Capital investments (VAT excl.) / USD / 1421542.9 / 1243440.9 / 178102.0
Civil and erection works / USD / 949820.0 / 949820.0 / 0.0
Machinery and equipment / USD / 401 722.9 / 263 620.9 / 138 102.0
Other costs / USD / 70 000.0 / 30 000.0 / 40 000.0
2. VAT on capital investments / USD / 135 664.6 / 100 044.2 / 35 620.4
Total investment outlay including VAT / USD / 1 557 207.5 / 1 343 485.1 / 213 722.4
Capital investments here are estimated on the basis of experience of operating equipment by various vendors and performance specifications thereof.
Project funding sources
The investment project shall be funded by both equity funds (authorized capital) and investor’s contribution. Overall investment sources, breakdown and application thereof are given in Table 1.3.
Table 1.3 – Overall investment sources
Overall investment sources / Project total, USD / Share / ApplicationBorrowed funds / 813 987.5 / 52.3% / Funding capital investments
Equity funds / 743 220.0 / 47.7% / Production facility (contribution to authorized fund)
Total overall investment sources / 1 557 207.5 / 100% / ×
The project implies investor’s loan in amount of 813987.5 USD to fund civil and erection works in part, equipment purchase and other project expenses. The funds are to be raised in 2016-2017 on interest-free basis. The loan is to be repaid since production launch in March 2017 till the end of 2018.
Economic efficiency analysis
The investment project shall result in a profitable object with yearly mean net profit equal to 631339.1 USD.
Social impact of the project: 39 new workplaces with wage level competitive in the labour market (average wage assumed equal to 551.3 USD).
Cash flow analysis reflects cash flows relevant to each company’s activity (operational, investment and financial) and proves financial feasibility of the project indicated by positive cash balance within the estimate scope (2016 to 2019) that allows reserving funds for further development of the company.
Investment efficiency estimate is based on comparison between expected net profit from the project and project investments. Such comparison includes net cash flow calculation being the basis for key investment performance indicators (KPI) estimate. Investment KPIs are determined with weighted average discount rate.
Investment efficiency indicators are given in Table 1.4.
Table 1.4 – Investment KPIs
Indicator / Unit / ValueNet present value (NPV) / USD / 135581.3
Internal rate of return (IRR) / % / 14.16%
Profitability index (PI) / - / 1.10
Payback period since capital investments / year / 2.4
Discounted payback period since capital investments / year / 2.7
A project is efficient if NPV ≥ 0, IRR ≥ discount rate, and IP ≥ 1.
This project has proved to be efficient and recoupable according to analysis by the indicators above.
Table 1.5 – Project performance summary
Indicators / Unit / Total / 2016 / 2017 / 2018 / 20191. Overall investments / USD / 1 557 207.5 / 1 343 485.1 / 213 722.4 / 0.0 / 0.0
1.1. capitalinvestments, VATexcluded (investmentprojectvalue) / USD / 1 421 542.9 / 1 243 440.9 / 178 102.0 / 0.0 / 0.0
1.2. VAT on capital investments / USD / 135 664.6 / 100 044.2 / 35 620.4 / 0.0 / 0.0
1.3. net working capital increment / USD / 0.0 / 0.0 / 0.0 / 0.0 / 0.0
2. Charges on loans related to capital investments / USD / 0.0 / 0.0 / 0.0 / 0.0 / 0.0
3. Overall investment sources: / USD / 1 557 207.5 / 1 343 485.1 / 213 722.4 / 0.0 / 0.0
3.1. equity funds / USD / 743 220.0 / 743 220.0 / 0.0 / 0.0 / 0.0
3.2. borrowed and raised funds / USD / 813 987.5 / 600 265.1 / 213 722.4 / 0.0 / 0.0
3.3. state participation / USD / 0.0 / 0.0 / 0.0 / 0.0 / 0.0
4. Equity share in investments, % / % / 47.7% / × / × / × / ×
5. Year to reach rated output capacity / 2 018
6. Product sales revenue / USD / × / 0.0 / 1 744 768.2 / 2 093 721.7 / 2 093 721.7
6.1. Sales revenue (VAT excl.) / USD / × / 0.0 / 1 744 768.2 / 2 093 721.7 / 2 093 721.7
7. Average staff / person / × / 0 / 39 / 39 / 39
8. Newly created and (or) updated workplace / person / 0 / 0 / 0 / 0 / 0
8.1 including high-production workplaces / person / 0 / 0 / 0 / 0 / 0
9. Salesrevenue (VATexcl.) per employee / USD / × / 0.0 / 44 737.6 / 53 685.2 / 53 685.2
10. Export share / % / × / 0.0% / 99.7% / 99.7% / 99.7%
11. Project performance indicators:
11.1. payback period / year / 2.4 / × / × / × / ×
11.2. discountedpaybackperiod / year / 2.7 / × / × / × / ×
11.3. net present value / USD / 135 581.3 / × / × / × / ×
11.4. internal rate of return / % / 14.2% / × / × / × / ×
11.5. profitability index / 1.10 / × / × / × / ×
11.6. breakeven point / % / × / - / 40% / 40% / 40%
11.7. debtcoverageratio / × / - / 0.9 / 3.0 / -
11.8. added value per employee / USD / × / - / 26016 / 31219 / 31219
11.9. payroll costs in relation to added value / % / × / - / 0.21 / 0.21 / 0.21
11.10.salesprofitability (bysalesprofit) / % / × / - / 31.9% / 31.9% / 31.9%
11.11. productprofitability(bysalesprofit) / % / × / - / 46.9% / 46.9% / 46.9%
2 BRIEF DESCRIPTION OF THE SITE
2.1 Project concept
This business project was initiated by sole entrepreneur A.V. Koriagin in order to substantiate basic technical solutions and economic efficiency of investment project “Production of hardwood sawn veneer”.
According to the investment design, the project is going to be implemented at the proper industrial base in Lel’chitsy town, Gomel Region. A 1.8ha site accommodates a single-storey industrial building of 7400 sq.m and a two-storey office annexe of 858 sq.m. The site is located close to prime material base, features well developed civil engineering and transport infrastructure and access to available labour force.
Expected hardwood product range:
-Sawn veneer sheet 3.6 × 205.5 × 2400 mm
-Sawn veneer sheet 2.8 × 167.0 × 2200 mm
-Sawn veneer sheet 2.8 × 167.0 × 1090 mm
-Sawn veneer sheet 3.6 × 167.0 × 1098 mm
-Sawn veneer sheet 3.6 × 205.5 × 1198 mm
Expected annual output – 240000 m2 of sawn veneer.
2.2 Construction site specification
The facility is to seat in an existing building at the industrial site in Lel’chitsy, property of the client.
The industrial site is reached with approach public paved roads.
The building is permanent, based on column grid 6×12 m, designed in three spaces:
- 38×48.65×12.3 (h) m
- 114.08×48.65×7.57 (h) m
- 858 m2 (a two-storey office and utility annexe)
Total area of the building – 9 116 sq.m, including 7400 sq.m of production area.
6 separated load handling ramps with gates are designed on building perimeter.
Process equipment is allocated with regard to available height and upgrade potential.
The project includes all-around planting and development of adjacent area in order to create favourable and comfortable aesthetic ambient on the site under design with regard to its application:
-Paving main walking directions, constructing approach roads, drives, parking lots.
-Site planting provides for gardens of annual and perennial plants, flowerbeds, coniferous and bloomy bushes and trees seeded in rows and groups.
Approach and passage roads are designed 5.5m wide.
2.3 Technology solutions
Sawn veneer sheet is produced of whole section hardwood (oak, ash, hornbeam, etc.), Ø25cm and bigger.
Roundwood is to be purchased at forestry enterprises of Gomel State Forestry Association and to be delivered to the production facility by own transport. Average shipment distance is 30km.
Prime materials consumption is estimated for a production plan of 300m3 monthly (3600m3 yearly).
Hardwood production process is a serial production of a single product type in significant volume and in high-production environment.
The production process includes 3 stages:
-Preparation
-Processing
-Final stage
Preparation stage comprises the following mechanized operations:
-Roundwood stocking at the warehouse
-Log feeding to machine input
-Log cutting into stuff
Processing stage comprises the following operations in order to ensure final shape of the product:
-Making duly sized edged boards
-Drying
-Size grading
-Trimming work
-Sorting
Final production stage is product stocking by dimension types and packing for delivery to the customer.
Preparation
Roundwood is cut into unedged boards 28mm thick using high-production horizontal bend saw bench. The unedged boards are further cut with an edge-trimming machine to the desired size and trimmed with a trimmer.
See edged board yield from wood grade II in Table 2.1.
Table 2.1 – Edged board yield from wood grade II
Item / Output, m3/year / Yield, %Total roundwood / 3600 / 100.0
1. Saw timber / 1962 / 54.5
2. Waste / 936 / 26.0
including commercial slab / 60.8 / 6.5
3. Sawdust / 486 / 13.5
4. Losses / 216 / 6.0
Processing stage
Edged boards are dried to reduce moist content to 8% in convection drying chambers capable of drying up to 60m3.
Fuel: woodworking waste, sawdust.
Convection drying chamber benefits: easy operation, handy maintenance, relatively low purchase and maintenance costs.
See drying chamber specifications in Table 2.2.
Table 2.2 – Drying chamber specifications
Parameter / ValueChamber type / External, convective, air-heating, with horizontal fans
Wood type / Hardwood, softwood
Saw timber / Edged pieces, unedged boards 10mm to 60mm thick
Input moist content / Up to 80%
Output moist content / 8±2%
Outer dimensions, W×D×H, m / 7.0×7.3×5.4 (standard)
Inner dimensions, W×D×H, m / 6.6×7.1×4.0 (standard)
Construction structure / Self-supporting, frame-and-panel, corrosion-proof make, aluminium bearing structures. Aluminium inner and outer lining.
Stainless steel fasteners.
Coefficient of heat conductivity, W/m2°C / 0.037
Maximum snow load, kg/m2 / 220
Wind load, km/h / 120
Feeding / Front load with a fork loader
Gate type / Sliding upwards, manually driven
Heat carrier / Water
Heat carrier temperature / 85-90°C
Heat carrier supply pressure, bar / Max. 3
Heat exchanger / Aluminium, stainless steel
Fans / Aluminium impeller, Ø800mm, dynamically balanced reversible fans, No.4 per chamber, power 3kW, capacity 30000 m3/h
Air circulation velocity in a stack / 3 m/s
Electric motor type / Reversible
Engine make / Class H, protection grade IP 65
Drying process control / Automatic, intervention in progress is allowed
Saw timber drying time at 40-50°C – 40 days.
Rotation speed: 360 days / 40 = 9 revolutions/year.
Drying chamber productivity at 60m3 capacity:
60m3 × 9 = 540 m3/year
Required number of drying chambers – 1920 m3/year / 540 = 3.6 units. 3 chambers are assumed.
Heat consumption by a chamber is assumed equal to similar equipment: 3 kWh/m3 while warming-up, 1.2 kWh/m3 while maintaining temperature. Heat load – 140 kW (0.120 Gcal/h).
The power plant shall be fuelled with sawdust. Sawdust consumption by a drying chamber is 6.0 m3/day in bulk volume or 2.15 m3 compacted.
Dry edged boards shall be precisely sized using a sizer-grinder. Sized dry boards shall be further cut into sawn veneer 2.8mm to 3.6mm thick at a multirip bench.
Final stage
Sawn veneer shall be sorted by quality, packed in bags at a special bench, and transferred to a warehouse. Production output shall be 20000 m3 monthly (240000 m3 yearly).
The production process is environmentally friendly being based on electric power and green prime materials. Production waste (sawdust, etc.) shall be collected in dedicated areas and used as fuel for drying chambers and for heating rooms in winter.
Commercial slab shall be processed into lath used in finishing works, moulding, etc.
2.4 Production equipment
The project shall be furnished with equipment by various vendors according to its specifications and operation experience.
List and key specifications of woodworking machines, drying and handling equipment are given in Table 2.3.
Table 2.3 – List and key specifications of woodworking machines, drying and handling equipment
Item / Q-ty / Model, type / Specification / Price, USD1. Convection drying chamber / 4 / Arline, LLC / V = 60×3 = 180 m3
N = 15×3 = 45 kW / 93 000
2. Saw bench / 1 / DSG Notum / N=15 kW / 124335.2
3. Automatic-feed horizontal bend saw bench / 1 / Wood-MizerLT-40 / Q=12 m3/shift
N = 14.55 kW / 22206.3
4. Slab processing machine / 1 / PQ-35 / Q= 4-6 m3/shift
N= 8 kW / 2509.3
5. Saw filing and setting machine / 1 / RRP-60 / N = 0.06 kW / 1376.8
6. Edge trimmer / 1 / RMHCV-1 / N = 25.5 kW / 15877.5
7. Cross-cutter / 1 / KGS 301 / N = 1.6 kW / 3608.5
8. Sizer-grinder / 1 / SR-RP950 / N = 8.05 kW
V = 18 m/min / 22428.3
9. Fork loader / 1 / Still / Q = 1.6 t / 11103.1
10. Packing machine / 1 / MP-ZDP / Q = 12 m3/cm
N = 13.5 kW / 7550.1
11. Load-haul-dump machine / 1 / MPT-461.1 / 33309.4
12. Lumber/assortment tractor / 1 / MAZ 6303 / V = 20 m3 / 55515.7
13. Passenger vehicle / 1 / Niva / 8882.5
Total / 401722.9
Woodworking machines listed above show high performance and processing quality. Saw bench by DSG Notum (Austria) is the core equipment featuring sawn veneer output capacity of 450m2 per shift (8 hours), or 18900-22000 m2 annually in double-shift operation mode according to sawn veneer thickness.
Horizontal bend saw bench Wood-Mizer DT-40 is intended to cut logs and to make high-quality saw timber.
Machine options on demand:
-Log feeder
-Bend saw filing unit and bend saw setting gear
-Bark mill
-Hydraulic canter
-Leveler
-Control board
Double-saw edge trimmer features software capable of memorizing up to 8 processing modes to be recalled with only one button pressed. Infinite feed speed adjustment allows setting the desired speed and prevents engine overload.
Straight-through packing machine MP-ZDP is intended to pack long products (lining board, skirting board, molded board, etc.) into heat-shrink film.
The machine consists of roller conveyor, thermal chamber and thermal cutter.
The equipment list above is a minimum facility configuration to ensure desired output and product quality.
2.5 Energy supplies
Heat supply
HVAC systems, hot-water supply and production process are provided with heat by a complete boiler plant by GSKB, Brest. Capacity – 1.1 MW. Fuel – sawdust, woodworking waste. Fuel consumption – 11900 m3/year (bulk volume).
Water at 105-70°C is the heat carrier in the heat supply system.
Water at 95-70°C is the heat carrier in the heating system.
All rooms and compartments shall be provided with two-pipe adjustable hot-water heating system.
Heating devices are represented by steel wall radiators.
Thermostatic valves upstreamthe heatersensure adjustment.
Ventilation
The shopfloor shall be covered with forced supply-and-exhaust ventilation. Air exchange in the area is estimated to assimilate emitted pollutants, dust, heat and moist and in compliance with air circulation rate regulations.
Air-supply plants shall be mounted in a plenum. Air recirculation is not designed. P1V1 plant with cross flow heat recovery unit is provided in order to reduce heat consumption for ventilation.
Woodworking machines shall be provided with dust separation units and local suction in close vicinity of the machinery in order to remove dry noncoherent dust, to clean contaminated air and to return it into the area during wood processing. Such equipment reduces heat losses and saves up to 40% of electric power if to compare with common plenum ventilation.
Smoke extraction
Smoke ventilation system shall be available in order to extract smoke through an electromechanical smoke extraction valve.
The smoke extraction system shall feature an extraction fan capable of removing fire gases at 400°C within 120 min. The smoke extraction fan shall be mounted on the roof.
Smoke extraction ducts shall be made of welded roof steel sheets 1mm thick as per GOST 19904-90, grade P (solid), with no detachable joints, coated with flame-retardant compound to ensure EI 30 fire-resistance rating.
Water supply and disposal
The design project describes both external and internal water supply and disposal systems.
Water shall comply with sanitary and hygiene regulations SanPiN 10-124 BY99.
Water supply and disposal systems shall be designed according to water quality requirements and waste water pollutants.
The project stipulates the following water supply and disposal systems:
-Potable and domestic water pipelines combined with fire mains
-Hot-water supply and circulation system