1. SUMMARY OF THE PROJECT
The purpose of the project is the organization of a manufacturing enterprise in Krasnodar. Products - plastic windows. Distribution channels: construction organizations, dealer network, construction goods stores. Price segment - economy.
Despite the difficult economic situation in the country, the slowdown in the rate of new construction and the decline in the market of window and door structures, the project has significant prospects due to the atypical business model for this market. Sales costs are minimized due to the lack of their own physical retail distribution network; operating costs are reduced due to the optimization of stock and the lack of own assembly teams, project sales and an affiliate (dealer) network are actively used. In addition, a new distribution channel is used for this segment - construction goods stores.
Table 1. Project performance indicators
Discount rate (r), % | 7% |
Discount rate (r-month), % | 0.565% |
Payback period (PP), months | 7 |
Discount payback period (DPP), months | 7 |
Net present value (NPV), rub. | 2 562 966 |
Return on Investment (ARR), % | 18.34% |
Internal rate of return (IRR), % | 16.13% |
Profitability Index (PI) | 1.43 |
2. COMPANY DESCRIPTION AND INDUSTRY
Since the project relates to construction infrastructure, it is advisable to consider such interconnected markets as: the construction market, the market for building materials and the market for translucent structures.
According to IndexBox, the construction materials market in the first half of 2016 was subject to the following influences:
reduction in residential construction (-16% over the same period last year)
some growth in non-residential construction (+ 3% over the same period last year)
decrease in production of basic building materials (-8% over the same period last year)
growth in production of finishing materials (+ 5% over the same period last year)
decrease in investment in construction (-1.6% by 2015)
Since December 2014, there has been a permanent decline in sales in the primary housing market. During this time, sales fell by about 30-35%. The largest decline in housing construction was observed in February 2016, after which there is a gradual increase in this indicator. The decline in sales was primarily caused by a decrease in the number of people who purchased real estate for their own savings. To improve the investment background in the industry, the state has taken a number of measures to stimulate the housing market (subsidy programs).
In non-residential construction, the volume of construction of commercial real estate decreased, the share of agricultural and industrial buildings increased (Fig. 1).
Against the background of a decline in real incomes, there is a shift in demand towards building materials of a low price segment.
Figure 1. The structure of commissioning of non-residential real estate by type in the I quarter of 2015 - I quarter. 2016 (data from Rosstat, IndexBox)
Traditionally, more than 60% of investments in fixed assets in Russia belong to the construction industry. At the same time, there is a growth trend of this indicator in a crisis. In 2015, 5, 945.5 billion rubles were invested in the construction industry. According to the forecasts of the Ministry of Economic Development, a positive value of investment indicators in the industry should be expected in 2017; expected growth rate in 2017-2019 - 2.7% per year.
The driver of growth (decrease in the rate of decline) in sales of construction raw materials and materials was the increase in the volume of repair work against the background of a decrease in construction volumes.
Figure 2. Dynamics of production of basic building and finishing materials in the 1st half of 2015 - the 1st half of 2016 (data from Rosstat, IndexBox)
The share of imported components (primarily PVC profiles) in the plastic window market (according to O.K.N.A.-marketing) has dropped significantly - from 35% in 2006 to 2% in 2015. According to experts, the most likely scenario for the development of the market in 2016 is its fall within 15%.
Competition in the industry today is relatively low due to the small number of players and established spheres of influence.
Figure 3. Dynamics of the plastic window market in Russia in 2006–205, mln. m
According to experts, the following trends should be expected in the coming years:
the most attractive segment for manufacturers of building materials are building materials that can be used for repair - repair work is carried out by the population constantly, regardless of the state of the economy; demand is shifting towards the low price segment;
the weakening of the national currency will lead to an increase in the cost of both equipment used in the construction and production of building materials, as well as the raw materials themselves; this means a significant increase in the competitiveness of domestic manufacturers;
demand for construction and decoration materials will be supported by the public sector;
The most difficult year in the residential real estate market will be 2017, after which the situation is expected to improve.
Thus, according to the analysis of the data, the project seems promising and has a high probability of success. The project envisages the creation of an enterprise for the production of window and door structures from PVC profiles of domestic production in the city of Krasnodar.
Krasnodar is the administrative center of the Krasnodar Territory, a major economic center of the Southern Federal District. The city and the region are constantly on the list of the best cities and regions of Russia in terms of improvement, investment attractiveness and business activity. The population of the city is 850 thousand people, the region - 5.5 million people.
The newly created enterprise is focused on the low price segment and uses a business model that is not traditional for this market, which makes it possible to increase competitiveness by developing new distribution channels and reducing the costs of maintaining its own retail distribution network.
The main sales channel is a partner (dealer network) of 16 stores located in Krasnodar and the largest settlements of the region: Sochi, Novorossiysk, Yeysk, Kropotkin. Objective processing of the market is also expected with the option of subcontracting glazing construction projects for project dealers.
To optimize the stock, only one profile and one hardware system is used. The stock on them is also limited only by the most liquid items; if necessary, the missing items can be purchased directly at the supplier’s warehouse located in Krasnodar. The company is focused on mass production, the emphasis is on the manufacture of simple (close to standard) designs.
3. DESCRIPTION OF GOODS AND SERVICES
The company's products are metal-plastic window and door structures (PVC structures) used for glazing residential, industrial, commercial and other types of buildings. They are constructions made of PVC profile reinforced with metal reinforcing elements; To ensure the opening function, window fittings are used (hinges, locks, handles); as filling can be used sheet glass, double-glazed windows, sandwich panels.
For the production of components used only domestic manufacturers. When choosing suppliers, tight control over the conformity of prices and product quality is carried out.
Since all products are made to order according to individual sizes, for the convenience of description and calculations, typical window and door blocks are used:
Standard window unit - double-glazed window 1.5x1.5 m with a swing-out sash and a single-chamber double-glazed window 24 mm;
Three-floor window unit - a 1.5x2.1 m window with one pivoting sash and a single-chamber double-glazed window 24 mm;
Single-window unit - a window 1.5x0.6 m with a swing-out sash and a single-chamber double-glazed window 24 mm;
Balcony block - a two-floor blind window 1.5x1.8 m and a balcony door from a window profile 2.0x0.6 m with a single-chamber double-glazed window 24 mm;
The standard door block is a 2.1x0.8 m door filled with a sandwich panel.
If necessary, all structures are equipped with tides and window sills. For cases of non-standard performance, additional PVC profiles are used: additional, reinforcing, connecting, bay windows, etc.
In order to increase competitiveness, the enterprise independently processes the object market, negotiates with developers and contractors, thus assisting its dealers in obtaining subcontracts and attracting customers. The enterprise does not independently carry out installation of structures.
Table 2. Production costs and selling prices
GOODS / SERVICES | COSTS UNITS, rub. | TRADING VALUE, % | UNIT COST, rub. | |
one | Standard AB | 3 391 | 100% | 6, 782 |
2 | Single-floor OB | 2, 757 | 70% | 4, 687 |
3 | Three-field OB | 4 476 | 90% | 8 504 |
four | Balcony block | 6 804 | 100% | 13 608 |
five | Standard db | 4, 963 | 100% | 9 926 |
4. SALES AND MARKETING
The company is focused on the following distribution channels:
dealer network (80%)
building materials stores (20%).
Construction organizations are also considered as a sales channel, however, the interaction of the project with them consists only in representing the interests of their dealers with the further submission of a subcontract to the glazing of the processed object. A technical specialist (engineer) of the project takes part in the negotiations.
The dealer network consists of 16 sales outlets in the territory of Krasnodar and the Krasnodar Territory. All stores belong to the same network that has been present on the market since 2006, which has an established customer base and a well-known brand in the region. Today the network also works with other manufacturers of PVC structures of the middle and premium segments. Due to the decline in the solvency of the population, the network decided to expand the range by introducing budget products. The monthly planned sales volume by the dealer network is 650 m2 of PVC structures.
The sale of PVC structures through large building materials stores is a new sales channel for the market in question. However, some companies have been successfully working with this channel for several years. The bottom line is the delivery to stores of finished designs of standard sizes, which the buyer can take from the shelf; window sill and low tide are also cut into the store in size. At the request of the buyer can order the services of the installation team.
As an additional service, the project provides advertising support for the dealer network: printing of brochures, promotion on the Internet. A budget of 30, 000 rubles per month has been laid for this. Also, dealership network managers work with dealership sales salons, providing information support and taking orders.
A retail chain manager works with building materials stores. He negotiates with shops about cooperation, monitors the placement of goods and maintaining the necessary stock of stock. His tasks also include periodic promotions in stores.
In fact, the main promotion work lies on the shoulders of the dealer network, which allows freeing up the financial and time resources of the project to solve other problems.
Table 3. Planned sales
GOODS / SERVICES | AVERAGE PLANNED VOLUME OF SALES, units / month | PRICE FOR UNIT., Rub. | REVENUE, rub. | VARIABLE COSTS, rub. | |
one | Standard AB | 135 | 6, 782 | 915 570 | 457, 785 |
2 | Single-floor OB | 110 | 4, 687 | 515 559 | 303, 270 |
3 | Three-field OB | 58 | 8 504 | 493, 255 | 259, 608 |
four | Balcony block | 51 | 13 608 | 694 008 | 347 004 |
five | Standard db | 23 | 9 926 | 228, 298 | 114 149 |
Total: | 2 846 690 | 1 481 816 |
Marginal income (average), rubles: | 1, 364, 874 |
Average bill, rubles: | 7 551 |
The level of competition in the industry today can be viewed from two opposite points of view. On the one hand, the market is in a state of decline, its capacity is constantly decreasing. On the other hand, after the boom of 2005 - 2010, many players left the market, many continue to leave it. In general, the level of competition is quite high. However, while competition in high price segments is possible due to brands, additional services, quality advantages, etc., then in the low price segment competition is carried out primarily due to price. Some players go on extremely hard dumping, reducing marginal revenue. At the same time, they require a disproportionate increase in sales volumes, which ultimately leads to the financial collapse of the enterprise.
The high competitiveness of the project is ensured by the absence of a number of costs inherent in traditional business models of the PVC structures market: for the maintenance of own retail, installation crews, own vehicles, advertising, etc. This allows for a high margin of business. With an average check of 7, 551 rubles. (average cost of the product), the breakeven point of the project is 47 designs per month. In this case, the monthly marginal income is 1, 364, 874 rubles.
Demand for the project’s products is marked by seasonality and actually coincides with the traditional construction season. The recession falls on the cold months, peaks - spring and late summer - early fall. The influence of seasonality is taken into account in the preparation of the financial plan.
5. PRODUCTION PLAN
Industrial premises are leased. Location - industrial territory in the city of Krasnodar. The industrial building has convenient access roads, all communications are summed up. The total area of the premises is 100 m2, of which 70 m2 is production directly, 30 m2 is a warehouse of materials. Finished products are stored in the yard on special racks.
The equipment is purchased second-hand, Turkish production, 2010 release, with the closed production of PVC structures in the city of Krasnodar. The equipment was used in a gentle mode, about 40% of the time was downtime, and its condition was good. Constant condition monitoring and ongoing maintenance are required. Production capacity - 900 - 1000 m2 per month, subject to work in one eight-hour shift.
The material is purchased at the warehouses of suppliers located in Krasnodar. Delivery is at the expense of suppliers. All components of domestic production, the price segment - budget.
Since 80% of the production is made to order according to the size of the customer, the production plan almost completely coincides with the sales plan (Appendix 1). A small amount of standard designs is produced at a warehouse of building materials stores.
6. ORGANIZATIONAL PLAN
All project management functions are carried out by the project initiator, individual entrepreneur. The project initiator has all the necessary knowledge and skills, has experience in the production of PVC structures as a commercial director.
The organizational structure of the enterprise is shown in Fig. four.
Figure 4. The organizational chart of the enterprise
The key positions are the positions of engineer and production leader. The engineer is responsible for the processing of construction projects, negotiations with construction organizations, as well as for the design of complex structures. Requirements for candidates: higher technical (construction) education, work experience in the specialty - from three years, preferably experience in the production of PVC structures.
The production site supervisor performs the functions of a technologist, production manager and technical control department. Requirements for candidates: experience in the production of PVC structures from three years, experience in a similar position (in any production) from a year.
The work schedule of the enterprise is an eight-hour working day (08.00 - 17.00), Monday - Friday.
Table 4. Staffing and payroll
Position | Salary, RUB | Number of people | PHOT, RUB | ||
Administrative | |||||
one | Accountant | 25, 000 | one | 25, 000 | |
2 | Engineer | 25, 000 | one | 25, 000 | |
Industrial | |||||
6 | PVC construction collector | 22, 000 | five | 110, 000 | |
7 | Team Leader / Quality Control Department | 27, 000 | one | 27, 000 | |
Trade | |||||
13 | Dealer Manager | 23, 500 | 2 | 47, 000 | |
14 | Store Manager | 23, 500 | one | 23, 500 | |
Auxiliary | |||||
18 | Storekeeper | 23, 000 | one | 23, 000 | |
nineteen | Loader | 20, 000 | one | 20, 000 | |
Total: | 300 500, 00 ₽ | ||||
Social Security contributions: | 90 150, 00 ₽ | ||||
Total deductions: | 390 650, 00 ₽ | ||||
The project implementation process can be divided into three main stages: the preparatory phase, the pilot production phase, and the serial production phase. During the preparatory phase (2 weeks), equipment is delivered and installed, contracts are signed with the dealer network, and employees are selected and trained. At the pilot production stage, the recruitment and training of employees continues, at the same time first trial samples of products are produced, which can then be used as models in the dealership network, then small-scale production by customer orders; the duration of this stage is 4 to 5 months. After that, the company proceeds to mass production of products on orders.
7. FINANCIAL PLAN
The duration of the project is not limited in time. A preliminary financial plan is drawn up for a period of five years. The decision on the further development of the project or its liquidation will be taken by the owners on the basis of an analysis of the state of the market and the economic situation.
The financial plan takes into account all the income and expenses of the project. Since investment activity is not provided for by the project, only operating income is taken into account. Based on the comparison of various options, the simplified tax system with the taxable item “income minus expenses” was chosen as the most optimal taxation system.
The investment cost of the project is 1.79 million rubles, the bulk of which is spent on the purchase of equipment for production. In addition, it provides for the creation of a working capital fund to cover project losses before reaching the payback period. The amount of the project initiator's own funds is 1.2 million rubles. The lack of funds is planned to be covered by attracting a bank loan for a period of 24 months at a rate of 18% per annum, credit holidays - three months. Redemption is carried out by annuity payments.
Table 5. Investment costs for the project
NAME | AMOUNT, rub. | |
The property | ||
one | Office equipment | 120, 000 |
2 | Industrial equipment | 50, 000 |
Equipment | ||
3 | Set of equipment | 850, 000 |
Intangible assets | ||
four | Software Acquisition | 70, 000 |
Current assets | ||
five | Current assets | 700, 000 |
Total: | 1 790 000 ₽ | |
Own funds: | ₽ 1, 200, 000.00 | |
Required borrowed funds: | 590 000 ₽ | |
Rate: | 18.00% | |
Duration, months: | 24 | |
Variable costs take into account all production costs:
raw materials
electricity for industrial needs
marriage and others
The volume of variable costs per unit of output is given in Table. 2.
Fixed costs of the enterprise are given in Table. 6.
Table 6. Fixed costs
NAME | AMOUNT PER MONTH., Rub. | |
one | Rent | 70, 000 |
2 | Advertising | 30, 000 |
3 | Communal payments | 10, 000 |
four | Telephony and Internet | 5, 000 |
five | Depreciation | 15 333 |
6 | Selling expenses | 10, 000 |
7 | Management expenses | 5, 000 |
Total: | 145 333 ₽ |
A detailed financial plan is provided in App. 2.
8. EVALUATION OF EFFICIENCY
Assessment of project effectiveness is based on an analysis of the financial plan, as well as simple and integrated performance indicators.
The company's revenue for the first year of the project is 22.7 million rubles; net profit (after tax) - 3.3 million rubles. Revenues after reaching planned sales volumes - 23.6 million rubles. in year; net profit - 3.6 million rubles.
Simple and discounted payback period - 7 months. The discount rate is 7%. Net present value of the project (NPV) - 2 562 966 rubles. Return on Investment (ARR) - 18.34%, internal rate of return (IRR) - 16.13%, return on investment (PI) - 1.43. All these indicators testify to the effectiveness and profitability of the project. However, given the low accepted discount rate, you should carefully monitor the financial results of the project throughout its implementation.
9. WARRANTIES AND RISKS
To assess possible risks, it is advisable to use SWOT analysis.
Table 7. SWOT analysis of the project
Strengths:
| Weak sides:
| |
Opportunities:
| - |
|
Threats:
|
|
|
10. APPLICATIONS
Appendix 1 "Production Plan" and Appendix 2 "Financial Plan"
Denis Miroshnichenko
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