1207 BUSINESS PLAN OF BACK KHOA EQUIPMENTS ACCESSORIES CO LTD

TR NG I H C M TP.HCM HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITÉ LIBRE DE BRUXELLES SOLVAY BRUSSELS SCHOOL MBAVB3 NGUYEN THI THANH HUONG BUSINESS PLAN OF BACK KHOA EQUIPMENTS & ACCESSORIES CO., LTD MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION (PART – TIME) Tutor’s name: Dr LE THAI THUONG QUAN Ho Chi Minh City (2010) UNDERTAKING By this letter, I would like to confirm that, for the project of “Business plan of Bach Khoa Equipments & Accessories Company Ltd”, I have myself studied the project’s issue, applied the academic knowledge obtained from the MBA program, and discussed with my professors I undertake that this is my own project All information and data are true and never announced in any other projects Ho Chi Minh City, 18 Feb 2011 Nguyen Thi Thanh Huong ACKNOWLEDGEMENT I would like to express my sincere gratitude to Dr Le Thai Thuong Quan who give me dedicated guidance, invaluable suggestions I also would like to thank to Professors, Coordinators of the Université Libre de Bruxelles - Solvay Brussels School and Ho Chi Minh City Open University, which provided me a chance to follow this part time MBA program and help me to broaden my view and knowledge My deepest gratitude to my ex-colleague – Mr Giang Cao Tuan, CEO of Back Khoa Equipment & Accessories Company Ltd who spend time with me during thesis period I thank to him for his wholehearted encouragement and supporting I could not find out any word to express my heartfelt thanks to him without whom this project would not have been completed My heartiest thanks to my classmates who support me during my study at Solvay – OU, especially members of Group 1B who worked closely with me during group discussion, assignment And my deepest gratitude to all members in my family for which they have done for me COMMENT OF TUTOR Comment for the research project: Business plan of Bach Khoa Equipments & Accessories Company Ltd By Nguyen Thi Thanh Huong The topic is practical and the approach is appropriate for the purpose of the project The author has shown the ability to conduct a research and to build a business plan The structure of the project is logical and cohesion The author has also considered various scenarios and their impact on the feasibility and profitability of the business This makes the project be more persuasive I confirm that as the supervisor I approve this project for the final presentation Ho Chi Minh City, 24 Feb 2011 Dr Le Thai Thuong Quan TABLE OF CONTENTS Undertaking ii Acknowledgement iii Comment of Tutor iv Table of Contents v Acronyms vii List of figures & tables viii Executive Summary ix CHAPTER – INTRODUCTION  Rationale of the project  Opportunity statement  Objectives & trading area of the project CHAPTER – LITERATURE REVIEW 2.1 Entrepreneurial process 2.2 Business Plan Structure 2.3 Net Present Value (NPV), Internal Rate of Return (IRR) and Cash Flow CHAPTER – ENVIRONMENT & MARKET ANALYSIS 3.1 Environment Analysis 3.2 Market segmentation 14 3.3 Market trend & need 16 3.4 SWOT & Porter analysis 16 CHAPTER – BUSINESS PLAN 4.1 Strategy 21 4.1.1 Objectives 22 4.1.2 Mission 22 4.1.3 Vision 22 4.1.4 Keys to Success 22 4.1.5 Our commitment 23 4.2 The Company & Operation plan 23 4.3 Products 24 4.4 Marketing and sale channel 4.5 Management Team 24 26 4.5.1 Organizational Structure 26 4.5.2 Board of Director 26 4.6 Risk Analysis 26 4.7 Financial Analysis27 CHAPTER – CONCLUSION AND RECOMMENDATIONS 5.1 Conclusion 32 5.2 Recommendations32 Appendix 1: Usage of Prihoda’s textile diffuser in industry Appendix 2: Usage of Precision air conditioning – Uniflair Appendix 3: Information & usage of billing system – DEI 950 Appendix 4: Company products Appendix 5: Figure of system (partial) – figure to figure Appendix 6: Table of P&L and Cash flow Appendix 7: SCB analysis about exchange rate, forecast inflation ACRONYM AC Air Conditioning BK Back Khoa BKEA Bach Khoa Equipment & Accessories Co., Ltd BTU British thermal unit CFM Cubic Feet per Minute ECC Cooperate with Energy Conservation Center FCU Fan coil unit HVAC Heating, Ventilating, and Air Conditioning HVACR Heating, Ventilating, Air Conditioning, Refrigeration LTD Limited M Million NPV Net Present Value PBX Private Branch Exchange USD United States Dollar VND Vietnam Dong LIST OF FIGURES & TABLES Figure 1-1: Figure of a real HVAC System Figure 2-1: Entrepreneurial process Figure 2-2: Business Plan Structure Figure 3-1: Exchange rate chart 11 Figure 3-2: Inflation forecast 13 Figure 3-3: Branch market leaders and local producers for chiller products 14 Figure 3-4: Residential/light commercial market, volume of outdoor units 15 Figure 3-5: Forecast starts for office projects15 Figure 3-6: Product market share 19 Figure 3-7: Product market share 19 Figure 3-8: Product market size 20 Table 4-1: Scenario table 28 Table 4-2: Hochiminh Overhead expense 29 Table 4-3: Hanoi Overhead expense 29 Table 4-4: NPV, IRR Summary 31 EXECUTIVE SUMMARY Back Khoa Equipment & Accessories Company Ltd is a limited liability company with four members Three of them come from Back Khoa Company Ltd and the other come from Trane air - conditioning company who is leading company in air-conditioning (Commercial & industry sector) Most of them have more than 10 years experience in air conditioning sector Back Khoa Company Ltd would like to diversify their activity in trading equipment & accessories of air-conditioning and Refrigeration so they ask Mr Tuan – Ex-Sale Manager from Trane Company to join them as Executive Director They just have license by Jul 2010 with investment capital billion VND (each member contributes billion VND) Back Khoa Equipment & Accessories has imported high quality and advanced technology products of different brands from several countries They focus on selling Trane, Emerson, Luvata-Eco, DEI Temp Control Technology and HVACR equipment, spare parts and refrigeration equipment The phenomenal growth and modernization of Vietnam creates a greater demand for new and additional solutions for equipment, applications and technology in the HVAC industry The market for air-conditioning systems and its related products and services continues to accelerate and expand at a rapid pace The substantial growth of the food and beverage industry in Vietnam is gearing up on food handling, food processing, packaging and food preserving and cold chain equipment Vietnam air-conditioning market is about 220 M USD/year We divide market to two parts: residence – 132 M USD/year, Commercial & Industrial (Restaurant, hotel, building and factory): 88 M USD/year with the sale growth rate about 15% We expect our growth rate about 20-25%/ year at this moment When we have office in Hanoi, our growth rate will be 30-35%/year Because we don’t have agency/distributor network so we only focus on commercial & Industrial sector We expect turnover about M USD in this year Our gross profit margin is about 15% This margin also depends on size of client We will apply good price (low profit margin) to big clients The unique service is that we can offer optimized design, complete system from normal air conditioning to industrial type, cold room In addition, we have some unique products such ZX condenser from Emerson where no one else in the market can produce Customers are contractors and investors Our strategy is best cost provider We ensure the systems perform as functioned in reliably and economically from day one and for many years to come Furthermore, with extensive experience in heating, air conditioning, geothermal heat pump systems, refrigeration and commercial services, we have the expertise to meet our customers' needs and to exceed their expectations We deal directly with manufacturer and distribute to the market by ourselves Air conditioning market is strong competition In order to gain more profit, we use niche strategy applied for some products They are Textile air distribution systems – brand name Prihoda & precision air conditioner – brand name Uniflair In addition, we also develop new product of DEI billing control system where not only can calculate how much electricity charge for each users, but also help owner saving energy in most competitive cost Beside strong competition in air-conditioning, we also face with fake products from China for part segment We will expand the market to the North with office and warehouse by 2011 Economic growth is being continuous enhanced; GDP exceeds the expectation in almost of the sectors and fields, but the developments in monetary, foreign exchange market shows the risks changing more complicated: increasing inflation and trade gap; GDP grows rapid but not equally between sectors; and there is trend of cooling in Q.4 2010; exchange rate contains unexpected movements and interest rate will operate according to the market So, in macro policies aiming at stability, 10 Figure 2: Central Air Handler Another example of the airside loop is a central air-handling system A central air handler is typically installed outside of the conditioned space, possibly on the roof or in a dedicated mechanical room Figure depicts a simple example of a central indoor air handler Return air from the space is drawn into the unit through the return-air dampers and mixes with outdoor air that enters through another set of dampers This mixed air passes through the filters, the supply fan, and the cooling coil before being discharged from the air handler Unlike the example fan-coil unit that was installed in the conditioned space, the central air handler needs a method for delivering the supply air to the conditioned space(s) 72 Figure 3: Fan Coil Unit (*) A simple example of the airside loop is a fan-coil unit Figure shows an example of a fan-coil unit that would be installed in the conditioned space Return air from the space is drawn into the unit at the base and can be mixed with outdoor air that enters through a separate damper in the back of the unit This mixed air passes through a filter, a supply fan, and a cooling coil before being discharged from the top of the unit directly into the conditioned space (*) : Fan Coil Unit: Small size, small capacity Air Handling Unit: Large size, big capacity 73 APPENDIX Assumption: Sale growth rate: 20% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate – Appendix 7) Interest rate: 18% (current rate) Table 4-3: Forecast P&L from 2010 to 2014 – Scenario VND '000 Revenue Cost of Goods Sold Gross Profit Overhead Cost 2010 2011 2012 40,000,000 48,000,000 57,600,000 34,000,000 40,800,000 48,960,000 6,000,000 7,200,000 8,640,000 994,000 2,390,400 2,629,440 2013 69,120,000 58,752,000 10,368,000 2,892,384 2014 82,944,000 70,502,400 12,441,600 3,181,622 Finance Cost 360,000 720,000 720,000 720,000 720,000 Depreciation 63,000 130,800 130,800 67,800 - Profit before Tax 4,583,000 3,958,800 5,159,760 6,687,816 8,539,978 Tax (25%) 1,145,750 989,700 1,289,940 1,671,954 2,134,994 Profit after Tax 3,437,250 2,969,100 3,869,820 5,015,862 6,404,983 Table 4-4: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income Depreciation Working Capital NETCF Discount Factor Discounted CF               (4,000,000)               (4,000,000) 2011 2012 2013 2014                                                                3,437,250  2,969,100  3,869,820  5,015,862  6,404,983                                                                                         63,000  130,800  130,800  67,800                                                                                2,000,000  2,400,000  2,880,000  3,456,000  4,147,200                                                                     1,500,250  699,900  1,120,620  1,627,662  2,257,783                                                                                                                      1.18  1.39  1.64  1.94  2.29  1,271,398 502,657 74 682,044 839,530 986,898 From the above figure, we have NPV = 282,527 IRR = 21% Assumption: Sale growth rate: 20% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 20% Table 4-5: Forecast P&L from 2010 to 2014 – Scenario VND '000 2010 Revenue Cost of Goods Sold Gross Profit 2011 2012 2013 2014 40,000,000 48,000,000 57,600,000 69,120,000 82,944,000 34,000,000 40,800,000 48,960,000 58,752,000 70,502,400 6,000,000 7,200,000 8,640,000 10,368,000 12,441,600 Overhead Cost 994,000 2,390,400 2,629,440 2,892,384 3,181,622 Finance Cost 400,000 800,000 800,000 800,000 800,000 Depreciation Profit before Tax 63,000 130,800 130,800 67,800 - 4,543,000 3,878,800 5,079,760 6,607,816 8,459,978 1,135,750 969,700 1,269,940 1,651,954 2,114,994 3,407,250 2,909,100 3,809,820 4,955,862 6,344,983 Tax (25%) Profit after Tax Table 4-6: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income Depreciation 2011 2012 2013 2014                                                                3,407,250  2,909,100  3,809,820  4,955,862  6,344,983                                                                                         63,000  130,800  130,800  67,800                 75 Working Capital NETCF Discount Factor Discounted CF (4,000,000) (4,000,000)                                                                2,000,000  2,400,000  2,880,000  3,456,000  4,147,200     1,470,250    639,900  1,060,620    1,567,662  2,197,783               1.20            1.44            1.73              2.07            2.49  1,225,208 444,375 613,785 756,010 883,240 From the above figure, we have NPV = -77,382 IRR = 19% Assumption: Sale growth rate: 20% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 16% Table 4-7: Forecast P&L from 2010 to 2014 – Scenario VND '000 2010 Revenue Cost of Goods Sold Gross Profit 2011 2012 2013 2014 40,000,000 48,000,000 57,600,000 69,120,000 82,944,000 34,000,000 40,800,000 48,960,000 58,752,000 70,502,400 6,000,000 7,200,000 8,640,000 10,368,000 12,441,600 Overhead Cost 994,000 2,390,400 2,629,440 2,892,384 3,181,622 Finance Cost 320,000 640,000 640,000 640,000 640,000 Depreciation 63,000 130,800 130,800 67,800 - Profit before Tax 4,623,000 4,038,800 5,239,760 6,767,816 8,619,978 Tax (25%) 1,155,750 1,009,700 1,309,940 1,691,954 2,154,994 Profit after Tax 3,467,250 3,029,100 3,929,820 5,075,862 6,464,983 Table 4-8: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income 2011 2012 2013 2014                                                                3,467,250  3,029,100  3,929,820  5,075,862  6,464,983  76                                                                                        63,000  130,800  130,800  67,800                                                                                2,000,000  2,400,000  2,880,000  3,456,000  4,147,200                                                                                   (4,000,000) 1,530,250  759,900  1,180,620  1,687,662  2,317,783                                                                                                                      1.16  1.35  1.56  1.81  2.10                (4,000,000) 1,319,181 564,729 756,373 932,081 1,103,527 Depreciation Working Capital NETCF Discount Factor Discounted CF From the above figure, we have NPV = 675,891 IRR = 22% Assumption: Sale growth rate: 25% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 18% (current rate) Table 4-9: Forecast P&L from 2010 to 2014 – Scenario VND '000 Revenue Cost of Goods Sold 2010 2011 2012 2013 2014 40,000,000 50,000,000 62,500,000 78,125,000 97,656,250 34,000,000 42,500,000 53,125,000 66,406,250 83,007,813 Gross Profit 6,000,000 7,500,000 9,375,000 11,718,750 14,648,438 Overhead Cost Finance Cost Depreciation Profit before Tax Tax (25%) Profit after Tax 994,000 360,000 63,000 4,583,000 1,145,750 3,437,250 2,390,400 720,000 130,800 4,258,800 1,064,700 3,194,100 2,629,440 720,000 130,800 5,894,760 1,473,690 4,421,070 3,181,622 720,000 10,746,815 2,686,704 8,060,111 2,892,384 720,000 67,800 8,038,566 2,009,642 6,028,925 Table 4-10: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income 2011 2012 2013 2014                                                                3,437,250  3,194,100  4,421,070  6,028,925  8,060,111  77 Depreciation Working Capital                                                                                        63,000  130,800  130,800  67,800                                                                                2,000,000  2,500,000  3,125,000  3,906,250  4,882,813                                                                                   (4,000,000) 1,500,250  824,900  1,426,870  2,190,475  3,177,299            1.18           1.39            1.64            1.94            2.29  (4,000,000) 1,271,398 592,430 868,437 1,129,822 1,388,827 NETCF Discount Factor Discounted CF From the above figure, we have NPV = 1,250,915 IRR = 29% Assumption: Sale growth rate: 25% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 20% Table 4-11: Forecast P&L from 2010 to 2014 – Scenario VND '000 2011 2012 2013 2014 40,000,000 50,000,000 62,500,000 78,125,000 97,656,250 34,000,000 42,500,000 53,125,000 66,406,250 83,007,813 6,000,000 7,500,000 9,375,000 11,718,750 14,648,438 Overhead Cost 994,000 2,390,400 2,629,440 2,892,384 3,181,622 Finance Cost 400,000 800,000 800,000 800,000 800,000 Depreciation 63,000 130,800 130,800 67,800 - Profit before Tax 4,543,000 4,178,800 5,814,760 7,958,566 10,666,815 Tax (25%) 1,135,750 1,044,700 1,453,690 1,989,642 2,666,704 Profit after Tax 3,407,250 3,134,100 4,361,070 5,968,925 8,000,111 Revenue Cost of Goods Sold Gross Profit 2010 Table 4-12: Forecast cash flow from 2010 to 2014 – Scenario 2010 2011 78 2012 2013 2014 Net Income Depreciation Working Capital NETCF Discount Factor Discounted CF                                                                3,407,250  3,134,100  4,361,070  5,968,925  8,000,111                                                                                         63,000  130,800  130,800  67,800                                                                                2,000,000  2,500,000  3,125,000  3,906,250  4,882,813                                                                                   (4,000,000) 1,470,250  764,900  1,366,870  2,130,475  3,117,299                                                                                                                      1.20  1.44  1.73  2.07  2.49                (4,000,000) 1,225,208 531,181 791,013 1,027,428 1,252,772 From the above figure, we have NPV = 827,602 IRR = 28% Assumption: Sale growth rate: 25% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 16% Table 4-13: Forecast P&L from 2010 to 2014 – Scenario VND '000 Revenue Cost of Goods Sold Gross Profit 2010 2011 2012 2013 2014 40,000,000 50,000,000 62,500,000 78,125,000 97,656,250 34,000,000 42,500,000 53,125,000 66,406,250 83,007,813 6,000,000 7,500,000 9,375,000 11,718,750 14,648,438 Overhead Cost 994,000 2,390,400 2,629,440 2,892,384 3,181,622 Finance Cost 320,000 640,000 640,000 640,000 640,000 Depreciation 63,000 130,800 130,800 67,800 - Profit before Tax 4,623,000 4,338,800 5,974,760 8,118,566 10,826,815 Tax (25%) 1,155,750 1,084,700 1,493,690 2,029,642 2,706,704 79 Profit after Tax 3,467,250 3,254,100 4,481,070 6,088,925 8,120,111 Table 4-14: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income Depreciation Working Capital NETCF Discount Factor Discounted CF 2011 2012 2013 2014                                                                3,467,250  3,254,100  4,481,070  6,088,925  8,120,111                                                                                         63,000  130,800  130,800  67,800                                                                                2,000,000  2,500,000  3,125,000  3,906,250  4,882,813                                                                                   (4,000,000) 1,530,250  884,900  1,486,870  2,250,475  3,237,299                                                                                                                      1.16  1.35  1.56  1.81  2.10                (4,000,000) 1,319,181 657,625 952,575 1,242,917 1,541,320 From the above figure, we have NPV = 1,713,618 IRR = 30% Assumption: Sale growth rate: 30% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 18% (current rate) Table 4-5: Forecast P&L from 2010 to 2014 – Scenario VND '000 Revenue Cost of Goods Sold Gross Profit 2010 2011 2012 2013 2014 40,000,000 52,000,000 67,600,000 87,880,000 114,244,000 34,000,000 44,200,000 57,460,000 74,698,000 97,107,400 10,140,000 13,182,000 17,136,600 6,000,000 7,800,000 Overhead Cost 994,000 2,390,400 2,629,440 2,892,384 3,181,622 Finance Cost 360,000 720,000 720,000 720,000 720,000 80 Depreciation 63,000 130,800 130,800 67,800 - Profit before Tax 4,583,000 4,558,800 6,659,760 9,501,816 13,234,978 Tax (25%) 1,145,750 1,139,700 1,664,940 2,375,454 3,308,744 Profit after Tax 3,437,250 3,419,100 4,994,820 7,126,362 9,926,233 Table 4-16: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income Depreciation Working Capital NETCF Discount Factor Discounted CF 2011 2012 2013 2014                                                                3,437,250  3,419,100  4,994,820  7,126,362  9,926,233                                                                                         63,000  130,800  130,800  67,800                                                                                2,000,000  2,600,000  3,380,000  4,394,000  5,712,200                                                                                   (4,000,000) 1,500,250  949,900  1,745,620  2,800,162  4,214,033                                                                                                                      1.18  1.39  1.64  1.94  2.29                (4,000,000) 1,271,398 682,203 1,062,438 1,444,292 1,841,993 From the above figure, we have NPV = 2,302,325 IRR = 36% Assumption: Sale growth rate: 30% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 20% Table 4-17: Forecast P&L from 2010 to 2014 – Scenario 81 VND '000 Revenue Cost of Goods Sold Gross Profit 2010 40,000,000 2011 2012 2013 2014 52,000,000 67,600,000 87,880,000 114,244,000 34,000,000 44,200,000 57,460,000 74,698,000 97,107,400 6,000,000 7,800,000 10,140,000 13,182,000 17,136,600 Overhead Cost 994,000 2,390,400 2,629,440 2,892,384 3,181,622 Finance Cost 400,000 800,000 800,000 800,000 800,000 63,000 4,543,000 1,135,750 3,407,250 130,800 4,478,800 1,119,700 3,359,100 130,800 6,579,760 1,644,940 4,934,820 67,800 9,421,816 2,355,454 7,066,362 13,154,978 3,288,744 9,866,233 Depreciation Profit before Tax Tax (25%) Profit after Tax Table 4-18: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income Depreciation Working Capital NETCF Discount Factor Discounted CF 2011 2012 2013 2014                                                                3,407,250  3,359,100  4,934,820  7,066,362  9,866,233                                                                                         63,000  130,800  130,800  67,800                                                                                2,000,000  2,600,000  3,380,000  4,394,000  5,712,200                                                                                   (4,000,000) 1,470,250  889,900  1,685,620  2,740,162  4,154,033                                                                                                                      1.20  1.44  1.73  2.07  2.49  (4,000,000) 1,225,208 617,986 975,475 1,321,452 1,669,413 From the above figure, we have NPV = 1,809,533 IRR = 35% Assumption: Sale growth rate: 30% (Including Hanoi Office) Overhead cost: increase 10% per year (base on inflation rate) Interest rate: 16% 82 Table 4-19: Forecast P&L from 2010 to 2014 – Scenario VND '000 Revenue Cost of Goods Sold Gross Profit 2010 2011 2012 2013 2014 40,000,000 52,000,000 67,600,000 87,880,000 114,244,000 34,000,000 44,200,000 57,460,000 74,698,000 97,107,400 6,000,000 7,800,000 10,140,000 13,182,000 17,136,600 Overhead Cost 994,000 2,390,400 2,629,440 2,892,384 3,181,622 Finance Cost 320,000 640,000 640,000 640,000 640,000 Depreciation 63,000 130,800 130,800 67,800 - Profit before Tax 4,623,000 4,638,800 6,739,760 9,581,816 13,314,978 Tax (25%) 1,155,750 1,159,700 1,684,940 2,395,454 3,328,744 Profit after Tax 3,467,250 3,479,100 5,054,820 7,186,362 9,986,233 Table 4-20: Forecast cash flow from 2010 to 2014 – Scenario 2010 Net Income Depreciation Working Capital NETCF Discount Factor Discounted CF 2011 2012 2013 2014                                                                3,467,250  3,479,100  5,054,820  7,186,362  9,986,233                                                                                         63,000  130,800  130,800  67,800                                                                                2,000,000  2,600,000  3,380,000  4,394,000  5,712,200                                                                               (4,000,000) 1,530,250  1,009,900  1,805,620  2,860,162  4,274,033                                                                                                                      1.16  1.35  1.56  1.81  2.10                (4,000,000) 1,319,181 750,520 1,156,784 1,579,642 2,034,923 From the above figure, we have NPV = 2,841,050 IRR = 38% 83 APPENDIX 84 85 86