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BAGASSE PROCESSING FACTORY INVESTMENT PROJECT FOR EXPORT CONTENT I INVESTMENT NEEDS AND OBJECTIVES OF THE PROJECT The need of investment Objectives of the project II SCALE AND MODE OF INVESTMENT Project target Investment mode Scale and capacity III PRODUCTION PRPOGRAM AND FACTORS Production procedures Satisfactory factors Main production equipment IV FINANCIAL ANALYSIS EVALUATION AND INVESTMENT EFECTIVENESS Total investment capital, resources and own ability Economic- financial effectiveness analysis | Page V CONCLUSION AND RECOMMENDATION | Page Part 1: INVESTMENT NEEDS AND OBJECTIVES OF THE PROJECT Natural - economic - social conditions of Phu Yen Province have advantages for bagasse processing to export: Phu Yen is a coastal province locating in the South Central Vietnam; the province’s natural area is 5,060 km2 Phu Yen province has highway and railway No.1A and National Road No.25 connecting with Gia Lai as well as road No.29 connecting with Dac Lac province The province has Vung Ro deep-water port, Tuy Hoa airport Phu Yen is considered as grain elevator as well as sugar cane and cassava center for commodity production Forests and forest land accounts for ¾ total land of the province; Currently, Phu Yen province has two cane sugar factories namely: Son Hoa Cane Sugar Factory and Dong Xuan Cane Sugar factory Those factories have legal investment policy and reasonable product consumption that encourage people to invest sugarcane and intensive cultivation by the application of mechanization in sugarcane fields to improve productivity, abundant raw materials In the 2012-2013 production plan: The sugar factories will process 1.24 million tons sugar cane, increasing 12.2%, the production output is 114 300 tons, an increase of 26.2% over the previous year; The province have high quantity of bagassee, however, it so far has been wasted due to no bagasse processing factory On the other hand, the demand for finished products of bagasse is great in many countries, especially Japan and South Korea According to the Japanese partner, Japan spend up to $ 10 billion to export foods for dairy and feed cattle while Vietnam's exports is very small with total value is less than 1% of 10 billion USD Project investment objective: The project aims to develop one bagasse processing factory with reasonable scale The factory will produce goods in compliance with exporting conditions to countries with high bagasse demand such as: Britain, Canada, Taiwan, Korea, in particular in great demand markets like Japan The company also has some partners wishing to import huge bagasse for planting mushroom, cropping and animal feed; The factory will help to enhance capacity of processing waste resources from other factories in the province as well as neighboring provinces, contributing to poverty reduction and industrialization and modernization It also creates more jobs with stable | Page incomes for local people, increase sales and revenue from export activities for the province The factory will create a certain income for investors, increase profitability and earn foreign exchange for the country, improve environmental protection when collecting and processing waste Part 2: SCALE AND MODE OF INVESTMENT The project’s objectives: The project will construct a bagasse processing factory with reasonable scale to make products for export standard, including bagasse wood items, bagasse packing for export This will create reasonable income for investors, increase revenue, bring foreign exchange to the country and increase revenue for Phu Yen province a Type of investment: - Investment mode: direct investment The company provide their own fund to directly involved in the business operations and management; - Investment form: construction of a new factory100%; - Technology: includes imported machines and domestic machines; - Employers: local workers b The investment scale and capacity: - Project area: 15,000 m2; - Capacity: 36,000 tons / year; - Total investment: 53,228,208,000 VND; - Total employees: 140 Part 3: PRODUCTION PRPOGRAM AND FACTORS I Production procedure: | Page Products: Products of the project are including: packaged bagasse and bagasse wood - Packaged bagasse products: these are products in the form of block bagasse, bagasse wood Bagasse is packed with 30kg in weight and these are mainly exported to Japanese and Korea Bagasse wood products are consumed by domestic retailers Production season and production plan a Production season: Bagasse production for export is conducted in whole year; however, the company must have planned to save raw material from November – June where sugar cane/raw material is limited Based on the actual situation, the production season of the factory is 10 months / year b Production plan: Based on the consumption situation, the ability to purchase local materials, the production of mentioned products are expected as follows: Product Export products (80%) Packages bagasse (90%) Bagasse wood Domestic product (20%) Bagasse wood Total II 20,160 18,144 2,016 5,040 5,040 25,200 23,040 20,736 2,304 5,760 5,760 28,800 Sustainability 25,920 23,328 2,592 6,480 6,480 32,400 Satisfactory Factors: Market consumption: as stated above, the demand for packaged bagasse products now and in the coming years are becoming higher and higher as soil for mushroom cultivation and processing product as animal feed | Page Packaged bagasse products are to export which are favored products of many countries in the world, especially Japan, Korea and Taiwan Over the years, this item has strong advantages and competition while Phu Yen province has high supply of raw materials with good quality Therefore, the market of the project is determined for short phase as the traditional markets: Japan, Taiwan, and South Korea Later, the company will continue to expand into the European market, North America This is a large market can consume a variety of products made by the company The company will take all efforts to follow and implement ISO production program which is an internationally recognized safety qualification and management to provide products to the market To continue maintaining and expanding the market of projects, the company has following solutions: • Form responsible staffs taking in charge of the export market and respond to the directors for export business; • Continue creating measures to manage product quality to meet the requirements of high quality for the export market; • Have mechanisms for pro-active export in compliance with customer requirements (in terms of price, delivery time, shipping procedures) Demand for annual raw materials of the project T T The Material Unit consumpti on I Export product Packaged bagasse Bagasse wood Total (I+II) 2nd year 50,400 57,600 64,800 Stable year 2.5 45,360 51,840 58,320 Ton 2.5 5,040 5,760 6,480 12600 14400 16200 12600 14400 16200 63,000 72,000 81,000 products Bagasse wood 1st year Ton I Domestic I Demand Ton 2.5 | Page Take into consideration between the production of sugar companies and material needs of the factory showed that the material is sufficient for the factory to operate at full capacity (with current expected scale of investment) Furthermore, the factory also has ability to reach out to find material in the other neighboring provinces III Main production equipment: The consumer market for products of this project is the traditional markets namely: Japan, Korea, and Taiwan with high quality products, suitable price Later, the company will expand to the U.S market Therefore, the company aim to invest into high-tech equipment, saving investment fund and processing high quality products meeting export standards with lower price, increasing market competitiveness are crucial factors that deciding success of the company In general, the company will select processing equipment lines as following: equipment assembly in Vietnam and primarily exported from Japan, Germany, China which have advance in high technology in processing and manufacturing to meet the strict requirements processing of export products The total value of the equipment manufacturing for the project: 22,770,000,000 VND including main equipment The company aim to have stable production in the early stages of the project The factory can sully 36,000 tons of products to the market annually (300 working days in year and shifts/day) The average real capacity based on product structure of the project in the first year is 70% and subsequent years will increase the capacity based on the actual demand Part 4: FINANCIAL ANALYSIS AND INVESTMENT EFFECTIVENESS EVALUATION I Total investment scale 1/ Total investment of the project: 52.728.208 billion VND (Fifty-two billion, seven hundred and twenty eight million, and two hundred and eight thousand Dong only) | Page In which: - Construction cost: 19,635,000,000 dong - Equipment costs: 22,770,000,000 dong - Other expenses: 10,823,208,000 dong Estimated resources and ability to respond capital: No Criteria Capital of the investors VDB Loan Total Value (Dong) 15,968,462,400 37,259,745,600 53,228,208,000 Rate (%) 30% 70% 100% a/ Capital of the investors: Vinh An Company has started business activities in 1995 mainly in the field of commercial paper industry, beef, copra export …etc So, the company has strong experience in export and management With a long operation period, the company has accumulated investment capital to this project include: a portion of machinery and equipment, the transfer of land use rights so with 30% of equity participating , the company will commit to fully participate in the project with its financial resources b/ VDB loan: the expected loan is with 70% of total investment of the project in accordance with the laws and regulations in the field of investment encouragement The project investor hope to have loan from VDB II Analysis of economic – financial efficiency of project: Calculation methods - Depreciation of fixed assets is in compliance with Decision No.206/2003/QD- BTC December 12, 2003 of the Ministry of Finance promulgated the Regulation on management, use and depreciation of fixed assets The depreciation of fixed assets formed after the annual investment of the project: + The construction part: 20 year depreciation The average depreciation for 01 years is: 935 million VND | Page + The device: 10-year depreciation period The 01 year average depreciation: 2,070,000,000 VND Product price: Rating for T Material No Unit ton of Unit price In cash product 2.5 30,000 75,000 200,000 200,000 Buy bagasse (1 ton = 2.5 tons of fresh) Transport Ton Ton Dry Ton 200,000 200,000 Crushing Ton 200,000 200,000 Bock Ton 200,000 200,000 Kw 40 3,000 120,000 Dong 65,000 65,000 1,060,000 Electricity consumption (40kw x 3000 Dong) Direct management cost Total | Page Business Results: Price T Content T increas year ing 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year rate 70% 80% 90% 90% 80% 80% 80% - 38,896,200,000 (34,583,723,280 44,452,800,000 50,009,400,000 50,009,400,000 (42,965,838,315 44,452,800,000 44,452,800,000 44,452,800,000 - ) (28,047,600,000 (38,748,859,920) (42,916,245,660) ) (36,061,200,000 (38,897,755,963) (38,952,431,865) (40,006,422,362) Operating capacity I I I Revenue % Operation cost Transportation costs Depreciation expenses Reparations cost Regular maintenance cost Stationery, water, electricity costs % ) (32,054,400,000) (36,061,200,000) ) (32,054,400,000) (32,054,400,000) (32,054,400,000) (4,147,040,000) (4,147,040,000) (4,147,040,000) (4,147,040,000) (4,147,040,000) (4,147,040,000) (5,124,080,000) (414,000,000) (414,000,000) (414,000,000) (414,000,000) (414,000,000) (414,000,000) (414,000,000) (187,000,000) (187,000,000) (187,000,000) (187,000,000) (187,000,000) (187,000,000) (187,000,000) (252,000,000) (264,600,000) (277,830,000) (291,721,500) (306,307,575) (321,622,954) (337,704,101) % Salary (630,000,000) (661,500,000) (694,575,000) (729,303,750) (765,768,938) (804,057,384) (844,260,254) Marketing cost (388,962,000) (444,528,000) (500,094,000) (500,094,000) (444,528,000) (444,528,000) (444,528,000) Management cost (388,962,000) (444,528,000) (500,094,000) (500,094,000) (444,528,000) (444,528,000) (444,528,000) Contingency cost (128,159,280) (131,263,920) (134,412,660) (135,385,065) (134,183,450) (135,255,527) (155,922,007) VAT (449,316,065) (578,676,371) (707,975,395) (706,624,130) (574,619,361) (573,129,593) (480,967,081) Value added tax input 3,536,018,182 4,041,163,636 3,462, 4,546,309,091 4,546,309,091 4,041,163,636 4,041,163,636 4,041,163,636 I Value added tax output 3,086,702,116 487,265 3,838,333,696 3,839,684,960 3,466,544,275 3,468,034,044 3,560,196,555 % I II V Profit and Loss Earnings before interest and 5,125, taxes (1,210,941,73 3,863,160,655 263,709 (4,480, 6,385,178,945 6,336,937,555 4,980,424,676 4,927,238,542 3,965,410,557 Interest Payment 2) (1,210,941,73 (2,421,883,464) 484,408) 644,77 (3,511,731,023) (2,542,977,637) (1,634,771,338) (666,017,953) - Profit before tax Corporate Income Tax 2) - 1,441,277,191 (360,319,298) 9,301 (161,1 2,873,447,923 (718,361,981) 3,793,959,917 (948,489,979) 3,345,653,338 (836,413,334) 4,261,220,590 (1,065,305,147) 3,965,410,557 (991,352,639) 10 | Page 94,825) 483,58 (1,210,941,73 Net profit 2) 1,080,957,893 4,476 2,155,085,942 2,845,469,938 2,509,240,003 3,195,915,442 2,974,057,918 11 | Page Debt Balance Sheet: S Criteria No I Source of Payment (1,210,941,732) 4,903,710,525 4,485,549,133 5,655,600,159 6,138,868,957 5,903,508,002 6,384,180,810 7,205,920,542 5,124,080, Depreciation (100%) - 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 000 2,081,840, I Net gains (70%) Cumulative payment (1,210,941,732) 756,670,525 338,509,133 1,508,560,159 1,991,828,957 1,756,468,002 25,876,295,04 2,237,140,810 32,260,475,85 542 39,466,39 source (1,210,941,732) 3,692,768,793 8,178,317,926 13,833,918,085 19,972,787,042 4 Payment demand - - 7,451,949,120 7,451,949,120 7,451,949,120 7,451,949,120 18,424,345,92 7,451,949,120 24,808,526,73 Balance (II)-(III) (1,210,941,732) 3,692,768,793 726,368,806 6,381,968,965 12,520,837,922 4 I 6,396 I II I V 39,466,396, 396 Working capital needs: S No Criteria year 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year 691,674,466 774,977,198 5,812,328,98 858,324,913 6,437,436,84 859,316,766 6,444,875,74 777,955,119 5,834,663,39 779,048,637 5,842,864,78 800,128,447 6,000,963,35 Cash demand (2% of total cost) Good in stock (15% of total cost) 5,187,558,492 4,445,280,00 5,000,940,00 5,000,940,00 4,445,280,00 4,445,280,00 4,445,280,00 Receivables from customers (10% of total revenue) 3,889,620,000 7,749,771,98 8,583,249,13 8,593,167,66 7,779,551,19 7,790,486,37 8,001,284,47 Receivables for sellers (20% total cost) 6,916,744,656 3,282,814,20 3,713,452,63 3,711,964,85 3,278,347,32 3,276,707,04 3,245,087,32 Capital demand (1+2+3-4) 2,852,108,302 2,852,108,30 1 (433,617,529 430,705,901 430,638,428 (1,487,780) ) (1,640,277) (31,619,715) 370,774,079 426,765,846 482,748,842 482,555,431 426,185,152 425,971,916 421,861,353 Capital change (+/-) Interest 12 | Page Financial criteria: S N year o 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year Criteria Cash flow from business contract Revenue - 38,896,200,000 44,452,800,000 50,009,400,000 50,009,400,000 44,452,800,000 44,452,800,000 44,452,800,000 Operation cost - (30,436,683,280) (34,601,819,920) (38,769,205,660) (38,818,798,315) (34,750,715,963) (34,805,391,865) (34,882,342,362) VAT - (449,316,065) (578,676,371) (707,975,395) (706,624,130) (574,619,361) (573,129,593) (480,967,081) CIT - (360,319,298) (161,194,825) (718,361,981) (948,489,979) (836,413,334) (1,065,305,147) (991,352,639) 13 | Page Net cash flow Cash flow from - 7,649,881,357 9,111,108,884 9,813,856,965 9,535,487,575 8,291,051,341 8,008,973,395 8,098,137,918 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 5,124,080,000 investment contract Investment cost depreciation Acquisition of fixed (53,228,208,00 0) - 341,964,000 assets Net Cash flow (53,228,208,00 0) 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 4,147,040,000 (7,451,949,120.000) (7,451,949,120.000) (7,451,949,120.000) (7,451,949,120.000) 4,147,040,000 5,466,044,000 Cash flow from financial contract Own capital 15,968,462,400 Medium-term loan 37,259,745,600 - - - Interest Payment (1,210,941,732) (2,421,883,464) (4,480,484,408) (3,511,731,023) (2,542,977,637) (1,634,771,338) (666,017,953) - Net Cash flow Opening balance of 52,017,266,268 (2,421,883,464) (11,932,433,528) (10,963,680,143) (9,994,926,757) (9,086,720,458) (8,117,967,073) - (1,210,941,732) 8,164,096,161 9,489,811,516 12,487,028,338 16,174,629,156 19,526,000,040 23,564,046,362 (1,210,941,732) 9,375,037,893 1,325,715,356 2,997,216,822 3,687,600,818 3,351,370,883 4,038,046,322 13,564,181,918 (1,210,941,732) 8,164,096,161 9,489,811,516 12,487,028,338 16,174,629,156 19,526,000,040 23,564,046,362 37,128,228,280 11,796,921,357 13,258,148,884 13,960,896,965 13,682,527,575 12,438,091,341 12,156,013,395 13,564,181,918 0.90 0.85 0.81 0.79 0.76 0.75 0.73 10,631,980,830 11,243,841,204 11,339,772,015 10,747,831,062 9,506,727,691 9,078,758,504 9,929,562,361 (42,596,227,170) (31,352,385,966) (20,012,613,951) (9,264,782,889) 241,944,802 9,320,703,306 19,250,265,668 Repayment of principal cash Cash generated during the period Ending balance of cash Cash flow from business and investment contract Conversion ratio Present value of cash flow Accumulation The discount rate (53,228,208,00 0) 1.00 (53,228,208,00 0) (53,228,208,00 0) 0) 15% NPV 596,183,818 IRR 15.37% Return time (7,451,949,120.00 5.97 14 | Page - Sensitivity analysis Change of total investment: - P/A Option -10% Option Option 4% NPV 596,183,818 5,406,871,537 596,183,818 (1,176,174,815) IRR 15.37% 18.63% 15.37% 14.29% Option -3% 596,183,818 15.37% Option 2% 596,183,818 15.37% 596,183,818 15.37% Option -10% (13,386,151,595 Option -5% (5,962,269,146 Option Option ) 6% ) 11.21% Rate Option 10% - ) 13.27% 4,467,697,991 12% Price change: - P/A Rate NPV IRR Option 7% (2,948,533,449 596,183,818 15.37% Option -10% 596,183,818 15.37% Option Option 4.0% 596,183,818 15.37% Quantity change: P/A Rate NPV 596,183,818 IRR 15.37% 5% Option 10.0% 596,183,818 6,839,164,790 13,082,145,762 15.37% 19.14% 23% Two side survey: Survey for NPV change Quantity change Price change 596,183,818 -10% -5.0% 5.0% 10.0% -10.0% (13,386,151,595) (13,386,151,595) (13,386,151,595) (13,386,151,595) (13,386,151,595) -5.0% (5,962,269,146) (5,962,269,146) (5,962,269,146) (5,962,269,146) (5,962,269,146) 596,183,818 596,183,818 596,183,818 596,183,818 596,183,818 5.0% 6,839,164,790 6,839,164,790 6,839,164,790 6,839,164,790 6,839,164,790 Annual Social, economic effectiveness: • Create jobs for over 100 local employees; • Increased export volume of 5.5 million USD; • Contribute to state budget of 500 million VND Comment: Through analysis of the economic efficiency of the project, it is stated that the project have economic feasibility, highly profitable businesses, create many new jobs for local workers 15 | P a g e I CONCLUSION AND RECOMMENDATION Vinh An Bagasse Processing Factory Project is suitable with natural scale of the local province The project’s activities are effective, quick fund return and high feasibility The project implementation will exploit the abundant resource of the province The project also produces many products for export, thereby increasing the revenue for the budget, contributing to achieve social economic goals of the province as well as employment and income for many local laborers To deploy the project timely and put it into production, Vinh An Trade-Service Co., Ltd would request following points: Phu Yen Management Board for Industrial Zones in Phu Yen province and authorities should pay attention and verify relevant document relating to project investment; Vietnam Development Bank – Phu Yen branch verifies and accepts or issue guarantee verification for the company as basic to loan the fund for the investment projects Vinh An Trade-Service Co., Ltd commits to implement the project in accordance with planed progress, the contents of the project and state regulations on construction investment, production organization and management – business with high efficiency and full repayment 16 | P a g e REFERENCES Corporate Finance, Dr Nguyen Van Dinh, September, 2013 Corporate Finance Curriculum, Dr Luu Thi Huong, University of National Economics, Banking Science, Education Publishing House, 2012 – 1st Edition Fundamentals of Corporate Finance, Stephen A.Ross, Randolph W Westerfield, Bradford D.Jorrdan, 6th edition, The McGraw-Hill Companies, 2002 17 | P a g e ... investors, increase revenue, bring foreign exchange to the country and increase revenue for Phu Yen province a Type of investment: - Investment mode: direct investment The company provide their own... Page incomes for local people, increase sales and revenue from export activities for the province The factory will create a certain income for investors, increase profitability and earn foreign... formed after the annual investment of the project: + The construction part: 20 year depreciation The average depreciation for 01 years is: 935 million VND | Page + The device: 10-year depreciation